Pacific Polarity

Evan Feigenbaum, President for studies at the Carnegie Endowment for International Peace and former deputy assistant secretary of state, shares insights on the evolving geopolitical landscape in Asia. He discusses the critical importance of understanding Asian nations as independent actors, the implications of climate change on foreign policy, and the complexities of U.S.-Vietnam relations. Feigenbaum also highlights the need for a nuanced approach to U.S.-China tech perceptions and trade negotiations, pushing for a recalibrated strategy in the Indo-Pacific.

Richard GrayWelcome to today's episode of Pacific Polarity. Today we're speaking with Dr. Kazuto Suzuki, who is director of the Institute of Geoeconomics at the International House of Japan and professor at the Graduate School of Public Policy at the University of Tokyo. Dr. Suzuki also serves as president of the Japan Association of International Security and Trade, and an advisor of the Japanese government on National Space Policy Committee of the Cabinet Office. Dr. Suzuki, pleasure to be speaking with you.Kazuto SuzukiPleasure is all mine. Thank you.Richard GrayRecently in Japan Times, you argued that we were witnessing a transition from a defensive economic security to an approach of geoeconomics, which combines both offensive and defensive tools of economic statecraft. Can you describe this transition and Japan's role within Japan?Kazuto SuzukiWell, initially Japan has been interested in the concept of economic security, largely because we have been under pressure from China with regard to the export of rare earth minerals, various critical minerals, and also because Japan has been involved in a lot of supply chain network with China.But because of the intensive confrontation between the United States and China, especially after the first Trump administration, I think the economic relationship, especially in China using the economy as a weapon, and imposing various mechanisms such as export control on critical minerals and also controlling much harder in the Chinese domestic market.So in that regard, Japan had to take certain actions to improve the resilience of the Japanese industry and Japanese economic relationship with China. And therefore, we launched the concept of economic security. In 2022, Japan has established a law called the Economic Security Promotion Act, or ESPA, which targeted mainly improvement of the resilience of the supply chain, and also protecting the critical infrastructure, including the 5G network. After the establishment of ESPA, Japan, of course, took various measures to improve its economic resilience.But we gradually understand that the world is getting much complicated, including the tariff policy by the second Trump administration. So, we are now thinking of using the Japanese economic capabilities, especially focusing on the indispensability of the Japanese products in the global market, especially in terms of material, machine tools, or the manufacturing equipment. So these are the strengths of Japanese industry and Japan is indispensable in the upper stage of the production cycle. And we think that having this sort of strength in economic statecraft or economic indispensability in the global market we would be able to take advantage of this as the tools to express ourselves in the global supply chain.But unlike China, Japan has much less or little leverage against the global market. And we do need to maintain the free trade and free exchange of goods, in order to survive, because obviously Japan is a resource poor country. We depend heavily on the international trade. So we think that it is important to use this economic statecraft or economic indispensability in the global supply chain as the tools to build up the much stronger international frameworks such as CPTPP.Perhaps some of you may not know, maybe Australian audience understands very well about the CPTPP. This was a free trade agreement after the Trump administration left the TPP negotiation. The TPP was originally started with the 12 countries, but when the first Trump administration came into power, Mr. Trump decided to leave the TPP, and the TPP was on the verge of collapse. But Mr. Abe, Prime Minister then, he took initiative to restore the TPP negotiation and reframed the TPP to the CPTPP. So that was one of the examples that Japan took leadership in maintaining the free flow of global trading goods and to make sure that we will be engaged in the free trade.I think this is getting more and more important under the second Trump administration, where the tendency of protectionism is much stronger. And I think Mr. Trump's economic policy against US allies is now being very severe, and really hit on the capabilities of the economic activities of both Japan and Australia. I think it is in a sense the reason why Japan is using the economic statecraft not in an aggressive way, but for the cooperative way, is probably the reflection of the change of the international economic system.Jersey LeeYeah, so we will get to the longer-term challenge posed by China later on. Right now, as you mentioned, Japan has this current conflict in the economic realm and the trade realm with the US. Many had thought that Japan might be the first country to sign a trade deal with the US, including many in the current US administration. So first of all, why do you think that did not materialize? And given that China's had a preliminary deal with the US, that also came as quite a surprise to the world in terms of how much tariff reduction China received, particularly as it came on the heels of a notably less significant deal with the UK. So how do you think this was received in Japan? And do you think that all of this makes a deal with the US more or less likely?Kazuto SuzukiWell first of all, I think being a first does not necessarily mean a good thing. I think the reason why the UK was the first to make a deal is because the UK does not have the trade surpluses against the United States. In other words, from a US point of view, it's not a trade deficit country. So it's easier to use the tariff as a leverage to negotiate with the UK; and even when there is no trade deficit, the US still imposed a baseline 10% tariff against UK. The 10% of tariff is still a very large scale tariff and UK will face a very difficult moment for exporting its goods to the United States.But in terms of the automobile tariff, which is 27.5%, UK has the quota for the low tariff, which is 10%, for 100,000 vehicles per year. But UK is exporting almost 100,000 vehicles, which is okay for UK. The problem is that Japan is exporting 10 times more than the UK. So the conditions are quite different. And tariff negotiation with the United States and Japan is more complicated than the UK.The tariff agreement with China was basically, it is just an adjustment of the excessive escalation. So it was an escalation control mechanism rather than the negotiation. Basically, there's no deal with China. It is just simply bringing down these very excessive tariff level, like 145% to the 30%. If there is no agreement in the 90 days, then it will come back to the 54% (note: initial rate after “Liberation Day”). These are basically the beginning of the trade negotiation. It's not the conclusion of any tariff negotiation. Apart from that, there's no agreement.Fiji is another one, but Fiji is a very small economy and it's easy to deal. So I think Japan needs to take more time to negotiate with the United States because we are still far apart of our demand and the U.S. demand. And there's no reason that we accelerate the negotiation, because time is on our side. Even if it passed the July 9th, which is the end of the 90 days postponement of the so-called reciprocal tariff, even after the July 9th, probably it is the United States which face the more difficult situation. So I think the United States will have more incentives to conclude the negotiation. So in that regard, I think we can make the deal in a stronger position. So I think taking more time for negotiation is not a bad thing.And after all, the negotiation is to make an agreement which is acceptable for both countries. We cannot accept such high tariff on automobile, which is the bread and butter of Japanese economy. And there is no reason that we need to haste for the negotiation.Richard GrayAnd so to transition on from this, while it's important to coordinate on economic security and geoeconomic challenges between allies, it's also somewhat important for there to be a positive agenda of having reliable and continual investment relationships. And so this is where it's sort of the continual derailing of the Nippon steel acquisition of US Steel is in many ways very confusing. So on one end, Japan is an ally of the United States, but the Biden administration commented that the purchase was a national security concern. On more of the logistical and corporate specific challenges, Nippon Steel had cutting edge technology that would boost US steel manufacturing. And what's more, the union's preferred purchaser, Cleveland Cliffs, had recently laid off 950 workers in Illinois and Pennsylvania. And so there was going to be some downsizing in staffing regardless of who the purchaser would be.So with all of this in mind, a question of the US as a reliable place to invest in and to receive investment from, I think there's some level of ambiguity, which is not helpful to U.S.-Japan relations at large. And at this moment, President Trump has indicated his support of the acquisition, and it looks like it will go through. But there are many questions that still remain, including but not limited to his claim that the acquisition will lead to 70,000 new jobs. I don't know if Nippon Steel knows where that number exactly came from. In your view, what are some of the lessons that the Japanese government and Japanese companies have drawn from this saga?Kazuto SuzukiWell, the first lesson is don't propose the acquisition of the national interest of the country during the election time. The second is that steel and Aluminium has been a major U.S. interest for many, many years, ever since 1970s. And I think this is the hardest sector to penetrate into, and it is understandable that the United States is trying to restore the manufacturing jobs and manufacturing capabilities. Of course, the competitiveness of the US steel industry is much, much less, and I don't think it is economically reasonable, but I think when it comes to a question of maintaining the stable supply chain within the country, the U.S. steel or the Cleveland Cliffs are the major supplier for the steel, for any defense equipment.I think the situation in Ukraine has changed the landscape quite dramatically, because most of the US support of the arms and ammunitions were coming from the U.S. industry, so maintaining the U.S. productivity within United States soil is probably national interest for a certain extent. It's not about the question of alliance, I don't think United States is concerned about the Japanese commitment to the alliance, I think it is about the security of supply within the United States and that's what Mr Biden has mentioned about the matter of national security.So the second lesson that we learned is don't touch the steel and aluminum. We learned that steel and aluminum are the major national interest for the security of supply.Probably, I think what Mr. Trump has decided to go ahead with a partnership, so-called partnership between the Nippon Steel and the US Steel, I don't think… he mentioned that the acquisition plan, 100% subsidiary of the Nippon Steel is not going to be accepted, but the ownership of the US Steel will remain in the hands of US investors. So I don't think there's any change from the previous position of Mr. Trump. And I think the Nippon Steel is still struggling to find out what is the end game or end state of this acquisition processes. But anyway, there will be a lifting of the CFIUS denial, after the revision of the order by Mr. Trump. So I think that's the good news. But still, we are not exactly sure what will be the end state.I think if certain agreements between the United States government and the Nippon Steel are made, then there'll be an investment coming into the U.S. Steel and there'll be probably additional investment on the productivity of certain companies, smelters and certain sites of the U.S. steel. It remains that the competitiveness of the steel and aluminum in the United States is very low, but I think the new investment and the shift of the focuses of the production of steel, especially for the specialized steel for the automobile industry and defense equipment, will recover or regain the productivity of the U.S. steel. So probably it is for the best for both Japan and the United States to maintain this deal, to make this deal happen.And we do not have certain concerns over the investment in the United States in general. I think this is a very particular case of the steel industry. I think this has a very different position in the industry in the United States. It is different from the automobile or any other industry. So I think the other lessons that we learn is that the US is still the largest market in the world. And because of the tariff, I think investment in the United States is necessary to make sure that we can maintain the holding the share in the U.S. market. And I think overemphasizing the CFIUS process and everything about the instability of the U.S. market as a destination of investment shall be refrained. I think we don't need