The United States recently banned the Chinese-owned WeChat and TikTok apps, sanctioned officials and a giant PLA-affiliated company for human rights abuses in Xinjiang, and made moves to crack down on Chinese companies listed on U.S. stock exchanges that don’t comply with U.S. audit standards.
By linking trade with human rights, the United States is taking the lead in a global reset of relations with China, says Curtis Ellis, policy director of America First Policies.
This is American Thought Leaders 🇺🇸, and I’m Jan Jekielek.
Mr. Jan Jekielek: Curtis Ellis, such a pleasure to have you back on American Thought Leaders.
Mr. Curtis Ellis: It’s always a pleasure to speak with you Jan, thank you.
Mr. Jekielek: Curtis, you were actually one of the very early guests on American Thought Leaders, and we were talking about China. I remember something very distinct. We were talking about … one of the topics was the decoupling of the issue of human rights from economic relationship, vis-a-vis China. But this wasn’t always the case. Before we dive into looking at all these economic executive orders that have come out recently, again vis-a-vis China, I’d like to kind of go back to that and maybe you can help us understand what happened.
Mr. Ellis: Right. You look back at the history of the U.S.-China relations and U.S.-China economic relations. Go back to 1980; go back to prior to President Nixon’s opening to Beijing in 1972. In 1980, we granted China most favored nation trading status. That is, we gave them basically preferred access to the American consumer market. Something which other countries, non-communist countries, market economies had enjoyed for some time, but we conditioned it.
In 1980, when we expanded these trade relations with China, with the People’s Republic of China, we conditioned that there would be an annual review of Beijing’s human rights record. Because, as the viewers of this show [know], no surprise to them, the Chinese Communist Party has a horrendous human rights record. Even before Tiananmen Square, that horror show, they routinely repressed the rights of the citizens.
They engage in forced abortion, forced sterilizations; the persecution of religious minorities and people of faith of different practices such as the Falun Gang and others; and imprison people for political reasons, and then subject them, use them as forced labor. There’s a litany of horrors that have been well known. And then you’ve got, [historically], the famines, purges and the Cultural Revolution. So, … the People’s Republic of China’s human rights record was a big sore spot.
For all of those who were saying, “Well, let’s open up to China and bring them into the family of nations and economic engagement with China. We’ll make that more democratic somehow.” They were very strong, and it carried the day in Congress a strong continuation to people saying, “Well, we have to have a check on this. … We have to couple our economic relations with China with its human rights record.”
So, every year, the President would have to certify that China was making progress, releasing political prisoners, and doing a whole host of other things. And in fact, that did work. … There was a record that, if you look back at the historical record, maybe some of it was a bit of a charade, you could say, but nonetheless, every year before the President had to make this annual certification, … the Chinese Communist Party would release prisoners. Maybe it would be a token release. They certainly didn’t grant voting rights to people and they didn’t come close to what you would call a Western democracy.
But there was on the record, this coupling of human rights to economic engagement. And if you go further back in American history, it makes sense that we would want to do that and that we would want to trade with nations that are culturally similar to ours that share our values that we’re not basically by sharing our technology and our money with countries strengthening a hostile regime.
To go back to 1974, you had the Jackson-Vanik amendment. This was the height of the Cold War. And Senator “Scoop” Jackson, Henry “Scoop” Jackson of Washington was a cold warrior. He was some neoconservative in a way, conservative Democrat. And he pushed through this amendment—eventually got adopted in 1974—that we could not grant normal trade relations—most favored nation trade status—to a non-market economy, a country [with] a non-market economy that denied its citizens human rights.
Now, interestingly, this passed unanimously, and The President tried to veto it. That time, the bad actor, the Bogeyman on stage was the Soviet Union. And the argument was we should not be trading with the Soviet Union if they would not allow us, the Jewish people of Russia or the Soviet Union to emigrate. They wouldn’t grant them exit visas. And so tremendous pressure came about, and this amendment passed unanimously.
The President threatened to veto it, but it was a veto-proof majority in both Houses of Congress. Henry Kissinger at that time was saying, “Well, we don’t want to mix human rights and trade. This will interfere with the global economy.” Sounds familiar. But the Congress said no, we do want to uphold human rights and uphold our values with the countries we trade with.
So, that really was the prevailing wisdom and the prevailing thinking, if not among the foreign policy establishment, at least among the people who populate the legislative branch, and the American people really can sympathize with that. We want to trade with people that share our values, share our interests, and we don’t want to enable dictatorial regimes. …
There was a great degree of horror following World War II, when it came to light that some of the largest corporations in America had been trading with Nazi Germany. You’ve got some of the household names, Standard Oil, General Electric, various other companies, aluminum companies that were in a cartel arrangement with some of the drug companies and minerals and metal companies of Nazi Germany. …
Let’s put it this way, it was not a source of pride when the antitrust enforcers in America in Washington started to move against some of these companies. This became ammunition for them to say, “Look, we’ve got to break up some of these trusts because concentration of wealth like this leads to fascism.” …
The people of America understand that we should be exporting our values, not just exporting our goods, and that we should be using access to the U.S. market, which is a prize that everybody on earth wants. Every producer, every business wants to be able to sell into the U.S. market. That gives us the upper hand in these negotiations, and we should use that not just to extract economic concessions.
