In the U.S.–China trade war, what’s behind the Chinese Communist Party’s (CCP) strategy, with Vice Premier Liu He walking away from the trade talks at the last minute? What’s the real relationship between Chinese telecom giant Huawei and the CCP’s quest for global 5G dominance? And how does this all point to a much, much bigger issue beyond trade?
Epoch Times senior editor Jan Jekielek recently spoke with retired Gen. Robert Spalding, who was a brigadier general in the U.S. Air Force, the chief China strategist for the chairman of the Joint Chiefs of Staff at the Pentagon, and a senior strategic planner for the White House on the National Security Council. Now, he’s a senior fellow at the Hudson Institute.
Jan Jekielek: So let’s talk about the topic that’s on everyone’s mind right now: the U.S.–China trade war. I think you can bring a very interesting perspective on this, as you were, at one point, essentially the China guy for the entire U.S. military, as I understand it. So why are we in this trade war? What’s going on?
Robert Spalding: Well, I think [with a] trade war, people tend to focus on the first word of that, which is trade. It’s really not about trade; it’s really about what kind of world we want to live in. When you look at everything, the full scope of everything that China does, it mixes in its own brand of expansive influence into its economics. And so, it’s not only the goods that we receive here, it’s the principles, too.
Mr. Jekielek: So, tell me a little bit more about that. What’s at stake?
Mr. Spalding: What’s at stake is our freedoms, the principles that our country was founded upon. The principles that our international order was founded upon are slowly being eroded by this hyperconnectedness of globalization and the internet. China really understood how powerful openness is in terms of both economic development and growth, but also spreading its illiberal norms outward.
We were so hubristic as Americans to believe, and we failed to recognize that … over the years, over the long history of China, they’ve been invaded and conquered many times, and they have a unique ability to absorb those invaders and then slowly change them into Chinese. In a sense, we thought we’d turn them into Americans. And really, in reality, what’s happening is we’re becoming more and more, not Chinese, but, certainly, with the Chinese Communist Party, which is a Marxist-Leninist organization that’s really a hybrid from what the Soviet Union was and actually what Nazi Germany was, in terms of ideology and economics mixed in a way that is almost imperceptible with the way they distribute that.
When you think of that in a global-eyes, internet-powered world, which if you think of our founding fathers … we didn’t have globalization [then], [that wasn’t something] that they actually concerned themselves with, although they were worried about foreign influence. China has essentially operationalized those concepts for spreading or really suppressing any challenges to its rule in China. And the way it does that is by spreading oppression and suppression of freedoms, religion, speech, and those things.
Mr. Jekielek: So this is absolutely fascinating. What do you make of the Chinese negotiators stepping away at the last moment at, presumably, Xi Jinping’s behest recently?
Mr. Spalding: So Liu He [vice premier and the Chinese regime’s chief negotiator]—educated in the West—understands global economics. To some extent, they’ve been able to hijack openness for their own means and, essentially, the Trump administration said—and with Lighthizer negotiating—”No more. That has to stop.”
If you think about this strategically from the Chinese perspective, they really only have one option here and that is to further reform and open up. And so, Liu He, I believe, recognized that China needs access to capital, needs access to technology, needs access to innovation. The only place they can get that is in the West, and, therefore, he had negotiated essentially an agreement that would allow for some opening and reforms. Well, that got back to the leadership, and they most likely met about whether or not they wanted to go along that path. And much like June 4, 1989, they decided that they were going to go another way.
The challenge now is how do you play that with an administration that is absolutely determined to get an agreement that actually can be enforced. In my opinion, the way you play that is to push the regime out … that’s your foe. I believe they’re betting on they can put enough harm into the U.S. economy that the 2020 elections go to somebody else.
Mr. Jekielek: Fascinating. We’ve been talking with some other folks that have been on the show actually. How, on one hand, there’s all this talk about Russia influencing the election in 2016, which it certainly did to some extent, but now, we see China, kind of in plain sight, trying to influence the election by targeting specific regions where President Trump is vulnerable.
