552: General Robert Spalding, Stealth War - How China Took Over While America's Elite Slept

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It's my pleasure to welcome Brigadier General Robert Spalding to the show. He is retired from the US Air Force and his book is entitled Stealth How China Took Over While America's Elite Slept. General, welcome. How are you?

Great. How are you doing?

Good, good. It's good to have you on the show. So a lot of talk about this, obviously starting maybe back significantly at the time of the Trump candidacy in and China has become quite an issue now with the pandemic and the origin being in Wuhan and so forth. Even more of an issue nowadays. Kind of take us through the premise that America's been asleep at the wheel and what that is costing us.

Well, I came this kind of smacked me in the face in 2014 when I was at the Pentagon. I was advising the chairman of the Joint Chiefs on China, had a team of China experts, guys that had lived in China, spoke the language, understood the government and the party. I had lived in China for two years. I spoke Chinese. I was an Olmstead Scholar, which is a program that the military has. And I'd lived in Shanghai and studied at Tongji University in Shanghai and really traveled the country and really gotten to know the people and the culture and history, geography, and spoke the language. So together we were working on understanding, understanding US China relations and US China competition from a strategic perspective. And I had just finished a year at the Council on Foreign Relations in New York. During that year, I'd met a lot of business folks, a lot of industry people, a lot of financial types, and I had a lot of relationships that I could lean on to really begin to understand this relationship from a much more fuller perspective, a more broad perspective. And one of the issues that that arose during 2014 was a briefing that was sent to me and I talk about it in the book. And the briefing really was put together by one of the top five accounting firms. And it talked about how provided vignette after vignette of U.S. companies that had come under attack, what I would call institutional attack from some of the Chinese intelligence capabilities and other capabilities for the purpose of taking some kind of intellectual property or asset in the company. And it was at that point that I realized that we had some real issues with regard to understanding that activity going on in the United States that was not presenting itself to the federal government in a way that we had an understanding of the implications to our economy. And that really started me on the path that led to the book Stealth War.

Excellent. So, as I mentioned when we started, our audience is very interested in the macroeconomic issues and particularly how it affects their personal finances and their investments, namely real estate investments. You know, we've talked a lot about how coming out of the pandemic, we think there will be a mass migration to suburban markets out of high density living areas and all sorts of factors like that. But on the US China level, it's interesting. I think candidate Trump from, from 2016 is going to sort of get his entire agenda stronger borders, jobs, back to America. We've seen supply chain disruptions that when it comes to, you know, life and death are very disheartening. You know, we, we gotta make some things in our own country. It's, it's part of national security. So what's happened in terms of the stealth war, of course, but then what's next for us? What can we expect?

So as I started to dig into this and as we, to isolate kind of the industrial base implications for our relationship with China, we really noticed that a lot of our capabilities that we had in terms of the military were absolutely dependent on the supply chains coming from China. And so we started going through that and that really is where this whole journey began. And then it expanded to understand more of the financial and economic implications of that relationship that led into the influence implications of it in terms of our institutions like politics and media and academia, certainly the corporate sector and Wall Street. And of course, that led to a whole host of initiatives in the first year of the Trump administration that really culminates in a new national security strategy in December 2017. So I led this team for two years in the Pentagon. Then I go to China to be the defense ATT and senior defense official in Beijing. And almost immediately after the Trump administration comes into office, I'm pulled into the White House to help architect the national security strategy. Really the strategy is based on the fundamental premise that Openness and globalization. The Internet is great if everybody agrees to abide by the rules, but if you have the number two economy that not only doesn't agree with the rules, but actually actively seeks to undermine institutions that our international order was based on and democratic, domestic democratic institutions in democracies everywhere, then you have a big problem. And so this belief that openness and globalization and the Internet would be able to spread democracy was kind of short circuited by what the Chinese Communist Party did after the Tiananmen massacre. And so if you just look at our foreign policy with regard to China, it was about making them rich so that they would democratize. In other words, if we help them grow economically and with our science and technology, that then they would liberalize politically. And of course, the Chinese saw this was happening particularly during the Tiananmen massacre, and set about engineering a society that today is more closed than any society and more capable in terms of science and technology, of remaining closed in terms of the economy by essentially taking the innovation, technology, talent and capital of the west and really dominating that society. So after the National Security Strategy came out in December of 2017, really the first quarter of 2018, so somewhere around March, April of 2018, you begin to see the Section 301 investigation, you begin to see enforcement by the Department of Justice and FBI. You begin to see the State Department turn a corner, and you really begin to unlock the enforcement mechanisms of the federal government and the diplomacy of the federal government to begin to protect U.S. institutions and U.S. companies. We're not there yet, but that's where I think we've been for the last two years, or almost two years until the coronavirus hit. And I think what the coronavirus has done is essentially solidify and not only in the minds of those that are in the federal bureaucracy, the challenge we face with regard to the Chinese Communist Party, but also in the American people. And I think what you're gonna see over the next three to five years is an absolute acceleration of everything that was occurring in the two years prior.