We should use that to the degree that we can, to inculcate our values in other societies. It’s not our job to go around the world and try to democratize the world, don’t get me wrong, but no country has an inherent right to sell their goods in this country. I guess the best example of this is you go to the Trade Act of 1930.
The Trade Act of 1930 said that it strictly prohibits the importation and sale in the United States, of any goods made wholly or in part with slave labor. In part, even the tiniest bit, there is no minimal exception, 15%, 10%, 50%, 49 point … no. Wholly or in part, any part made with slave labor, that product [or] those goods cannot be imported into the United States.
That is a real basic foundational human right, invocation of human rights and coupling it, directly coupling it to economic activity and to trade activity. So, these sanctions that we’re now seeing being imposed on the officials of Hong Kong and the officials of the Chinese Communist Party, the Politburo member, the Xinjiang companies and those using forced labor over there, and the Xinjiang Production and Construction Corps, the paramilitary operation.
This is in the great American spirit. This is historically in-line with what we have done over decades in this country. So it’s good to see this coming back into fore because, as I said before, for a long time, there was a lot of push back in 1980, when we put an annual human rights review in place on China.
That was removed in the year 2000, when we granted permanent—that’s what was made permanent—permanent normal trade relations with China. What was made permanent, was permanently removing the human rights record review. And the promise was made at that time, that by engaging with China and cooperating with China and economically enabling China and investing in China, it would naturally, organically, the way the sun rises in the east, it would evolve into a more democratic, peaceful and human rights respecting regime.
So, in a sense, you want to look at it a certain way. Even then, the argument that was made for economic engagement with China was made on the basis of coupling human rights to economic engagement. The argument was made, if we invest with China and open our markets to Chinese goods that will encourage good human rights behavior inside China. So even those who were promised or were counseling for open trade with China, were doing it on the basis of coupling trade to human rights.
Now, what we’ve seen is that their argument failed, that experiment failed, their hypothesis was wrong. But we still accept the promise. We can still accept the premise of the argument that we should couple trade with human rights performance, but just not the way they said.
Mr. Jekielek: So, Curtis, what do you make of the new, I guess you could call it policy, that Secretary Pompeo articulated, “Distrust and verify”?
Mr. Ellis: Distrust and verify. This is [the] reality. The Chinese Communist Party lies. We have a virtually unbroken record of 40 years of broken promises, empty promises [and] unfulfilled promises. So, with a record like that, you have to distrust and verify. This is actually the scientific method, if you will, you’re always doubting your hypotheses, and subjecting them to further experimentation and see if they hold up against the evidence.
The evidence tells us that the word of the Chinese Communist Party leadership is not very reliable. So, Secretary Pompeo is being very careful and very wise in having such a policy. This speech [from] a couple of weeks ago, was brilliant. It capped a series of speeches by a series of high-level administration officials which really detailed in a very clear and comprehensive manner the threat that the Communist Party of China’s posing to the United States.
Whether it’s on an economic front, economic aggression or cyber espionage; its soft influence operations turning American thought leaders, not the people that appear on this program, but American influencers, into agents of the Chinese Communist Party. And using things like the “Thousand Talents Plan” to buy off American researchers and to compromise American universities.
So, there is a growing awareness around the world, thanks to the leadership of Secretary Pompeo, President Trump and his national security team at all levels and the Commerce Department and the U.S. trade representative offices to call out what’s been going on, to clearly identify what the Chinese Communist Party has been doing.
And it’s interesting that the best we hear from the opponents or the critics of President Trump’s China Policy is, “Well, he’s going about it the wrong way. Yes, China’s doing bad things. But we have to rally our allies to confront China. He’s going it alone.” And there’s a couple of things wrong with that argument.
Number one, our allies are coming along, right? You’re seeing more and more of these countries in Europe being much more outspoken about the threat of China, the Chinese Communist Party that is, and blocking Huawei, the Chinese telecom company, from building the infrastructure. The World Trade Organization is slowly but surely, at least acknowledging that it needs to reform.
The other fallacy with this “we should be working with our allies to take on China” argument is, that’s exactly what we’ve been trying to do for the last 40 years. The whole “opening to China” beginning in 1980, and then in 2000, where they were brought into the World Trade Organization, the premise of that is, we would bring China into the club of nations [and] into the family of trading nations. And they’re surrounded by our allies, by the other countries that play by America’s rules.
We would teach China and teach the Chinese Communist Party how to behave responsibly, how to be a good member of the family of nations. That is working with our allies to change China’s behavior. It didn’t work. We tried that. And the other problem with it is more immediate, China is very good at dividing allies.
The Chinese Communist Party pays off people, it buys allies; it buys cooperation; it buys influence. Whether it’s investing in companies that are then loath to criticize the behavior, or whether it’s investing in countries. Now you see Germany, a lot of large German corporations are so eager to get a piece of the action in the China market, that Berlin has been very slow to criticize China for its terrible, terrible behavior in Hong Kong and elsewhere.
