China Will Defeat The USA Unless....

Fall 1993. Executives from America's top defense contractors were invited to the Pentagon. The Cold War was over, and they were anxious to hear about the future. The Secretary of Defense didn't waste his words. Defense spending would be reduced and fast, and many of the companies represented in the room wouldn't survive. And they didn't. Fast forward to October 2020, deep in the heart of the same building. While the rest of the world is reeling from the COVID 19 pandemic, US military planners were running a war game. On paper, the enemy didn't have a. But everyone in the room knew it was meant to be China. The US didn't just lose. It had its clock cleaned. The Vice Chairman of the Joint Chiefs of Staff said that the enemy knew exactly what we were going to do before we did it. And they took advantage. The war game proved that the US Military was struggling to cope with the new way of war. And it showed everyone that China could actually win. If you care about things like democracy and free speech, this should scare you. But the United States has an ace up its sleeve, an untapped source of talent that can help its military reclaim its status as the the best in the world. And in this video, I'm going to tell you about it. To fully understand this story, we've got to go back to the 1940s. During his presidency, Franklin Delano Roosevelt would often talk to the American people via scripted fireside chats. These were significant events. Families would huddle around the radio to hear what the President had to say. Roosevelt delivered one of his most important. In the final days of 1944, World War II was raging in Europe. The US hadn't entered the war, but FDR was still determined to help. He explained to the American people that they had a job to do.

We must be the great arsenal of democracy. For us, this is an emergency as serious as war itself. We must apply ourselves to our task with the same resolution, the same sense of urgency, the same spirit of patriotism and sacrifice as we would show were we at war.

To help the war effort and maintain national security at home, the United States would use its unmatched industrial manufacturing capacity to help its allies fight off the Nazis. The Japanese attacked Pearl harbor less than a year after he gave this speech. And despite wanting to stay out of the war, the US Was dragged in. But the arsenal of democracy remains a powerful concept. We would all prefer to live in a peaceful world that doesn't require armies. Instead, we live in a dangerous world. And in a dangerous world, the best way to Stay safe is by becoming so strong that no one will ever threaten you. That concept is called deterrence.

Deterrence, that's what it's about is you scare somebody away from doing something you don't want them to do by making them fear the consequences. To do that, they must know what the consequences are.

Let's go from the middle of one war to the aftermath of another. After both nations played a leading role in defeating the Nazis, the US And Soviet Union locked horns in the Cold War. This epic battle of ideology and technology spanned 45 years. But the pressure of keeping up with the US eventually proved too much for the Soviet Union. It collapsed in December of 1991 under the weight of a stagnant economy, unsustainable military spending and civil unrest. For most people, the end of the Cold War was great news, but it was bad news for America's defense companies. A world with an unchallenged superpower was not a world with big demand for American military hardware. People even started talking about a peace dividend. Basically taking money which used to be spent on national security and putting it into health, education or tax cuts. Sounds pretty good in theory. Even Dick Cheney, who would go on to become George W. Bush's Vice President, talked about cutting costs.

Because we now face neither a global threat nor a hostile non democratic power dominating a region critical to our interest. We have the opportunity to meet our requirements at lower threats levels and at lower cost.