I'm so glad now that I went to China last year for three weeks with my girlfriend and really got to see. I mean, it is. Is quite an amazing. Especially you mentioned Shanghai.

Wow.

I mean, just wow. Anybody that goes there has just got to be blown away by the magnitude of progress. And I mean, look at Shenzhen too. You know what it was 20 years ago compared to today? I have a friend that lives there and has a manufacturing company there, and it's pretty incredible. But has a lot of that progress come as a result of cheating, not honoring intellectual property.

Whatever, rolling out, you know, trampling over people's rights, you know, just any sort of. It's all anecdotal, of course, but any. Any comments on that?

Well, no. I mean, I think their model is based on this idea that, you know, there's a feigned agreement with the terms of, you know, joining the international order, but a real active disagreement. And there's documents like document number nine that I talk about in the book that were internal Chinese Communist Party documents leaked and then translated that describe liberal democracy, free trade, these concepts that we hold to be true in terms of how nation states should work together, which the Chinese Communist Party feels are absolute threats to its continued survival and its leadership of China. And so it seeks to undermine those things at all times and everywhere, not just in its own country. So it really is the need to understand what the Chinese Communist Party is, to understand that China is not a democracy. It's not even, you know, people like to say, you know, capitalism, most with Chinese characteristics, but it's not capitalist. It's using the resources of the state to drive economic activity in a certain direction for the benefit of the Chinese Communist Party and uses. It undermines the system by essentially being devoid of rules. And there's a document that was written in 1999 by two PLA colonels that was translated, and it's called Unrestricted Warfare. Another description of the title is called War Without Rules. And it's really describing how you use the international system to essentially undermine a militarily superior foe, and you use that openness against them. And so what's happened is the Chinese Communist Party is very capably, slowly, over the last couple of decades, used their connection to our society and our openness to begin to turn our strengths of openness into vulnerabilities. So things like, you know, our trading system, you know, the Chinese don't actually comply with inspection requirements. They don't comply on the financial side with audit requirements. In fact, there's no real law that you can say or rule or regulation or standard that the. The Chinese Communist Party forces their citizens, and I would really call them subjects, to comply with. And so when you have such blatant and outright flaunting of the rules at all levels of the system, and you basically bring that into the order and you never. You never enforce the rules, what happens is the system begins to break down. And essentially that's what's been happening. And you see this at the United nations, you see it at the World Health Organization. The World Trade Organization, you see it at the World Bank. But now we're also beginning to see it in our own society as companies and financial institutions begin to essentially align themselves with the Chinese Communist Party because they're incentivized to do so, because the Chinese essentially always get their way. And so it really is beginning here. And if you just look at Chinese equities stocks, Chinese companies aren't required to meet audit and transparency requirements. They don't have to comply with Sarbanes Oxley like US companies do. They use that to essentially have companies that have really not the value that you would expect them to have to register and list their stocks in our capital market. That's just one example and there's literally thousands of others that I could go into that explain what this is. It's essentially a systematic undermining of the rules based order by failing to abide by any of the rules. And we've been looking the other way. And that's where it says, you know, while the elites were asleep, because we've been looking the other way in anticipation that one day China would change to be more like us. And what we found at the Pentagon is instead of that happening, we were changing to be more like them.

Interesting. So, so when you say the elites were asleep, do you mean all categories of elites or. You know, I totally think it's ridiculous by the way, and you were alluding to it a moment ago, that we allow these companies to use our capital markets, our stock exchanges, and you know, we don't charge them some giant fee to access our market. You know, which is sort of like a tariff debate too. You know, I do think there's a place for a little bit of that. And I'm, you know, I want to think of myself as a libertarian, but you don't have like an equally yoked system, you know, and it would make consumer prices a little higher, but it also give us a lot more jobs, which I think is going to happen anyway with the supply chain issue and the onshoring and the de globalization trend that I, I think will be swinging in that direction as, as we come out of this. But so all areas of elites or just the economic ones or you know, tell us about that.

