Podcast: The US and China's Great Decoupling

Transcript

Listen: "Decoupling." It's a word more closely associated with celebrities than global politics. But when it comes to the United States and China, it represents the biggest geopolitical shift to happen since the fall of the Berlin Wall. In the latest episode of GZERO World, Ian Bremmer examines the implications of the two giants going their separate ways in technology. What will it mean for consumers, and will other countries be forced to pick sides in the cyber battle?

TRANSCRIPT: The US and China's Great Decoupling

Samm Sacks:

We're beginning to see a number of really successful Chinese companies, particularly in the internet space, that are racing ahead of the rest of the world, and I think this is causing tremendous unease and anxiety in Washington.

Ian Bremmer:

If you had to name the biggest breakup in recent history, which would it be? Sunny and Cher? Brangelina? Bill and Hillary? Well, they're sort of still together. Hello and welcome to the GZERO World podcast where you'll find extended versions of the interviews from my show on public television. And today on the podcast, I'll examine why the decoupling I'm talking about is not only far bigger than any star-studded tryst, it's also the product of a long distance relationship gone wrong. Don't they always? He's in Washington, she's in Beijing. And over time, it just became clear they wanted different things. To help me lay out the stakes is a woman who says there's no going back. I speak with Samm Sacks, Cybersecurity and China Digital Economy Fellow at the New America Foundation. Let's get to it.

Announcer:

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Ian Bremmer:

Samm Sacks, Cybersecurity Policy Fellow at New America, good to be with you.

Samm Sacks:

Great to be back here, Ian.

Ian Bremmer:

Talk to me about the great decoupling. This is something that's not new in the sense the term is become en-vogue recently. But you say that to understand it, we have to look back at the last decade to show how these two largest economies in the world have been moving towards this moment.

Samm Sacks:

Right? Go back to the early 2000s. You have the Chinese government putting in place plans to double down on reducing reliance on foreign suppliers, build up domestic industries in these technology sectors. This is what's called industrial policy. It's state blueprints to funnel support to move the economy away from low value-add manufacturing sectors to high-tech. This is value-added sources of growth to drive the economy.

Ian Bremmer:

Something-

Samm Sacks:

This is not-

Ian Bremmer:

... pretty much every industrial economy wants to do.

Samm Sacks:

Sure. And it's been an abysmal failure for years. China's talked about next generation information technology, IT, about aerospace, all of the list of sectors, and they haven't been able to do it. But in the last few years, we're beginning to see a number of really successful Chinese companies, particularly in the internet space, that are racing ahead of the rest of the world. And I think this is causing tremendous unease and anxiety in Washington.

Ian Bremmer:

What is it about what China's up to that makes us believe that only now can they truly compete with the United States in the highest of technology spaces?

Samm Sacks:

Your friend Kai-Fu Lee, author of AI Superpower, had a great analysis about this. He talked about a number of factors. One is you have this generation of Chinese entrepreneurs who are working round the clock, driven by this cutthroat culture where... We think about IP theft against multinational companies. Well, IP theft is rampant in China. And as Kai-Fu says, this keeps entrepreneurs on their toes. They have to outcompete in this cutthroat environment. You have Chinese internet users who are hungry for new applications using mobile phones. They basically skipped over credit cards, went from a cash society to this e-payment society.

Ian Bremmer:

Yeah, nobody carries credit cards in China today.

Samm Sacks:

Nobody carries. I've gone to China and lost my ATM card in a machine and just paid for everything on my phone. Doesn't matter. And then at the same time, you have the Chinese government saying, "We want China to be what's called a cyberspace superpower, a technology superpower. And you've seen a tremendous amount of state resources funneled into fields like artificial intelligence, internet of things, next generation mobile communications, and companies investing a ton of R & D in really racing ahead.

Ian Bremmer:

Now, when we talk about the two decoupling, not just competing but decoupling, that implies that the Chinese are going to have their companies, their products, their internet, internet things; we're going to have ours. Is that what we're talking about?

Samm Sacks:

That's a piece of it. One element would be if you are a multinational company, you serve markets around the world, when you show up at an airport, say, and you open up your phone and you want to be able to get text messages, you want to be able to use your credit card when you show up around the world, it's this understanding that the systems are interoperable, you can use them seamlessly. So if we move down this path of separate systems, it's possible that you might have products and services that simply don't work in markets around the world. And what does that do? It does a number of things. It drags on costs. So the margins for multinational companies, they have to build products and services to comply with all these different standards, is one.

Samm Sacks:

I think you also have a delay in innovation, right? The idea that researchers and engineers are working on apps, on applications that are built on common infrastructure, open source, common infrastructure, and that's what's really driving advancement. And as soon as you start to pull that apart, you see a lag time in terms of being able to really move forward.