Between 1991 and 1996, defense spending fell by more than 15%. An in house Pentagon study came to the conclusion that the United States didn't need so many companies making fighters, bombers, tanks, submarines and missiles. That was the context which led to the Secretary of Defense, Les Aspin and his deputy William Perry, inviting defense industry executives to the Pentagon. On that fateful night in 1993. One industry leader called it the last Supper. The administration officials wanted the industry to become leaner and more cost efficient. Again, sounds great in theory. They encouraged the executives to consider mergers. He even said later that we expect defense companies to go out of business. We will stand by and watch. And that's exactly what happened. Dozens of prime contractors merged or were absorbed into megacorporations. Venerable names like Hughes Electronics and McDonnell Douglas ceased to exist. Firms like General Electric and Chrysler sold their defense subsidiaries. At one point, the industry was shedding 1,000 jobs a day. It was great news for the executives and shareholders at the companies that survived. Their market share went up and so did their market capitalization. But the defense sector didn't become leaner. It became less competitive, and the remaining defense primes learned how to charge more for less. The US Government was happy to take some of its battleships off the board. But back then, in the carefree and optimistic 1990s, it didn't seem like a problem. After all, it was the 90s. Nothing was a problem. Former Eastern bloc states were slowly but surely traveling the long road to democracy. Bill Clinton was the first baby boomer president. Money was easy and so was life. The US felt invincible. 9, 11, the great financial crisis, the war on terror, these were all specks on the horizon. In the words of the political scientist Francis Fukuyama, it felt like living in the end of history. But history hadn't ended. It was just taking a deep breath. And around the same time that the United States was taking its battleships off the board, on the other side of the Pacific Ocean, China was building hundreds of them. Throughout the 1990s, China experienced the biggest economic boom in history. Hundreds of millions of people were lifted out of poverty, and the country went from being a relative economic backwater to a manufacturing powerhouse and full fledged member of the international community. The prosperity created by the boom gave the Chinese Communist Party's leaders the means to reclaim what they saw as China's rightful place in the world order. No leader has gone about that task with more vigor than Xi Jinping.

We should strengthen national defense and army modernization. Building the people's army into a great wall of steel.

Under his one man rule, China has adopted an increasingly aggressive foreign policy. He wants to cement his own authority and enhance the legitimacy of the Communist Party. The best way to do that is by shaping the international system so it more closely aligns with China's geopolitical interests. And the best way to do that is by modernizing China's armed for to the point where they can respond to any perceived provocation, coerce their adversaries into doing what China wants, and take on the United States in the Asia Pacific region. So how exactly has Xi Jinping expanded the military capabilities of the People's Liberation army, or pla? There's new concern tonight about China's military capabilities. Amid a report the country recently tested a nuclear capable hypersonic missile. And it's understood that US Intelligence had no idea that China had moved this far ahead. In late 2015, part of a sweeping reorganization of China's armed forces, Xi elevated the missile force to the same level as the army, navy and air force. In a grand ceremony, he even renamed the 2nd Artillery Corps to the PLA Rocket Force. But it's not just Theater. China has made huge strides in three different missile classes. The first is anti carrier ballistic missiles such as the DF21D. These are designed specifically to destroy the aircraft carriers and bases that have formed the backbone of US Military dominance in Asia for decades. US Military planners now have to grapple with what was previously an unthinkable scenario, which is that US Aircraft carriers could be completely obsolete in a conflict near the Chinese mainland. The second is land based intermediate ballistic and cruise missiles. China has achieved a near monopoly in this type of missile. It did so by not signing up to the Intermediate Range Nuclear Forces Treaty. This agreement, signed in the Cold War, aimed to reduce the threat of nuclear conflict. It banned the US and Russia from deploying these missiles. And although the United States withdrew from the treaty In August of 2019, China still had a 30 year monopoly on making them. China is also believed to have the world's biggest stockpile of hypersonic missiles.

Because of the name. People focus the hypersonic part on how fast they go. But actually the biggest issue when it comes to defenses is that they can fly very low because of the circular nature of the earth. If you have a radar system, you don't see it until close to the last minute, which makes it difficult to intercept.

As of today, the US doesn't have hypersonic missiles at all, nor does it have any reliable way of shooting them down. China's missile capabilities pose huge threats to the US Navy in the Pacific and US Allies in the Asia Pacific region. So does its navy.

I think it's important to understand. Let's talk shipbuilding capacity today. If China was to lose half of their navy today, it would take them two to three years to rebuild their surface navy. If we were to lose half of our surface navy, it would take us probably 20 years.

What's more, the US Navy predicts that between 2020 and 2040, the total number of Chinese navy ships will increase by 40%. Today, China is one of the few countries that has successfully achieved the nuclear triad, the ability to launch nuclear missiles from the air, land and sea. That gives Beijing something powerful, a reliable second strike nuclear capability it can use to deter and coerce its enemies. Xi Jinping has put hundreds of new battleships on the board. At the same time, he's also seeking control of new technology.

One of the most worrying areas of Chinese development has been cyber warfare. As much as we know, the Chinese have the biggest cyber forces in the world.