to overemphasize this instability or the complexity of the CFIUS process.Jersey LeeMoving on to relations with China, which you had mentioned in the first response. Japan's relations with China had taken a dive after the release of the Fukushima nuclear wastewater in 2023. Relations seems to have improved a lot since then, with China unilaterally providing visa-free travel for Japanese citizens, and there were discussions earlier this year, around the time of Trump's “Liberation Day”, about a potential great leap forward in trade relations, although Japan has pushed back against some of these suggestions. However, there are doubts over how sustainable this recovery in relations might be, because over the past few decades, we've seen bilateral relations fluctuate significantly between good and bad and then back to good. Do you see any possibility for a more stable and sustainable bilateral relations framework?Kazuto SuzukiWell, over thousands of years, Japan and China have been neighbors. And there were always the cycle of good and bad and good and bad. So why do you expect that there is a stability in bilateral relationships? The fluctuation of the relationship, the mood of the relationship is the normal. So basically, we are not expecting that the bilateral relationship stabilize in a certain position or a certain level, and it goes on forever. Whether it's longer term or shorter term, there's always fluctuation and this is what the relationship with neighborhood is. We are expecting the relationship to fluctuate; sometimes it's good, then we try to promote whatever we can. If it's bad, then we'll try to fix it as much as we can.That's probably the historical wisdom that we acquired in the relationship with China. Both countries, which have been always the largest country in East Asia, there are a lot of mutual interests as well as mutual concerns; sometimes these concerns are probably highlighted because of the domestic political situations and we need to be careful, we need to be very much aware that anything is possible, even if the relationship is good, we shall not expect that this goes on forever. We always pay very close attention to the bilateral relationship and the mood in domestic political situations and try to see the best way out for the bilateral relationship in the given circumstances.So, basically, I think expecting the long-term, stable relationship is not the name of the game in the bilateral relationship with China. It's a relationship which is very delicate and very... So we need to make sure that it's like a gardening; you have to pay attention to make sure that everything is all set and at least appears good while you are taking good care of each plant and each issues.Jersey LeeThis week, the ASEAN-China Free Trade Area received its third upgrade, which symbolically contrasts with the ongoing U.S. tariff war against basically every country. Since World War II, Japan has been a major investor in ASEAN, in Southeast Asia, offshoring manufacturing to countries like Vietnam, Singapore, Thailand, Malaysia. But with rising Chinese influence, particularly evident in Japan losing a bid for Indonesia's high-speed rail to China, how might Japan adjust its strategy? And generally, how does Japan view Southeast Asia?Kazuto SuzukiSoutheast Asia is strategically important. Japan has a long-term relationship with Southeast Asian countries. As you said, Japan has been the largest investor in these countries, but it's their choice whether to accept the Chinese investment or not, or whether to have the Chinese goods in the market. Of course, the Chinese goods are competitive; and I think in some of the area or some of the sectors, Chinese industry is much more competitive than the Japanese one. So it is understandable. This is a free market as long as you make the free trade.I think the US tariff policy has pushed the Southeast Asian country to strengthen the economic relationship with China, because China is the second largest market. the Southeast Asian countries need the country or market to export. So it's fully understandable that China and Southeast Asian countries' relationship is improving.What Japan can do is just maintain its competitiveness in different ways. Chinese competitiveness is basically price competitiveness, and of course the quality of the Chinese product is improving. But Japan can offer different kinds of high value-added services, including not just exporting the railway system as such, but also we are providing the various services associated with those train services, such as the train operation systems, as well as the services to the passengers, all the ticketing systems, et cetera. So there are a number of things that Japan can do to add values to these investments. To put it simply, I think it's quality versus price. I think Japan probably cannot compete in the pricing, so what we can do is to make sure that we provide quality.The problem for China is that Chinese Belt and Road Initiative has given too much bad loans and bad investment in infrastructure in many countries, not only the Southeast Asian countries, but in regions like Africa, Latin America, etc. I think China will face the significant debt service problems. So I think the forces of the Chinese expansion of its export of infrastructure and many things may come to a difficult position, because of these debt service problems. So I think the game has not ended. I think we are still in the game and we are still trying to compete against Chinese in Southeast Asia market. And I think as long as we maintain our position to provide services and to provide more added values, I think we still have a chance to stay in the game and to be profitable from the investment in Southeast Asia.Richard GrayAs you had discussed earlier in this conversation, Japan is a net importer of independent on a wide variety of goods, including most importantly, critical minerals and energy. For both of these different goods, geopolitics are at the center of both, with non-adversarial relationship with China being in some ways very important for continual import of sustained critical minerals, and then also a dependency on either a stable Middle East or a non-aggressive Russia for the import of energy. What do you think about these dependencies and what are some of the ways Japan can weather through some of these vulnerabilities? To an extent, some of this is just a question of geography and what resources your country does and doesn't have, but there are relational strategic components where the needle can be moved in certain ways. For one, this could lead to greater cooperation with Australia, as Australia rare earth firm Lynas recently started the first non-Chinese rare earth processing plant in Malaysia.Kazuto SuzukiDistribution of the natural resources is very unfair and unequal. Japan has to face with the lack of natural resources. From the beginning, I think we cannot change that. No matter how deep you dig the Japanese soil, we don't have any oils or gas coming out, nor the critical mineral. So we depend on the foreign countries, that's for sure.The first and the easiest response to that is to build a stockpile. We need to create more buffer to adjust for the change of market and trying to balance out if there is some sort of an economic statecraft exercised by other countries. But it's going to cost a lot. Japan having a very limited land mass in China in the industrial area, we cannot have the tanks and everything for storing the oil and gas forever.I think we need to make sure that first we create a buffer to adjust the change of market and the change of the international relations. The second is that we need to build the more trustworthy, reliable supply chain network. Middle East, yes, it's unstable, but so far it's not too unstable. We can maintain supplies from outside.Australia is the greatest trustworthy partner from a Japanese point of view; Australia is the largest provider of the natural gas for Japan. We have a strategic relationship with Lynas to build the supply chain network on the rare earth minerals, and of course, coal and other energy sources such as hydrogen coming from Australia. Basically, Japan has relied on Australia for very large scale. But still, supply from Australia is not enough, and we need to diversify the sources of the suppliers in the different countries.Especially when it comes to the minerals, China dominates in the market. Not only Japan, everyone relies on the critical mineral for China, be it cobalt, nickel, magnesium and so on and so forth. So there is no escape from dependency on China. And that's why we need to maintain a good relationship with China and to prevent China from exercising its economic statecraft. Nickel, for example, one of the producers of the nickel is the Indonesia. So we are supporting the Indonesian government investment in the processing factory within Indonesia, so that we reduce the dependency on China on that.There are a number of efforts that Japan has taken to make sure that we reduce the dependency on China. We cannot shut off the relationship with China because China is still holding a large share in the mineral market. So it's natural that we still need to depend on China, but we do not stop our effort to diversify the supply chain.Jersey LeeOn the subject of natural gas, during the recent election in Australia, the opposition party, the Coalition, had raised the possibility of reserving a minimum percentage of natural gas for domestic use, due to looming gas shortages in parts of Australia. This has obviously sparked some concern in Japan as a major importer.On this issue though, some Australians are quite unhappy that a significant percentage of these natural gas exports aren't actually consumed by Japan. Some studies indicate that around half of Australia's natural gas exports to Japan are then re-exported after being refined. So some Australians have called for retaining more of the value add for these natural gas exports domestically, either through raising taxes, royalties on these exports, or through more domestic refining. This perhaps gets to broader themes of friendshoring versus onshoring that's playing out across various countries that are trying to de-risk in the process. So what's your view on this?Kazuto SuzukiWell, there are various public opinions in any countries. Some of the exporting countries, including the United States, are demanding for it to serve its own domestic consumers. But I think it depends on the government positions, and probably if the Coalition has won the last election in Australia, then the government position might have changed, and there's not much that we can do. I mean, that's the choice of the people of Australia and that's democracy. So we are not trying to intervene in the Australian democracy by supporting the parties which are encouraging more exports. Basically, the Australian people are the ones to decide either way, how to deal with the gas and to what extent that it should be exported.I don't think it is true that Japanese are refining and exporting the natural gas to the third country because refining in Japan is extremely expensive and it doesn't make much sense to export from Japan. So basically, Japan will be the last destination. I think the very large portion of the Australian gas will be consumed in Japan, and probably there are some adjustment of the stockpiles. We may export some of the refined natural gas to third country, but that's a very small portion as an adjustment of the demand and supply.Also, we are now in negotiations with the United States on tariffs, but one of the issues was the importing of more LNG from the United States. So that's part of the diversification, but also it is the negotiation tactics with the United States, we do import LNG from United States as well. And energy is always a question of the demand and supply.So if Australian people decided not to export LNG to Japan, then we might find otherwise. But I think it is also damaging for the bilateral relationship between Japan and Australia. If Australia decided not to export the gas to Japan, it will create a great stress on the Japanese energy supply. And I don't think it is very reasonable and strategically important for Australia to stop exporting gas to Japan. If you do so, then you are risking this very good relationship between Japan and Australia. There's always a trade-off. If you do take one action, then there'll be a consequence. I think probably the Australian government as well as the Australian people may be aware of the importance of these consequences of what happened by their choices.Richard GrayAnd so to close our conversation, we wanted to focus on sort of the dynamics surrounding the Russia-Ukraine war and contrasting that with what's happening today. At the onset of the war, Prime Minister Kishida came out with comprehensive support of Ukraine, with indirect military aid, financial assistance for Ukraine's reconstruction, and intimate cooperation with United States and NATO allies on sanctioned implementation and enforcement. Looking back at this vision that Kishida put forward, that fundamentally European stability is Asian stability, and that a strong Trans-Pacific requires a strong transatlantic, are you concerned that this connectivity between democracies is growing weary?Kazuto SuzukiI think the connectivity is there, and the situation in Ukraine, as Prime Minister Kishida then has mentioned, that today's Ukraine is the tomorrow's East Asia. The situation in Ukraine is quite similar to the