Why America Shouldn’t Underestimate Chinese Power

DAN KURTZ-PHELAN

Kurt and Rush, I’m thrilled to have you on. Thank you for the powerful new essay, it’s called “Underestimating China.” That, of course, builds on a lot of work the two of you have done in Foreign Affairs in past years, really going back before you went into government during the last administration.

RUSH DOSHI

Thanks.

KURT CAMPBELL

Thanks, Dan. Great to be with you today.

DAN KURTZ-PHELAN

We are obviously at a fascinating and high stakes moment for the United States and China. I’m very interested in how the two of you are thinking about the course of events right now, but an occupational hazard of foreign policy and geopolitical analysis in the Trump era is that it’s easy to get so consumed by the day-to-day drama that you lose perspective on the course of events more broadly. So I really want to try to step back a bit to put all of this in broader perspective.

Kurt, I’ll start with you. I want to look back to a piece that you wrote in 2018 with Ely Ratner, it was called “The China Reckoning.” It was a major piece at the time, really helped drive and shape debate about U.S. policy toward China for several years afterward. You argued in that piece that, for several decades, U.S. strategy had been based on flawed assumptions about China, particularly the idea that with diplomatic and commercial engagement, China would economically and politically and even geopolitically begin to look more like the United States in a way that would somewhat mitigate the challenge it presented. And by 2018, as you wrote pretty persuasively in that piece, that assumption looked wrong—it was pretty clearly wrong.

You then went back into government in 2021, first as the top Asia official in the National Security Council and then as deputy secretary of state. How, after those four years back in government—interacting with top Chinese officials, being in the room with Xi Jinping, reading intelligence, grappling with China’s global role—has your view of China changed from where it was in 2018?

KURT CAMPBELL

Well, thanks very much Dan, again, a pleasure to be with you guys. Look, I think if anything, my assessment of the determination on the part of the Chinese elite to challenge the United States across every vector probably has been reinforced. I’ve also been struck at how deep their sense of American decline is. It pervades a lot of their strategic assessment. In fact, I think one of the interesting things about our piece is that a similar process in many respects is underway in China in which they often overestimate their own power in certain circumstances and, frankly, I think over the course of the last several years have underestimated the American ability to maneuver internationally with allies and partners and also to invest substantially in our domestic capacities.

DAN KURTZ-PHELAN

Rush, like Kurt, I’ll go back to something you wrote before you were in government, though this was not for Foreign Affairs, it was a book called The Long Game, which looked at Chinese strategy over the last few decades, really. Is Xi Jinping, as you’ve watched him over the last few years, a continuation of that strategy, or do you see him changing it in essential ways?

RUSH DOSHI

Well, it’s a great question, Dan, and thanks again for the opportunity to join you. There’s two ways you can look at this. One way is to say that Xi Jinping has really changed foreign policy fundamentally; it’s all about him, you can personalize it. And the other way is to say, yes, Xi Jinping has added his own accents to China’s foreign policy, but the underlying approach is really rooted in the party itself.

It’s hard to know exactly how much emphasis to put on Xi versus the party, especially when he’s there, now it’s been since 2012—13 years. But I think that, essentially, much of what Xi Jinping has done, and certainly what he did in his first term, was essentially an outgrowth of what Hu Jintao and others were calling for. Xi Jinping invested heavily in China’s military modernization, globalization, power projection; that all begins under his predecessor. He tries to build new international institutions; that begins under his predecessor. The idea for the Belt and Road [Initiative], for the AIIB [Asian Infrastructure Investment Bank]—that big Chinese bank that came out a decade ago—began under his predecessor.

But to build on what Kurt said, there’s something more fundamentally important. Xi Jinping was not the person to decide or to make the determination that the United States was in decline. That determination began with the global financial crisis and Hu Jintao, when he convened the ambassadorial conference in 2009 and said, essentially, that they needed to shift their strategy from hiding capabilities and biding time to actively accomplishing something.

So that era is the start of what now has continued—what Xi has accelerated—which is this belief that China’s moment has arrived, in fits and starts, admittedly, but has arrived. And as Kurt noted, everything that I’ve sort of seen in the last five years has reinforced my vision that they have a global approach to competing with the United States militarily, economically, technologically, and politically.

KURT CAMPBELL

Can I just say on that, I completely agree with Rush, but one of the challenging things is that for many, they are in some ways comforted or they are convinced that this is really about Xi Jinping. That the Chinese system essentially accepted a kind of coexistence with the United States, but he took China on a different path away from that coexistence. But much of Rush’s early part of the book makes quite clear that yes, this in many respects is structural. It is part and parcel of the Chinese system. I don’t think that is as well received and as bought into even now than one might accept. We find ourselves often in situations where people think, well, if Xi Jinping fails, then you will see China coming back on a different course that again is about more coexistence and engagement with the United States. And I think we probably both would argue that this is probably an inescapable feature of the system.

DAN KURTZ-PHELAN

Let me linger on Xi Jinping for just a moment. Kurt, you had obviously spent a lot of time in the room with him in earlier stints in government as assistant secretary of state for East Asia. Rush, I presume you were in the room with him for long stretches for the first time in the last few years. What did you learn from that? Was there anything that surprised you about what he was like, what the dynamic was like on the Chinese side as you observed it?

KURT CAMPBELL

Look, I was struck that he very much valued high-level engagement, despite the fact that I think he’s a hard man, a man who believes in power. I think has substantial distrust for the United States. That does not mean that he did not value high-level diplomacy. And you could see in certain circumstances, even as fraught as high-level diplomacy is, some of those engagements turned out to be very powerful for the U.S.-China relationship.