Mr. Spalding: Regions, industries; look at the Foxconn factory in Wisconsin, look at the national gas agreement in West Virginia. Each one of these [is a means of] putting hooks into local politics in those regions or states. And then, by then turning and saying, “Well, the president is making it very hard for us to continue these investments”—many of which they never actually had any intention of ever following through with. They can say, “It’s the president’s fault that your economy is turning south—it’s the president’s fault that all these billions of dollars of promised investment aren’t materializing.” Nevermind the fact that they usually never materialize. And you can go look at many examples where China has agreed to have investments of billions of dollars that actually never happened.
Mr. Jekielek: I’ve been reading about the newest threat, which is halting rare earth exports. Rare earths are necessary for all sorts of key technologies we have. What do you make of this?
Mr. Spalding: I think it would be a terrible mistake on the part of the Chinese. And this is the problem. The Communist Party can’t help itself; it believes itself to be under attack. In reality, what’s happening is for the first time, the American government is defending the American people and defending American companies in the international space. The Chinese can’t have that. They feel that it, it’s their right that they should have access to America’s economy, to America’s innovation, and how dare we defend that. How dare the American government defend that. And so instead of seeing it like it is, which is our … willingness or want to protect our own sovereignty, they see it as we’re trying to essentially control the Chinese Communist Party or prevent China from growing any more, which is absolutely incorrect.
Nevertheless, their narrative to themselves is the United States is attacking us, and therefore, we must defend. Now, the way that I would defend if I were them is by opening up and reforming, but they can’t do that because that means they lose some control. Therefore, they’re going to squeeze harder.
If you think about, it’s almost like when you put Jell-O in your hand and you slowly start to squeeze. What happens to the Jell-O? It comes out from between your fingers. What’s happening is their tendency … is to squeeze more and more, and as they squeeze more and more, they actually lose control. And so I think their natural tendency is going to want to be to squeeze, and that looks like, “Let’s prevent rare earths from going to the United States.”
All that’s going to do is force the United States to look at alternative means to rare earths. It’s not going to help China’s economy in any way. It’s going to actually destroy the market for rare earths in China.
Mr. Jekielek: Speaking of these economic connections that have been forged over the last several decades with China into the global system, as you’re saying very deliberately, how does that play out vis-a-vis Wall Street? We’re hearing talk of the trade war moving to Wall Street. My perspective is it’s been on Wall Street a while, and maybe we just didn’t know it, but what do you think about this?
Mr. Spalding: There’s billions of U.S. dollars in real estate in China. There is a flow of billions of dollars now into China A-shares. So they’re into their stock market, the Shenzhen and Shanghai stock markets. Those are through American depositary receipts in Hong Kong. And so you have billions of U.S. dollars flowing into China at the same time that we’re getting into this economic decoupling. From a macro perspective, you’d say, “Well, that doesn’t make a lot of sense. Why would those billions of dollars be flowing in there?” Well, because Wall Street is essentially selling the stocks and bonds for China into Western capital markets. Why? Because they make a fee on that.
Mr. Jekielek: So that sounds like it makes it a lot more difficult for the administration to achieve its goal of getting a fair deal.
Mr. Spalding: Of course. If you think about it, if American retirement funds—if your retirement, my retirement—are invested in China, then there’s going to be a repercussion to your pension fund. And so, I think in some respects, the Chinese Communist Party and Wall Street like this because it ties us closer together. It makes it more difficult for us to enforce the rules of the road.
Mr. Jekielek: So what’s the play here for the administration then? I am not clear how big this is, it sounds like it—
Mr. Spalding: It’s billions of dollars, hundreds of billions of dollars. The play is: enforce the rules. The rules say transparency is required for fiduciary responsibility for shareholders, that the SEC, FASB—the Financial Accounting Standards Boards—PCAOB, the auditing board … are required to actually look at the system and the companies that are in the system to make sure that they’re actually portraying to the markets factual information.