situation in Taiwan.Ukraine was not an ally of the United States, not a member of NATO, but concerned by Russia as the extension of the Western influence. Mr. Putin has understood that extension of the US influence on Ukraine as sort of “intervening forces” against Russia, and there was a certain pressure that he felt that Russia is pushed into a corner.I think that the same thing can happen in Taiwan. Taiwan is not an ally of any country. United States and Japan do not recognize Taiwan as an independent country, so we do not have any bilateral treaties for mutual defense. So there is always the chance for China to integrate Taiwan as a part of China with force, and that may have a very strong impact on the Japanese security environment. So in order to make sure that we do not accept the change of status quo by force, and to maintain the law-based international order, we have to reestablish some sort of rule-based international order and to respect the status quo.So I think the supporting Ukraine and supporting the G7 and other allies’ actions to support Ukraine is fundamentally important to prevent and justify maintaining the status quo in East Asia. So I think it is not a geographical connectivity, I think it is the connectivity in the conceptual importance of the rule-based international order, and to make sure that we do not accept the change of status quo by force. That's why we are very much in favor of supporting Ukraine and the government maintaining that position to impose sanctions on Russia and support Ukrainian reconstruction.Japan still has very limited legal capabilities of supporting directly Ukraine because of Japan's self-imposed restriction on the export on arms. But we have changed or amended these basic principles of the export on arms to be able to export, for example, the Patriot missiles, which is a surface-to-air missile, to United States, which is the origin of the Patriot missile, so that US Patriot missiles can be exported to Ukraine. So this sort of arrangement is made as an indirect support of Ukraine. And I think it is the best we can do at this moment for providing the necessary arms for Ukraine to fight against Russia. I think at the end of the day, this connectivity is basically coming from the basic notion that Japan will maintain the rule-based international order, and the export of the Patriot missile from Japan to U.S., U.S. to Ukraine, is one of the evidence that we are committed to support Ukraine.Jersey LeeWell, that's it for this episode of Pacific Polarity. Thank you for joining us, Dr. Suzuki.Kazuto SuzukiThank you very much for having me. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

For this episode, we spoke with Ambassador Jane Hardy, non-resident senior fellow at the United States Study Centre, University of Sydney, and served as ambassador to Spain, Australian Consul General in Honolulu. Ambassador Hardy discusses her diplomatic postings, in particular the work that goes into engaging with America, and comments on the state of the alliance in Trump 2.0. She reveals that, even though she only left the post of Consul General to Honolulu in June 2021, she had no prior knowledge of AUKUS, which was announced in September 2021. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

For this episode, we spoke with Professor Michael Green, who is CEO of the United States Studies Center at the University of Sydney, and served in the U.S. National Security Council during the George W. Bush administration. Dr. Green advocates for America’s allies to remain committed to the alliance, but notes the many counterproductive moves by the Trump administration that, while mostly reversible, are damaging America’s global strategy at a privotal moment in the competition with China.Richard GrayWelcome to Pacific Polarity. Today, we're speaking with Dr. Michael Green, who is CEO of the United States Studies Center at the University of Sydney and Senior Advisor and Henry Kissinger Chair at the Center for Strategic and International Studies. Dr. Green served as Senior Vice President for Asia at CSIS, and is on leave from Georgetown's Walsh School of Foreign Service. Previously, he taught at Johns Hopkins SAIS and served in the U.S. National Security Council during the George W. Bush administration. Dr. Green received his PhD from SAIS and is the author of numerous books, including most recently, Line of Advantage, Japan's Grand Strategy in the Era of Shinzo Abe. Dr. Green, pleasure to be speaking with you.Michael GreenThank you, guys. Glad to join you.Richard GrayAs a starting point, throughout your career working on U.S. policy in Asia, what have the historic strengths been for U.S. as a strategic ally and partner? Why have countries decided to collaborate with the United States out of choice, not necessarily out of the lack of options?Michael GreenWhen the U.S. sent its first diplomatic mission to China in 1784 on board the sycophantically named Empress of China, which sailed out of New York Harbor with ginseng from Pennsylvania and other goods to trade, they sent a diplomat, major Shaw, who'd been in the Continental Army. And his instructions from Washington were, be very nice, say that the U.S. doesn't interfere in other countries' internal affairs, that we're interested in commerce, that we're not imperialists like the British.For a lot of our history, really, into the early 20th century, the U.S. approach to the world was just be nice to everybody, and focus on commerce. The rest of the world figured, that is not exactly a consistent pattern, if you were in Latin America in the 1840s or the early 1900s, you didn't feel that way about the U.S.; big power rivals like Japan in the early 20th century—you know, Japanese people liked the U.S. actually, but they realized that the US, in fact, was not this Jeffersonian “peace and friendship with all”, but had hard power interests. And that's probably good because we do, the US does.My book argued that the US will compete, it had competed starting in 1783 and 84, and it will compete now to prevent China from having hegemonic control of Asia. That's built into the DNA. The American colonists were fighting tooth and nail for their independence, they'd turn to the French, the Spanish, whoever would help them.So that's one thing that allies get today, because the Japanese, the Indians and Australians, any ally worries about abandonment: will the US really be there? The consistency of American competition and not letting another hegemon take over, that frankly provides a really important base for an alliance. It's not just that we're nice. It's that actually, we don't like getting pushed around. And that is somewhat reassuring.The other thing that has really built American credibility as an ally is the economic power of the United States. After World War II, 50% of global GDP was American because most of the world was blown up or not yet developed. By the 1970s, the U.S. had about 25% of global economic output.In the post-Cold War years in the 90s, when the Soviet Union collapsed and everyone talked about American unipolarity, we had about 25%. You know what it is today? About 25%. So there's a consistent critical mass of American economic power that also makes it really important if you want to develop your country, have access to technology.And then the third thing is, while American engagement in the world is based on realpolitik and hard power and preventing rival hegemons from dominating Asia or Europe or the Western Hemisphere, it's also built around the idealism and rule of law that the founders of the country built into the Constitution and the Declaration of Independence. There's a theory that Charlie Kupchan at Georgetown and others have advanced, John Ikenberry at Princeton, that American hegemony is very different from ancient Rome or Nazi Germany, because it's based on the rule of law. So the UN, the World Trade Organization, the Bretton Woods system, all these things allow countries like Japan, Germany, former rivals to get rich because the Americans allow people who participate as partners and allies to get a say and to have constraint over American choices in the UN or the World Trade Organization.I'm sure we'll ask about the Trump administration, but what worries a lot of people is that last part, keeping people on your side because you play by the rules is now really being questioned. And then the other two parts, American economic power, American hard power count, but the secret sauce has always been this willingness of Gulliver to let the Lilliputians tie him down. And Trump isn't going for that. And so we'll see what happens.Richard GrayYou did predict the follow up, which is the question of looking at the status quo situation of U.S. strategic positioning. More narrowly on this question, you talked about a lot of things, which is consistency of commitment, economic power and commitment to some level of international rule setting. Specifically on the commitment side of things, how has that changed? And how do you think other countries are reacting to a perception, perhaps, that American commitment is less stable and predictable as maybe it had been five or 10 years ago?Michael GreenHenry Kissinger was asked, when Trump was elected in 2016, to explain Donald Trump in the context of world history, very Kissinger kind of question. And Kissinger said, sometimes the international system changes and you don't realize it has changed until some figure comes along to remind you that it's broken. And he said that was Donald Trump.And then the interviewer asked him, so what is Trump's vision for the new world order and Kissinger hesitated and said, I don't think he has one. He was an accident. So my view is that Donald Trump is the most disruptive American president in history. And that is obviously nerve wracking for allies and confusing for adversaries.But he's not speaking for the American people. And frankly, I don't think he's speaking for American interests as the Congress defines them, which is to say he got elected mainly because of… there's new polling out that is much more reliable than the exit polls on the day of the election, and it pretty much shows he got elected because of inflation and the economy, and because people thought Biden was old and Kamala Harris wasn't elected in an open way, she was anointed, plus immigration and culture stuff, the woke DEI agenda, which was probably fourth on the list; that's why he was elected.He was not elected to break American alliances, tariff everyone, because consistently in polls, the U.S. Studies Center polls we do, CSIS, Chicago Council, you name it, Pew, Gallup, consistently the American people really like having allies and think they're really important. And by the way, polls also show that two-thirds of Americans think tariffs are not good because they raise prices.So Trump is disruptive. His leadership style is built around being unpredictable and threatening. And that's not how you run an alliance. But it's not a mandate that he has from the American people or the Congress. So my view is the disruption could get deeper, but it's not a new world order and it's not a new American strategy. It's a period of great disruption. And the question is, what comes next? Allies like Australia or Japan will have some say in that, because we need allies.And it's interesting, even in the tariff wars, which are pretty harsh with Japan right now, the U.S. trade representative, the lead negotiator, has said, we are not going to bring defense into this. We're not going to talk about defense spending. So there is a recognition, even in the most protectionist parts of the Trump administration, that we really need allies because of China.So as the French saying goes, plus ça change, plus c'est la même chose, the more it changes, the more it looks the same. There's huge disruption and change, but it's also revealing, I think, the depth of support for alliances in the major institutions of American power, the Congress, the public, think tanks, universities.There is really no constituency in the U.S. that is against alliances right now, which for the first time ever, by the way, because in the 80s, when we had trade friction with Japan, a lot of trade unions were critical of the alliance. That's not the case now. So anyway, it's small comfort. Doesn't mean this won't be hard.Richard GrayAs a point on the unions, I think the Nippon Steel situation points slightly in the other direction, but I take your point.Michael GreenLet me say something about Nippon Steel, which was a supremely stupid decision by both Biden and Trump to not approve the purchase by Nippon Steel of a U.S. steel company that would have increased U.S. competitiveness in steel, saved jobs, and lowered prices for manufacturers. But in the context of the 2024 presidential election, swing state votes in Pennsylvania in particular, where my family's originally from, steel mill workers, foremen, way back 100 years ago, those people were so fixated on those votes, they didn't want to do anything that would signal they weren't 100% supporting unions, because the unions didn't like the Nippon Steel deal, because they were worried the Japanese would restructure.However, none of that was about Japan free riding, none of it was about the alliance, it was all very specific. So what it shows you is rent-seeking and stupid policy is still possible, but it's very different from the 1980s or 90s when 70 percent of Americans said in polls, we can't trust Japan, and members of Congress were actually saying, why are we defending