I will say, Dan, I think one of the things that both Rush and I learned over this period, and frankly we’re going to see some dimensions of this going forward—for substantial periods before the really strong dialogue emerged between [Chinese Foreign Minister] Wang Yi and [then U.S. National Security Adviser] Jake Sullivan, it was almost as if the relationship was built on occasional calls between the two leaders. And they were extremely important, but it put huge burdens and frankly risks on a relatively fragile set of interactions.

RUSH DOSHI

Yes, and I would just add, in the room, he’s very commanding and very confident, and he doesn’t rely as past Chinese leaders might have on talking points. He has them, he uses them, he departs from them as needed confidently. And I was also fascinated by the way in which he’d occasionally turn to members of his team to chime in, which is again, another sign of confidence.

KURT CAMPBELL

I would also say though, Dan, one of the interesting elements of this period of high-level diplomacy, in which so much was left to leaders engaging directly, it put an absolute premium on preparation. And I think one of the challenges that we’re going to face going forward—basically, the Chinese are signaling quite directly and clearly to the Trump team that they’re not about to have a high-level encounter between President Trump and President Xi without some degree of preparation. I don’t think that’s the way the Trump team necessarily is inclined to proceed, and they’re struggling among themselves to decide who is going to be the lead interlocutor in the way that, frankly, Jake Sullivan and then also Tony Blinken were—it was very clear that the roles that they played in our administration; we understood that, and every other encounter basically flowed from that. I don’t think we’ve arrived at any such understanding among the Trump team.

DAN KURTZ-PHELAN

Kurt, you mentioned this series of quite prolonged and in-depth and substantive, from what I understand, conversations between Jake Sullivan, the U.S. national security adviser, and Wang Yi, the top Chinese foreign policy official. And it makes me think back to another piece you wrote in Foreign Affairs before going back into government and the Biden administration, this one co-authored with Jake Sullivan, called “Competition Without Catastrophe.” And the premise of that piece is that just as we had earlier, as you laid out in “The China Reckoning,” overestimated the ability of the United States to change the way China approached the world, we were similarly, in some of the more hawkish policy positions and hawkish arguments that started to arise in the first Trump term, overestimating our capacity to keep China down and really change the global picture. The argument of the “Competition Without Catastrophe” piece is, we needed to come to a long-term picture of coexistence with China that didn’t give up on core American interests or values, but that accepted that this was going to be a competition that was going to go on for a long time without definitive conclusion.

As you look back at the Biden policy and what you all did over those four years, do you think you achieved a sustainable version of that? Were you happy with where things ended up, and did it really fulfill the objectives that you and Jake had set out of that piece?

KURT CAMPBELL

Dan, the honest truth is that in many ways it did. If you look at the beginning of the Biden administration and then the end, the change in those four years across many vectors is a substantial arc more in our favor. Again, the allied and partner piece—I don’t think anyone would’ve anticipated our ability to link the Indo-Pacific and Europe in more fundamental ways, understanding that both regions have strategic interests in the other. The role of the Quad, AUKUS. I will say, that piece that Jake and I have written has been critiqued from a variety of angles, but the one that I think I hear most often cited is that we don’t offer an endgame. We basically depict a process that we’re in the early stages and that we have to accept and maneuver accordingly.

Critics will often say, look, this is not how we planned the Cold War; we had a very clear outcome in mind. The only thing I would say about that, Dan, is that I think that historical back-looking is wrong. I do not believe that for much of the Cold War we had a particular game plan. Those who would say, “Look, we were always expecting Soviet decline,” are wrong. I mean, the premier strategist of the Cold War, many would argue, would be Dr. [Henry] Kissinger. Dr. Kissinger believed through much of that period that the United States was the one in decline and that it was incumbent on excellent American diplomats to get the best deal in a world in which the Soviets would be searching forward.

RUSH DOSHI

And Dan, I would just add a few quick points. China’s not going anywhere. Ultimately, they’re going to be here for some time to come. And this gets to the endgame debate as well. I mean, what are the endgames that you could imagine? If we just put our imagination caps on, there’s only a handful you could imagine. One is China collapses. The second is China’s system changes. The third is, essentially, there’s conflict that resolves one way or another way. The fourth is maybe you just shake hands and agree to disagree and have a grand bargain. And none of these four endgames is very realistic.

The only realistic situation that we can expect is a kind of managed competition in uneasy equilibrium or a steady state. And I think if you look at the Biden policy, I would divide it into three phases, not always consciously designed, sometimes a product of events. The first phase, I think, is from inauguration—everyone thought we were in hurtling decline, we had to show we weren’t—all the way through the Russian invasion of Ukraine. And that was a tough period. Then the second period was from the Russian invasion of Ukraine through the Pelosi visit to Taiwan all the way to the balloon, which was even worse than the first phase.

But there was a third phase, and I think the logic of the third phase, which lasted two years, is worth taking a second to talk about. Because ultimately what you had in that third phase was more intense competition but also more intense diplomacy. And the goal was to stabilize the relationship at a higher competitive equilibrium. So often the critique is, you’ve got to pick one; you either talk to them or you beat them up. But the truth is, any kind of sophisticated great power diplomacy involves a bit of both. Acknowledgement that both great powers are going to do stuff the other great power won’t like, but also recognizing the necessity of diplomacy. And very quickly to end it, I’ll say, why does that kind of work?

Diplomacy lets you tell them what you’re doing, but just as critically, what you’re not doing. It lets you kind of shape perception. It helps clear up misperception and miscommunication. It helps find off-ramps when there’s a big problem. It allows you to demonstrate face at pretty sensitive and critical moments and junctures. You put all that together and maybe on a good day, 50 percent of the time you’re able to take the temperature down while also taking the steps you have to to advance your interest. It doesn’t work every time. But if you don’t try at all, the result is a darkening view of each other that can result in disaster. And so I think that the third phase of Biden diplomacy essentially revealed that this approach—managing competition—can work.