Ian Bremmer:

We understand why that would be problematic for the companies who historically have wanted to have access to every market and every scientist and every advance. How is it going to affect the experience of a typical consumer either in the United States or in China? What will they feel that's different?

Samm Sacks:

Well, things might get more expensive, but I think there's also a component of safety. I think about these are technologies that are going to fundamentally alter human society. And we don't have rules of the road yet when it comes to safety and ethics for how these technologies are going to be deployed.

Samm Sacks:

And I think if you have the best companies, the best researchers around the world, not able to talk to each other and communicate about that, that becomes actually dangerous. It doesn't mean you show up at Walmart or Best Buy and have trouble finding the right product. It's more of an existential thing. What is it going to mean when computers are woven seamlessly through our lives, and we don't have rules of the road, we don't have the best minds around the world talking to each other about how to do that? That's where I worry about my children.

Ian Bremmer:

Well, we also, right now, one of the interesting things, time zones of course are different, and different people are awake at different times, so Americans and Europeans don't necessarily talk seamlessly. But there's a period of time. If you're on Twitter, if you're on Facebook, there's a period of time where you're actually getting news from those people, their photographs, and those people you're sharing with them if you want follow them. Is that going to not happen between, say, Americans and Chinese in five and 10 years time, in your view?

Samm Sacks:

Let's distinguish between the underlying internet infrastructure and the applications that run on top of it. I think when it comes to the applications, yes, we're going to start seeing, for example, some users are going to be using the Chinese ride-sharing service, DiDi. Some are going to be using Uber. Some are going to-

Ian Bremmer:

Some American users will use DiDi?

Samm Sacks:

Potentially. Probably not here, but maybe they go travel in Southeast Asia for example, or in emerging economies, they might opt for that Chinese service. But I don't see the underlying internet infrastructure, the basic things that allow you to send an email or to be able to use a... The Chinese users use virtual service providers, VPNs, in order to break outside of the great firewall that censors content. I don't necessarily see that type of infrastructure going away.

Samm Sacks:

If we got into a set a time where, say, the domain name system of the internet, the thing that when you type in the email, the internet address that then gets you to the website. When you're in China, when you're in other parts of the world, that still works. So if we got into a situation where the actual underlying infrastructure of the internet was different around the world, that's where you get into a true, fragmented, so-called splintered internet.

Samm Sacks:

Right now I'm thinking more about the applications that run on top of it. And that's where I think you're going to start to see more Chinese alternatives to the things that an American consumer might typically think of.

Ian Bremmer:

So the fight between the United States and say Huawei, which is going on right now, in your view, that's not about the underlying architecture? That's about what sort of applications are going to be experienced by Americans and Europeans, that the 5G systems between the two will still be interoperable?

Samm Sacks:

In the United States, we're not going to see Chinese telecom companies supplying the core infrastructure. No way. And they're not already, except you have some rural areas where there is no alternative to Huawei-

Ian Bremmer:

And Huawei's cheap, yeah.

Samm Sacks:

And it's cheap, it works. But we're already phasing that out because of what things the Trump administration is doing.

Ian Bremmer:

So do you think that between the United States and China, world's two largest economies, is this decoupling now past the point of no return? Is it inevitable?

Samm Sacks:

I think it's become a self-fulfilling prophecy. It didn't have to be inevitable. But now at this point, the rhetoric on both sides is dialed up. I think nationalism in China, techno nationalism, this idea that technology is a tool of the state, is more deeply ingrained now than it was, say, two years ago.

Samm Sacks:

There's no going back. It's just a question of where are we going to draw the lines from here? What's the degree that we will decouple? Will there still be areas of overlap? How far and how fast is this going to go?

Ian Bremmer:

Now, for the last 30, 40 years, as Americans looking at China, with interlinkages between our two economies, you may not be rooting for the Chinese, but you know that if the Chinese grow, you're going to benefit from that economically as well. As we talk about the inevitability of this decoupling, does that mean that we as Americans are going to be rooting for the Chinese system, its technological system to fail?

Samm Sacks:

There are certainly some people here that are. And this is where we get into the politics internal to this push from the Trump administration. I think there are some, like the Steve Bannons of the world, the Navarros of the world, that would like China to fail. What's their end game? I would say it's regime change. I say they want Xi Jinping out. And as Bannon said recently at a meeting that I was at with him, it's not going to be pretty, but we'll figure it out.

Ian Bremmer:

But take a step back from there. I'm saying leave aside regime change. Let's talk just about the fact that if we have two competing systems, they're not interlinked anymore between the US and China. And you think that that train has left the station. So the average American, should we be rooting for the American system to be to defeat in a sense the Chinese technological system?