Japan? They're ripping us off. The only guy who says that now is Donald Trump. And he actually hasn't said it about Japan in some time. But anyways, you're right. It is not all sweetness and light, but it's not what it was.Richard GrayIn many of our conversations, one of the through lines has been that for third states between the US and China, the US has played a crucial countervailing role. However, there's a similar view that's been coming up between threading the needle of these different discussions that we've had, which is that Australia, Japan, Europe and others should perhaps think about playing a greater role in their own security, have more autonomy and, to some extent in the more extreme end, hedge against the United States. So when you approach that type of question, what would your pitch be to, say, Japan, Australia and South Korea, that the maintenance of the existing alliance is worth a perceived uncertainty?Michael GreenWell, I guess I'd preface it by saying, in spite of all the uncertainty and the frustration with the Trump tariff wars, there's no evidence or indication that any U.S. ally in Asia, not Japan, not Australia, not Korea, or major partner like India or Singapore, there's no indication that they are de-aligning or reducing their strategic dependence on the U.S.There are little things, like very little things, like Prime Minister Albanese went to Indonesia and said Indonesia is Australia's best friend. If things were really going well with the U.S., he wouldn't have said that. The Japanese, the British, and the Italians are building a new jet fighter called GCAP, they're starting to market it in Australia. There's little things in the arms trade business and speeches that indicate not everything is smooth in alliance relations with the U.S., but absolutely no change in Australia, Japan or elsewhere on the defense initiative, started really back in Clinton, in the 90s in some ways, but accelerated under Biden. Things like AUKUS, the submarine deal with Australia and the UK, things like force posture initiatives in Japan, Australia, and the Philippines to get more access for the U.S. military to deal with contingencies, cooperation on missile defense, ammunitions production, technology sharing, none of that is getting unspooled, because it'd be crazy to do it if you were Australia or Japan. You've invested so much in U.S. technology and defense relationships, and it would take you decades and three, four, five times as much defense spending to try to create autarky.Indonesia might or might not be Australia's best friend. It's certainly not going to defend Australia. So nobody's unspooling, disconnecting from the U.S., quite the opposite. The pattern has been more mutual interdependence. The U.S. needs these allies, needs Japan and Korea for shipbuilding and technology, needs Australia for critical minerals and geography and so that's just not happening.The Chinese know it, because the Chinese aren't really trying to drive a wedge. They're just continuing to hammer everybody with military maneuvers. I think in that sense, the U.S. has quite a depth of a reservoir of, if not goodwill, common sense that will get us through this in terms of alliance cooperation.The risk is that the Trump factor, trade fights, make everything harder. And we don't really have a lot of room for error right now. The Chinese Navy is bigger than the US Navy in number of ships; our ships are better, but they have more of them. Their Air Force is bigger in the Pacific than the US and Japan combined, tactical air in particular. They're building up nuclear weapons. We don't have a lot of room for error. And so injecting uncertainty and friction when you're trying to build more interdependence, we need each other more, is not smart military strategy, for sure, or grand strategy.Now, the question about defense spending, the Trump administration is going to pressure everyone to spend more on defense. In public opinion polls, the American people support alliances, but two-thirds say our allies need to do more. The U.S. spends over 3% of GDP on defense. That number is going up in the new defense bill in Congress by 12% next year. Australia is pretty flat at 2% of GDP. Japan is going to 2%, but because of a cheap yen and other factors, and including the Coast Guard in the 2% and other things, it's not clear if Japan's really getting the bang for buck promised. Britain spends 2.5 percent, is going up. And arguably Japan and Australia live in a more dangerous neighborhood than Britain. So I think the pressure from Trump is a given. But even if Kamala Harris had won, the debates would have been happening.The Defense Strategic Review in Australia, Japan's 2022 National Defense Strategy and National Security Strategy, described this as the most dangerous moment in their history for Australia since World War II and for Japan in the post-war era. Well, defense spending is not at its highest point as a percentage of GDP in its history.And the Chinese aren't backing off. In fact, Xi Jinping announced he's going to increase defense spending by 7%. So I think the debates about increasing defense spending are definitely coming and are already there. The Australian election, the opposition briefly raised it, didn't poll well, they dropped it, but behind the scenes, it's a huge discussion, because the world isn't getting safer, and matching defense spending levels that you had for 10 years doesn't add up.Will the Trump administration punish allies for not doing more? I don't know. Probably not in Asia. Probably will in Europe. So, yeah, it's going to be this is period of massive transition. Alliances are more important than ever. But the way we run them is definitely going to be shifting. Because of the larger power changes.Jersey LeeI wanted to get into another aspect of the alliance that we briefly just mentioned earlier. On trade, you previously mentioned that Japan has, perhaps to many people's surprise, stood up strongly against Trump's tariffs. And in Australia, Lowy Institute's poll showed that over 60% of Australians do not trust America to act responsibly within the world. Now, the same poll showed that 80% still have confidence in the alliance, so that goes to your point earlier. But it's undeniable that America is suffering some degree of reputational damage, which likely played a role in the recent Australian and certainly Canadian election results. How much damage do you think has been done and how quickly can it be reversed?Michael GreenIt's a really good question. And the Trump factor was huge in the Canadian election, not as big in the Australian election, but definitely there as a garnish or seasoning for how the Labor Party went at the Coalition effectively. And to me, the Lowy poll result was not at all surprising. In Japan, the numbers have been about 30 percent trust the U.S. to do the right thing and 90 percent support the alliance.I like to tell the story of in the in the 1980s when Reagan became president. A lot of NATO allies in Europe thought he was a crazy cowboy. They'd never seen anything like him; maybe not as shocked as Trump, but pretty shocked. So all the European foreign ministers were gathered to prepare for their first NATO summit with President Reagan. And they were all complaining about the U.S. and all the cowboys and the unilateralism and the crazy cold warriors. And then the British foreign secretary said reportedly, yes, yes, everything you say about the Americans is true, but they're the only Americans we have. There was a lot of friction over deployment of intermediate range nuclear weapons, just the general hard line of the Reagan administration, massive protests in Europe, massive against the US alliance, the likes of which you do not see right now.Less than a decade later, the Berlin Wall fell, the Cold War ended, and the West won, that alliance won, together with American alliances in Asia. So I think there is a helpful ability of the U.S. to recover and of allies to be extremely worried about the U.S., but realize they're the only Americans we have. And so there's nothing about this that needs to be linear, meaning that this is just a secular trend where the alliances are in trouble beyond Trump. I just don't believe that's going to be the case. I don't think governments in Asia believe that because they're not buying nuclear weapons or building nuclear weapons or saying, we won't accept U.S. forces or anything of the kind.Sometimes that recovery can be pretty quick when you have an election and a new president, as we found from Trump to Biden. Some of it doesn't go away because on trade, for example, Biden was about as protectionist as Trump had been. So it's just the nature of what we're going to be facing, that there will be some level of uncertainty about the U.S. It can be reduced. It can be managed, but it's a factor.Where does it matter? As I said earlier, it makes everything harder: implementing AUKUS, implementing force posture, getting politicians to convince local governments to let military exercises happen in their backyard. All the politics of alliance management that are always hard are just going to get harder in many cases. That's a risk. It's not a risk that the alliance will collapse, but we don't have a lot of room for error. We've got to catch up to the Chinese capabilities. It will matter a bit more in Southeast Asia, the so-called Global South, but not as much as many pundits are saying, in my view. My view is that countries like Malaysia, Indonesia, Sri Lanka, they'll look at Trump less favorably, for sure. Tariffs could make that quite spicy. But these countries have agency. They don't want to become wholly owned subsidiaries of China. They will play everyone against each other to get the best deal they can.The risk there, frankly, is less in terms of the soft power or the image of the U.S., in my view. The risk there is from Trump decisions to pull back funding for USAID for development and for democracy and governance, because in a lot of these countries, China is less interested in public opinion about the U.S. or China, and much more interested in what's called elite capture, basically bribing people to let China build military bases and bridges. And elite capture is possible if there's poor democratic governance. And the Trump administration is basically canceling all funding from the U.S. to support democratic governance. The one area they seem to continue funding is in infrastructure financing, the Development Finance Corporation, and that's significant because that gives alternatives to China's Belt and Road. But in the developing part of Asia, not to mention Sub-Saharan Africa, the U.S. is just retreating.And that vacuum is, to me, more of a problem than the brand of the U.S., because the vacuum is something China will quickly try to fill. And we will find that these countries are suddenly dominated by Huawei or hosting PLA submarines. And there will be long term consequences. That one worries me more. But soft power matters. Joe Nye, the author of soft power, sadly passed away recently. He was a mentor of mine. And it matters. And the Trump administration seems not to care at all. And they will pay a price for that. That's for sure.Jersey LeeYou are a current board member of Radio Free Asia. The situation there, from what I read, can be best described as a state of limbo, as they're contesting their federal funding freeze right now. So first of all, could you give us what you know of what's going on right now?And generally, in its efforts to shutter institutions such as USAID and U.S. Agency for Global Media, why was USAID the initial DOGE target? What do you think the impact of these DOGE-led cuts will be to America's global strategy?Michael GreenYeah, I'm on the board of Radio Free Asia and the Asia Foundation. And sorry to disappoint you, but I'm not going to now air all the internal discussions. Suffice it to say that the DOGE and the Trump administration tried to zero out funding. These are organizations that are directly funded by the U.S. Congress for their core funding. And there's a big constitutional question about whether the administration can cut that funding. So that's why it's being contested in courts and it's kind of day-to-day, month-to-month.In the long run, I'm cautiously optimistic, even if the next months and years are more uncertain. And the reason is that organizations like Radio Free Asia and the Asia Foundation or the National Endowment for Democracy, they have huge support on the Hill, particularly from Republicans who have increased their spending from year to year in the Biden years, because they understand that what I said earlier, which is to compete against China, you have to support civil society, governance, democracy, information. You have to get information in. These Republicans, their hero is not Donald Trump. Their hero is Ronald Reagan. And Ronald Reagan, with the Westminster speech in London, created what became the National Endowment for Democracy in a lot of these efforts.So I think the base of support is quite strong, and precisely because of China. And it certainly helped that the Global Times in Beijing published an editorial mocking RFA and other organizations for being cut. I mean, there's nothing that helps your case like the other guy saying, ha ha, we're glad you're gone. So I'm cautiously optimistic about the long term, but it's going to be a very uncertain period. And we'll pay a price for sure if we don't get our act together.USAID is a bit different. The U.S. Agency for International Development