Of course, now you have China’s law, which says, “We can’t actually share that information with you.” So think about it. If you couldn’t actually audit intel, if you couldn’t actually verify that their financial statements, their 10-Ks and their 10-Qs, were accurate, how do you know what you’re investing in? Essentially, that’s what you have for the entire Chinese stock market and bond sales.
Yet we are selling those into the capital markets. And that’s one of the ways that essentially China harnesses globalization. They actually need U.S. dollars to grow their economy. They can’t just grow it organically. Why? Because they need food. They need energy. They need resources to actually manufacture, to build infrastructure. They have to buy those in the international market using U.S. dollars because that’s the settlement currency that those goods require. How do they get dollars? They had been getting dollars by exporting their goods to the U.S. and other countries.
Well, that’s slowly coming to a halt as most of these corporations move their manufacturing outside of China because of the tariffs. What’s the other way you can get dollars? You can get dollars by selling financial instruments on capital markets—financial instruments that have no inherent value. It used to be that if you were an investor you could go and look at 10-Ks and 10-Qs, and say, “OK, if you look at all the cash on hand, if you look at all the assets of this company, my worst case on this valuation is X. And so I’m willing to invest knowing I have some kind of downside protection.”
Recently, we had two companies in China that all of a sudden lost $6 billion. In other words, they were reporting to the market that they had $6 billion of cash on hand, and then all of a sudden, a restatement said, “We don’t know where that cash went.”
Imagine if an American company just said, “We just went and checked our bank account, and that $6 billion we were reporting to the market, it’s not there.”
And then you say, “OK, what happened to the money?”
“Well, can we get to the bottom of it?”
“No, that’s China’s national security data. You can’t have it.”
Mr. Jekielek: You’re saying that basically Wall Street just takes on faith the value of these companies?
Mr. Spalding: Of course.
Mr. Jekielek: That just sounds utterly insane.
Mr. Spalding: For an American depositary receipt, there’s a 30-page glossy that goes out to buyers, right? That’s what Wall Street is sending to the buyers is a 30-page glossy. Guess who it’s produced by? It’s produced by Communist Party members in Hong Kong and in China.
Mr. Jekielek: It just sounds unreal, doesn’t it?
Mr. Spalding: Of course. Have you seen “The China Hustle,” where they were doing the reverse mergers into basically companies that had no assets, then walking away with the money and leaving the investors, with nothing? That happened. In the West, there’s a sucker born every day, and we’re suckers for what Wall Street tells us is a great deal.
Mr. Jekielek: So let’s say that this … transparency is actually being demanded or at least more transparency in this deal that’s being worked out. So suddenly all these companies that we thought were valuable or Americans thought were valuable are actually not nearly as valuable, in some cases not valuable at all. How does that play out economically for us?
Mr. Spalding: Well, remember how Al Capone was eventually brought to heel? It was because somebody found his books. And not only found his books but found the accountant that actually ran the books, so he could translate the code of the books. The problem with Chinese companies is you don’t know what the books are. Even if you have the books, you can’t trust that they’re actually real. It’s the entire nature of the way business is done in China currently. What China does is essentially ensure that, within its own borders, you can do pretty much anything you want as long as you don’t challenge the Chinese Communist Party.
So that really results in a very laissez-faire capitalist economy. Inside of China, the competition is cutthroat, but it also means you can get away with just about anything, as long as you’re not creating a problem for the Communist Party. That means that any rule of law or any fiduciary responsibility or any semblance of what we would consider to be an ability to do a fact-based assessment on an investment is completely not available in China and under the current regime will never be available.
That is what’s sold into the U.S., on the pretense that it’s just their economy has been growing at double-digit rates for many years, and now, it’s at 6.5 percent that your money is going to be safe over there. And by the way, because it’s a totalitarian regime, there’s an implicit guarantee by the Chinese government that will protect your investment. Except banks are failing. Companies are failing … they’re failing to pay on their bonds. What was Venezuela before it was what it currently is today? It had assets that were owned by foreign companies doing well. Then what did they do? They seized all the assets. Right? So remember I said the fist is tightening. As that fist gets tighter and tighter, I think one of the things that you can expect is that assets of Western companies are going to be the next to go.