So, if we wait to bring along the allies as the foreign policy establishment in Washington continually councils, we will be waiting forever. And it’ll be too late to do anything. That’s not leadership. Leadership is doing what you know is right, even if everybody around you refuses to take action. That’s the way it is in a person, and that’s the way it is in a nation as well.
I don’t wait for everybody around me to tell me it’s okay to do something before I do what I know is right. And if everybody around me is sinning, that doesn’t mean I will sin, and I will wait for them to stop sinning before I do.
This “bring along the allies” is diplomatic speak, it’s typical of consensus; we have to have 100% consensus on everything; we all have to agree on something before we’ll do anything. That might be nice for writing a worthless communique for worthless transnational organizations. But it’s not the way that you get anything done. And it’s not the way you necessarily behave in the real world.
For once now, President Trump and the administration is telling the Chinese Communist Party, “You will pay a price for doing what you’re doing. You will not have access to our markets the same way you did. Your officials will not have access to our banking system. And there’s a whole list of proposals that we can go into.” But for the first time, President Trump is the first leader of America, since Richard Nixon, to be very clear about what is the problem. … What’s the matter with the Chinese Communist Party.
Mr. Jekielek: Let’s talk about … the Xinjiang Production and Construction Corps, which is the organization that was sanctioned in Xinjiang, which is really remarkable because this organization is like a company. One third of the cotton in Xinjiang is grown and processed by this company. It’s responsible for some really significant portion of the economy there.
It’s a huge deal to sanction a huge entity like this. That’s actually part of the Chinese Communist Party military, right? These are the kinds of sanctions and I’ve seen this referenced in different ways. And I agree. These are, I think someone said, biting sanctions that human rights people have been hoping for in China. So, there’s a kind of action, of course, we have to see how the implementation of that actually happens.
So, my question is, is this an indicator that we will actually go back after these 20 years to recoupling human rights and the economic relationship?
Mr. Ellis: It certainly looks that way. Because unlike Section 301 tariffs that President Trump put in place on China a couple of years ago, these sanctions are directly linked to human rights abuses. These are not about theft of intellectual property, illegal subsidies of production, unfair pricing, dumping of goods below market value, which are economic sanctions and tariffs linked to economic bad practices.
These sanctions are linked directly to human rights abuses. So, this certainly is more than pointing in the direction that we’re going to go back to recoupling. This is recoupling a price to be paid economically for human rights abuses. And the Xinjiang Production and Construction Corps is like the British East India Company. It’s this quasi government operation that’s sanctioned by the [U.S.] government [that] involves economic activities.
As you said, they produce so much of the cotton grown in China, that you have to wonder if any of the clothing made with cotton coming out of Xinjiang is not made with slave labor. If that’s the case, then it shouldn’t be allowed in the United States, should it? If the shirt that you’re wearing has a label in it, I’m sure yours doesn’t, that says “Made in China,” you may be wearing a garment that is the product of enslaved people.
Mr. Jekielek: You’re alluding to this individual sanction an everyday person can take by saying, “I’m not going to buy Chinese goods or something of this nature.” There’s a bit of a discussion that I’ve seen among experts and even ones who have the best interests of freedom, for example, in Hong Kong and so forth in mind. The way policies that are shaping up in the U.S. at the moment are really designed or at least suggesting kind of a crippling of the economy in Hong Kong as a route. So, that will also mean to a lot of people in Hong Kong suffering as a result of that. What are your thoughts on this?
Mr. Ellis: When I talked about the prohibition against importing goods made with slave labor, remember that that is [an] official government policy. It’s just not enforced at the moment. But that law is on the books. To this point right now, it is illegal.
I personally, and you, should not have the choice of buying something made with slave labor because if we enforced the law, it would not be for sale unless you traveled overseas and bought it. You would not be able to buy it even on Amazon and have it delivered to your doorstep because it’s illegal to import it.
But to your point and to your question, this has always been the conundrum. When people talk about economic sanctions, the argument against them is always, “Well, it hurts the most vulnerable, and it’s going to hurt the people of ‘fill in the country.’ It’s not going to hurt the leadership.” That’s why we see some of these sanctions being imposed on the officials of the Chinese Communist Party.
These sanctions imposed on Carrie Lam, the Hong Kong executive. She can’t use her credit card now. She can’t buy ads on Facebook, so I guess it’s going to hurt Mark Zuckerberg too. What are we supposed to do, right? Are we supposed to unilaterally disarm and say, “Well, it might hurt somebody so we’re not going to do anything.”
Because make no mistake, if we were to cut off the money that flows to the Chinese Communist Party, it would hurt the regime as well. Right now, the Chinese Communist Party uses Hong Kong as a major artery for its blood supply – money being its blood supply. The banking and the financial service sector headquartered in Hong Kong is a pass through, it’s the passageway for money to get to the regime in Beijing.