China is investing hundreds of billions of dollars in emerging dual use technologies so that the People's Liberation army can achieve Battlefield dominance. Specifically, the PLA is pursuing a concept known as multi domain precision warfare. Fundamentally, this is about linking command and control, communications, intelligence, surveillance and reconnaissance to quickly coordinate firepower and expose enemy vulnerabilities and then exploit them. At the heart of multi domain precision warfare sit dual use technologies such as AI, robotics, cyber infrastructure and automation. When it comes to modernizing its military, China's leaders have a key advantage over the West. There are simply no checks on their power. Every institution in China is subordinate to the Communist Party. The Party can steal whatever technology it wants and then imprison anyone who who complains. And no one can stop them.

The Chinese started to prioritize cyber warfare and information warfare in general very early in 1990s. They understood that the key of American advantage was the information advantage. And to win, they needed to destroy this American advantage.

China now leads the world in 37 out of 44 key technologies covering wide range of critical fields such as space, robotics, AI, biotech and quantum computing. These are the technologies that will determine the balance of power in the 21st century. Now, we don't know much about that October 2020 war game, but we do know that the Red Team attacked clustered US Forces with hypersonic missiles while also disrupting satellite communications. In other words, the Red Team waited for the US Commanders to do exactly what they expected. And then they destroyed, destroyed them. China has built a military that can take on and defeat the United States. But that's still only half the story. To truly understand how the US Military lost its advantage, we have to go back to the middle of the 20th century and a time when many of the West's most brilliant scientists happily worked hand in hand with their governments. Kelly Johnson built entire generations of new aircraft at Lockheed. Alan Turing devised technology techniques that cracked German ciphers during World War II. John von Neumann was an integral part of the Manhattan Project. And many of the technologies created in the furnace of war became household staples. The Internet, personal computing, GPS and commercial air travel all are integral to the modern world. And they all began as military R and D projects. Incredibly, in 1960, the US Department of Defense accounted for 36% of all R and D spending. And I don't mean in the U.S. i mean in the world. But then something began to change. A lot of it can be traced back to one man, Robert McNamara. McNamara was a new kind of bureaucrat before he became JFK's Secretary of Defense. He was the first ever president of the Ford Motor Company who wasn't a member of the Ford family. Simply put, McNamara was brilliant. As a dedicated disciple of scientific management, he was constantly building models to find the most efficient way of doing things. He brought that technocratic spirit to the Pentagon. In the early 1960s, McNamara instituted the Planning, Programming and Budgeting System. McNamara was driven by a concern that individual military departments had to set their own budgets. And his time at Ford made him confident he could improve efficiency and reduce waste. In a nutshell, his reform meant funding would be allocated based on strategic objectives set by the DoD's Military and Civilian leadership. It fundamentally altered the incentives faced by major US defense contractors. And it inadvertently sowed the seeds of not just the Last Supper, but the problems faced by the US defense industry today. Let me explain. McNamara believed that the US already had the technological advantage it needed to defeat the Soviet Union. All it needed to do to win was allocate its resources efficiently. When it came to the Cold War, McNamara was right. The US used its unmatched industrial manufacturing base to build the world's strongest conventional military. But technocrats like McNamara are much better at seeing the world as it is instead of seeing how it could be different in the future. Thanks partly to reforms he implemented, the US Defense industry became obsessed with efficiency. And adhering to process became more important than achieving real technological progress. In his best selling memoir about Lockheed's Skunk Works division, Ben Rich wrote, In my 40s years at Lockheed, I worked on 27 different airplanes. Today's young engineer will be lucky to build even one. He was right. In the 1950s, the US built five generations of fighter jets, three generations of bombers, and two entirely different classes of aircraft carriers. And that's just in 10 years, just the 1950s. But the United States hasn't fielded a new bomber plane since the end of the Cold War. Not only are new systems rarely being built, the costs of building them in the first place have skyrocketed. In 1969, an analyst in the Office of the Secretary of Defense gave some interesting testimony. About 90% of major weapon systems bought by the DoD wound up costing at least twice as much as the original estimate. The F35A fighter plane, which was meant to be a one size fits all solution for the Air Force, Navy and Marine Corps, is now expected to cost taxpayers 1.6 trillion over its lifetime. In fact, the cost of developing fighter planes increased by 100x from the 1950s to the 1990s. Ben Rich's memoir was published in 1994, the year after the Last Supper. The problems he described have only become worse since then. Last year, the DoD released a report about the state of competition in the defense industry. You wouldn't expect a government document to read like a thriller, but this one does. The report found that the US Military is increasingly dependent on a small number of contractors and for critical defense capabilities. 90% of America's missiles come from just three providers. Every nuclear powered aircraft carrier is designed and built by one company. When Les Aspen and Bill Perry invited the leaders of U.S. defense companies to the Pentagon for the Last Supper, there were more than 50 defense primes. Today, there are just five. Lockheed Martin, Raytheon, General Dynamics, Boeing, and Northrop Grumman. And they have learned to operate in ways that wouldn't be tolerated in other industries. Under the current system of procurement created by Robert McNamara, the US government spends years defining requirements before ever putting out a request for a new system. That approach is increasingly out of step with a world where our rivals are aggressively investing in new technologies in order to catch up. In 2018, the US Under Secretary for Research and Engineering, a man named Mike Griffin, said that on average, it takes The United States 16 years to deliver an idea to full operational capability, compared to just seven years in China. That kind of advantage compounds incredibly quickly. Even if your adversary starts with a fraction of your power, if they grow at twice the speed you do, soon they will overtake and overpower you. Meeting the threats of today requires developing the technologies of tomorrow.