DAN KURTZ-PHELAN

Let me linger on this end state question because I think it’s a really important one. We ran a piece about a year ago by Matt Pottinger, who had been a senior China official in the first Trump administration, and Mike Gallagher, the chair of the China subcommittee and a member of Congress from Wisconsin, a Republican. They argued that we should, in fact, seek to change the nature of the regime in China. That as long as the CCP, or CCP that looks like the current one, is in power, we will be facing the kind of challenge that I think that the two of you agree with, I think you probably see the challenge from China in a way that is pretty similar to the way that Matt and Mike do.

What do you see as the downsides or the risks of really opting for a somewhat more hard-edged approach, even if you don’t declare it, but that we should be trying to use our influence to change the nature of governance in China?

RUSH DOSHI

Well, Dan, it’s a good question. You can disagree about that big end state question and still think the United States should fix its defense industrial base, find ways to reduce dependence on China’s supply chains, take steps to lead with industrial policy and with allies in technology, and make sure we’re contesting international institutions. The agenda for the United States is actually kind of the same whether you’re Matt or Mike or whether you’re myself or someone else from the Biden administration who has a different view of the end state.

But to take your question on directly. What is the downside of pursuing—and I’m not sure they would say, they probably wouldn’t offer that they’re pursuing kind of regime change in that piece. But let’s just say, what’s the downside of an approach that might hint at that, or flirt with that? I think ultimately, it’s extremely escalatory without necessarily offering strategic benefit. Because the most important thing is to get buy-in at home and with allies, and they probably don’t want to see a kind of gloves off, unmitigated fight between the two superpowers. Or if there is such a fight, they want to believe that China is to blame for escalation, not the United States.

I think fundamentally, also, we have to understand that competition isn’t about changing China’s system of government. It isn’t even about the kind of relationship we have with China. What is it that the United States cares about achieving? And as Kurt and others have written about for decades, one long-standing American interest is ensuring the region does not fall under the hegemony of a foreign great power. Another is we want to make sure the United States remains prosperous, a leading economy; that foreign policy generally benefits the average American. We want to make sure we lead in advanced technology because our power flows in part from our technological prowess. We want to make sure the world is basically safe for the system of government we have and that others have—democracy. These are goals that we have that we should anchor strategy around.

Let me end with this. I don’t have a lot of confidence that we can actually engineer or tinker with China’s system of government, and I’m reminded of a debate that we used to have with people who proposed engagement as the be all, end all. The engager logic was essentially, if we engage, China will change, and things will be good. This more hard-line logic is, if we beat them up, they’ll change, and then things will be good. But both of them have a middle step: that China changes. I think we have to have a lot more modesty and humility about the capability of the United States to change China. And if you begin with that set of assumptions, it takes you to, I think, a slightly different emphasis in your end goal, but not necessarily a very different prescription.

DAN KURTZ-PHELAN

Let’s turn to the new essay—there’s a lot in it on the nature of Chinese power, on the strategic balance between the United States and China, and on what U.S. strategy should do going forward, so people should go read the whole thing. But let’s focus on the first piece of that.

There was this incredible shift in the assessments of Chinese power and Chinese strength over the course of just a couple of years. The two of you wrote a piece early in the COVID-19 pandemic warning of how the differential responses between China and the United States could lead to a major shift in China’s favor in global order. A couple of years later, you were seeing a slew of analyses that argued, in pretty persuasive ways, that China’s rise was really over—that it was plateauing or even going into decline because of its economic situation, its terrible demographics, the ways its foreign policy had alienated allies in large parts of the globe.

Rush, let me get you to kind of distill the case against the decline of this narrative. What does that get wrong? What does that miss about the nature of Chinese power at this moment?

RUSH DOSHI

I think that ultimately, in 2020, everybody thought China was taking over because the United States was dealing with the fallout from January 6, manufacturing was challenged, the COVID response seemed uneven and uneasy, we had alienated some allies. And China was firing on all cylinders. It was manufacturing, it seemed like it had an approach to manage COVID. So that was the Zeitgeist of the moment. Then two years later, I think everything changes. Beginning in 2022, a few things happened. The Russians invaded Ukraine, and at that moment in time there was thought that the Russian military was vastly underperforming, and maybe autocracies can’t do this kind of stuff that well. Then there was a sense that ChatGPT later in the year proved that the United States could still pull rabbits out of its hat, new innovations from the black box of American dynamism.

There was also a sense that China was stalling out. They had gotten rid of their zero COVID policy, but growth hadn’t picked up. There was widespread discontent, and also the demographic problems were becoming more acute. The financial problems were becoming more acute. They were trying to rebalance from the housing sector; it wasn’t happening fast enough. And debt was at record high while unemployment was also at record high among youth. So their picture looked pretty grim. And I think in that moment, a narrative formed that okay, actually America’s fine, we were always going to be fine.

Our view, essentially, was that we risked underestimating some sources of Chinese power. And one factor that is worth always keeping in mind is size and scale. China is big. Scale is the ability to take that size and make it very productive—make it very effective. Lots of big countries don’t become heavyweights, but China did because it ran the play that a lot of other East Asian countries ran on a much larger foundation.

When you look at the raw statistics, Dan—first off, China has two times our manufacturing share, but just 25 years ago it was six percent of global manufacturing, and we were around 30 percent. What a huge shift has occurred in just 20 to 25 years, and we haven’t fully internalized what that means. You look at the industries of the future, China is investing and producing. And I think I’ll put it to you this way, Dan, China has problems. But it is possible for two things to be true. It is possible for China to be slowing economically but also more formidable technologically and strategically. It is possible that those advantages matter more in the time frames most relevant for great power competition, whether in the Taiwan Strait, or in whose industry is going to hold out over the next five years. Chinese excess capacity is deindustrializing countries around the world, especially countries in the West. And so there is a real challenge here, and in some ways their strengths and weaknesses flow from the same wells.

