Bipartisan leadership of the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, Chairman Mike Gallagher (R) and Ranking Member Raja Krishnamoorthi (D), discuss the work of the committee to ensure the United States is well positioned to counter growing competition with China, across the trade, technology, development, manufacturing, and military sectors.
FROMAN: Well, good afternoon and welcome to the Council on Foreign Relations. I’m Mike Froman. I’m president of the Council. And we are delighted and honored to have this as our first real official program of the school year, so to speak. I see a lot of friends out there, friends of the—members of Congress as well.
And for me it’s a particular honor because, as you know, the Council prides itself on being nonpartisan. And what better way to demonstrate nonpartisanship and having this fully bipartisan commission here working out of the Council for a couple of days. And, of course, the chairman and the ranking member of the commission here with us. Congressman Mike Gallagher from Wisconsin and Congressman Raja Krishnamoorthi from Illinois, it’s great to see you both again. And welcome to the Council. And thank you for agreeing to do this program with us today.
GALLAGHER: Thank you.
KRISHNAMOORTHI: Thank you.
FROMAN: There’s very few topics that get as much attention as the ones that you’re working on. And I know you’ve been traveling around the country, talking to businesses, talking to a wide range of stakeholders about this. We’d really love to get your perspective on, first and foremost, China’s role in the global economy. China has traditionally driven about a third of global growth. We benefit from that, in terms of being able to export there. Mostly our trading partners benefited from it. And so Germany slows down because China slows down, Europe slows down, Japan slows down. It affects us back here. When you look at the China challenges that the commission’s looking at, do you want China to slow down? Do you want China’s growth to slow down? Or do you feel that there’s a role for China to continue to play a role in driving global growth?
GALLAGHER: Well, first of all, Ambassador, thank you for your hospitality. It’s—for those who don’t know, we have about ten members of our committee here. We’re parked here most of the day. We started the day off by going to the 9/11 ceremony at Ground Zero, which was very, very powerful. And we’re going to have a series of engagements today with people from your world, the financial and economic leaders. A lot of Wall Street leaders. And tonight, we’re going to do a little tabletop exercise, all with the goal of trying to better inform us and the members of our committee as we attempt to fulfill the mandate we’ve been given by the speaker of the House as well as the minority leader.
Which, as I interpret it, is to identify the bipartisan center of gravity, identify a set of policy and legislative proposals that can put us on a better path to competing effectively with China, and things that can pass even in divided government. And in that endeavor, I’ve been very lucky to be partnered with Raja Krishnamoorthi, who—he hails from some state to the south of mine that I don’t—I’ll dispense with the ritual Bears fans and Illinois fan jokes. But just been an absolute pleasure to work with. And has really set the tone for bipartisanship, seriousness. And so it’s been great to work with him.
One thing that it makes me nervous—I need to confess that I do see some people went to college with in the audience. And so there’s a lot of blackmail sitting in the audience on me. (Laughter.) I was lucky enough that Facebook didn’t exist until I was a junior in college. So I was the last—I was probably voted least likely to be a member of Congress at Princeton. And so Joey (sp) back there can tell you all the dirt on me, if he wants to.
Quickly, I very much would like China—the Chinese Communist Party, precisely—to stop it’s—what I perceive to be its totalitarian ambitions. I think it definitely wants to become the regional a hegemon, which necessarily means cutting up our alliance and partnership structure. I think it also necessarily entails taking over Taiwan at some point. I think that’s Xi Jinping’s lifelong ambition. And I don’t think his ambition stop there. So if Chinese economic growth is a means towards that end, or if that economic growth is just a way to fill the party’s coffers and invest in some things that we’re seeing right now—which is the largest sustained peacetime military buildup since at least the Second World War—and if you think about the numbers, they’re daunting. They’re overwhelming.
You know, we’ve been twiddling our thumbs trying to think about how we can grow the size of the American Navy. China not only has the biggest Navy in the world, bigger than our Navy by 41 hulls and growing—hulls that are an average newer than ours, right? And for those who say, well, it’s not a big deal. Our ships are more capable. Obviously, quantity has a quality all of its own. And you add into that the other facts, which are that China actually by some meaningful measures as the three biggest navies in the world. If you factor in the coast guard, the maritime militia.
To say nothing about what is most problematic for our Navy, which is their PLA rocket force, their anti-Navy. They’ve been designing a force exquisitely over the last twenty years so as to push us out of the region. That, to me, is a problem. What they’re doing in Xinjiang is a problem. To the extent that they’re leveraging their economic power to coerce American companies, foreign companies, that’s a problem. It’s that behavior we’re trying to stop. I would love to see a world in which China, the Chinese people continue to benefit from exposure to the global economy. But if the Chinese Communist Party continues on its current course, I don’t think we’re going to have an option but to selectively decouple, or de-risk, or diversify in key areas.
KRISHNAMOORTHI: I have not yet met a member of Congress who wants to seek to contain or suppress the legitimate economic aspirations of any Chinese-origin person, or anyone affiliated—anyone living in the PRC. I think what we’re very much concerned about is economic growth that comes from, in part, economic aggression. What are we talking about? We’re talking about this theft of intellectual property. We’re talking about dumping of products below the cost of producing them to drive our companies and whole industries out of business. We’re talking about cyber hacking. We’re talking about all the types of unfortunate moves that the Chinese Communist Party has undertaken to basically get a leg up on other countries economically, and other—and industries outside their country.
We were in Stoughton, Wisconsin—Bears need a visa—a diplomatic visa to—Bears fans needed a diplomatic visa to visit that part of America. But the serious point here is that Stoughton Trailers was on the verge of bankruptcy because Chinese competitors had dumped so much product on the market that they just couldn’t survive. But certain countermeasures were put in place to enable them to kind of stand up their operations again and be able to survive and thrive. And unfortunately, that’s the—that’s kind of the competitive posture that we’re in with them. They take moves. We’re going to have to counter them. And then we’re going to have to work with our partners, allies, and friends to multilaterally put pressure on the CCP to cease with further economic aggression.