Samm Sacks:

No. This is really dangerous. We should be rooting for the US to maintain its leadership, it's competitive edge. But does that mean rooting for the Chinese system to fail? That's what I'm saying no to.

Ian Bremmer:

The Chinese technological system.

Samm Sacks:

The Chinese technological systems fail.

Ian Bremmer:

We should not?

Samm Sacks:

No. Healthy competition is good for everybody. If we are playing defense and we're just trying to win based on fear, I think that hurts us.

Ian Bremmer:

Despite the fact that there is now this big phase one trade deal between the United States and China, and so in principle, Trump is saying, "Xi Jinping got the deal done," why are we not more sanguine about the trajectory of the relations between these two countries?

Samm Sacks:

The phase one trade deal, whatever it is like a Band-Aid. It doesn't address what I think are going to be deeper areas of conflict focused on technology that no matter what happens with this phase one, this phase two deal, are going to continue to bubble up. The CFO of Huawei, Meng Wanzhou, is sitting under house arrest in Canada.

Ian Bremmer:

In Canada. Mm-hmm?

Samm Sacks:

Her extradition hearing is set to begin in January. What the heck is going to happen with her? If she is extradited to the US, it is massively escalatory from Beijing's perspective. But if she is released, the China hawks in Washington are going to be livid, and there's going to be backlash. So she's a ticking time bomb.

Ian Bremmer:

Let's explain what exactly the claim is that she has done. Why is she presently sitting under house arrest?

Samm Sacks:

We've been talking about cybersecurity issues and technologies. The reason she's under house arrest actually has very little to do with that. She's under house arrest because of violating sanctions relating to Iran. There's a whole litany of complaints that the US government has with Huawei. And so sanctions with Iran is one of them, and that's landed her in her current predicament.

Ian Bremmer:

And from that perspective, I'm not saying your lawyer, but is that a reasonable, in your view, reason to have her brought to the United States under charges?

Samm Sacks:

I don't think so personally.

Ian Bremmer:

Because?

Samm Sacks:

Well, it's not unprecedented to press charges against someone for these kinds of offenses. And I'm not in a position to evaluate that. I think what would've happened in a different administration is the calculation about when to arrest her. The circumstances around that would have been made in a broader context about what the ramifications of that would be. And I'm just saying that the context in which she was put under house arrest, it happened specifically to get leverage over the Chinese government as part of a trades deal.

Ian Bremmer:

Because we don't see a lot of Democrats or Republicans in Congress right now saying, "We should let this woman go."

Samm Sacks:

No, no.

Ian Bremmer:

It's one of the very few issues that you seem me see bipartisan agreement on, is taking a harder line on national security issues with China.

Samm Sacks:

Totally.

Ian Bremmer:

Now, the interesting thing is President Trump himself, on human rights issues, on, say, Hong Kong, on Xinjiang, someone you don't see a lot of toughness from.

Samm Sacks:

This is what's baffled me for months. There have been reports coming out that are over a million Uyghurs and other Muslim minorities are under detention in Xinjiang, mass incarceration, using technology like AI, like big data, like tracking apps specifically to do so. We've known this for months. Vice President Pence multiple times was supposed to give a speech at the Hudson Institute in Washington criticizing China for this and other human rights abuses. And he kept canceling the speech because trade talks, this was seen as derailing trade talks. They finally did it. They came out, and they put a number of Chinese companies on the entity list specifically designed to punish them for enabling detention in Xinjiang.

Ian Bremmer:

These were companies that were providing the tools to allow surveillance, and you can't do business with them anymore-

Samm Sacks:

Exactly.

Ian Bremmer:

... according to [inaudible 00:16:09]

Samm Sacks:

These are facial recognition, AI companies. And so the Trump administration came out and said, "We are the first administration to take China to task on Xinjiang and other issues like this." It's true, and I applaud them for taking action, but the timing is weird because they did it at a key moment as trade talks were going on, which either meant, one, they were trying to use it as leverage in a trade deal. Now, why would you use human rights as leverage in a trade deal, although I'm positive that's not the first time that's been done?

Ian Bremmer:

Yeah, sure.

Samm Sacks:

The other school of thought is that the decouplers, the real hawks in the administration-

Ian Bremmer:

Wanted the deal to die.

Samm Sacks:

Wanted the deal to die.

Ian Bremmer:

And that's why they pushed it.

Samm Sacks:

Yeah.

Ian Bremmer:

But it didn't work.

Samm Sacks:

Didn't work.

Ian Bremmer:

Didn't work because Trump wants a deal.

Samm Sacks:

Right.

Ian Bremmer:

But the decouplers still have influence.

Samm Sacks:

Huge influence.