Mr. Jekielek: So if you’re right and the CCP is going after, basically, making sure that President Trump doesn’t get elected, getting a more friendly administration, something like that, what can the administration do now to basically fend off Chinese interference?
Mr. Spalding: I think what they could do is something that they haven’t done yet—explain the tie between China’s economic behavior and its need to shape the world in its own image. The State Department is doing a good job talking for once in a long time about human rights, about freedoms—about universal freedoms—and particularly calling China to account for the Uyghurs in Xinjiang, for example, and other religious atrocities that they’re committing. But they haven’t tied that yet to the global system that China is creating on the economic side.
So, finance, trade, investment, immigration, the internet, media, and politics are all interwoven into the kind of world that China wants to see. Now, China deeply fears the principles that we live under in this country. It deeply fears the U.S. Constitution, because that document was created to prevent any one organ within our country from gaining absolute power. That idea is a knife in the heart of the Chinese Communist Party, if it was ever established within the minds and hearts of the Chinese people. In order to protect itself, it must suppress those freedoms, not just in its own country but abroad. The Constitution is much more powerful than a person or a military. It’s an idea—an idea that has shown time and time again that people generally want to be free.
Mr. Jekielek: Let’s shift gears a little bit now. You are certainly one of the experts in this country on 5G. That’s another buzzword that you hear a lot, something very important to the future of the world. China and notably Huawei—the large Chinese company—has been building into this dramatically, essentially ahead of the U.S. Some time ago, you wrote this controversial memo on this issue, which raised a lot of eyebrows, caused a lot of problems. Tell me about the importance of 5G and what it is, how it works, and its significance in … the trade war.
Mr. Spalding: First of all, I never recommended nationalizing a network; the study I did was a technical study. It was about physics. It was about science, it was about engineering. It was about how do we leapfrog China—which actually is taking quite a lead because we’ve been asleep at the wheel in 5G—and create the kind of technological revolution in the United States that will drive the next evolution of technological growth. That’s what the study was about. And there were some key outcomes in that—one of which you have to recognize that the network itself is made for machines, it’s not made for people. You won’t see much difference in terms of how you interact with the internet, but you will see a difference in terms of machines interacting with machines, and machines interacting with people.
You know, the 4G network allows for 10,000 connections per square mile. The 5G network allows for 3 million. We’re not going to all of a sudden grow three million people above the 10,000 in a square mile in the United States. We have plenty of connectivity for us to talk to each other. All those connections are for the machines. Some of those machines are big enough to run you over, like a self-driving car. They actually bring danger. So if you look at the cameras today that are connected to 4G, we know that there are easily hackable and used in botnets for DDoS attacks. Now, imagine that on a scale of three million devices within one square mile of us right now, that many of which could do harm to us. That is a big problem.
But that’s not the only problem. Europe led in 2G, led in 3G, United States led in 4G. That meant the technology, the applications, the services, the business models that were built on top of 4G came from the United States. If you think about the mobile market, it was a combination of 4G networks and the smartphone that allowed for things like Uber and Airbnb, and all these different exponential companies that are changing the way the world works in ways that add value to things. But more importantly, if you look at the technology underlying that system, it was built for the most part with Western values. Now, what does that mean? The iPhone is encrypted. It’s meant to be a privacy-protecting device. Now, of course, when they added iCloud you created a lot of problems, because as soon as you move your data to the cloud … somebody has the opportunity to get after it.