really got hit by DOGE. And I think politically they were an easy target. DOGE wanted some early scalps.At the end of the day, DOGE was a complete failure in my view. They didn't cut two trillion. They barely cut tens of billions. But the damage they did was massive and not just to development, but to all kinds of government services in all kinds of areas, from weather monitoring and tornado monitoring to management and stewardship of nuclear weapons to development. And it was an easy target because Americans don't really understand foreign aid. In polls, Americans think we spend huge amounts of our money on foreign aid. It's actually not that massive a percent of the federal budget.AID needed reform, in my view. You know, the Australians, for example, and in a different way, the Japanese put their development agencies under the foreign industry so that decisions were being made about projects that advance the national interest. And in a very, very competitive environment like we're in right now globally with China and Russia and others, to me, that's very logical. And so folding AID into the State Department is not in itself the worst thing because a lot of AID projects do good for people, but you've got to prioritize. So that part makes sense or some reform makes sense.But zeroing them out makes no sense. You literally had people working on projects at great physical risk in parts of the world, having their paycheck stop and no return flight. Just horrible way to treat people who've dedicated their lives. And what frankly drove me really crazy was these DOGE people were computer science majors who barely traveled around the world, passing judgment through algorithms about the value of work being done by people who professionally chose to go into some of the most difficult situations to build bridges, to purify water, to help combat AIDS, noble people who sacrificed a lot for the U.S. interest and to help people. And then you have these Musk protégés come in and just start hitting buttons to stop the funding. Pretty reprehensible.And we will pay a price strategically. I suspect no one is more worried about this than the U.S. military because they know wars start when you have vacuums. And this is creating more of a vacuum in parts of the world that are contested. So we'll see.The backdrop for a lot of this is that Donald Trump's support is going down, lowest support rate of any new president in history, and it's going down. None of his policies are popular now. In polls, all his policies are unpopular. The midterms, it'd be hard to see how the Republicans keep the House. So we'll see where this goes, but suffice it to say that DOGE and the Trump administration do not have like a long runway to do this.They might have two years, two and a half, three years till the election. Might be less, but it's not a permanent thing in my view.Jersey LeeMoving back a bit to America's broader competition against China, there's all this talk about how America in the past used to have primacy in the Asia-Pacific, and now maybe that's not so true anymore, that America might need to become comfortable merely acting as a balancer against China. As you say, lots of countries in the region, even in Southeast Asia, even in Global South countries, they want America to be a balance against China. How comfortable would America be in that role? Some people in Australia, for example, like Lowy Institutes’ Sam Roggeveen, argue that if America doesn't enjoy privacy, it'll just decide that this isn't a worthwhile endeavor for America and they'll just pull out. What do you think of this view?Michael GreenI think Sam needs to read my book, By More Than Providence, which is 250 years of history showing that that's not the pattern for American thinking about the region at all. The book also shows that primacy is hardly the norm for American engagement in Asia.If you define primacy as the leading economic position, leading diplomatic position, and perhaps the ability to operate with impunity in the maritime domain to control the sea-lanes and the first island chain and so forth, when did the US have primacy? In the maritime domain and economically, it had primacy from 1945 until the 70s. The Vietnam War is different because that was continental. Korean War was continental. But in terms of maritime primacy, the U.S. was absolutely dominant. But it lost that after Vietnam because in the late 1970s, the Soviets dramatically built up their Far Eastern fleet. And in the late 70s, Soviet submarines were surfacing off of Hawaii and taunting the U.S. Navy and then submerging with impunity because the drawdown after Vietnam had been so severe. In the 80s, the U.S. reasserted maritime and air supremacy. And of course, after the Cold War collapsed, it had it for about 10 to 20 years.So you add that all up, and what is that? That's 45 to 30 years of American history. There's been primacy in the Asia region in terms of what matters most to America, which is maritime. But most of American history, the US has had to play a balance of power game. It's been a multipolar region. It's been about preventing the rise of a rival hegemon, not through the unilateral application of American power, but depending on other powers to play a role. Even when the US didn't have formal alliances in the 19th and early 20th centuries, Theodore Roosevelt and others played a very clever balance of power game, as did John Quincy Adams in the 1820s. So I guess this primacy idea, it's not like the U.S… It's a fairly brief period in American history that we have primacy at all.The second thing I'd say is China does not have primacy. China cannot operate with impunity within the first island chain. The U.S. and its allies have absolute… 10 to 15 year lead in understory warfare. The U.S. has more allies. China's sea lanes, half of China's energy supplies, hydrocarbons come by sea through the Indian Ocean and up the South China Sea, which, frankly, the US, Japanese, Australian, Indian navies, the Quad—not why the Quad was formed, but if you had a war and those navies decided to stop Chinese imports, they could. So China doesn't have primacy either.What you have is fierce contestation, a standoff, a stalemate. And both sides know that and both sides will seek advantage. through submarines, through cyber, through more hypersonic missiles, through basing and forced posture options, both sides will be positioning themselves, but we're in an era of contestation, not Chinese primacy. And the American side knows that.The problem in Australia with people saying America might fight a war for primacy, which you hear from Hugh White and my friend, Sam Roggeveen and other commentators, is there's no American strategic doctrine document speech that says America must have primacy in Asia. People sometimes point to the Trump 2018 national security strategy. And I interviewed the author, Nadia Schadlow, on my podcast, The Asian Chessboard, and I asked her about it. And she said, we didn't have that in our national security strategy.So it's a bit of a strawman or a straw person to say the U.S. will fight for primacy. The U.S. will fight to prevent another hegemon from dominating Asia, as it has been prepared to do for a long, long time. But there's no mandate from the American public to fight to prevent another country from having contestation with the U.S. The American public doesn't think the U.S. has to be top dog in Asia, just doesn't want another dog driving us out and threatening our friends and our commerce and our values. Very, very different. And by the way, very manageable for allies, because that contestation, that game requires allies. So allies will have a big vote, especially Australia and Japan.Richard GrayOn the broader issue of durability of commitments, while there's been a lot of focus on U.S. electoral cycles and uncertainty about what an administration's foreign policy might be from four years to the next, on the Chinese side, there's a more long-term but more grand transition, which is in leadership succession. Obviously during the Mao period, that transition period was particularly bumpy, but even today, there's a lot of uncertainty about what Xi Jinping successor might look like and what policy shifts might happen there. As you think about like what Australia, Japan and South Korea and others are thinking about in terms of the durability of their relationships between the US and China, how does the Chinese succession question fit within this?Michael GreenA very good question. So I worked in the White House at the NSC for almost five years. And the first half of that time, I was mainly dealing with our allies. A lot of time with Japan, Korea, Australia. And for giggles, they gave me North Korea policy, too. The second half, I was the senior official for the whole Indo-Pacific region. And so I was in a lot of the summit meetings President Bush had with Jiang Zemin or Hu Jintao. And I was also there during crises in U.S.-China relations like the EP-3 incident in April 2001 when President Bush had to call or try to call Jiang Zemin, I think it was 13 times before he could catch him, because the U.S. government and Chinese government were unable to manage the crisis.And what that showed him, what those summits showed me, was that the management of U.S.-China relations, maybe more than any other bilateral relationship the U.S. has, really depends on the leaders. And that was always true for China because the foreign minister was never really empowered the way the Secretary of State was. The Central Military Commission included no diplomats historically. And the decision-making in Zhongnanhai was not conducive to sorting problems out at the level of the deputy secretary of state or assistant secretary, the way you would with the U.S. and Australia or most normal relations.So it all kind of hung on the two leaders, which is why you had these big historic communiques, Nixon, Carter and Reagan, and why Bush's relationship with Hu and Jiang Zemin before him took so much of our time to get right: not caving but not provoking; we used to say “comprehensive, constructive and candid”, so pull no punches on human rights or Taiwan or North Korea. A lot of thought went into it.So now you have two leaders in Trump and Xi Jinping that are very different from their predecessors. Xi is a strong man, a dictator, an authoritarian, take your choice. He's neutered the standing committee of the Politburo's role. It used to be more of a collective decision-making body. It's now a cult of personality for the most part. He's got the Xi Jinping Thought app that everyone has to take to be promoted. I've done it with a Chinese friend of mine. It's like a really bad video game, where you have to memorize Xi Jinping Thought if you want to get promoted, even in the private sector now.Trump would love that. I don't know if Donald Trump knows about the Xi Jinping thought app, but he would love to have a Donald Trump thought app. You can just imagine it. And decision making now in the U.S. has also changed under Trump so that the secretary of state, secretary of treasury actually has very limited authority, because the president could change his mind the next day. It's much more capricious. So in some ways, that means the relationship between Trump and Xi is even more important, because both sides have centralized decision-making in the leader and don't have checks and balances such as they were in China and as they existed in the U.S.The problem with that is Xi Jinping is not going to change strategy. You know, Rush Doshi's excellent book, The Long Game, maybe overstates how much consistency there was in China's strategy until now, but there sure is now under Xi Jinping. He is not taking his eye off the prize, which is primacy in Asia, by the way. So he's not going to make any big compromises that get in the way of that. And Donald Trump is the opposite, which is he has no grand strategy. He could change at any moment. It isn't even clear to the Chinese what his objective is, or to his own cabinet. That creates a real trust deficit that will make this interpersonal relationship more important, but frankly, less useful than in the past because of the personalities of the two leaders.Ultimately, Xi and Trump have self-preservation instincts. So I think the odds are very low that Xi Jinping would use force or risk war on Taiwan. And Donald Trump talks a tough talk. But as you saw with Ukraine, with tariffs and the bond market, with North Korea in 2018, he talks a tough talk, but he backs down and claims victory. So that sort of deterrence works. Their political self-preservation instincts work. But there's no seatbelt for U.S.