GALLAGHER: Can I make one follow up point? I’m sorry. I think the president made a comment to the effect yesterday or two days ago, at the G 20, that as China’s economy slows it’s less likely that they can make a move on Taiwan. I don’t know if that’s true, right? And I don’t mean this to criticize the administration. I just think it’s equally as plausible that as China confronts serious economic and demographic issues, Xi Jinping could get more risk acceptant, and could get less predictable, and do something very stupid. And it’s sort of the nature of these regimes that because there aren’t robust feedback mechanisms that they’re sort of insulated from certain types of information. And so that really is one of the questions we’re also going to be digging into today. What’s the systemic risk? What’s the risk to the financial—the global financial system if Xi Jinping either invaded Taiwan, or did a blockade, or some lower-end scenario? And it’s a question I think we both approach with a great deal of humility. I’m not trying to pretend like I have an answer to that question.
FROMAN: What do you—just building on that—what do you view as the goal here? What is the new equilibrium that you think we should be seeking in the U.S.-China relationship? Yesterday, President Biden, when he was in Vietnam said, we don’t—we do not seek to contain China. Is the new equilibrium a new Cold War? Is it containment? Is it détente? Is a peaceful coexistence? Is it something that has no analogue to the U.S.-Soviet relationship because the relationship with China is different? What do you think we’re heading towards in this relationship?
GALLAGHER: Yeah. I think the near-term goal is obvious, at least as I see it. It’s preventing war. I mean, a conflict with China over Taiwan would be catastrophically destructive. The human costs are almost—d it’s impossible—even those of us who fought in wars in the last twenty years, I mean, the scale—it’s just—if one aircraft carrier gets sunk, that equals the losses in twenty years of war in Iraq and Afghanistan. I mean, it’s just—it’s crazy to wrap your head around that, to say nothing of the economic and financial costs. So making a deterrence by denial strategy work, preventing World War Three is, I think, the near-term objective that needs to animate most of what we do in Washington, D.C.
The midterm objective, I think—I think it’s in our interest to have American or allies control the commanding heights of critical technology. And we can argue about what falls under that definition, but some things are obvious—AI, quantum, nuclear technology. The long-term goal, I would argue, is—maybe this is where we disagree—I think we should seek to maintain our primacy internationally. I think a world in which America is the dominant superpower is a more peaceful and just world. That’s not America alone. Obviously, part of the reason we are in such a position, or at least were, is because we have this fantastic network of allies and partners.
Quickly, on new Cold War, and I think we have a different view of this, I find the analogy helpful. I’ve called it a new Cold War, both for the differences as well as the similarities it illustrates. And the differences are obvious, right? We never had to contemplate selective decoupling from the Soviet Union because our economies didn’t interact, whereas with China and what we’ve been digging into, I mean, we are—we’re conjoined twins in so many areas. It’s what makes this so difficult to untangle.
KRISHNAMOORTHI: I think that it’s got to be a situation where we have a—kind of a rules-based international order in the Indo-Pacific region where, as President Biden mentioned yesterday, they’re playing by the rules. There are some rules of the road that neither side, or no one in the region, is violating. What does that mean? Well, first of all, it means from a security and a military perspective, we don’t resolve our differences anywhere except at a negotiating table. There cannot be coercion or military means of resolving these differences. And unfortunately, our CCP competitors, you could say, don’t necessarily abide by that fundamental principle.
And you see that in the South China Sea, where they basically lay claim to the entirety of the South China Sea and their Nine-Dash Line. And I’m not just talking about the Barbie movie depiction of the Nine-Dash Line. But they’re also throwing their elbows at India in the Himalayas. Of course, we all know about Taiwan. And this has got to be off the table. You know, previous generations of CCP diplomats, and American diplomats, and Taiwanese folks decided we’re going to leave that question for the future. Maybe future generations will be able to resolve that. We can’t do so this moment. I think that’s, in fact, what Henry Kissinger, along with his counterparts in the ’70s, decided. We need—if we’re not going to get to that point, we need to get to some point where military aggression is off the table for that particular purpose.
And then, secondly, there have to be economic rules of the road that we can all agree to, OK? What we’re seeing right now are practices which my constituents, Mike’s constituents, I think the majority of American people, will not tolerate. And those irritants will continue to destabilize this relationship. I think that’s why it feels so fragile right now, because something like 80 percent of Americans view China not as a friend, not as a competitor, but sometimes as an adversary. And when you see that, you know, you kind of are on a road to a bad place. And so we have to change that. We have to change that fundamentally.
FROMAN: But how do you go about doing that? That was, indeed, the theory of engagement, right? You bring them into the international system. They’re going to begin to abide by the international rules and norms. I think there’s been some disappointment, obviously, along that path. Do you think we can compel them to do that through sanctions, through economic sanctions? Is it through selective decoupling, or de-risking? Or is it through some overwhelming change in the military balance of power where we have such a great deterrent capability that it changes their calculation?
KRISHNAMOORTHI: Should I—
GALLAGHER: Go for it, and I’ll chime in.
KRISHNAMOORTHI: On the military side, Mike and I are in agreement, I think, generally on this. Which is, we have not done enough with regard to equipping Taiwan in deterring military force by the CCP. Unfortunately, we kind of know what needs to be done, but it’s not being done fast enough. And although there are people in Washington, D.C. who would like to move faster, it hasn’t happened yet. So that’s one thing that has to happen, like, yesterday. And we can get into more details on that, but that’s one issue where I think Mike and I are in alignment.
The second is a tougher issue which is. with regard to economics, how do you get Xi Jinping, who’s rather—who’s a rather ideological person, to change his worldview and begin to comply with the rules of the road? I don’t know. I’m not sure it’s even possible. However, we have to hedge. On the one hand, if it’s not possible then we’re going to have to protect our values, protect our commerce, protect our industries. We’re going to have to work with allies, friends, and partners in stitching new alliances and perhaps even bilateral trade agreements that enable our friends who are collaborating with us to share in the gains of being part of that partnership.
And then, secondly, I do think that, on the other hand, it’s possible that these multilateral alliances and partnerships could potentially pressure the CCP to adjust. That is one thing that they fear more than anything else, which is us getting together with our friends and allies to put in place certain principles or, kind of, guardrails that would prevent the CCP from playing us off against each other. We’ve done so wonderfully with regard to Ukraine. And that’s something that we should, you know, probably implement with regard to Taiwan as well.