If we can return to what used to be this country's ace in the hole, our ability to try out new ideas, that is the best of of this country. We have let our legal and contracting processes get in our way.

Underinvestment is also a huge problem when.

People get out of line. We've been able to redirect that through a combination of military force, economic sanctions, and diplomatic right. It's always going to be those three things. The US Falling behind on military, the US Having an equal on this will change the gain substantially.

Today, the industry spends an average of just 1 to 4% of its revenues on internal RD. By way of comparison, Alphabet reinvested 15% of its revenues into R&D in 2020.

There's more AI in a John Deere tractor than there is in any system that the US DoD is fielding. Until 2019, the United States nuclear arsenal was still operating off of floppy disks.

Okay, now that we have a handle on the problems, what's the solution? In China, absolute power has been concentrated in the hands of the one man, Xi Jinping. But not only does that run counter to American values, what's happened to the United States defense industry? Over the last few decades should serve as a warning against concentrating power. Instead, to reboot the arsenal of democracy, we should look to the lessons of the 1950s and 1960s. We should harness the talents of the nation's best scientists and engineers. In other words, we need to look to Silicon Valley. Decades of unquestioned US Military superiority were underpinned by a network of defense contractors that designed and manufactured best in class military hardware. But that model is about to become obsolete because everything about war, the way it's fought, initiated, and even prevented from happening, is changing. To see glimpses of the future, let's go to Ukraine. Even before any of its soldiers marched onto Ukrainian territory or Russia launched its invasion with repeated DDoS attacks and a Trojan horse malware protocol aimed at paralyzing Ukraine's command and control structures, both sides are making extensive use of commercial drones to spot enemy combatants and improve the performance of their artillery. The war in Ukraine is the perfect showcase of what the next generation of combat will look like. Today's big defense companies may not like it, but software is finally eating the battlefield. The once clear lines between different terrains and different branches of the armed forces will become increasingly blurry. This is a future we can't avoid.

China and Russian adversarial nations are not waiting and have in many ways been much more successful at adopting commercial technology into their military process.

Xi Jinping has publicly pledged to make China the world leader in AI technology by the end of the decade. And Vladimir Putin once said, thankfully, there are companies that understand the scale of the challenge ahead of us and they're building the next generation of software enabled weapons. Okay, let's shift our focus to northern Poland. In late 2021, NATO forces, knowing that Russia's invasion of Ukraine is imminent, are running a military exercise called Project Artemis. But they're not just working with each other. They're also working with a Californian defense startup named Anduril. Anduril isn't a typical defense company. And Palmer Luckey, the guy who started it, isn't your typical defense company founder. He thinks that to modernize the U.S. military, you have to first modernize the U.S. defense industry. Think about any great tech entrepreneur. People like Jeff Bezos, Steve jobs, Elon Musk, etc. They all carry distinct images of how the future could look. And they have a deep drive to build the products that bring that future to life.