-China relations right now. It's going to be a very rough ride.Jersey LeeIn terms of broader U.S. foreign policy, there's an interesting Trump speech that he made during his recent visit to Saudi Arabia, which signaled a complete repudiation of not just neoconservative foreign policy, but perhaps post-war U.S. doctrine generally. He remarked that Gulf countries' economic success “has not come from Western interventionists… so-called nation builders, neocons or liberal nonprofits giving lectures”, but by locals based on local cultural traditions. References to Iraq and Afghanistan make it obvious that the main target of this criticism was the Bush administration that you had served under. So what do you make of these remarks? What might it mean for U.S. foreign policy and how America sees itself in the world going forward?Michael GreenYou know who made a similar kind of speech to the Middle East? Barack Obama in 2009. He had run against the Iraq war. He'd promised to open to Iran. He made noises about local culture. Very similar themes, not as obnoxious as Trump. Trump is obnoxiously attacking his political opponents in the Republican Party at home. So nothing compares to Donald Trump in tone, but the message that we're not going to tell you how to run your countries, that was Barack Obama's message in 2009. The Democrats came in critical of the neocons and saying Bush was trying to democratize the Middle East, that's crazy, we're going to go back to realpolitik and real negotiations.So it's a bit cyclical, frankly, in American history. The United States was founded on two slightly—this sounds very Marxist—contradictory principles. One was the founding fathers, the colonists wanting to restore their rights as Englishmen. That's how it all started. They didn't want to be taxed without representation, they wanted to be treated like Englishmen were everywhere in the UK, in Britain. So very conservative in that sense, but also at the same time, it was a revolution. Thomas Paine, the pamphlet he wrote, it was the last best hope for mankind and that someday this revolution of democracy and people's power would spread around the world. So the U.S. has always had this kind of, as Marxists say, internal contradiction. And polls show pretty clearly that the American public likes both. And so we kind of veer a little bit from one to the next.So, yes, Trump is now pushing back against the Thomas Paine neocon view. Frankly, it fits his personal worldview because he, I don't think, has a particular interest in ethics or morality. You know, he's ordered the Justice Department to stop enforcing the Foreign Corrupt Practices Act and other pretty important laws around ethics. So personally, it fits him and also his desire to cut deals with countries like Qatar and the Saudis. It's more pronounced than it was with Obama, for sure. And he's playing to a certain part of the Republican and Democratic camp that doesn't like, that still is angry about Iraq and democracy and advocacy.But it's just one faction in the Trump administration. I can tell you for sure that's not what Marco Rubio thinks. It's not what Mike Walz, who was National Security Advisor, now in the UN, thinks. The Trump administration, like every administration, has a lot of factions, it's more of a roulette wheel; you never know what you're going to get, because there is no functioning National Security Council system. The president wants to just make up his own mind without being staffed. Some days you'll have Bessent at the treasury talking about stabilizing tariffs, and then the next day you'll have Peter Navarro come in and say we're tariffing everybody; you'll have Marco Rubio pushing the Quad, and then and then you'll have someone around J.D. Vance, who has adopted this sort of anti-neocon, America first isolationism, put out there—this was probably written by someone around Vance, frankly. So you can see the different factions very clearly. It's a pendulum.There's going to be blowback. If the Democrats take the House—that seems very likely—they're not going to tolerate this. They're going to pass legislation on human rights and democracy, in trade, in relations with Saudi Arabia and Qatar. It's going to be a seesaw. Trump is taking it really far in one direction, but it's not the first time, as I said, that it's gone in that direction. Obama flirted with a similar theme himself.It is fundamental to the U.S. and the American people's worldview that democracy matters. Polls show that. When it's inconvenient, then the Americans don't like it. But when we can afford to do it, they want to do it. And to me, this is one extreme swing in a very long history of seesawing on this issue. Ultimately, I think democracy and human rights matter. And the key is to try to find a way to be consistent, which we're not great at.Richard GrayTransitioning more to your own background, how you thought about your career as a sort of balanced pendulum between academia, policymaking and policy research? Was this a methodical or intentional choice? Was it a matter of circumstances and opportunities that came your way? And as you think going forward about utilizing that combination, what are some of the things you hope to achieve ahead?Michael GreenYeah, it's something I was able to do, because the American system, for all its flaws, allows it. We have checks and balances. So if you go into a think tank, Congress will want your information and your expertise, even if the administration doesn't. And then if there's an election, and you're associated with one side of the debate or one candidate, then you can go into government. And then if your guy loses or you need a break, you can go back to university or think tank. The people call it the revolving door. like it's some kind of corrupt thing; at the margins, maybe it is, but for the most part, it's a really good thing for the American people because it allows fresh ideas to come into government. It allows think tanks and scholars from the outside to get involved in policy debates through congressional hearings. It's unique. Parliamentary systems like Australia and Japan don't really have it.So I followed that path. For people thinking about it, I would make a couple of cautions. One is, if you really want to serve in government, the safer path is definitely to take the foreign service exam and go into the State Department, be a presidential management fellow, maybe congressional staff, because if you go the political policy route of a think tank scholar type who advises campaigns, when the music stops, there may not be a chair for you, it's way beyond your control.I advised John McCain on Asia for his campaign, Mitt Romney for his campaign, Jeb bush for his campaign, I was an Asia foreign policy advisor; when the music stopped, there was no chair, they lost, In 2000, I didn't actually work on the Bush campaign, but the key people in his administration who cared about Asia, Rich Armitage, Paul Wolfowitz, they knew about me and they wanted me in there because they needed an allies guy.So you have much less control over it, frankly, than if you go into the civil service or the foreign service or the military, where you can do 15, 20, 25 years in your career, it's just that it's incremental, you can't do a big leap into a high-level position like you can. So you got to decide how much risk you have for the uncertainty of that.The second thing is, if you do what I did, or my friend Victor Cha, or people like Peter Feaver at Duke, or Mira Rapp-Hooper who was in the Biden white house, you really do have to become an expert. You can't just sort of hang out, play video games. You got to write books. You got to publish. If you get a PhD, you got to be really serious about it. And so it's an intellectual journey, but it's a journey up to the top of a mountain. You've got to be ready for that. And if you get a PhD, you have to go into it thinking, this may not get me a high-level government job, this may not get me a tenure at university, but darn it, I have something I'm really interested in, and I think I can say something very profound and important about it. So even if that's all I do, I'm going for it. You can't look at it as a ticket to something else. You've got to really be into the topic itself. So those are a few ways to think about it.The revolving door is kind of broken with Trump. And federal hiring is obviously crippled right now. But this is an aberration. This is not the new normal in my view. So if you're in school now, go to grad school, ride it out. Travel in Asia, ride it out. I think to compete, the U.S. needs expertise, especially in Asia. So that career path is there. It's just a little bit like a tree fell down and lightning hit. And the career path is temporarily blocked in a lot of places like USAID. But it's going to get cleared up, I think.Richard GrayFor our last question, Scott Faulkner would often say that personnel is policy. Recently, the United States has lost two giants of U.S.-Asia policy, both of which you've mentioned in this conversation, the late Joe Nye and Rich Armitage. I've never personally met either of them, but know many whose lives were marked by both and who had nothing but the strongest words for both statesmen. As an American who previously thought about a career in government in some capacity, it is a phenomenal challenge to look at any current senior officials as someone to aspire to. I just don't see the vision and clarity, the sacrifice in public service or the expertise and poised competency. What do you say in response to this vantage point? And what do you look for a dose of measured optimism?Michael GreenThat is a fantastic question. I am so glad you asked. You know, rich Republican—I’m a rich Republican—Rich Armitage was not a rich Republican, he was a Naval Academy grad. He went to Vietnam, fought with the riverine forces in the small boats with the South Vietnamese Navy. The Navy transferred him and he said, nope, left the Navy and stayed as a civilian contractor to keep fighting. That's the kind of guy he was. And when the U.S. pulled out of Vietnam, he was mad. He said, you don't leave your friends in combat like that. He got almost the entire South Vietnamese Navy out. I think he probably wasn't even 30 years old yet. And he got the crews, their families, on board this flotilla of over 2,000 people and got them to Manila Bay. The story is that the Philippine government said, we can't take Vietnamese refugees. So Armitage had the ceremony and said they're now an auxiliary of the US Navy and raised an American flag so they could go into Manila Bay. Remarkable guy.I had the pleasure of working very closely with him in and out of government, traveling around Asia with him frequently. A lot of people would take a bullet for Rich Armitage. He's that kind of guy. And I'm not talking like people who've been in the Army or the Navy. I'm talking about academics, people who never thought about taking a bullet for anybody. He inspired that kind of loyalty.And then Joe Nye was his partner in building a bipartisan organization consensus around Asia policy, and especially focusing on Japan and allies, they came together in 2000. Nye was a Democrat. He worked for Clinton. And I worked for Kurt Campbell, who had worked for Nye in the Pentagon. But they came together in 2000, created this task force, produced what's called the Armitage-Nye Report, and several after that, which basically said, no matter who wins the election, this is the blueprint for how you get Asia right and Japan right. And of course, Bush won. Rich became Deputy Secretary of State, I went into the White House. When we had our meetings on Japan policy, we used the Armitage-Nye report. That was our strategy, a bipartisan document created outside of government that everyone agreed, if Gore wins or if Bush wins, we're going to support this from inside and outside of government.And it was contested, frankly. A lot of people said, China's our future, not allies. And there were still some trade issues, but it, with the exception perhaps of President Trump himself, is now the mainstream view. And Joe was, where Rich was a salty sailor who busted and lifted 400 pounds in the gym and all that, Joe was a soft-spoken academic. His hobby was fly fishing, patient, strategic, and a wonderful human being. What they both had in common was they were very, very patriotic. One from the center right, one from the center left. They focused on the national interest more than their own ego. And they really nurtured and cared for and were loyal to their people, very loyal. Rich asked me about my family all the time. Joe asked me about my academic research. They cared about everyone in their orbit. Very warm, but very effective, tough bureaucratic players.Do they exist today? Yes. And there's nothing more satisfying, frankly, than—so I'm older now, towards the end of my career. The most satisfying thing for me, the funnest, coolest part was being in the White House, negotiating with North Koreans, going to Afghanistan and so forth. But the part that's most satisfying is all the people I got to help along the way. And that's how Joe and Rich felt, that was what really marked their legacy and their view. Their legacy was huge on policy, but it's the cohort of people who were nurtured by both of them.Maybe I'm old and cranky, I do worry that subsequent generations are not as loyal, that there's something about social media and careers where people are impatient and jumping from job to job and worried they'll be left behind. I hope I'm wrong. And I really hope that a new generation does what they did, which is really look out for and nurture the generation to come who will work on Asia. I've tried to do it. I know friends like Victor Cha, who worked with me in the Bush NSC, have tried to do it. Scholars like Peter Feaver at Duke. Randy Shriver, who worked for Armitage, Democrats like Kurt Campbell, Mira Rapp-Hooper, who worked for him. I do worry a little bit that loyalty and investing in people and relationships is a bit fragmented in Washington and everywhere. So hopefully people will read about Rich and Joe, read about those kinds of people and realize, not only is that an effective way to lead and have impact, but it's satisfying. It's gratifying, frankly. So I miss them both, but hopefully we'll get more like them.Richard GrayOn that note, Dr. Green, thank you so much for a fantastic conversation.Michael GreenThanks, Richard. Thank you, Jersey. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