But at least on the iPhone itself, it’s built to be hardware, software, integrated, encrypted, so that your data was secure, right? That’s because it was built by Apple, an American company that values privacy. So China figured that if the U.S. could lead in 4G, it should lead in 5G, and I actually started to think about this in 2008, 2009—before 5G even was a thing. And the reason was, they saw that the West had put their values into the technology foundation of mobile computing. And they said, “Well, we want to control the standards and the technology foundation that drives the 5G world.” Why? Well, our companies come from a nation that values privacy. Their companies come from a nation that absolutely does not value privacy. And so if you think about the alternative to the iPhone, [it’s] the Huawei Mate 10, right?
Chinese law says, “We need to have access to that. We need backdoors. We need backdoors in hardware. We need backdoors in software.” That’s by Chinese law. And so if you look at the systems that are essentially in conflict today, there are two systems that really fundamentally bring this to mind. And one is the general data protection regulation in Europe and the Chinese cybersecurity law. And what is similar about those two laws? Europe is actually proud that they have an extraterritorial imprint on GDPR (General Data Protection Regulation).
In other words, it doesn’t just apply to European companies, it applies to American companies, it applies to any company anywhere. If you’re operating in Europe, then you have to abide by GDPR, right? Well, China also has its cybersecurity law. It also has extraterritoriality. In other words, anywhere that China’s interests are, and especially if you have an economic or financial relationship with China—which its global champions do—then it has to have its ability to get into the back door.
Mr. Jekielek: Essentially, it’s full access for the CCP.
Mr. Spalding: It’s full access. So the problem with the world, it’s advancing so much in our connectivity through our digital lives is advancing so much, that our ability to create laws in the West has gone past our ability to actually enforce them in a digital space. In other words, GDPR is a law that is unenforceable in a digital sense, because if you look at it, the behavior that they were trying to stop is still going on. Google is still doing what it’s doing, Facebook is still doing what it’s doing; it’s because it can’t be enforced.
China is building their enforcement mechanism in the technology, and so that means that they can enforce it. They can enforce it on the network, they can enforce it at the device level. They can enforce it through their undersea cable system. They essentially are taking control of the underlying technological structure, because they recognize that just writing a law isn’t sufficient in a digital world. You actually need the ability to divert data, to decrypt data, to monitor what’s going on, and then if you need to, to be able to suppress speech. You need to be able to influence populations, you need to be able to influence individuals. What more powerful way to do that than with a hyperconnected 5G system that allows you to have access to devices, that allows your companies to be dominant in e-commerce. It allows your companies to be dominant in surveillance and reconnaissance like DJI and [Hikvision] the video company … that has artificial intelligence, facial recognition that basically was sold [to] many of our military bases and others.
It is really looking at where the world is going and saying we need to build it at the technology layer, not at the paper layer that we’re used to in a physical world, because just doing it with paper layers isn’t sufficient to actually control to the fidelity you want to.
Mr. Jekielek: I’ve often said to people that some of the biggest successes the Chinese Communist Party had is in its propaganda efforts—on the United Front work, and so forth. You know, convincing people that it’s big and important and powerful and economically bigger. And this, what you’re describing, I find very chilling because in this sort of system could the CCP just basically cut off certain data flows at the drop of a hat, whether it’s information, whether it’s the control over a driverless car? Is it that simple in a world where China controls 5G?
Mr. Spalding: If you look at what happened in Germany, for example, the far-right party in Germany was able to harness Facebook to do advertising to essentially get far more votes than they’d ever gotten in history since the fall of the Nazi regime. And so, the way that you harness big data, social media, artificial intelligence—and you can do this all through a 5G network, and especially if you own the infrastructure and the devices—now you have enormous opportunity to have a fine level of detail. Your digital persona gives incredible insight to who you are as a person, what your interests are, what your motivations are. And using that information with a purpose in mind, Amazon sales are going up, Facebook connections are going up, but in China, they’re able to influence you in ways that actually lead to an outcome that’s good for the state.
Mr. Jekielek: So it’s basically this insanely in-depth research that Facebook would have or Google has on any one of us as for using the internet, but basically weaponized by a totalitarian regime for its use?