So, yes, if all the banks, if all the western banks withdrew from Hong Kong, there would be quite a number of unemployed Hong Kong citizens. But I think you would hear from the pro-democracy element within Hong Kong say, “Whatever it takes, we’re willing to make any sacrifice. We’ll do whatever it takes to not live under the boot heel of the Chinese Communist Party.”
Throughout history, people have always sacrificed the comforts of home, sacrificed the comforts of family to defend their home and to defend their way of life. The Hong Kong way of life is under threat right now. It’s under threat not from economic sanctions in the West, it’s under threat from the repression of the Chinese Communist Party.
And to think that we can defend ourselves, defend our way of life without a cost and without having some discomfort, that’s unrealistic. There’s always discomfort in life. I think that if what we’re asked to do is to maybe earn a little less money this year than we did last year, that’s a very small price to pay considering what generations before have paid to stand up to tyranny.
Mr. Jekielek: Before we start talking about this series of executive orders related to China and the economy, let’s talk a little bit about today’s events. The National Security Law has been invoked. Jimmy Lai has been arrested and other journalists working for a foreign press have been arrested, at least one that I’m aware of. Multiple politicians have been arrested just for exercising free speech. They’re being targeted under these subversion laws. Frankly, people were expecting fairly quick action from all the folks that I’ve spoken to over there. But this even goes beyond what a number of them were actually expecting to happen this quickly.
Mr. Ellis: He’s such a high-profile figure that they have decided to decapitate the pro-democracy movement in Hong Kong – make an example out of the most high-profile person they could find. This is not surprising in a way to show the utter ruthlessness and deliberate nature and deliberate intent of the Chinese Communist Party to crush democracy and crush self-rule in Hong Kong.
Beyond arresting Jimmy Lai, they arrested his children. This is barbaric! This is barbaric! His children didn’t do anything. But they know or they think that they can, perhaps, get him to confess or do what they want him to do by threatening his children. I say this is barbaric. This is something that you would hear about Saddam Hussein doing, torturing children in front of their parents.
And that’s essentially what they’re doing. It may not be torture, it’s arrest and threatening the children. Because Jimmy Lai could have left at any time prior to this. He’s not an ignorant man. He’s not a stupid man. He’s not a foolish man. He certainly knew that he was in line to be a target of this law.
He chose not to leave because he wanted to stand by his city, stand by his principles and stand by his beliefs and freedom. He’s a real profile in courage. They could take his money away; they could take his freedom away. He knew that could happen, but he was not going to give in. He’s an example for all of us. And as are so many of the democracy protesters in Hong Kong, they have known all along what could happen, but they would not stop, and they would not give up.
Contrast that with some of the mealy-mouth responses we’re seeing from the West, from European nations, from National Basketball Association players; people who served on the New York Times editorial board that are playing whataboutism, “The United States incarcerates people, too. So, what’s the big deal here? There’s no difference.”
It’s really shameful. It’s really shameful. You can speak out against Donald Trump all day long; you’re not going to get thrown in jail. But if you speak out against Xi Jinping, you will get thrown in jail. You can actually increase your subscriptions and increase your clicks and increase your web traffic and increase your advertising revenues by speaking out against President Donald J. Trump.
In China, if you speak out against Xi Jinping and the Chinese Communist Party, you will go to prison and you may never be heard from again. So, to compare the two is criminal in my mind. I don’t mean criminal; I don’t mean in the literal sense that they should go to jail for doing it. But it’s intellectual dishonesty, it’s intellectually criminal.
And it tells me something and something I don’t want to know about our education system. The people that are credentialed and have degrees and sometimes advanced degrees from some of the finest schools in America are capable of this type of foggy thinking.
So, what we’re seeing with Jimmy Lai is an absolute unmasking of the Chinese Communist Party and what it’s up to in Hong Kong. And it’s interesting that you see in the New York Times, an op-ed from another democracy activist, who has a warrant been put out for his arrest. And what’s interesting is that he’s an American citizen, and he’s lived in the United States for 25 years.
So, this tells us that the Chinese Communist Party wants to impose its repression globally if we allow it. Thank goodness, we don’t have an extradition treaty with the People’s Republic of China, and I don’t think the Trump administrator is going to sign one anytime soon.
But it’s only a matter of time, mark my words, before we see a kidnapping on American soil; or we’ve already seen working through united front groups and front groups of Chinese students abroad, the repression of free speech on American campuses. So, it would not surprise me if we saw a kidnapping or some type of reprisal taken against an American citizen of Chinese heritage on American soil.
You can go to Massachusetts Avenue in northwest Washington, D.C. and you will see a memorial there. It’s near 23rd Street on the northwest stretches of Massachusetts Avenue and you’ll see a memorial where a Chilean diplomat who was blown up in his car by the agents of a foreign power. They assassinated someone in Washington, D.C. because he spoke out against that dictatorial regime.
So, it has happened before; it has happened here. We’ll see if the wolf diplomats of the Chinese Communist Party will try that again. … You think you’ve seen it all. And you say, “No, they’re not going to go that far. They’re not going to go that far.” But don’t be so sure.