That is really the reason that I started thinking about what a next generation defense company would look like. What would it look like to build a company that could Take those bright people out of the advertising industry, out of the search engine optimization industry, out of the augmented reality mustache emoji industry, and put them to work on things that were more important.

But he also understands that in order for that to happen, the defense industry will have to change. Traditional defense contractors struggle with software. They struggle because they can't compete with Silicon Valley for engineering talent. But they also struggle because modern software development practices run totally counter to how they operate. The USS Gerald R. Ford cost almost 5 million billion to design and took 8 years and $13 billion to build. That's hardware. Software, on the other hand, is developed by shipping a minimum viable product as quickly as possible, seeing where it fails, and improving it. To keep up with Today's threats, the U.S. defense industry will have to move faster. Luckily, there's a model for how a modernized defense industry could operate every other industry in the world. Most companies, whether they make some software, cars or furniture, invest their own capital into designing and building their products. And they don't get paid until they sell a finished product. There's actually a great example of a company that quickly engineers new products and sells them off the shelf to government partners. SpaceX. And SpaceX spends billions of dollars of private capital on research and development. And according to NASA's own analysis, it designs rockets three times cheaper than NASA. Designing products this way can also improve how the military spends its money. Historically, defense technology proceeds one long, detailed project proposal at a time. These proposals are driven by good intentions, efficient use of taxpayer money to meet military needs. But often many of the savings are actually an illusion. Because although this process does a great job of answering the question of what the next battleship should look like, it never asks the question of whether a new battleship is needed at all. That's why instead of competing with the defense primes for the biggest contracts, Anduril starts by thinking about the problem the military should be trying to solve, and then goes away and develops it without being told to.

We're not saying, hey, give us a million this year, a million the next year, a million the next year. In five years, we'll have something we can test. We're saying, you know what? We're just gonna spend $10 million of our own money. We're gonna prove to you that this can be done in six months, not six years.

This helps it avoid one of the biggest pitfalls of defense procurement, while channeling the brilliance of the people who solve hard problems for a living. Scaling up this approach could drastically cut development times. Apple puts out a new iPhone every year. Now, I'm not saying that the iPhone is as complex as an aircraft carrier, but I am saying that the US Defense industry could be doing much more to study the world's biggest consumer tech companies and learn some, some valuable lessons about modern development and manufacturing techniques. Encouraging the greater adoption of commercial technology in the defense industry is also an ideal way to introduce something that's been sorely missing for decades, real competition. The wave of mergers and consolidations in the wake of the Last Supper created an industry where companies don't truly compete with each other. By lowering the barriers to entry, the US government could tap into a huge source of new ideas while actually restoring competition and putting downward pressure pressure on costs. After years of willingly taking some of our biggest battleships off the board, Anduril could hold the secret to putting them back and regaining the upper hand in a dangerous world. But there needs to be hundreds of Andurils competing hard with each other in service of a shared goal. Protecting the Western world and everything it stands for.

That's something we're working through right now. It comes back to, you know, how do they look at this? So it's not a cost, but it's a profit for them.

The wars of today are won by navies, aircraft and missiles. But the wars of tomorrow will be won by software and hardware working in perfect harmony. That means the future will belong to the nations that embrace emerging technologies and empower their scientists and engineers to create the next generation of weapon systems. We're living in the most unstable and dangerous geopolitical environment since the the end of the Cold War. The world is a powder keg. One spark could set it all off. The best way to credibly deter war is through superior technology. But instead of preparing for new threats, the US government took its pieces off the board and told our defense industry it was okay to stop innovating. We no longer have the luxury of time. But by applying lessons from Silicon Valley and embracing the potential of founding and companies that break the mold, the US Military can regain its edge. If you want to learn more about the military origins of Silicon Valley, then just watch this video next. Thanks a lot.