I’ll end with this. We often hear that China’s economy is shrinking relative to ours, and that’s true in nominal dollar terms. But if you stop focusing on the dollar and you look at purchasing power—which isn’t perfect, but for the generation of certain strategic capabilities better captures local prices—well, in that case, their economy passed ours in 2014. If you look at the question of demographics, China has enormous problems; by 2100 their population might be half what it is today. But the reality is that the strategic implications of those demographic problems are probably 20, maybe 25, years away. The population below the age of 14 actually increased because it’s an echo boom of the Mao-era baby boomers—their kids. And so demographics is lumpy. And they’re investing in the kinds of capabilities that will help them weather the demographic challenges. And finally, you look at this big question of American competitiveness. Our companies, it’s true, they dominate profit share, they dominate in market capital. Some of that is a reflection of the dollar, and some of that is a reflection of the fact that our companies focus on profit and their companies focus on market share, winning the long game.

So overall, I think China has real problems, and we shouldn’t discount them. But we should ask ourselves, what is the strategic implication of those problems? And our read, I think, was that we might be overestimating the degree to which that’s going to slow down their strategic ambition in the near to medium term.

DAN KURTZ-PHELAN

So Kurt, let’s turn to the strategy piece of that. So much of this essay when it comes to the recommendations is about American allies and partners and the strength that gives us, but also the need to think of those alliances in Asia, especially, in new ways. So much of the focus of the Biden administration’s foreign policy was on alliances—shoring up alliances, building new kinds of partnerships. You mentioned AUKUS in Asia, upgrading the Quad, the work that you did to improve the relationship between South Korea and Japan, which was strategically important in that context.

But the implication of the piece is that all of that was not enough, that there’s really a kind of step change or qualitative change that we’ll need to see in the way the United States approaches alliances in Asia to really meet this moment. Where does the current structure fall short? Where do you see the need for a real upgrade in that?

KURT CAMPBELL

So Dan, I think what Rush and I are trying to do in this piece is basically challenge conventional wisdom. Both the conventional wisdom that we can go it alone, which I’m afraid is too prevalent in Trump circles, and the idea that a business as usual set of interactions with allies and partners is going to be enough. I think what we try to argue in the piece is that even though Rush and I are proud of the work that we did in strengthening allies and partners, it did not go nearly far enough. And that many of those relationships are based on historical dimensions, paternalistic views, and frankly structural barriers in our bureaucracies that make it challenging to build deeper, more sustaining relationships.

And so I think what we’re arguing for is something that challenges not just the emerging views among some that are basically arguing for America alone or American unilaterally, but also those who said that what we did was enough with allies and partners. No, we need to go much further, much farther. It’s also the case that it’s not too late. For those who say, geez, we’re squandering our advantages. I would simply say, structurally, most of these countries appreciate that their best challenge to secure peace and stability is a stronger partnership with the United States. And under the right circumstances, I think that can be achieved under a Republican, a Democratic, or frankly a new kind of leader in the United States.

DAN KURTZ-PHELAN

Kurt, can you imagine moving towards something like NATO—Asian NATO is an overly provocative term, but something that would be a more formal alliance structure for East Asia to really lock all of this in?

KURT CAMPBELL

The truth is, we’re talking about a perception game as well, Dan. Few things that China has been more successful in is seeding negative views about NATO across, primarily, Southeast Asia. And so oftentimes when this topic comes up, it triggers foreboding even among some of your closest partners and allies. So I would simply say that probably the better part of valor here is to seek to innovate bilateral, minilateral, and multilateral relationships—creating the capacities for certain kinds of changes in the future. It is also the case that, undeniably for many of these countries, they are seeking to walk a fine balance in which they rely on the United States for security and investment and international economic connectivity, but on China more than anything else for their trade, for their infrastructure. And so that balance makes it difficult for them to contemplate entering a framework that is so deliberately anti-China.

RUSH DOSHI

Dan, the piece is written with a sense of historical perspective, which is that in the rise and fall of great powers, one of the variables that matters most really is this size and scale question. You go back and you look at the British Empire, this tiny island right in the northwest corner of Europe that dominated the globe largely because it had a first mover advantage in the industrial revolution. Well, what happened next? That capability diffused to Germany, Russia, the United States. And even in that era, you heard British leaders say, this guy, Lord Seely, who wrote a bestseller in that period, that essentially he was afraid that Great Britain would sort of be outscaled by these larger countries in the same way Florence was outscaled by the sixteenth century great powers. And so this idea that scale matters is an old idea, it’s not a new one. And I think what was missing from some of the strategic discussion on China was the sense that scale matters.

Now, we’ve talked already about why China has scale and where the United States may lack it relative to China, particularly in manufacturing. But that’s why we focus on allies. Because if you accept scale matters, if you accept that China has it, if you accept that we don’t have it on our own, at least not enough, then the only other path to getting it is with allies.

And as Kurt mentioned, the recommendations we have in the piece are radical. These are capacity-centric kinds of statecraft where the goal is to break down barriers between allies to build up capacity very quickly. On the defense side, we want flows in both directions. We want Japan and Korea to help us build ships in the United States because they’re three to five times more productive than we are, and we also need to make sure they have the most advanced weapons capabilities. And we can also essentially get greater capacity. You look at the economic story. What are we talking about? All of us, we’re all talking about Chinese excess capacity, tons of Chinese exports all around the world as they take the credit from the housing sector and pour it into industry. And what’s the result? That companies around the world cannot compete on a marginal cost basis; they’re going out of business. So you need some kind of shared tariff or regulatory wall, yes, but you also need to reduce barriers within that wall so allies can create scale. It’s not enough to protect the U.S. market from Chinese electric vehicles, say. America’s only going to get scale if our companies can sell to other markets.