Mr. Jekielek: Right. So, the American that you mentioned, who’s been in America for 25 years, Samuel Chu, has done a lot of work connecting the pro-democracy folks in Hong Kong with American legislators and so forth. Presumably, that’s why he’s been targeted. So, Curtis, let’s look at this delisting that’s being discussed. The administration is looking at delisting from the exchange companies, Chinese companies, that don’t fulfill U.S. regulatory requirements. Some people are saying that this is a very, very good first step, others are saying this won’t actually mean anything. Complete deregistration is the only thing that actually has teeth. What do you make of all this?
Mr. Ellis: I think it’s a very good first step. What we’re talking about here is the fact that Chinese companies listed on U.S. stock exchanges, NASDAQ, over-the-counter, New York Stock Exchange, are not held to the same accounting standards as American companies. American companies have to open their books to independent auditors to make sure that they haven’t cooked the books, that they’re honest, that there’s some type of honest accounting going on.
Chinese companies have regarded this as a state secret. … The ledger books, the profit and loss, all that stuff of these Chinese companies are treated as state secrets and are not to be exposed, nobody can look at it. Yet for some reason, under a memo of understanding, dating back to 2013, the companies have been given a free pass. …
This is yet another empty promise. The Obama-Biden administration negotiated this memo of understanding [and] said, “We will let these companies be listed on American exchanges. And we will come to an understanding on this in the future. We’ll work out a way for somebody to look into the books to make sure that they’re not fraudulent.” Of course, that never happened.
And this is how the Chinese Communist Party’s operations over and over, make empty promises. And in Washington, the old saying is, “Nothing is as permanent as a temporary government program.” The wheels turn slowly in Washington and once something is established, the inertia, it becomes almost unstoppable. To change it or to change direction is nearly impossible.
So, we have this precedent of allowing Chinese companies to be listed on American exchanges. And it’s very difficult to change that because the New York Stock Exchange makes money by doing that. The underwriters, the Goldman Sachs and the Wall Street companies that underwrite the initial public offerings of Chinese companies that want to be listed on American exchanges, they make money by doing that.
So, they constantly lobby the Treasury Department and whoever is in power in the administration, “Don’t upset our gravy train. We’re doing quite well by this. Why would you want to rock the boat? We’re making money. And oh, by the way, here’s a check for your re-election campaign.” And so that’s how it works in Washington. That’s how it works in the American political system, and the Chinese know it very well.
And so, you can be sure that these Chinese companies that are being listed, having their initial public offering listed on the New York Stock Exchange, are paying a very hefty fee to Goldman Sachs. And they may even pay them a little more and say, “By the way, why don’t you donate to the political parties? And then they’ll listen to you when you say please don’t upset this gravy train.” So that’s a first step but there is much more that could be done.
Okay, let me just step back for a moment and say, by the way, not having to open your books to an independent auditor is an invitation to fraud, an invitation many of these companies have taken. Luckin Coffee is just the latest example.
This is a competitor of Starbucks in China. They were listed on NASDAQ. They cooked up hundreds of millions of dollars in sales that never existed; boosted the price of the stock; it managed to make a few people very rich by defrauding investors. So American investors are being defrauded or at risk of being defrauded through these opaque Chinese companies.
But what it also does is, it corrupts the nature and the integrity of the American securities markets. The American securities markets have been trusted worldwide because we had regulation. And because we did have good regulators, and you couldn’t pay off the regulators to look the other way. That’s why people wanted to put their money in the American securities markets.
Now you’ve got the Chinese Communist Party influence here and like everything else that touches, it has corrupted the integrity of the securities markets. So, this is [what] I say is the first step. So, … if these companies do not open their books, they will be delisted, and they can’t sell their stock on the New York Stock Exchange or the NASDAQ.
However, they will still be allowed to raise money and sell securities in the United States. They can do it privately; they can do it through private offerings; they can do it through other means. If you were to deregister, these companies, deregister these entities, they would be barred entirely from raising money in the United States securities markets, and that’s where we need to go with this.
If they’re not good enough to sell to the retail investor, they shouldn’t be allowed to sell anywhere because again, this corrupts the integrity of our securities markets. And I don’t know why anybody would be so boneheaded as to buy a company that you couldn’t examine their books. It’s almost [like] you’re asking to be ripped off. … We don’t allow people to do that. An American company can’t do that, so why should a Chinese company do that?
There are other steps that can be taken as well. We’ve seen that the United States government will not allow its own retirement funds, the retirement funds of its employees, of a federal workers and active duty military, to be invested in Chinese companies, into these index funds, these international emerging market index funds that include Chinese companies, right? Because [some of] these companies are defense contractors for the PLA – the People’s Liberation Army. Some of them are again, opaque, like the ones we’re just discussing. We don’t know what’s going on inside the black box of their accounting books.
So, we don’t allow the retirement funds, the retirement savings, the 401(k) plans for federal employees to be invested in these companies. However, private pension funds are still allowed to invest in these companies. State pension funds, the pension funds of teachers, the pension funds of, let’s say the Iowa teachers, the Iowa Education Association, California public employee retirement savings, these can be invested in these Chinese companies.