GALLAGHER: Well, first, let me say how much I agree with Raja’s point about allies and partners as an essential component of our strategy. There’s no successful grand strategy against China doesn’t, in my mind, involve a closer partnership. And it doesn’t need to be a formal treaty alliance, because some countries will never get to that space. But a more close partnership with countries like India, the Philippines—which is obviously already a treaty ally—Indonesia, which is an area where there’s really a dearth, I think, of focus and expertise in Washington D.C., as what we see arrayed against us is increasingly looking like an axis of authoritarian powers. China, being the dominant partner. Russia being the junior partner. And then, you know, with other—you know, rogue’s gallery of Iran and North Korea, and occasionally Venezuela. The obvious thing is that we need to build a stronger team to counter that axis.
I think the even more obvious point is that—because you framed it in terms of over two decades of failed engagement strategy—is let’s not go back to that strategy, which has failed and will, I think, continue to fail. At least as long as the Chinese Communist Party is led by Xi Jinping. My view—and, again, this may be a function of my own experience—but I do believe that the hard power component of our strategy, at least in the near term, is the most important. I think our best chance at deterrence is robust and smart investment and hard power.
I think that the failure of deterrence initially in Ukraine sort of proves the point that soft power, disconnected from hard power, deters, right? You’re not going to deter via the vague threat of sanctions or sternly worded statements coming out of the State Department if your adversary doesn’t believe you have a credible military deterrent. And so a near-term investment particularly in the things we’ve seen as so important in modern warfare in Ukraine—long range precision fires, autonomous systems, right—as, like, the things that can be numerous or less exquisite, less expensive, as opposed to massive platforms that take years to build. That, to me, is your most urgent, near-term priority.
The final point I would make, though, I do believe we have to selectively and strategically decouple. I know, there’s a debate about the right terminology—de-risking, decoupling, diversifying. Sometimes I’m confused as to what these different things mean. But a few things, to me, are obvious. I don’t think we should be financing our own destruction, right? We—people in this room probably disagree with my views about the level of restrictions we should put on American capital going to China. But I think, at the lowest level, we shouldn’t be allowing Americans in general, and pension funds in particular, to invest in Chinese companies that build artillery shells, aircraft carriers, and fighter jets. That’s, like, an obvious step we could take going forward.
A harder thing to do is how do you incentivize with the right mix of sticks and carrots the onshoring of key manufacturing to America? Where do you draw that line, right? Because we’re always going to have an economic relationship, at least over the next to twenty years, with China. I don’t have a problem if Wisconsin farmers want to sell soybeans to China. I don’t think either of us have a problem with Americans buying cheap textiles from China, as long as they’re not made with slave labor. So figuring out that line is, admittedly, very difficult. But I think it’s absolutely essential. And that, of course, implies a bunch of things that we in Congress need to do to get our house in order and function in more regular order. But, luckily, Raj and I are going to solve all of that.
KRISHNAMOORTHI: All of that.
FROMAN: You heard it here first. (Laughter.)
FROMAN: Let’s dig into that a little bit further, if we can, Mr. Chairman. The Biden ministration has proposed some ideas about restricting outward foreign investment in various sectors. You said it doesn’t go far enough. And you want to look at passive investment, index funds, basically any purchase of public company stocks from Chinese companies. And that seems to mean a decoupling of the global capital markets. Maybe pros and cons to that, including China as a major purchaser of our own treasury bills. Have to think about what that might mean for our own borrowing costs and the cost of our—of the debt of the federal government. How do you think about—is the goal to deny China money? Or is it to deny them the expertise and the technology to be used against us in particularly a military way?
GALLAGHER: Well, it is, of course, both. But, first, let me say something nice about the Biden EO. I don’t want to be like the evil—just like the evil, critical Republican on this panel. But, I mean, it was an important step forward, right? I mean, they sort of conceded the principle that there should be some restrictions on outbound capital flows. Now, where I don’t think it went far enough, I think by putting Treasury in the lead with a ton of off ramps, just given Treasury’s past behavior—and I say the Treasury under the Trump administration was the same way, right? I mean, it just had a more dovish position on China. Now, you can say that’s good or bad, and obviously it depends on who we’re talking about. But I just—I would expect that there won’t be a robust set of restrictions.
And then even though they said it was, like, sector specific—which, to me, makes sense. I don’t think you can play this Whac-a-Mole. We have all these different government lists. There’s the CMIC list. There’s the Uyghur forced labor list. There’s, like, four other lists. The lists are not routinely updated in a way that makes sense. Obviously, you don’t account for a lot of companies that change names, subcomponent companies, things like that. But you’re just left playing Whac-a-Mole with these different lists. And I just don’t think, based on my experience in government, that that’s a workable strategy going forward. And as you dig into the advanced rulemaking associated with the executive order, it seems it’s less of a sector-specific approach, even though they sort of sold it as we’re talking about AI, we’re talking about quantum, we’re talking about microelectronics.
But, perhaps most importantly, if you’re just talking about private investment—private equity, venture capital—that’s, at most, 17 percent of the problem. So what do we do about the rest of the money flowing to China? And we’ve actually, I think, heard some constructive pushback and feedback this morning in our meetings initially. Part of the reason we’re doing this trip is to really interrogate this issue, because regardless of where you fall on the issue—whether you think the Biden EO was too weak, too strong, whether you think we should do nothing, whether you think we should go more aggressive—I think Congress needs to step up and legislate the issue so we aren’t bouncing back and forth between different executive orders and different constructs.
And honestly, the biggest thing I think I’ve heard thus far in our short time in New York is that even those in the financial community who are less hawkish on China than I am, what they want above all other things is certainty, predictability, clarity. And if we legislate it thoughtfully, that’s what we can provide. And if we have an appropriate glide path so people can transition to the new guardrail regime, I think that would alleviate a lot of the concerns.
KRISHNAMOORTHI: I don’t think it’s about not investing in China. I think some people think, oh, well, we’re advocating for, you know, taking all money out of all Chinese investments. But there are certain areas that are problematic for us. And I think the EO kind of specified some of them—quantum computing, artificial intelligence, high-end semiconductor fabrication. Why those areas and why not others? Well, I think in part because some of those areas are being used, for instance, for generating surveillance systems and the persecution of Uyghurs in the Xinjiang Autonomous Region.
For those of you—I think most of you in this room already are aware of this, but there is a genocide happening in Xinjiang in northwest China today. OK, there are twenty-three million Uyghurs in that—in that province. All of them are surveilled individually. Two million—upwards of two million of them are in concentration camps as we speak. Eighty thousand women have been forcibly sterilized, six hundred thousand children removed from their families. I mean, this is just unspeakable evil that’s happening today. We should not participate in any type of endeavors that further that genocide. It’s that simple. So that’s the first thing.