For this episode, we spoke with the Honourable Gareth Evans, who served as Australia’s foreign minister from 1988 to 1996. Mr. Evans is a strong advocate for Australia pursuing a more independent foreign policy. In our conversation, we discussed how Australia should navigate the Asia-Pacific, between a less reliable U.S., and a more assertive China. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

For this episode, we spoke with Victor Shih, Professor at UC San Diego’s School of Global Policy and Strategy. Dr. Shih is a leading expert on Chinese finance, political economy, and elite politics. In our conversation, we discussed China’s vision for international economic governance and the how Washington and Beijing are approaching the trade war today.Richard GrayWelcome to this episode of Pacific Polarity. Today we're speaking with Dr. Victor Schur, who's a professor at UC San Diego School of Global Policy and Strategy, where he is the Director of the 21st Century China Center and the Ho Miu Lam Chair in China and Pacific Relations. He's the author of two books : Factions and Finance in China: Elite Conflict and Inflation and, secondly, Coalitions of the Weak: Elite Politics in China from Mao’s Stratagem to the Rise of Xi.Dr. Shih is an expert on Chinese finance, political economy, and elite politics. He received his PhD from Harvard University. Dr. Shih, pleasure speaking with you.Victor ShihGreat to be here. Thanks for having me.Richard GrayTo start, we want to focus on the report you wrote with the Atlantic Council in 2022, how China would like to reshape international economic institutions. And in this report, you write that China's goal is to consolidate influence in global governance institutions from more nascent structures like BRICS to more incumbent ones like the G20, APEC, and the UN. This, in your view, would require mobilizing capital from Chinese development, banks, a higher utilization of the renminbi globally, and having China play a leadership role in new governments domains like AI and others.Since then, a lot has changed for Chinese economy, global politics, and domestically within the United States. In the years since, or from 2022 to 2025, in your view, how has Beijing's thinking changed on global economic governance? Has this view evolved due to changing global environments, internal dynamics, or a combination of both?Victor ShihI think it certainly has been modified, there are some minor adjustments. And more recently, of course, there's the big shock of US protectionism, which I think will change some things in a very major way. But we have yet to see totally systematic response from Beijing on the issue of global governance. Obviously, the response right now is just trade negotiations and counter tariffs, so on and so forth.The slower moving parts is, I think Beijing is probably a little bit less optimistic about renminbi internationalization today compared to a few years ago, just because the Chinese economy has slowed quite dramatically in the wake of the COVID lockdown, in the wake of the unnecessary crackdown in the real estate sector. As a result, the People's Bank of China has had to cut interest rates very aggressively, lower reserve requirement ratios very aggressively, which heightens the risk of capital outflows, which is something that Beijing is really afraid of. As such, renminbi internationalization, which by definition requires capital outflow, is probably not something that Beijing is going to pursue aggressively. Beijing was already very cautious about it, you know, back in 2022, 2021, but today probably even more so.In terms of Belt and Road investment, I think China's model has changed over time to focus less on infrastructure investment and more on subsidizing Chinese companies, both private sector firms and also SOEs, to invest in industrial production capacities overseas. That was already changing back in 2022. But I think it has accelerated in the wake of the first round of Trump tariffs, when a lot of Chinese companies voluntarily started to produce overseas in order to avoid the tariff. And obviously, with the latest round of tariff, Chinese companies are going to be really incentivized to set up production overseas.Although, no one can hide from U.S. protectionism, because now we have 10% tariff on every country on earth. But the danger, I think that the big power play that we potentially could see in the near future is a new global trading regime that is centered around China because of U.S. protectionism. and we can sort of talk about what that looks like.Jersey LeeFundamentally, do you think that the U.S. and the West more broadly is able to compete with China through industrial policies or is implementing industrial policies something for which a system like China has natural advantages?Victor ShihChina certainly has a lot of advantages when it comes to industrial policies. The primary advantage is that it controls the financial system. The government controls the financial system. That's made possible by capital control and state ownership of the banks. And as such, they control the flow of financing pretty much 100%. There is some kind of private sector capital flows in China, but as a ratio is quite low. So that's the biggest advantage.But the way that China allocates money is not very efficient. It's a lot more efficient in the US and outside of China in the capitalist countries, both in Asia and in Europe and other parts of the world. But the problem is that, because of protectionist policies of the US, it is now impossible for advanced capitalist countries, including Europe, Japan, Korea, and the United States to act in concert in any kind of sort of industrial or trade policies, certainly in trade policies, because according to the administration right now, once all the trade deals are signed and sealed, then no problem; I just don't think, I mean, I think so much ill will has been created that these other countries, even if they sign a trade deal with the US, there will still be a baseline 10% tariff, which is already like 10 times more than the tariff rates previously, because we had lived in this tariff free world, which some people find problematic.But still, a lot of ill will has been created. And so, whatever kind of coordinated industrial or competitive policies we will try to pursue with the other countries, because we live in a world of quid pro quo created by the current administration, our partners, our counterparties will ask for something in return back from us. Then everything becomes this very protracted negotiations item by item, policy by policy, even product by product.If you look at the trade deal with the United Kingdom that was that was revealed today, it's ridiculous. It's like planned economies, where the first hundred thousand cars has [10%] tariff. It's just insane, this is like the 1930s or whatever.In this world filled with trade friction, because in essence, that is what Donald Trump and his advisors would like to see, it will be incredibly costly to coordinate with other countries to pursue any kind of policies.Richard GrayLooking at some of the US responses to some of these shifts, particularly as we think about the rise of China and what that means for the macro global economy, there have been two efforts that have been brought forwards.One is one of the things that you mentioned in your report, the blockages of mid or senior Chinese leadership in places like the Bretton Woods institutions. The second is a shift away from multilateral trade to plurilateral institutions; it's a transition away from things like the WTO to the Trans-Pacific Partnership, now we're going from plurilateral to bilateral, and in some cases just insulating within the United States. It's sort of siphoning of trade from multilateral to all of these different phases, in combination with blocking China out of, at least previously, the multilateral institutions.How do you see those two things in combination with each other? As you think about China potentially blocking out the United States from the global economy, or rather the flip of this, other economies reorienting themselves into Chinese supply chains, into Chinese investments, the role that the U.S. plays here on an institutional level, on a trade level, it seems to be quite diminishing, in some ways intentionally, but in some ways maybe not so much.Victor ShihThe IMF should be kind of okay for a while, unless the U.S. goes ahead and does this crazy thing of withdrawing all additional help, financial subsidies to the IMF. Then we're just voluntarily withdrawing from that institution. But short of that, again, because of the limited scope of renminbi internationalization, institutions like the IMF and the Asian Development Bank will still primarily deal in U.S. dollars. Basically, money from Europe, from the United States, from Japan will still be crucial to these financial type institutions. And so I think the U.S. can continue to have a large say in these institutions.But there’s for example the UN. Of course, we can debate about the efficacy of the UN when it comes to different types of issues. The US is sort of voluntarily withdrawing, by reducing funding and China stepping up at the same time; for things like the WHO and the UN, China's voice is going to be louder. For the WHO, it's basically okay. You do have this anomaly like, oh, the WHO is going to side with China when it comes to investigating about the origin of COVID and stuff like that. But for continuing global health efforts, what really matters is the continual flow of money instead of specific direction, just because there are so many health issues that are widely recognized to be necessary to address.The AIIB, I think it's not in a very active period right now, just because initially there was this huge round of funding of various projects. The problem is the record has been a bit mixed, and in a world of higher interest rates, a lot of developing countries that borrowed not just from the AIIB, but also from other international financial institutions, are finding themselves incapable of repaying. Some of these countries like Argentina now needs big bailouts from the IMF, et cetera. So China is not going to expand too much in that either.What's interesting about trade is that trade-related institutions, and I can see perhaps that the Belt and Road Initiative, which is currently just a conference, can turn into a more formal trade regime of some sort. The problem for all the countries that trade with China is that many of them are running trade deficits with China. And the reason is because China is so good at making so many different things. So either Chinese companies will have to relocate production massively to Belt and Road countries, some of which is of course happening, but it's not happening enough such that countries are beginning to run trade surpluses vis-a-vis China. That, as far as I know, is still relatively rare. There could be one or two exceptions. I'm not entirely sure.Until that happens on a bigger scale, you have this conundrum where it's fine that China can export all this stuff to these countries. But then countries like Sri Lanka and Pakistan run into these big trade deficits, big budgetary deficits, and they go bankrupt. They can't repay. When they can't repay, the bailout comes from these U.S. and Europe-dominated financial institutions like the IMF and Asian Development Bank. So you still need the Westerners to come in to bail out. But I can see if the Chinese leadership in the medium term, they have a longer time horizon, they should encourage Chinese companies to massively invest production in these third-party developing countries such that it's sort of okay for China to run trade deficits with these countries. If we move toward that kind of world, then I can see China being the center of a trade network, which has very little to do with the United States.What China can do is, in a sense, what Japan has done, but on a much larger scale, which is China can sell the high-tech stuff to these developing countries, but overallChina still runs like a small trade deficit with these other countries as it imports all the labor-intensive goods, like shoes and clothing and furniture, et cetera, from these other countries. That would be a very self-sustaining and beneficial global trading order for China. And it would be quite bad for the United States, because essentially that trading system can completely cut off the U.S., and [China] will do basically fine; it may not have the fastest smartphones or whatever, but it will basically have everything else.Richard GrayAs an extension of this, as we think about some of this coalition building, of different supply chain integrations, one of the really interesting questions is to follow the Indonesia ascension into BRICS, and sort of juxtapose that with their attempt to join the OECD. This is demonstrative of the different ways in which the US and China have viewed some of this institution building.On the Chinese side, it's very low barrier to entry, very quick motion, and then deal with whatever problems or deliverables you want to have on the back end. Whereas on the US side, it seems to focus very much on the front-end entry requirements. Once different countries join, then there's a slow ascension.How do you think about that play, especially when it comes to elite politics in different countries where, say if you're the Cambodians, your focus in some ways isn't necessarily