Mr. Spalding: Right. If you think about it, GDPR is almost a swan song of liberal democracies, because it was going after the FANGs: Facebook, Amazon, Netflix, Google. The ability to actually prevent them from taking your data. What’s coming up behind the FANGs? The BATs: Baidu, Alibaba, Tencent. Now, you can actually find Google and get a payment. That’s possible because they are in a country that abides by the rule of law.
You can’t find the BATs and get a payment because they live in a country, they exist in a country that doesn’t follow rule of law. They follow rule by law. If you’ve seen any of the lawsuits that have gone against Chinese companies in the United States, they never collect. They’re either settled out of court or the plaintiff actually runs out of money trying to sue them, because they actually have access to state coffers. So good luck for Europe ever getting any of the BATs to abide by GDPR. And more worrisome is, if China has their 5G network, then it doesn’t matter what GDPR says because they’re going to have the backdoors to do whatever they want with that data.
Mr. Jekielek: Fascinating. The Trump administration recently banned Huawei, the biggest telecom company in the world. What’s the relationship between Huawei and the Communist Party of China?
Mr. Spalding: Well, it’s the same relationship than any other company has that’s from China. And that is, the Chinese Communist Party has total control over the country, which means they have total control of the company.
Mr. Jekielek: So you don’t believe the leaders are saying, “Hey, they can’t tell me what to do”?
Mr. Spalding: I mean, I actually find it laughable when the head of Interpol can basically be sequestered without anybody knowing. Interpol has no idea. The entire international community is completely oblivious to what happened to the head of Interpol. Guess what? He got anti-corrupted. Do you think Ren Zhengfei can’t be anti-corrupted, or anybody in China can’t be essentially sequestered in a non-judicial way? Of course, that’s their system. The sovereign in China is not the Chinese government. The People’s Republic of China government is not the sovereign, the sovereign is the Chinese Communist Party.
It’s a challenge for countries to actually do business—diplomatic business—with China because the decisions are actually made by the Communist Party. They are not made by the government. The government executes the decisions of the Chinese Communist Party. So when the State Department goes to meet with their counterparts in China, they’re not actually meeting with the sovereign. Think about that. The sovereign here in the United States would be represented by the State Department.
Mr. Jekielek: Right.
Mr. Spalding: But in China, that’s not the case. It’s actually represented by the Communist Party. And the Communist Party has its own constitution, and that constitution says the most important thing for the Communist Party is maintaining control of the Communist Party.
Mr. Jekielek: So Huawei is ahead in 5G right now, substantially, arguably. And so, what does America do? What does Europe do? What’s your idea?
Mr. Spalding: You have to go back to what I said about the network being from machines and then realize that everything, every decision we’ve made in technology to this point, has been for resiliency, connectivity, and speed—everything.
And then afterward, when people started hacking into things, we thought: We need to add some security on top of that. Well, at your foundational design decision, you say, “I’m going to compromise security, so I can have speed, resiliency, and connectivity.” Now, you’ve got a problem in that any security you apply thereafter is just a patch job and is going to ultimately fail.
What my study said was, in addition—how can we jump ahead of China in 5G? We need to go back [and] reverse every one of those decisions, since 5G is going to be such a proliferated technology. In other words, you’re going to have connectivity just about everywhere, if it’s deployed correctly. We don’t have to worry about all these design decisions we made in the past about real resiliency, speed, and connectivity—that’s already built into the network. OK, let’s go back. And then, the underlying … network power, interface technology, all of those design decisions. Let’s go back and let’s just design them from the ground up to be secure.
Now, fortunately, all of this work is done in American companies and universities and research labs. All it takes is for somebody to come together and put them together in a way that essentially fundamentally redesigns the internet. The internet was designed to be very mappable, very open, easily deciphered. That is not good if you want to actually … secure your data. In other words, we would never allow Chinese tanks to be rolling down [the Capital Beltway] on an afternoon in D.C. We just wouldn’t allow it to happen. So why do we allow the PLA (People’s Liberation Army) to essentially roam our networks without a license? Because we have no way to stop them, because we didn’t design the network to prevent them from doing so.