The second is, we should not be funding the buildup of the PLA. We have index funds today in the Thrift Savings Plan—the Federal Thrift Savings Plan. I’m sure you were a member of that. I am a member, maybe Mike is as well. There are index funds that are funding AVIC. AVIC builds the fifth-generation PLA fighter jet that would be used in invading Taiwan. Not only that, but there’s so many other military companies that are being funded by us.
And then the third issue is there are a number of surveillance companies that are—that we could not possibly buy for the United States government—why? Because they provide backdoors to the Chinese intelligence service—that we are funding today through our investments. It makes no sense. And so I think that we want to be in the situation where we are able to invest, just as they invest in our country. But we don’t want to be investing in problematic sectors. And I think that’s kind of where we’re focused.
FROMAN: Last week we heard news that Huawei came out with their new Mate 60 Pro phone, allegedly with a Chinese-made seven-nanometer chip in it. Chinese are claiming this shows the lack of utility of our export controls, that they were able to do this much more quickly than anybody anticipated. How do you assess that product? How do you assess our export control regime? Because a lot of these efforts assume that we can actually control—whether it’s capital or technology. And that was one of the more robust efforts. Has it worked?
GALLAGHER: I haven’t used the new product. They have not let me get access.
FROMAN: I imagine you’re not—you’re not on Huawei.
GALLAGHER: So I don’t—no. But maybe I’ll see if I can buy one on TikTok later. Just kidding. (Laughter.)
Well, listen, I mean, I do think the export controls here—again, I’ll be nice and bipartisan—the October 7 rule was a good piece of work. And the fact that we brought the Dutch and the Japanese along with us. I mean, that was a big lift right there. But it was an interim rule. And it needs to be finalized with an eye towards shoring up the loopholes that allow China to get access effectively to the same functionality of the chips we’re trying to deny. In fact, that was one of the biggest things we heard in one of the first trips we took as a committee to Silicon Valley. It’s that their October 7 rule good but there are some deficiencies you might want to think about reworking. And, again, that’s a constructive role for the committee and Congress to play.
So I think our export control regime can be incredibly powerful, provided it evolves based on new information. And provided it’s actually enforced. I always have on my mind the fact that we grant something like 70 to 75 percent of licenses to Huawei. We have all these exemptions to restrictions that are on the books right now. And if we just were capable of enforcing them, I think it would have a more powerful impact. I do think, though, kind of to the point of your question, in a way these controls really—they can deny critical technology to an adversary that would use that technology for a dystopian purpose, along the lines of what Raja just laid out. And that’s just in general a good thing to do. If you can sort of, like, combat genocide, you should be in that business. It’s a noble effort.
But in terms of pure economic competition, maybe all they do is buy us time so that we can out-innovate and out-compete. And ultimately, that that’s our winning strategy, is to harness our unique system of innovation and freedom, and the fact that we traditionally have drawn upon some of the best and brightest around the world to come here, work here, invent things. I think that’s our winning economic and technological strategy over the long term. Put differently, it can’t all just be, you know, sticks, China bad. Like, we need to do, like, America, good, America kick butt on the world stage, independent of the controls we have.
KRISHNAMOORTHI: You sound like a Democrat, man. That is awesome. (Laughter.) Let’s legislate, man. Let’s do it right now.
GALLAGHER: I think our primary just—yeah.
KRISHNAMOORTHI: So here’s my thing, which is I agree with Mike with regard to the export controls. But one interesting thing is, you know, Gina Raimondo gave us a briefing before she left. And she has been very open with us, Mike and me, telling us exactly what she’s planning to do and what she’s going to talk about. I got to believe those export controls hurt, because that’s their number-one issue that they want us to change right now, OK? So they feel the pinch. And Xi Jinping hates it, hates it, that we are able to target the very semiconductors that he needs to help power their natural language models, their AI models, to get faster, and better, and more adept at all the stuff that they’re trying to get at. So I think it’s having some effect.
However, Mike is absolutely right. We have to up our game. We have to invest in basic science and research. You know, the CHIPS and Science bill, which you know very well, has a huge section for funding basic research and development. However, that part of the bill has not received any appropriations. It’s a weird thing in Congress where we pass stuff and we authorize stuff, only to have it die in appropriations because it doesn’t get any money. That is crazy.
We should absolutely be fully appropriating the monies required for basic science and research and development in AI, quantum, nanoscale manufacturing, robotics, and the like. Because the export controls will slow people down, potentially, but we need to be much further ahead in ten years than where we are right now. And although the government will ever do the applied research and development or the commercialization necessary to make the products, those private sector companies will actually take advantage of that research and development once it blossoms at our universities, our national labs, and the like.
The second thing, and I hope that you are on board because this was the main topic of our lunch just before we came down here upstairs, which was fix our immigration system right now, like yesterday. (Applause.) High-skilled immigration is the key—is the key to winning this competition, this global competition with the CCP. Because we can do all we—all we can to prevent the CCP from using our technology to compete with us in ways that we don’t want. But unless we have the people to do the innovation here, we have no chance. And yet our high-skill immigration system, and our immigration system in general, is so messed up. I’m an immigrant. I’m one of the few naturalized citizens in the United States Congress. So it’s a personal issue for me.
If we don’t get this right, we might as well just go home right now. And so I think that is a bipartisan issue that we should get behind. And it should be part of our general skills development package that—where we both stand up a high-skilled indigenous workforce and keep, and retain, and attract the best and the brightest from around the world.
FROMAN: Chairman Gallagher, do you want to endorse that?
KRISHNAMOORTHI: Don’t say border. Don’t say anything about the border. (Laughter.) If you say the border—
GALLAGHER: I’ll plant the flag and come back to that. Wait, does that mean you can’t be president then, if you’re—
GALLAGHER: Oh, you can? You can’t? We’ve invested all this time in you. (Laughter.)
KRISHNAMOORTHI: Ranking member is pretty good. (Laughter.)