The United States Department of Labor has the authority and regularly exercises the authority to determine what is a sound investment and what is not. It regulates all pension funds in the United States. Remember, the managers of pension funds have a fiduciary responsibility to the pensioners to make sure that the money is being invested in a safe way.
You can’t take the money and go to Atlantic City and gamble. “Hey, I could get a great return. If I hit black on roulette, I’m going to double the money.” You’re not allowed to do that, right? So, the United States Department of Labor says, “These are the standards for what’s a good investment and what’s not.”
The United States Department of Labor could right now say, “Investing in Chinese companies, not good enough for federal employees, not good enough for any pension fund in America to be investing in these opaque Chinese entities.” So that’s another step that could be taken, that would cut off the blood supply to the tumor that is the Chinese Communist Party.
Mr. Jekielek: That’s very fascinating. Just recently, you were talking about CalPERS, the California pension fund. I’m sure you saw that the CIO of that fund, Ben Meng, recently resigned. [It’s] unclear exactly why but there were some lapses in judgment cited. I don’t know exactly what that means. But this is interesting because there’s definitely very potential conflict of interest, given he was a Communist Party member and a Thousand Talents Plan member and so forth.
Mr. Ellis: He did not disclose some of his income and some of his stock holdings on his disclosure form, which is required to do. So, maybe Mr. Meng will show up in Beijing one day. Or maybe he’ll show up on a federal docket. I don’t know.
Mr. Jekielek: Let’s jump to another recent executive order which is somewhat unprecedented, at least to my eye – the one focusing on TikTok and on WeChat. This executive order is actually being criticized by some as splitting the internet in two. That’s one of the criticisms I heard. What are your thoughts on this?
Mr. Ellis: Well, I’ll take half an internet or a split Internet with my half free rather than having one internet that’s wholly controlled or largely influenced by the Chinese Communist Party. In fact, there’s already been a split internet. You’ve got this thing called the Great Firewall of China. There is an internet in China that is quite different from the internet in the rest of the world.
So, let’s stop pretending, okay? This is not 1978, this is not 2000, where we’ve got this wild west libertarian utopia called cyberspace where everybody’s free and everything’s free and everything’s wonderful. We already have a split internet. And I would rather have a free internet in America that is run by our rules of freedom of speech and free access of information, than have one that is influenced by the Chinese Communist Party and operates according to its rules.
Now, let’s be clear here. TikTok is a data collection entity, a data collection app that’s disguised as a social media platform. It collects username information, the IP address of your telephone, of every computer on your Wi-Fi network. It also collects what your Wi-Fi access point is, and all the information that it can harvest from there. Everything it can harvest from your phone and your devices.
And it also enables the remote planting and downloading onto your devices of files from some remote place like Beijing, for example. So, this also goes to great lengths to encrypt and make it almost impossible, if not impossible, to disable some of these data collection functions. Why would it do that? That is a testament to the malicious nature of this app.
But far beyond that, far beyond simply data collection, it’s a persuasion device that uses artificial intelligence to feed videos, selected, curated videos, to the users. … You’re being fed videos onto your device that are being selected by algorithms written by the Chinese Communist Party. Think about how this could be used to influence an election.
Think about how this could be used to stoke social unrest in a country. Let’s say that somebody was killed by the police. And the protests broke out over this killing. And then millions of people in America started to be fed videos about how cool it was to show up in protest and go out in the streets and lay down on the streets and take it from there, take it to the streets.
These videos can be fed to millions of people, millions of users in America. And the videos that were fed would be generated not necessarily just from other users, or me sending them to my friends, but from a remote location, and by the puppet master somewhere else. So, there’s a lot of concern about election interference in America.
We’ve gone through years and years of people screaming and hollering and jumping up and down because Russia bought several hundred thousand dollars’ worth, maybe a million dollars’ worth of Facebook ads. And there’s still a legitimate concern that foreign powers could try to influence the outcome of our elections.
Well, when you look at these apps like TikTok and WeChat that are owned by and controlled by foreign governments, and their ability to influence the information that’s being fed right into the pockets, and into the eyeballs of billions of Americans, you have to ask yourself, is this not a channel for interference in elections? And the answer is clearly yes; and to say no is to be deliberately blind.
Mr. Jekielek: No, Curtis. You said that a foreign government owns TikTok but apparently TikTok is owned in the Cayman Islands.
Mr. Ellis: Yeah, right. And who owns the Cayman Islands? Cayman Islands is a mail drop for companies all over the world that want to avoid taxes and to avoid the responsibility for the ownership. Now, there is no question that TikTok has Chinese connections and Chinese roots. And there’s talk about Twitter now being in talks to merge or acquire TikTok.
I am not at all confident that the sale of TikTok to an American company or to a British company or to a Martian company is going to solve the problem. Because it still has code, it still has internal guts that could be riddled with backdoors, Trojan horses, wormholes, whatever you want to call it – the means for Chinese Communist Party shenanigans.