The basic point is this: if you add up the United States and its allies and partners, we are more than China in terms of GDP—far more, it’s around twice as much. The question for the United States is, can we achieve scale with others? And I’ll end with this. I don’t think it’s a partisan question. I don’t think our piece is particularly partisan. There’s a path to achieving scale more focused on persuasion and consent. There’s another path, maybe with Trumpian characteristics, Dan, that could also end up achieving scale. But the key thing is to keep scale in mind.

KURT CAMPBELL

And it’s to recognize, Dan, that this is the first time that the United States has faced a competitor of this size and scale and that we had those advantages during the Cold War and during World War I and II, there are lots of things that continue to concern. The slowness of our submarine production. The fact that we still lag substantially in terms of the ability to procure critical and needed defense technologies. And the fact that you’d love to see a situation where you had more interoperability between the United States and its key allies in the Indo-Pacific, almost in the way that the French and the Germans created their own brigade during parts of the Cold War against everyone’s expectations and odds. Still, there are areas of resistance in our military organizations, in our bureaucracies, that have resisted the kind of deep engagement that we are recommending in this piece.

DAN KURTZ-PHELAN

Would South Korea and/or Japan developing nuclear weapons of their own be a positive step in this regard?

KURT CAMPBELL

I do not believe it would be, Dan, for the simple reason that it would most likely trigger a kind of nuclear reconsideration throughout Asia that would likely be destabilizing and not in our strategic interests. And I think one of the things that is going to be tested in the next little while is that I think in many respects there are things that sometimes we don’t take fully account of. One of the great successes of American foreign policy is the fact that there are dozens of countries in the Indo-Pacific that could have built nuclear weapons that have chosen not to because of a variety of things, but most importantly, the strength of American extended deterrence—the umbrella over Asia. We have tried to strengthen that with South Korea, but there are other countries that worry about it.

We have to understand, Dan, that the pressures on the nuclear reconsideration are real. The first is the fact that Putin has walked so closely to the edge and has basically entered nuclear use into the potential response scenarios in Ukraine in ways that are deeply worrisome. North Korea has continued to build its nuclear arsenal and to do a number of things in terms of testing its long-range systems and perfecting elements that could lead to an effective delivery system. And perhaps most importantly, China is embarking on one of the largest nuclear builds in modern times, probably up to 1,000 new systems over the course of the next ten years.

What I think that argues for is not only stronger engagement on conventional military and on issues associated with technology and economics. We will probably have to think about certain kinds of nuclear command and control, in which we are signaling that these are in many respects almost joint decisions, like during the height of the Cold War, between the United States and Germany and Great Britain.

DAN KURTZ-PHELAN

Let’s now turn to where things stand in the U.S.-China dynamic at this particular moment. We’re recording this on Monday, April 14. Who knows where things will stand in the trade war and where tariffs will be a few days from now, when most people are listening to this, but we have seen this massive escalation in trade tensions between the United States and China. Bilateral tariffs are at 145 percent or so on most products, though Trump did walk back some of those over the weekend on electronics.

Rush, as you look at where things stand now, what does this mean for the assessment of China that the two of you laid on the piece? And how do you read Xi Jinping’s response over these first days of this trade back and forth?

RUSH DOSHI

It’s an interesting question. I think one factor that was a little unexpected was the sudden carve outs in the U.S. tariff posture. That’s pretty significant. iPhones, for example, will now be exempted from the tariffs along with other goods. It raises a question whether or not, if you’re China, you feel like you still have to negotiate or that the United States will negotiate against itself.

As for the assessment of Chinese power, it’s an important question. How much can China weather this kind of trade war that the Trump administration is waging? On the one hand, it’s disastrous for China and for the United States both if there’s not sufficient reshoring of U.S. industry quick enough, and for China it’s disastrous to lose its export markets, they have to then shift to more consumption.

But again, I get back to poured concrete as an important variable. A lot of China’s advantages are already baked in. They have 65 naval vessels that they’re going to build in the next five years, that takes them to 435 to our 300. They’re already two times the United States in manufacturing; that’s still likely going to be the case. They are three times in car production, two times in energy production, 11 times in steel, and 20 times in concrete. And they dominate chemicals and batteries and EVs and drones—they make more than half of all that for the world. Is that going to just stop overnight? Is that production going to magically reappear in allied countries or in the United States?

I think the Trump administration is right to focus on reducing that reliance on China’s capacity. I don’t think that’s sustainable over the long run. It’s not an American interest either. But you can’t just put up a tariff and expect that suddenly the factories will set up in the United States. And I think one way you could look at this if you wanted to be kind of even-handed is to say, maybe Biden approaches to manufacturing focused on industrial policy in particular, creating subsidies and incentives for manufacturing. And the record reflects that that approach worked, and we had a massive increase in manufacturing investment in this country. Maybe you could argue in response that there wasn’t enough done on permitting reform or on perhaps even tariffs to create more incentive to invest.

The Trump approach is to focus on the tariffs and the deregulation, but not on the industrial policy, which they’re planning to cut. And the reality is, they need both halves of this approach to come together. You have real successful efforts to build back manufacturing in the United States against the most formidable manufacturing power the world has ever seen. That’s going to take conscious planning, industrial policy, careful sequencing of tariffs and other tools. And I understand the need for a blunt approach, which is the approach that the Trump administration has opted for. But the truth is that a more tailored approach is really critical if you want to penetrate these global markets and bring back scale. And again, that’s why we mentioned allies. There is no path to American manufacturing in semiconductors without Taiwan.