GALLAGHER: Gosh. Oh, that’s a bummer. But I think the principle is obvious to me. And I think most of America could get behind it, which is we should make it difficult if not impossible for people to come here illegally and make it easy for people to come here legally. And I think we have to solve both issues, right? You can’t—you can’t get to an immigration fix if you don’t solve the border issue. It’s just not—I get the politics are terrible here but, like, the two things are inextricably linked. So we are in—to sort of concede the broader point, like, we’re in a global war for talent. We should want the most talented and hardworking people to come here and start companies here, specifically in Green Bay, Wisconsin. (Laughter.) That should be the goal.
FROMAN: And including from China.
GALLAGHER: So the challenge we have there, we confronted this in the Trump administration and we still confront it today, is, OK, so how do you have adequate security protocols in place, right? The Trump administration had a PLA researcher ban in place for American universities. This was eminently sensible to me. However, it’s based on the assumption that the intelligence community can accurately assess who’s PLA affiliated; who’s not; who’s a member of some, like, opaque, united front work department-connected organization. And as those of you who are true experts in this stuff, know, that’s a very difficult thing to do. So you’re left sort of contemplating, do you keep the status quo? Which allows our research enterprise to leak like a sieve, like, we just shed valuable intellectual property all the time? Or do you adopt a blunter instrument, knowing full well you’re going to deny a lot of well-meaning Chinese citizens from potentially one day, you know, coming to America or becoming an American citizen one day? And that’s the real dilemma we’re in right now.
KRISHNAMOORTHI: I think on a more—I know where I stand on this. I think, you know, our Chinese American scientists, scholars, innovators, industry leaders, and so forth, are some of our most talented people in America. And I want to just applaud Mike, from the very start of this committee, saying that our committee will stand against any xenophobia, any prejudice, bigotry or hate, directed toward anybody, including Chinese Americans, Chinese-origin people, and so forth.
One of the—one of the things we found out as a committee, Mike, which is really very sobering—but something I should mention to all of you, and Mike and I talk about this quite a bit—which is that the CCP unfortunately uses coercive means against Chinese-origin people here to do things that they want to aid their enterprise in a way that is very deeply disturbing. In New York City, they set up a police station. I’m sure you folks read about it, the FBI raid. They set up a CCP police station in New York City to go after people who are critics or dissidents, to go after Chinese-origin students at the various universities. I think you met with some folks at Columbia University. And this is a very, very troublesome problem because we want to attract the best and the brightest from China, but we need to protect them at the same time from these this type of coercion.
FROMAN: I’m going to open it up for questions in one minute. Last question here, and I think we’re just getting to it right now, which is where do you two disagree? (Laughter.) And we’ve got half a dozen or more members of your commission upstairs. Where are the major divisions within the commission?
GALLAGHER: Yeah. Most of our disagreements are sports related. (Laughter.) Well, I also have a serious immigration issue in my district with wealthy Illinois—how I would say, Illinoisans? Illinoisers?
GALLAGHER: I called them sibs, but I won’t explain that.
KRISHNAMOORTHI: Illinoisians, yeah.
GALLAGHER: Coming in and buying up our land. So that’s—(laughter)—
KRISHNAMOORTHI: He’s going to put that into the CCP land acquisition bill that—
GALLAGHER: Well, I think, honestly—and pushback, Raj, if you think this is a mischaracterization—the biggest—well, some of the biggest differences are not necessarily Democrat versus Republican. I think there’s, like, the median view on Wall Street on China is much different than the median bipartisan view on China on Capitol Hill. And that’s really kind of why we’re here. I find that interesting. And I want to understand the different views. However, the biggest differences between the parties—putting aside, like, what the actual fix to the immigration system looks like, I doubt we’re going to get around to that in September, but maybe. Hope springs eternal.
I think—I mean, I’ve been critical of the Biden administration’s recent push for economic and diplomatic engagement. I think, though, Raj and I would agree that it would be wise for us to have a crisis communication channel in place. We disagree about the utility of that push, but I’ll allow Raj to speak for himself. The relative prioritization of climate change as an issue and energy policy more broadly, there’s huge differences between the party. And that that sort of explains, I think, while a lot of Republicans voted against the Inflation Reduction Act and some recent legislation. It’s really disagreement about energy policy. There are concerns in my party about we may just paradoxically be making ourselves more dependent on China with this push to EVs, given the subcomponent parts are produced largely in China, the battery technologies in China. There’s meaningful disagreements on that issue. What else? Trade’s interesting, and I’ll stop here. Because I feel like both parties are hostile to trade right now.
FROMAN: I’ve noticed that. (Laughter.)
GALLAGHER: Yeah. I’ve been blaming you. (Laughter.) But, no. But I think, like, if we just accepted the reality that a big multilateral trade agreement is not in the offing anytime soon, I still think he could have a pretty robust set of bilateral agreements if we had some alacrity, if we had some urgency. I, for one, have argued for a free trade agreement with Taiwan, a post-Brexit gold standard trade agreement with the U.K. I get that that’s not as big as, like, a CTPP—what—
KRISHNAMOORTHI: We got to stop renaming these things.
GALLAGHER: But it would still—I think it would still have a big—it would have a big impact. But trade is—it’s weird. There’s no clear partisan divide on the issue. I probably just said a couple things that would offend the leading trade voices in my own party right now.
KRISHNAMOORTHI: I think—I think Mike is right about those differences. Another is industrial policy. Which, you know, I’m a big proponent of the CHIPS Act. I’m not—did you—did you vote against it?
GALLAGHER: I voted against it, yeah.
KRISHNAMOORTHI: OK. So there were a lot—
FROMAN: You knew that. (Laughter.)
GALLAGHER: Playing it. I got to stop saying nice things about you.
KRISHNAMOORTHI: So there’s a disagreement. I think it’s principled. Let me put it this way. There’s a principled disagreement about, you know, should the United States government choose certain industries? And, I mean, worst case, chose to certain companies to end up getting a leg-up, either on their competitors or for industries to get a leg-up on maybe even competitor industries. You know, I think there’s a disagreement fundamentally on that. although it was a bipartisan bill which I think is going to make a big difference with regard to microelectronics and semiconductors.
I think there’s a disagreement with regard to the way in which we talk about it. And we haven’t talked about this maybe in depth, but I think that it might relate to the engagement piece. You know, when Gina Raimondo, and John Kerry, and Tony Blinken, and others go to China and meet with their CCP counterparts, I think that’s a really good thing. I think it’s a great thing, because I think you have to have dialogue. And when you’re talking, you’re not fighting. Of course, words are nothing compared to action. Actions speak louder than words. We all know that.