So, we have not seen the last chapter on this and even while we are talking, Jan, the news comes across the wire that TikTok is being sold to Microsoft, Twitter, Facebook or Google. That’s not going to make me sleep any easier that the problem has been put to bed.
Mr. Jekielek: It’s very interesting. As you’re describing all this again, this maxim of “distrust and verify” comes to my mind again. Let’s talk about one more executive order … I can’t say it’s the most important, but it’s the one that I’ve been thinking about the most. It’s the one talking about bringing pharmaceutical production back to the U.S. And this is something that we’ve been hearing about for months. I don’t know how many months now. It feels like a very long time, especially with this crazy new cycle that we’re in. But finally, there is an executive order that, with the idea to secure the production of these essential medicines and so forth in a safe and secure way. I’m wondering if you could break that down for me a bit, the significance of that and what the executive order actually does, in effect.
Mr. Ellis: I think this is … certainly a very important executive order … in many ways. … But it’s interesting, Jan. The panoply of executive orders that we’ve been discussing – sanctions on individuals, sanctions on companies, the coupling of human rights to economic trade with China, the internet, the technology front, and now the supply chains in pharmaceutical manufacturing.
It shows the multi front challenge that we face with the Communist Party of China. And it shows the multi-dimensional aspect of this competition if you will. It has so many levels. But what this latest executive order on the pharmaceutical supply chains addresses is our increasing dependence on manufacturing in China. This one executive order deals with pharmaceutical supplies.
A couple of weeks ago, we saw the U.S. government extend a $760 million loan to Kodak to begin manufacturing the precursor chemicals, the active pharmaceutical ingredients, the precursor chemicals that go into making pharmaceuticals, making the medicines that we need in this country. The pandemic exposed to what outrageous degree we’re dependent on China for basic medicines.
Acetaminophen, the aspirin substitute, was not available. It’s just not available because it’s all coming from China. The last penicillin factory in America closed six years ago, moved to China. We want to reverse this. We need to reverse this. We need to be nationally self-reliant on the essentials of life. And nothing is more essential to life than medical supplies. …
In many cases, we invented these drugs. We invented the technology to produce these drugs and to mass produce them, yet now we can’t. Then there’s something clearly wrong with that equation. What this executive order does is it directs federal agencies, when they go shopping, to buy American.
When they have to replenish their stockpiles of penicillin, aspirin … There is a roster of drugs. I don’t know if it’s actually penicillin and aspirin, but for example. When they go shopping for drugs, they will buy from an American producer that is producing these drugs in America. And what does that do? That guarantees demand. That is a guaranteed market, that is a guaranteed sale. …
If I’m an entrepreneur, if I say, “I have a purchase order from the U.S. government for $200 million worth of pills. I could take that to the bank and get a $200 million loan or some factor of $200 million. because that’s a guaranteed market. That gives me an incentive to make a factory, to build a factory in America to make those products because I know I have a customer for everything that comes out of that factory.
And [it] gives an incentive for a bank to give me the loan to build that factory, because they know I have a customer and I will be in business, and I’ll be able to make good on it. It leverages the purchasing power of the U.S. government to incentivize investment in America. The executive order goes further in that it streamlines the regulatory approvals needed to build the latest technology factory for manufacturing these drugs.
So, they’re not going to be building a 1950s style factory. There’s going to be the latest technology factory where you have continuous flow production. Where you can change the production line rather quickly. You can switch from manufacturing one drug to another rather quickly because the latest technology allows you to do that.
The old factories we had before they all moved to China and the factories that exist now in other countries are of the generation I’m talking about. The factories we used to have before they went to China, was a much more laborious process and time-consuming process to switch from producing product A to producing product B. This latest technology allows a much quicker turnaround.
And so, it’s much more efficient and cost effective. So, the executive order is very important because it’s going to give us national self-reliance on crucial drugs. We’re never going to find ourselves in the position we were in, in March and April of this year where we couldn’t get the drugs we needed to either treat people who had the disease or test; we couldn’t produce the reagents and the kits and the whatnot that we needed to protect ourselves.
But above and beyond that, this executive order is a template. It serves as a template that can be used in other industries because it’s not just pharmaceuticals and medical supplies that we’ve become dependent on the People’s Republic of China. We’ve outsourced so many of our industries to so many different places in the world in many cases, most often China. Whether you’re talking about auto parts, medical devices, rare earths, many different furniture electronics.
Much of this has left the shores of the United States is now being produced elsewhere. We need to bring this back. And we need to, again, leverage the purchasing power of the American government and use that as a way to incentivize entrepreneurs to build an America.
When Donald J. Trump ran for president in 2016, I was there. And he put forward a four-point program to make America the best place to invest, to live, to raise a family, to do business and to work. That was tax cuts, regulation cuts, trade reform and energy reform. And this executive order really is in line with all that. The Tax Cut Act of 2017 addressed some of the tax reform, streamlining the tax code, bringing it in line with other industrialized countries.
So, our tax rates are in line with other countries, and used to be much higher. By addressing regulatory reform and granting expedited regulatory approval for new factories falls in line with that. And the whole point of trade reform was to put us on the same level to have reciprocal and balanced trade with other countries.