So my assessment of China, essentially, is this. If we’re going to negotiate against ourselves, China’s advantages are going to remain pretty formidable. It remains to be seen whether they’ll take more pain or we’ll take more pain. That’s the big question. They’re betting that they can handle it better; they may be wrong about that. And what I’d like to see the Trump administration do is essentially use the leverage it’s gained through the Liberty Day tariffs to negotiate deals with allies and partners consistent with what we’ve offered in the piece, which is a sense of allied scale in the security dimension, economic dimension, and technology dimension. We offered one path to getting there, which is more consensual, more persuasion-oriented. Their path may be more coercive. But the point is to get to the same destination. And if they negotiate in favor of bilateral resolutions and don’t keep the China angle in mind, then they won’t be able to take advantage of the disruption that they’ve engineered, and the United States will end up smaller and more diminished and more alone.

KURT CAMPBELL

Can I also just add to that, Dan, if I can? I mean, there is a lot of use and throwing around of the terminology around decoupling, in some cases aspirational but sometimes describing it as an existing fact. I would simply seek to quarrel with that. I think there are probably no two economies that are more interdependent than the United States and China, even now, and that it is also true that no two countries in the world are more uncomfortable with that interdependence. But it was Richard Nixon that described the incredible impacts on American psychology of inflation and also stag-inflation.

I do worry—one of the debates we often have when visitors or friends come to ask us about the Trump administration is about how well planned is this, is this part of a larger strategy. I think we have to be clear that the rollout of this global tariff was haphazard, poorly planned, very much waiting for the final say of President Trump, and it’s in need of almost constant revision. I think the fact remains that for most of the key industries that we are working with, a degree of predictability is essential, and that is the furthest thing that you get right now.

And so you were right to point out that we could be in a different set of circumstances in the next couple of days. I still think in all likelihood, Dan, the damage has been done. One of the things that you’ll be asking the question about is, is this the economic equivalent of the Gulf War? Does it have far sweeping unforeseen consequences that linger for decades thereafter? And I think that’s a real worry.

DAN KURTZ-PHELAN

You mean 2003, not 1991, in that case, I assume.

KURT CAMPBELL

2003, yeah, the invasion of Iraq. I think there is the real fear that that is the case. And now we’re in a situation in which, yes, we’ve entered into these 90-odd negotiations, but if we look back on some of the most difficult negotiations that the United States has ever entertained with respect to economic and trade relations, we all understand that some of the biggest impediments are structural and systemic, they’re not just tariffs. The idea that we’re going to resolve all of these issues in 90 states through fast-track negotiations in a couple of weeks is pretty much foolhardy. And I think one of the challenges that the Trump team has perhaps inadvertently signaled is the idea that they’re going to be able to accomplish large strategic purposes, either in Ukraine or in trade, in very short periods of time. And we’ve already seen that ship crash on the rocks on Ukraine with the Trump team, I think, reluctantly coming to the conclusion that despite the concessions, that Putin has no intention of basically backing off. And now it’s going to turn out that the economic negotiations are much tougher than can be accomplished in 90 days.

And even beyond that, what is the actual goal? And to have an administration basically say with one side of its mouth that it wants to keep those tariffs high in order to begin this incredibly painful process of reindustrialization that would be abrupt and probably a pretty deep ditch, or that this is simply about making it easier and more level for American exporters. Now, it feels to me that we’re starting to settle on the second conclusion. But everyone understands that to actually address these kinds of issues—it cannot be done in a bilateral context. Everyone except for the people that are doing the negotiations. And so I think they have found themselves into a very difficult cul-de-sac.

I do not believe that China’s prepared to give in right now, and they are betting that the pain will hit the United States first. Recognize how much damage politically was done by just a carton of eggs going up a little bit in costs. Now we’re going to find ourselves in a set of circumstances where you can no longer get bike parts, you cannot get some of the medicines that older people rely upon. You’re going to struggle in a number of areas that are almost impossible to predict in advance—immediate shortfalls because of either restrictions or dramatic increases in cost. And so this could be a very difficult period ahead, and I think it’s going to be challenging for the administration to find smoother water ahead. I think they are going to be facing dramatically challenging headwinds here.

DAN KURTZ-PHELAN

And do you imagine Xi Jinping sees the scenario in the same way and thinks he can either ride out the pain, or that he has a kind of Maoist view of struggle and what that means for the Chinese people and their ability to withstand all that suffering for the sake of standing up to the United States? How do you think he’s playing this?

KURT CAMPBELL

I think those are two factors, but I would just add a third. I think the way that President Trump has posited this as such a direct challenge to China, just an absolutely obvious power play, for a country that has invested so much in national power—it is the watchword and the namesake of President Xi—I do not think politically that he can back down. I think it would do him damage politically in China, and frankly in other parts of Asia. And so I think he understands that for right now he’s playing, probably, a stronger hand, and he’s not prepared to back down. And frankly, I think many countries quietly are probably inspired by someone who will stand up to what they perceive to be the bully.

RUSH DOSHI

I’ll just say I think it’s notable that China, this is of course April 14, so the situation will almost certainly change, but has been essentially signaling it doesn’t intend to escalate further. So my guess is that that’s a sign that they would hope that the Trump administration would return that gesture with the commitment also perhaps not to escalate further. And indeed the Trump administration then created some carve outs for electronics. Maybe these moves create the potential for some discussion at lower levels. I’m not saying at the level of President Trump and President Xi, that’s too high stakes for President Xi. But it could happen at lower levels on this foundation.