But we’re not able to establish a regular line of communication now where we can actually explore those areas where maybe in the Venn diagram there’s some overlap and we actually have an interest, for instance, in jointly tackling fentanyl trafficking, or jointly tackling other issues of common concern. And so, you know, sometimes my Republican counterparts don’t like for us to even talk about it in this way, because they fear that we are making concessions before we talk to the CCP. And I disagree. I think you can talk—you can walk and chew gum at the same time.
FROMAN: Great. Well, let’s open it up.
Jane Harman. Oh, you may remember her. She was a member of Congress once upon a time.
Q: Hi, everybody.
Q: Mike Froman, first, as a longtime CFR member, I just want to say how delighted I am that you are now president of CFR. And it’s a great thing for the country. (Applause.)
Q: And a comment about Mike Gallagher. He’s one of three Mikes, like The Three Tenors. Mike Turner, and Mike McCaul, and Mike Gallagher chair major committees in the House, and do it extremely well. So as a lifelong Democrat, I admire you enormously. Just want you to know.
I chair the Commission on National Defense Strategy and also the board of Freedom House. And I ask this question on their behalf, but also mine. If you were Xi Jinping right now looking at the House of Representatives, and looking at all the threats of closure, just saying, and some of the ideas that are floating around, not commenting on whether they’re good or bad but just commenting that they’re floating around. Would this make you more likely to be risk ready and say, the United States is falling apart so I might as well move on Taiwan, or not?
GALLAGHER: Great question. And thank you for not only your remarkable record of public service, but you’ve always been incredibly kind to me even when I was just, like, a no-name congressmen who ranked, like, 415th in seniority. So I appreciate that very much.
Well, my whole working hypothesis is that the next—like the window we’re in right now is what I call the window of maximum danger. And there are reasons for that that have less to do with the House of Representatives at this particular moment, and more to do with the demographic and economic challenges that Xi Jinping faces, and the demographic buzzsaw that will become most acute in the next decade, Put differently, if Xi Jinping wants to take Taiwan—and I know people disagree about whether he actually wants to do it—I think one of the lessons of Ukraine is that when dictators tell you they want to do a thing, you shouldn’t discount that thing. You should at least plan around it. And he keeps telling us that he wants to take it by force if necessary. I think this is the window.
The window will kick off really in earnest after the Taiwanese election in January, and particularly if the DPP wins. But the other variable or set of variables, because we have a bunch of big defense bills that are coming due. Our priority force, the Navy, is getting smaller. On the current plan, it’s going to bottom out at 280 ships in 2027. That’s the year Xi has set for his military to be ready to take Taiwan. So I think now is the most dangerous time. So if we can find a way to make deterrence work in this decade, what some have called the decisive decade, then I think the playing field gets a little bit more favorable for us.
Certainly, government dysfunction doesn’t help anything. I have probably more radical views about how to fix it that would anger a lot of my colleagues. But, yeah, it’s just hard to plan. And, as a defense guy, I’ll shut up after this, I mean, think about just the devastating impact that CRs have had. I mean, the Pentagon has operated under CRs for an absurd period of time in the last decade. Which means you can’t do any new programs. It’s the dumbest way to operate, just say nothing of the effect of the FY 2013 sequester. By the way, we’ll have another sequester if we haven’t passed all twelve regular appropriations bills by January, which would be an indiscriminate across the board cut. I mean, like, we just don’t learn our lesson. So that that would be a bad outcome, for sure, for defense.
KRISHNAMOORTHI: Well, first of all, thank you for your service. And I think we had lunch with your son upstairs.
GALLAGHER: We did.
KRISHNAMOORTHI: Mr. Frank. So thank you, again. And Mike and I sit on the Intelligence Committee, which I believe you were the chair for in the past. So thank you so much.
Yes. The answer is yes. Government dysfunction, a government shutdown, would absolutely give signals to the CCP that we don’t have our house in order. Would it lead to them more likely, you know, moving on Taiwan? I’m not sure about that, because they have other problems. One of which is, you know, Xi Jinping doesn’t think his own military is ready to move on Taiwan. And that’s in part why he routinely exhorts them to get out of what he calls “having the peacetime disease.” He views them currently as kind of an inferior fighting force in a lot of ways. Whether they are or not is a different issue, but they are very insecure about their own capabilities to move on Taiwan right now. That might change over time, and so we should be prepared. And we have to make sure Taiwan is able to deter that type of a move.
I think the other point I would make, however, is just more broadly, like, I view this as kind of like a Sputnik moment, folks. Like this issue of the competition with the CCP has really united Republicans and Democrats in a way I’ve seen few other issues do in in Washington, D.C. And I think we have to use this moment to get our own house on order, whether that is starting to deal with the long-term deficits and debt, which I think everybody in this room are pretty concerned about. As Mike mentioned upstairs, the way to make sure we have dollar dominance, as many of our participants mentioned, is we got to start paying down the debt. And we got to avoid the long-term debt.
Another issue is we’ve got to make sure that on the most pressing issues, whether it’s immigration or other similar seemingly intractable issues of climate change and so forth, that we have a situation where we’re not just driven to action in crisis. We cannot just be a crisis-driven organization in Congress. And so I’m hoping that, you know, what’s going on with the CCP will help us to kind of fix some of our small-d democratic problems, even at the same time that we’re dealing with tactics and strategy regarding Taiwan or other issues.
FROMAN: We’re going to go to our five hundred virtual members who are listening in and see if there’s any questions there.
OPERATOR: We’ll take our next question from James Siebens.
Q: Hi. Good afternoon, gentlemen. Thank you very much for your presentation. My name is James Siebens. I’m with the Stimson Center.
I wanted to ask, you’ve both spoken about restrictions on outbound investments, index funds, pension funds, et cetera, preventing those from being invested in Chinese companies, especially those involved in military-civil fusion, et cetera. So I wanted to ask you if this is really a kind of instrumental approach to countering China’s military and economic modernization, or if you see this as kind of a principled approach to ensuring that American investments don’t support human rights abuses in countries around the world?