Ian Bremmer:

So that's where we seem to be going. Okay, now, if you're not the United States and China, let's imagine you're in another country and you're watching all of this go on. You're sitting there in Europe, you're sitting there in Asia, you may be an ally of the United States, but China is increasingly your dominant trade partner. How do you respond to pressure from both the United States and from China that, "No, you listen to me"?

Samm Sacks:

Let's Look at Germany for a moment. They came out recently earlier this fall, and they said, "We're not going to ban Huawei from our 5G supply network. We're going to evaluate everybody the same, which means we're not going to target a company because it's Chinese. We're going to evaluate all the vendors based on the same technical cybersecurity criteria." And I was in Europe at the time, and one of the rumors that was percolating was Merkel is still furious about the fact that the US government was listening in on her phone calls as was revealed in the Snowden revelations. And this is saying, "Look, you have Chinese surveillance, you have US surveillance. Given the tight economic interdependence with China that Germany has, why would we shoot ourselves in the foot?" But I think Germany is still in play. I think there's still a lot of internal back and forth.

Ian Bremmer:

If Germany is seen to be trying to be more open to the Chinese, why would the Chinese foreign ministry be threatening the Germans and say that "if you take R5G out, if you go after Huawei, which is not a Chinese state company, then we are going to say that your cars are unsafe"?

Samm Sacks:

Germany's being threatened by both sides. So you have that.

Ian Bremmer:

I understand that.

Samm Sacks:

And then the Trump administration has threatened to cut off intelligence-sharing with Germany. Germany's in a really tough spot.

Ian Bremmer:

But you're saying-

Samm Sacks:

And where are they going to land in all of this?

Ian Bremmer:

Right.

Samm Sacks:

I don't know.

Ian Bremmer:

Yeah. So you're saying that the Chinese, despite the German perspective, the Chinese are not saying they're not buying this idea that the Germans are being even-handed.

Samm Sacks:

Well, it's unclear yet what they're going to do in the end. So in that measure where they came out and said, "We're going to evaluate everyone the same," they also put language in there that would give them a cover if they wanted to ban Huawei. Here's what they'd said. They said, "As part of evaluating these vendors, we're also going to look at the political system of the country that those companies come from and see if that vendor, meaning Huawei, might be subject to undue political influence." So what that does is, in one document, it leaves them room to go either way.

Ian Bremmer:

Right. So the Germans haven't made a decision yet. They're under pressure from everyone.

Samm Sacks:

Yeah.

Ian Bremmer:

And there are a lot of other countries. Let's face it, that's Germany. That's a big economy with more influence and with the focus on national security and rule of law. You have to think that weaker European economies that need the money more are going to be tilting more towards Beijing. Am I wrong about that?

Samm Sacks:

Totally.

Ian Bremmer:

That is what they'll do.

Samm Sacks:

I think we're going to see a spectrum of responses. I think you're going to have some which are going to do the UK approach. What the UK has done is they've had Huawei in the network for 15 years, and they have a system where they keep Huawei equipment out of what's called the core, the critical part of the network, but they allow it, say, in the part of the network that if there were a problem, maybe you couldn't watch your sports channel on TV. And then they have a center that evaluates everything that comes on. It's called the Huawei Cybersecurity Evaluation Center.

Samm Sacks:

So the idea is monitor everything that comes on the network, keep it out of the really critical stuff. And so some countries are probably going to take that middle approach. Other countries are probably going to just ignore the risk altogether.

Ian Bremmer:

Is this one where you can't get a little bit pregnant? Once you're actually working with Huawei, you're working with Huawei. Once they're in your system, they're in your system. What do you think?

Samm Sacks:

This gets into a pretty technical debate, which is in an era of 5G where you're going to have more and more devices connected to the internet, is it-

Ian Bremmer:

It's everything.

Samm Sacks:

It's everything.

Ian Bremmer:

It's your clothing, it's your refrigerator. It's not just your smartphone.

Samm Sacks:

So the idea that you can distinguish between the critical core and a device that's connected on the edge that you would think of as just your clothing, just a device; the idea is in this 5G computer era, will you even be able to draw that distinction? And I've heard technical experts argue both sides. So here's what I think this all comes down to. I think that if you see Huawei as a risk, it's kind of like a Rorschach test and the Rorschach test being, how do you see the Chinese government? If you see the Chinese Communist Party as a threat, then you're going to see Huawei no matter where it is in your network as a problem.

Ian Bremmer:

Samm Sacks, good to be with you.

Samm Sacks:

Thanks.

Ian Bremmer:

That's it for the podcast this week. We'll be back in your feed next week. Check out full episodes of GZERO World on public television or at gzeromedia.com.

Announcer:

The GZERO World Podcast is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients' needs first by providing responsive, relevant, and customized solutions. Visit first republic.com to learn more.