Now I have skepticism that right now there’s a lot of deal space that they can find together, but if there’s one thing we know about President Trump, it’s that he’s not bound by any sense of precedent or past position. He’s willing to kind of maneuver to find that space if it’s there. So there’s a path.

But the other thing I would just add for you, Dan, is just building on Kurt’s point about what is the end game here. What are we trying to achieve? Imagine a world where instead of on Liberty Day, that chart was unveiled, and all those countries and that island of penguins, instead of that, imagine if that day the announcement had been, “We want to reorient global trade and manufacturing to the United States and to our allies and partners because it’s too concentrated in one country, and that’s bad for the world, and here’s our plan to get there. We might raise tariffs on our allies if they don’t come in with us on this plan, but we’re not immediately going to do it out of the gate.” There could have been a different approach.

Now, we saw a few days after the Liberty Day tariffs a kind of ex-post justification: this was always about China, and that’s why they dropped the tariffs on everybody but China. But if that were really the case, why not start there? And if that were really the case, why is it that top officials keep complaining about allies and partners? This is extraordinarily high stakes. It calls into question the entire global trading system, all American alliances and partnerships, the credibility even of the dollar as we’re seeing in the bond markets, and fundamentally our ability to finance ourselves. If we’re going to take all that and call it into question, we have to have a clear plan to get from here to there. We have to know where “there” is. And I worry that there are many different theories of the case in the administration all competing with each other.

KURT CAMPBELL

And I would also say, Dan, government is challenging in the best of circumstances. But I watched powerful voices frankly challenge conventional wisdom and directly challenge some of the views of the president. I saw that on many occasions. I worry that the incentive structure and that the way that the Trump administration is organized is that it favors over anything else the absolute loyalty and reinforcement of his views and his biases. And it’s harder to speak truth to power. Some outsiders do it, but even then it’s often shrouded in just the most unusual praise of the kind that is more common in authoritarian circumstances than what we’ve seen in democracies.

RUSH DOSHI

Let me just offer one last thing, Dan. I think there’s a way to land some of this that could be still useful. Right now what I think we need to see essentially is the quick resolution of deals with a number of allied countries. If the Trump administration is able to work out deals with these folks, build some kind of shared tariff wall or regulatory wall on Chinese capacity as part of that deal, and maybe have a security component too that enters in as well, that could be useful. There is a way forward here.

I think one critique of the piece that a lot of folks have made in the last few days is, “Well, it’s a great beautiful vision of allied scale you’ve laid out, but it’s too late, that ship has sailed.” I think it’s true that this approach is imperiled, but I also think it’s true that this approach could succeed in the near future if the Trump administration had the discipline and vision to kind of implement that set of deals with allies. But it’s not easy. And I know right now there are deals being negotiated with our key allies, and my hope is they get resolved successfully in this way.

DAN KURTZ-PHELAN

The one thing we have not spent time on that is one of the most challenging parts of both U.S. policy toward Asia and toward China and also of the U.S.-China relationship is Taiwan. How do you understand the Trump approach to Taiwan or what the Trump approach to China might mean for Taiwan, because it’s hard to pick apart. And how do you assess Chinese intentions when it comes to Taiwan? What’s the risk of a near term crisis in the Taiwan Strait?

KURT CAMPBELL

Dan, look, it’s one of the hardest questions and one of the things they teach you in diplomacy when you’re in government is that you don’t speculate idly about these issues that have such magnitude in the strategic struggle in the Indo-Pacific. Nevertheless, we’ll try to sort of brave forward.

DAN KURTZ-PHELAN

You’re out of government and out of government all we do is speculate.

KURT CAMPBELL

I know. But I guess the reason I mentioned it is I find myself even now after decades of this, I find I sort of tread carefully around these questions. My own sense is that just as we described a very wide set of views on China, I think you see those also with respect to the U.S. commitment to Taiwan. There are people in the administration that openly ask the question: “Why are we doing this? It’s so close to China. Why are we standing in the way?”. And there is an undeniable sort of fourth communique element to try to figure out a way to potentially have a more comprehensive engagement with China that would include dealing with the status of Taiwan. I think that would be dangerous and counter to American strategic interests. But there are undeniably some who view this as within the realm of the Trump remit. Others believe that this is the most likely flashpoint; they’re prepared to take risk elsewhere to double down and create more capacity to deal with a potential challenge here.

My own sense is that I think the Chinese are not interested right now in a bolt from the blue invasion of Taiwan, but I believe that they are going to gradually and, in some cases, dramatically ramp up certain kinds of tensions on Taiwan. And they’re hoping that the combination of those tensions—the deep pervasive Chinese engagement in every element of Taiwanese life, plus some unpredictability with the United States and perhaps a few statements from President Trump that cause anxiety among leaders in Taiwan—would cause them to think differently about the future.

I will say the Trump team has really not in a fundamental way turned its strategic attention to the Indo-Pacific. Most of that still is on Europe and on Iran. And to the extent that people are focused on the Indo-Pacific, it is almost exclusively through the commercial lens. There have been a little bit of engagements on the part of Secretary [of Defense Pete] Hegseth. But what is fascinating is actually how little diplomacy there’s been, for all the talk of the importance strategically of getting ready, there’s very little actual diplomacy in the Indo-Pacific. And there are perhaps a lot of reasons for that. But at the same time, some of these big strategic questions, including Taiwan, have not really been joined yet in the administration.

RUSH DOSHI

Well, Dan, one of the most interesting things that’s happened in the last week is the rumors that we’d heard about the purge of the vice chair of the Central Military Commission, or one of the two vice chairs, He Weidong, came true. It seems like he really might be out. And if that’s the case, if He Weidong is gone, I think it’s interesting. You could argue that President Xi’s purges within the military might have been oriented towards warfighting. So you could call it the FDR model, that he was seeing a conflict over the horizon and wanted to get folks out and get folks in who were better capable for implementing his vision in a condition of conflict. Then there’s the Stalin model, that he’s purging for loyalty and he’s going to end up degrading the quality of his military.