GALLAGHER: I’ve always thought of it as a principled approach. I mean, I think the principle of not expediting or subsidizing your own destruction is inarguable. I guess, it depends on your view of the regime in China. Like if you think the CCP has benign intentions, maybe you’re less exercised about American capital flowing into China. To me, it’s obvious that they are doing things which we find morally as well as geopolitically objectionable. And maybe there are times when you have to make difficult choices between, you know, moral concerns and strategic concerns on the world stage, or at least history suggests that’s the case. But now is not one of those things. I mean, our values and our raw power politics actually aligned in this instance. And so, yeah, I think give given everything that CCP talks about in terms of severing our alliance structure, displacing us from the region, taking Taiwan, given the ongoing genocide in Xinjiang, I think there is a principled argument for putting in place restrictions on outbound capital flows.
KRISHNAMOORTHI: Yeah, again, I’m not exactly sure what instrumental means, but I think it may be a way of saying is this an effective way of also, you know, dealing with the modernization issues in the military-civil fusion issues. I think so, but it’s probably not going to be enough because, as you know, the amount of money that we put into these programs can easily be replaced. You know, Middle Eastern countries or others could put—could replace our capital with their own, or the Chinese could put their own money into it, replacing our own. And so they could continue with their modernization from a financial standpoint without too many bumps in the night.
However, I think what we do need to do is, just like we did with the semiconductors—the high-end semiconductors—we’ve got to engage our partners, allies, and friends on a multilateral basis with regard to whatever endeavors that we are tackling. Because if we don’t, they’re just going to play us off against each other, and they’re going to disadvantage our companies and industries, at the—you know, with the French or someone else gaining an advantage. So I think we have to do more than just what Mike and I are talking about with regard to these outbound restrictions.
GALLAGHER: Yeah. And that made me think about this massive opportunity we have right now. I think there’s just—there’s a ton of bipartisan support for AUKUS right now—Australia, UK, America. Us sharing our sensitive nuclear submarine technology with the Aussies. It’s more than that, but—and I’ve been very supportive of AUKUS. I just came from Australia. But we—like, we are screwing it up if we don’t do a few key things beyond just figuring out the big, long-term way in which we allow Australia to have access to our nuclear submarine industrial base and sell them a few Virginia-class subs in early 2030s, without sort of going further south in terms of our own submarine requirements.
There’s a short-term opportunity to turbocharge technological cooperation within the beating heart of the free world. We have no closer alliances than that which we have with the Aussies and the Brits. And yet, we still have outdated roadblocks to cooperation in the form of ITAR, the International Traffic in Arms Regulations, that make it exceedingly difficult for us to share human beings and knowledge and technology, even with allies with whom we share sensitive intelligence. Breaking down those barriers strikes me as an obvious thing we could do this congress, and a way of going beyond just kind of—
KRISHNAMOORTHI: It’s crazy, because there’s a large AUKUS caucus, OK? (Laughter.) And yet, people can’t act. And that’s kind of the sclerosis which generally has beset Congress.
FROMAN: Paula Dobriansky.
Q: Michael, so congratulations not only on coming in but also on a terrific first program of the season.
Beijing has launched what some have categorized as a type of peacekeeping effort, the peace plan for Ukraine, the Saudi-Iran deal. So what’s your perspective? Do we ignore it? Do we counter it? Do we engage in it in some way? What is the commission’s word on this? And I got a tag on, you’ve been great on the Uyghurs. What about Tibet? That was part of my portfolio at State. What about Tibet?
GALLAGHER: Thank you, Ambassador. Do you want me to go, do you want you to go? What’s cooking on Tibet? We did have an event outside the Chinese Embassy in D.C. with a bunch of Tibetans. And there is, as we talk about an actual genocide, there is a cultural genocide underway in Tibet. And what’s happening there is horrific. And I think it’s a story that not enough Americans know about, and it’s a story that I think we could—we could tell on the committee. So I appreciate your work on that. More broadly, on the peacekeeping effort, well, first of all, I mean, like accepting peacekeeping advice from Xi Jinping would be like, what’s the relevant analogy in New York? Accepting investment advice from Bernie Madoff? I don’t know. (Laughter.) Like, it just—it makes absolutely no sense.
FROMAN: Maybe a little too close to home here.
GALLAGHER: Yeah, sorry. Sorry.
KRISHNAMOORTHI: Be careful. Be careful, Mike.
GALLAGHER: That reference is outdated. So if that’s too soon, like, I don’t know what—yeah. (Laughter.) But, like, I mean, he is Putin’s no-limit partner. He is, in some meaningful sense, funding Putin’s war machine. I mean, that if you read the no limits partnership agreement, I mean, it’s clear that a lot of people underestimated the depth and breadth of this partnership. And I would argue both of these countries are, in fact, waging cold war against us. And we need to—so any attempt to sort of separate what’s happening in eastern Ukraine from the balance of power across the Taiwan Strait, I think, would be a bit myopic. And I think we have to—we have to engage. And all the more reason why Raj’s key point about building allies and partners systematically as we see this axis of authoritarians arrayed against us is even more critical. I’ll stop.
KRISHNAMOORTHI: Yeah, I think, so two points. One on—I’m not worried about their peacekeeping efforts. And if they want to play a substantive role on peacekeeping, like, they really want to use their leverage with Putin to do something significant in Ukraine, I think that’s great. Because we don’t have a lot of leverage with him ourselves and we want to see a just end to this war. However, if part of their thirteen points—I think it was a thirteen-point plan. I forget, was it fourteen or thirteen? I forget. Anyway—twelve, OK. I always get—I always get it wrong with his twelve- and fifteen-point plans. Anyway, this twelve-point plan did not anywhere mention that Russia would have to pull out of Ukraine, OK? So what kind of peacekeeping or peace agreement would that be? So that’s one thing.
On the other issue, you brought up—oh, playing a role with Iran and Saudi Arabia. Again, I think that’s great. Anything that they do to help to mend fences there is fine. It’s not really effective, based on what I could tell, because they’re not willing to really put their oomph into trying to kind of play the role of mediator. Obviously, what we are trying to do, what the Biden administration is doing right now is much more powerful, right? If they could weave a grand bargain involving Israel and Saudi Arabia and do something with regard to the Palestinian question all at the same time, that would be a real coup. And obviously, you know, this hasn’t—with an eye toward what’s happening in Iran.
I think that wherever we can work with the CCP, we should. I just really question, you know, whether they are doing it for appearance’s sake, to show Macron and his colleagues in Europe that they are actually playing a constructive role, as he tries to drive a wedge between the Europeans and the Americans. Or whether they’re really doing it sincerely. I think it’s the former.