The trade agreements we had were imbalanced. We had the push factor of taxes and regulations serving to push companies offshore into these low tax, low regulation, pollution havens, cheap labor, pollution havens. Trade reform will fix that, tax reform will fix that, regulation reform fixes that [and] energy reform. We don’t need to go into that too much.
But the cost advantage with energy, with natural gas would make up for our labor rates. But going forward, the other factor that needs to be addressed, and I know in the discussions of this executive order, they talked about the fact that it goes to this leveraging of the government’s buying power. And using that as leverage to nurture domestic industry.
This has been done throughout our history. Alexander Hamilton wrote about this in his report on manufacturers, going back to 1789. And the idea here is that, as I said before, if I have a purchase order from the government saying, “I’m going to buy $200 million worth of goods from you. I can take that to the bank. I can literally take that to the bank and get $200 million in my hand, and start building the factory to fulfill that order, and put people to work.”
Now the catch is, under The World Trade Organization government procurement protocol that we signed on to, we have to treat every country in the World Trade Organization as if it’s an American company.
So, if we say the federal government is going to buy American and buy from an American company, we give countries that we’re in a free trade agreement with what’s called national treatment. We treat their companies as if they’re American companies. … We have a free trade agreement with Jordan. So, … a Jordanian company can bid on American government contracts, right? Now, what are we getting returned?
Well, we get to bid on Jordanian government contracts. And so, it’s reciprocal, right? Well, except for the fact that the American government spends 100,000 times more money than the Jordanian government ever spends. So, the Jordanian company can make uniforms for the American military. We get to make uniforms for the Jordanian military. But they’ve only got 20 people in their military. We’ve got 2 million.
So, who’s got the better end of that deal? This executive order, I don’t know if this one does it, but the talk about was closing that loophole, that national treatment loophole. So that we can actually buy American …
I know we talked about this during the transition, I was in the transition team. And during the transition period, it was a very serious discussion as we need to address this national treatment loophole that you can say “Buy American.” But under the World Trade Organization rules, the other countries managed to slip in and be treated as if they’re American. And that’s a big loophole that needs to be closed.
Mr. Jekielek: This is pretty fascinating because this executive order covers both this question of bringing back manufacturing in America, which we’ve discussed a number of times before, but also this critical issue of national security. In this case, these two are very tightly aligned.
Mr. Ellis: Absolutely. They’re intrinsically aligned. And on the national security strategy that the Trump administration put out a couple of years ago. It says that national security now is intrinsically linked to economic security. Non-state actors and terrorism is the platform of national security of the arena of national security in the last century. In this century, it’s economics. So, there is no distinction.
If you don’t have a strong economy; if your people aren’t fed; if they’re not working; if they’re not producing; if they’re not self-sufficient, you don’t have national security; you don’t have national independence; you’re not self-sufficient, either personally, socially, or nationally. And if you’re dependent on another country for your wellbeing, if you’re dependent on another entity for your wellbeing, it’s not a secure position to be in.
Mr. Jekielek: Curtis Ellis, any final words before we finish up?
Mr. Ellis: Well, we need to restore American independence and American national self-sufficiency to the greatest degree possible. The goal of our economic policy should be to raise the standard of living of Americans. For the last 70 years, we’ve been embarked on this experiment that, by merging our national economy with that of the rest of the world, would make America more prosperous and make the world more peaceful.
We have not seen a more peaceful world and we’ve not seen a more prosperous America. For the first century and a half of this nation’s existence, we pursued a policy of national self-sufficiency. And we had a much greater prosperity at home, and a much more peaceful, at least domestic tranquility, within our country. So, the future is bright.
We are resetting our policy toward China, resetting our economic, our economic policy as well. And I’m confident that if we continue the policies that we have begun and carry them to fruition, we will be more prosperous. The American people will have a brighter future and the next generation will be better off than the existing generation and the previous generations. We’re making technological advancements. We can do more with less …
Let’s be honest, let’s be clear eyed and let’s make it here. Thanks to the new technology, the decentralized technology, and mass production, you can produce just about anything, just about anywhere. And the 3D printing and other advancements that are coming, will bring our factories closer to the consumption point.
And this really realizes the vision of Henry Kerry, who was the economic adviser to Abraham Lincoln, where he said, “Put the factory next to the consumer.” And this is the virtuous cycle. And I dare say [it] was the perpetual motion machine that we’re looking for where the consumer is the producer, the producer is the consumer.
And so, as you buy something, you’re basically taking money out of one pocket and putting it in the other. We’re buying the things we make and we’re making the things we buy. And you want to concentrate on this economic activity. You want to concentrate this economic activity, not disperse it, concentrate it. Put the factory next to the producer, put the textile mill next to the cotton field, put the steel mill that makes the plows as close as possible to the farm that uses the plow. Concentrate, concentrate, concentrate. And that’s how you create prosperity and wealth.
Mr. Jekielek: Curtis Ellis, such a pleasure to have you on again.
Mr. Ellis: Thank you always great to talk to you, Jan.
This interview has been edited for clarity and brevity.