If you think about how Alexander Hamilton, when he was thinking about the country and, you know, we need an Army, we need a Navy. He understood … he didn’t even think about space. He was thinking about air, sea, land. You know, we added space later. We completely created this digital environment. It’s totally man-made, but we’ve never thought about how, in a societal sense—in a governance sense—how do we actually control that in a way that presents the same kind of values that the American people have come to grow and love over 240 years? You have to actually design that into the technology. You can’t go and add an amendment to the Constitution and say, “Well, we want an internet that actually doesn’t behave like the Wild West and [doesn’t allow] all our adversaries to come in and influence this or take our intellectual property.”
You can’t do that. You actually have to design it into the technology. And so that requires leadership by the government. Right now, we are essentially abdicating that leadership to the private sector. The private sector just wants to build the cheapest network so it can make profits on all the conductivity. So, our system currently doesn’t incentivize a completely secure internet for the American people because we haven’t yet essentially adapted or come to the realization that if we don’t, then all these precious freedoms that we’ve grown to know and love and cherish will just be taken from us. Not because somebody’s going to come in and invade with an army but because they’re slowly going to be eroded because our ability to understand what’s going on is really going to be masked from us, because your phone knows more about you than you could even imagine.
Now, where does that data go? That data goes essentially to the highest bidder. Think about this, the Second Amendment provides American citizens with the right to resist the government if it ever becomes oppressive. Now, if you live in a world where you don’t know that you’re being oppressed or you don’t know who’s oppressing you, what good is a gun?
Mr. Jekielek: Fascinating. Tell me, people say that the Chinese Communist Party is very efficient, and in a way it is, because they can actually harness all these different resources—all the companies, the military, the universities. Everything works hand-in-hand to support a company like Huawei to achieve this kind of global dominance. How can we do something like that in the U.S. where, obviously, we don’t want to nationalize, as you mentioned. How is that done?
Mr. Spalding: That’s a great question. And this is probably the key point. The key point is what China figured out—what the totalitarian regime figured out, what Deng Xiaoping figured out—was that you have to align the private profit motive with your national interest. In other words, if you’re doing well, the country’s doing well. How do you do that? You structure the incentive system, so you are hyperenabled to do the things that make yourself wealthy, as long as you don’t challenge the Communist Party. And so it’s just about structuring the system around that. They’ve done that. The financial incentives [and] the market pool from China are the two of the biggest levers that they have in this. And because of our connectivity to that system, as I already discussed in the financial area, in the trade area, in the investment area, in the immigration area, in the internet area, in the media area, they can also incentivize our own companies, their private profit motive, to be toward their national interests.
The answer really is if you are so hyperconnected to a country that doesn’t understand rule of law, doesn’t understand private property, doesn’t understand individual liberty, and doesn’t understand the sovereignty of the American people and the American nation, then you have to decouple. That’s the only way that you can actually protect yourself. If you embrace China, you will lose.
Mr. Jekielek: So what possibility then is there in having a trade agreement? What is this trade agreement going to look like?
Mr. Spalding: Well, before China made … we’re not going to have a trade agreement now. It’s not coming. It’s not forthcoming. And it’s not going to be forthcoming. China’s waiting on the 2020 elections. That’s what the Communist Party has decided. Before that decision was made, I expected we’d have a watered-down agreement that the president would basically sign and then wait for the elections in 2020, and then turn around and say, “OK, we’re going to renegotiate this.” That’s not going to happen either. So I don’t think we’re going to have an agreement.
I think it’s all riding on the 2020 elections. Who gets elected? Now, I don’t care who gets elected. But what I want to have happen is that I want the American people to be protected … in a way that preserves their freedoms. Whatever candidate does get elected better understand that the most significant threat to our future prosperity and freedom is the Chinese Communist Party.
This interview has been edited for clarity and brevity.