FROMAN: I’m sure I’m going to violate Council policy by asking for two questions. And then we’ll give our panelists the final words. So Daniel Rosen and then one from—one from our virtual audience.
Q: Thanks. Dan Rosen from Rhodium Group.
So, year to date, global corporate investment FDI into China has collapsed to a three-decade low, right? Back to pre-Tiananmen Square levels of direct investment. This is happening without draconian controls from anybody on outbound capital flows. If we were to pass that right now, we would hand the Communist Party the perfect explanation for why people in free markets around the world are not going long on China anymore. And that could really gum up what would otherwise be a great teaching moment, it seems to me, that the sort of, you know, cost of illiberalism that we’ve long expected would come to pass in China is actually happening right now. And we really need to, you know, put a light on that, rather than letting them draw the foul and blame it on us. Comment.
FROMAN: Comment from above, from online.
OPERATOR: We’ll take our next question from Bryce Lee. Mr. Lee, please accept the unmute now button. Seems we’re having difficulties, so I’ll turn it back over to you, President Froman.
FROMAN: All right. You want to respond to that?
GALLAGHER: Go ahead. Well, first of all, you guys had a recent analysis of, I think, a blockade scenario, and the cost. So even examining a scenario less than war, per se, or conventional, certainly strategic war, I forget what the overall cost, but they were incredible. Three trillion dollars, right? I mean, so these are—these are the stakes at the low end of conflict. Think about the stakes at the high end of conflict.
I take your point about FDI. I guess, alternatively, there’s never a better time to put in place guardrails that will last regardless of what investment looks like over a two year period or a three year period, or regardless of what administration’s in place, or who has control of Congress than right now, when it seems that people are more accurately assessing the risk of doing business in China. And the risks range from having your assets seized in the event of a Taiwan conflict to, as you know, the risks inherent to owning variable interest entities for which there are no shareholder protections, which are, like, VIEs are to real securities as like what real football is to fantasy football. Like it—there are risks I think your average American doesn’t understand. So I still think there’s sensible legislation in the offing that could be done.
And more to the point, to kind of wrap all this up—and I’ll shut up after this, I talk too much—it just—it seems to me that Xi Jinping is preparing for war. And that may seem absurd to this audience. And I may seem like an unsophisticated rube from the Midwest for saying that. But we tend to underestimate the probability of these things. I see Roger Hertog there. Roger forced me to teach a class on the Korean War last month. And it was a really rewarding experience. And you think about the time period we were in. We had just won World War Two, right? This massive victory. Our economy was going gangbusters. The sentiment was let’s bring the boys home. Then all of a sudden we had to deal with this this new threat in the form of the Soviet Union.
And because of a few diplomatic missteps, because we decimated our own military, because we civilianized our military, we stumbled into a conflict on the Korean Peninsula for which we were not prepared. And we lost 36,000 Americans in a war that is largely forgotten. That is a—that is a bad outcome. We should seek to avoid something similar from happening in the present day. And the reason I have this on my mind is because there’s a cult of the Korean War right now in China. Xi Jinping talks about it in a lot of his speeches. Chinese students are forced to study the Korean conflict. But the lessons are different than the ones we draw on the West.
This was, in their opinion, a time when they stood up to the technologically superior Americans and they won on the battlefield. The highest grossing Chinese movie of all time is a movie about the Korean War, which tells the Battle of Chosin Reservoir in a slightly different way than we learned it as Marine Corps officers, right? There’s something going on here that we need to take seriously. That’s what the purpose of this trip is about. Because, again, a war between our two countries would be absolutely horrific. And preventing that outcome, I view is one of my missions on this committee and in Congress.
KRISHNAMOORTHI: I echo that. Just piggybacking off of one thing he said, one thing everybody—perhaps a lot of you already know this. Xi Jinping’s role model, his hero, is Mao. And Mao’s famous saying around the Korean War is, “One punch saved 100 punches.” What was he talking about? There was a preemptive attack on the Americans in the Korean War over the Yalu River. That is the outcome we cannot have here. And let’s be very clear, if we go to conflict with—over Taiwan, there is a nontrivial chance of a preemptive attack on American interests or targets by the CCP. It’s not like this would be over there. It could be right on our doorsteps. It could be our American servicemen and -women who would be attacked. Or it could be an attack on our critical infrastructure in America as a brushback pitch to keep us out of a conflict over Taiwan.
There is severe potential for miscalculation. He doesn’t get it, I respectfully submit. And that’s in part why I so strongly support the diplomatic outreach right now. They don’t understand that Americans would not ignore an attack on our interests or on our people. We would fight, and it would be catastrophic. We cannot go there. So that’s why in response to your question I absolutely think we have to put the guardrails in place right now, make it super clear, if it’s not crystal clear, to Xi Jinping himself exactly where and where we will not go with our investments, and send a powerful signal in the process to the private sector not to do the same. We must do that.
Furthermore, I have to say that what’s happening within China is a tremendous economic slide. I think all of you probably know this already. But the one statistic that jumps out at me is that is, as someone put it artfully today, 25 percent of people the age of twenty-five are unemployed. Their youth unemployment rate is off the charts. And why does that matter? Well, with the one-child policy, as you know, well, Mike, one child was supposed to take care of his or her—usually his—parents and four grandparents. There is no social safety net. There’s no social security in China. They are relying on their children to take care of them or to help take care of them in old age.
When you have one child in whom you invested all your hopes, your dreams, your money, everything to get educated, and then they come out of college and they can’t get a job, well guess what? There are a hell of a lot of people who are upset. And that’s what’s happening within China right now. There are a hell of a lot of people who are upset. Consumer confidence is in an all-time low. They don’t want to buy stuff. That is Xi Jinping’s fundamental problem. And I would just respectfully submit, he should turn inward, cease with the economic and military aggression. Turn inward and fix your own house. And if we can play—if he can play by the rules of the road, other countries might be willing to engage more. But until he does that, it’s going to be a tough slog for them.
FROMAN: Well, it’s been a real privilege having you here, not just for the quality of this conversation but to see this bipartisanship in action and to see you traveling here and around the country to gather ideas, and listen, and incorporate that into the commission’s views. It really is—it’s very inspiring. So thank you very much for being here. (Applause.)
KRISHNAMOORTHI: Thank you.
GALLAGHER: Thank you.