I think most people were betting on the Stalin model. It looked like that. But it also looked at times like the FDR model. Some of those folks really were corrupt, and he was putting good people in. One of those so-called good people was He Weidong, who was considered very capable, I don’t think particularly corrupt. He was the head of the Eastern Theater Command, a dark horse candidate to become a CMC vice chair, but somebody with significant experience because he was head of the Eastern Theater Command in Taiwan. And his purge to me is one of the most interesting facts of Chinese politics today, and it matters to your question on Taiwan because it suggests that maybe after all this is the Stalin model, maybe we are going to see a degradation in operational capability for the sake of political loyalty. And that was not a foregone conclusion.

All that being said, we also saw, just as all this was happening, significant military exercises, again, around Taiwan by China just in the last week. And I think that we’re going to see more of that in the period ahead. There was a brief period of stability in part of the Biden administration where I think you saw China essentially stay within certain military lines in exchange for Taiwan and the United States staying within certain political lines. But ultimately that didn’t hold up for too long. It was very hard to sustain.

And now we’re sort of in a cycle of vicious escalation. I think China does not trust the political leadership in Taiwan. They don’t believe that if they are restrained, or that they make certain kinds of symbolic efforts to stay within certain lines, that China will reciprocate with military restraint. And if neither side believes their action, or their restraint, will elicit restraint from the other side, then you have no condition for stability. You have instead a condition for escalation, and that is what we’ve seen over the last year.

So I’ll end with this. I think the Trump administration will have probably some kind of Taiwan-like crisis in the period ahead, and I think that they will have to find a way to manage it and address it. And that will be very hard to do right now because the channels of communication that we talked about in the first half of this conversation to manage competition, well, that’s when they showed their value, and right now they don’t exist. And so I worry that we’re entering a place where the economic and tech competition, which in some ways is necessary, ends up foreclosing our ability to manage the security competition, and that itself is quite dangerous.

DAN KURTZ-PHELAN

Just to close, is there any other area in which you imagine that Beijing might turn the screws on the United States, whether it’s fentanyl precursors or the South China Sea, just other areas, quickly, where we might be looking to see tension or risk in the weeks ahead?

KURT CAMPBELL

It’s a great question, Dan. I think one of the things that we have seen is that President Xi has constituted a leading group, a small cohort, who is actively seeking to design a playbook that signals clearly areas where the United States is vulnerable and is at risk without completely either hurting China or tearing down the U.S.-China relations.

So my guess is over the course of the next couple of weeks, we might see specific steps that really cause pain to one company or one or two areas as a reminder of the latent power that China still has in terms of withholding certain things, exports in critical areas to U.S. markets. I mean, I can’t tell you—if you go and look carefully at the things that are coming in from China, that matter to our daily lives, it’s going to be a bit of a shock in the next couple of weeks.

RUSH DOSHI

Yes, and I would just say that I think China’s already pulled some fentanyl cooperation. I’m not sure how they’ll link or whether they’ll link activity in the Indo-Pacific, military activity in the Strait or in the South China Sea, to these tensions. They may or they may not. Same with cyber activity. I think if they want to get our attention, they’ll do it in the bond markets. As we saw recently when the yield went up, President Trump may have been incentivized to pursue a truce with most allies and partners. And I think that’ll be one place they might look. They’ll also look, of course, at rare earths and critical inputs—we rely on certain electronics. And export control supply chain warfare will be a big part of the toolkit. It’s possible, Dan, will see more regulatory action against U.S. companies operating in China.

But by and large, I would say that right now it seems the response is largely in two areas, econ technology or in the bilateral space, including on fentanyl. And my guess is that if China looks for a deal, they’ll want to go bigger. They won’t just want an economic and tech deal. They’ll want to throw a few other things in there such as fentanyl to get more leverage. And so that’s the challenge that we face, that they’ll have incentives to take away some of that stuff in the near term so they can turn it back on a little bit later.

KURT CAMPBELL

The other thing that we should probably expect is more sophisticated efforts on the part of China to, frankly, go at our alliance structures. Already, you’re seeing some signs of Chinese engagement in Europe that has some traction associated with it, and the trilateral engagement between China, Japan, and South Korea, despite reassurances from both South Korea and Japan, has some strategic elements to it that should worry us. And so we have to realize that despite the fact that we’ve made these incredible inroads, China is going quietly to many countries and saying, “We are more predictable. You are better off making a long-term decision to orient more strategically toward China, or at least not taking steps that we would view as antithetical in Beijing to our strategic interests.” That’s real and that’s happening and that it’s likely to accelerate.

With every day it looks like we don’t have a plan or that we are risking inflation, bond collapse in the markets, questions about every element of our economic and strategic approach. It causes countries to reevaluate their long-term interests.

RUSH DOSHI

Yeah, I’ll just end with this, Dan. I mean, we know that China believes that America’s greatest asymmetric advantage is its alliance system. In the first term, they thought we were squandering that. They tried to wedge it where they could. Now they have even more ways in which they can play that game. If China thinks it’s our biggest advantage, it stands to reason that maybe we should consider whether it is in fact our biggest advantage, and what we can do to steward it.

DAN KURTZ-PHELAN

We will pick up this conversation, I hope, as we’re further along and seeing how this unfolds. But thank you guys for now for this conversation and also for the fantastic piece, which will be in our forthcoming issue, it’s called “Underestimating China.”

KURT CAMPBELL

Thank you, Dan.

RUSH DOSHI

Thanks, Dan.