No, it really is all areas and the Chinese are very prolific in terms of garnering these relationships. They do it in academia, they do it in the political system, they do it in the think tanks in dc, they do it in the law firms. So they basically begin to create these financial relationships with all of these different sectors of the society. So, you know, rather than, you know, the United States where Joseph and I talked about soft power, it's really the attractiveness of our culture and the engagement of the American people is more on a people to people level, not on a. The Chinese interact at an elite level and it's called elite capture. And it's really something they do quite well. And so it is literally across all institutions in the United States. Because the idea is once you capture the elites of those institutions, then they begin to act in ways that actually, you know, promote your interest. You know, on the economic side, when you have trade that is one sided, there's supposed to be a countervailing currency trade that tends to equalize that trade over time. The Chinese, because they have a closed financial system, there's no currency trade that actually works as a balancing mechanism for prices to create a leveling of the trade imbalance. So these are some of the things that they have that are met macro challenges. That no other country is allowed to have a non convertible currency yet be fully enmeshed in the global trading system. Yet here the Chinese exist as the number two economy to do that. And that allows them essentially almost the equivalent of a direct connection to the US blood veins where they're pulling out wealth every single year. Because there's no balancing mechanism just for that trade and then trading currency. That's just one example on a macro level, how we're being constantly drained and there's this belief that we have this free trade system and this led to these low prices because these things are manufactured in China. When in reality you have labor that's exploited, you have pollution that's horrible having lived there. The air, the land, the water is all polluted. It is really, it is really a dystopian future based on this idea that if we just opened up, everything would be better. And really the Chinese Communist Party used that to cement their utter control over the Chinese people and to really subjugate them using all of the benefits of being attached to the United States and the West.

For the first part of what you just said a moment ago, do we really have Bill Clinton to thank for that bad deal? It seems like it's, it could sort of rest on Bill Clinton's shoulders mostly, but every president has, until this one, I think, has kind of sold us out.

Well, no, I think it was also the Republicans. I mean, look, this isn't, this is a bipartisan issue.

And the Bushes too. You know, I'm not, I'm not saying that, but But Clinton was the one that really opened it up. Nixon pioneered it. I mean, if you want to go back further, you know, Nixon sort of opened it up, but, but Clinton really, really opened up the trade. And that was, you know, but a lot of cheap goods float in here and, you know, you like it when you go to the store. So I don't know.

Thoughts? Well, I mean, I think for us in the Pentagon in 2014 and 2016, and really for me today, it has been a journey of discovery. I think there's been a lot of culpability on both sides of the aisle. In fact, when I was at the White House, we got in this big argument right in 2017, and I describe it in the book. And I just said, I just got up and said, look, you know, we're all culpable in some way. You know, that's, that's really irrelevant at this point. We have to figure out how we get out of this. How do we, how do we make it right for the American people and really, how do we preserve our republic? And so the book is really talking about what we need to do to do that. And a lot of those things you're, you're seeing making tariffs permanent against China, preventing them from using our capital markets, preventing US Corporations from investing in China because there is strict capital controls and they can't bring those profits out yet they're reporting them to the markets. So there's a lot of things that we allow to be done that ought to be changed. And I think when you do that, you'll stop seeing the wholesale loss of innovation, technology, talent and capital to China. It'll really start to flow into the United States, back into rebuilding our country and our productivity and our wealth.

Yeah, good thoughts. Let's wrap it up. But I do want to. I'd be remiss if I didn't just touch on one more subject. I mean, you're a military general and I just got to ask you, should we be, how concerned should we be about China's military plans? That's obviously a giant subject, but I think a comment on that. You talk about Modern Warfare 5.0 and 5G. There's a lot to go into. But just any comments you have on kind of the military angle.

Yeah, so I'll just talk about national security in general. So we tend to think of planes and ships and tanks and bombs and bullets and what the. So what of the book is that national security today in a globalized, Internet connected world involves ones and zeros and dollars and cents. It's really about economics, finance and information and the ability of using the tools that Silicon Valley gave us, both the technology and the business models to influence populations at the individual level. Now, in terms of military power itself, the Chinese Communist Party has really built a very formidable military on the basis of intermediate range ballistic and cruise missiles. And so that's something that we're going to have to counter in the region. And that's administration pulled out of the Intermediate Nuclear Forces Treaty because we need to build conventional intermediate range ballistic and cruise missiles to counter that. But that's more of a deterrence. The military should be used as a deterrent. We should be focusing on the economic and science and technology power of the United States. That's where we derive our national security power is really the strength of the economy and our science and technology. And I think we lost sight of that. That's what carried us through the Cold War. That's what we've always relied on, is the strength of our economy and our technology base. And we've gotten away from that and we really need to return.

Yeah, good points. Give out your website and tell people where they can find out more. Obviously, the book is available in all the usual places, which by the way, it has excellent reviews and many reviews.

Yeah. General Spalding.com there's no U in Spalding. And then you can follow me on Twitter obertspaulding.

Excellent. General Spalding, thanks for joining us.

Thank you so much.

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