to get the deliverable project, even though that's something you probably do care about, but also to have the domestic clout of saying that you are a member, not a participant or an observer or a guest, but a full-fledged member of an institution that these perceived other large countries are part of. And so, is there an asymmetry in how the United States is approaching some of these coalition buildings and what elite politicians actually care about?Victor ShihYeah, there's definitely very different styles. I'm by no means the biggest expert in international institutions. But my observation is that the Western originated institutions, they were basically formed by a bunch of lawyers. And lawyers, of course, they're very obsessed with drawing up documents that will think of differentcontingencies in the future and have the ability to deal with different contingencies in the future. The barriers to entry is quite high because countries that want to join these institutions will have to be comfortable with sometimes a thousand page long documents, which mentions a whole long list of contingencies, and will constrain countries’ ability to act in these different scenarios. But of course, once you join, thenyou will get all these benefits and so on and so forth.Whereas for China, I think it comes back to the fact that China increasingly is amanufacturing powerhouse, but it's increasingly also a technology powerhouse so that, as long as China knows that it has a way of introducing pain to countries that act against their interests in the future, they're okay with having very low barriers and say, just come in, join the club, no problem. But if you do act against China, we will punish you in some sense. And the punishment can be, as we've seen with a lot of different countries, not buying raw material and agricultural export from certain countries anymore.Australia, of course, has been punished several times by China in that manner. It could be not allowing Chinese companies to invest in these countries; increasingly as Chinese technology companies run the telecom and IT infrastructure of some of these countries, the Chinese government can even go as far as just shutting down all telephone service, all internet service from countries. And I think for China, as long as it has that ability to impose pain, why should they drop a thousand-page long document and have people sign on a piece of paper? That's just not necessary from the perspective of the Chinese government.Jersey LeeA quick follow up on that. Part of Trump's approach is to the American leverage, in this case the American consumer, to get concessions from other countries. What you just described is how China has traditionally been able to play this game of perhaps more subtle leveraging of its investments or its various capabilities. So generally, how do you view the way Trump and China are playing the politics of using their leverages?Victor ShihThe import restrictions, which China tried to do, it didn't really work well for China either. You have this funny phenomenon where China is like, I will not buy any more Australian lobsters. And then suddenly Australian lobster export to Hong Kong goes up 500% or something like that. You had these people who would rent these speed boats to smuggle lobsters into mainland China from Hong Kong. For commodities, it doesn't work. Just like today, even though China has imposed these very high tariffs…so soybean tariff rates came down a little bit, it's no longer 125%, but it's still quite a bit higher than previously. What I hear from my channel check is that basically American soybeans are still being sold to Asia, just not China. It's all going to Singapore, Vietnam. And guess what? In Singapore and Vietnam, these clever people are mixing up the soybeans from different countries and shipping it to China and calling it whatever country of origin. Stuff like that will ultimately defeat this kind of stuff.I think a more powerful tool of the Chinese government is cutting off loans, cutting off investment. And to the extent that Huawei and other Chinese IT companies have installed critical infrastructure in these countries, just shutting down telephone service, internet service, those are real tools that are very difficult for countries to circumvent. I think China increasingly has the ability to impose that kind of pain on more and more countries.Richard GrayWe're recording this on May 8th, two days before Bessent and Greer are going to be meeting with Chinese Vice Premier He Lifeng in Switzerland. In thinking about this, I guess there are two pieces of this that are somewhat interesting.The first is the negotiations themselves. There's been a lot of talk about the asymmetry between Washington and Beijing, that Trump wants to do things top down, whereas in Beijing, it's more consensus based, doing it within the bureaucracy and then going from the bottom up; as Trump and Xi would eventually meet, it’s with a deliverable already produced.The second end of this is just the mechanisms of what concessions might be produced. It seems like the idea of what the off ramp would be is kind of unclear. It seems like the Chinese probably want to remove some of these export controls,especially the AI Diffusion Act. It seems like the Trump administration probably won't do that. It seems like one of the things that the Chinese could do that's very easy is to just buy more American products, which would be pretty painless for them, but not exactly what the Trump administration is looking for. I guess in terms of the physical deliverables, these are very small concessions that would be put forward in a way that mirrors the situation that you mentioned, between the US-UK trade relationship, but stacked on top of it, like bureaucratic difference and politicization of the relationship. I guess as you think about these factors compounding on top of each other, what are they going to talk about? Will any of it be successful? And is this just the start of nothing, or how do you view it?Victor ShihFirst of all, I don't know what the U.S. government is thinking, but my observation is that they don't have a completely clear idea of exactly what it is that they want to get out of it. Of course, in a very abstract sense, Peter Navarro and people like that are like, oh, we want to restore America as it was in 1950s. That just will never happen for a number of reasons. Even if China were to stop exporting to the U.S, basically these tariffs will make that a reality, it still isn't going to make the U.S. as it was in 1950s, mainly because people don't want to work in factories anymore. So then it's like, what is it that you want from China?There's a vague sense of creating a more even playing field. One concrete thing that Ithink the US government should ask for, but I don't know if it is indeed on the radar screen, is that China right now has this very complicated regime of export tax rebates to industrial firms, and the net result is that industrial firms pay extremely low taxes.Their taxes paid relative to their sales is something like 3%. They're basically paying 3% tax on all the trillions of dollars of stuff that they make.One thing that would be good for the Chinese government in the medium term—of course, the Chinese government doesn't think of it as a good thing, but I think in a medium term, it is a good thing because there's this big debt problem in China—is for them to eliminate a lot of these tax subsidies over time. And to the extent that the U.S.can track what these tax subsidies are, the U.S. should demand a timetable for the removal of export tax rebates. That is still going to end with a trade deficit on the part of the U.S. vis-a-vis China, but it's quite possible that the degree of trade deficit will be shrunken, this uneven playing field is largely eliminated.Of course, China will never agree to a complete elimination of these export tax subsidies. For the strategic sectors, they will continue to get some kind of subsidies. But China has already shown that it is willing to remove tax subsidies from some sectors, like the highly polluting sectors. All we have to do is ask for them to, according to a relatively shorter timetable, remove the rest of the tax subsidies. That will generate more tax receipts for China, which will make its fiscal situation more sustainable. And it could potentially make the playing field a little bit more even for the U.S.But if the US side asks China to buy a trillion dollars’ worth of US Treasury with 0% yield, that just will never work. The Chinese government will never, ever agree to that. And as you said, if what we ask is like, oh, you have to buy $100 billion worth of US oil and gas, China will agree to that easily. But that's not going to have any kind of long-term impact at all. We'll still at the end of the purchasing, will still run these huge trade deficits vis-a-vis China and other Asian countries. So I hope the process is a little bit more deliberate and more predictable so that China can consider these proposals and consider whether or not they will agree to them.Jersey LeeSo this kind of gets into China's calculus for its approach towards what America is trying to do. Because obviously, we can kind of all see how Trump's thinking took place throughout his campaign and going back a few years. And the Trump administration's initial calculus, and what you can say was a miscalculation, was that they expected the Chinese to just roll over, because apparently the U.S. has huge leverage as the world's biggest consumer market. But the Chinese didn't, to the surprise of some in the current administration.Lots of Western media reporting has generally said that China is not going to roll over, but hasn't gone into it too much. Based on your insights into Chinese domestic politics, what do you think pushed the Chinese leadership to adapt this kind of approach of standing up to America? Do you see the politics of this changing soon and what might cause it? We were talking about Scott Bessent and He Lifeng meeting very soon. From the Chinese side, what are the politics that might lead to them making some concessions and what type of concessions down the road?Victor ShihFirst of all, China was quite prepared for this in the first place. I know that after the first round of tariffs in 2018, China already studied very carefully the implications of nightmare scenarios, which actually came true, of extremely high tariff levels from the U.S., how that would impact the supply chains, and they identify these various bottlenecks, what they call 卡脖子, bottleneck product that China has to buy from the West, and that the U.S. can impose export restrictions on. And the Chinese government systematically tried to overcome these bottlenecks.We know that they're not successful in all cases. In the case of semiconductor, is Chinese government is maybe 30% successful, 70% not that successful. But in a lot of other technologies and parts and so on and so forth, China has been very successful in having domestic produced parts, replacing Western parts and equipment.The other thing the Chinese government tried to do was to encourage Chinese companies to invest overseas, to evade the tariffs. I think the US, especially people like Peter Navarro, probably anticipated it, and therefore there's this global universal tariff rates on everybody. But one thing I think people don't realize, the reason why China is standing so firm, is that because of the tax rebates and the tax subsidies, the Chinese government does not depend on industrial firms' taxes to survive. The Chinese government collects a lot of taxes, but mainly from individuals, from service sector firms like real estate, like restaurants and so on and so forth. They don't collect a lot of taxes from industrial firms, so even if 10,000 companies go bankrupt, it's not going to be a big hit on Chinese tax revenue. They'll still collect the same amount of taxes as they did before.The other factor is that unemployment insurance payment in China is extremely low, something like $200 a month per worker; even if you have 5 million people unemployed, it's a few billion renminbi, it's not a big deal for the Chinese budget. And they actually anticipated it to a large extent, by announcing even before Liberation Day that deficit spending this year is gonna be 2% as a share of GDP, higher than last year. So the fiscal impact, basically China's signaling that, well, we can just not do anything, not make any concessions for months. Let's see how you deal with it.And the thing that China really want—again, the US first has to make clear what it wants before China can think about what concessions it is willing to make—I think things like relaxing some of this technology restrictions against China on AI chips and other things will facilitate the process. But what we ask for also has to be reasonable and clearly articulated. If we don't even know what we want, or it’s something that’s just silly and impossible, like buying a trillion dollars’ worth of 0% bonds, that just will never work.But if we want some kind of timetable for the systematic removal of export tax subsidies, I think that's something that's very transparent. China, of course, will not agree immediately. There will still be a very prolonged process of negotiation. But at least we have a path toward some kind of resolution.I just don't know how much of a plan the US has, but I can tell you that China has thought about a lot of different kinds of contingencies. It probably already has multiple counter proposals, depending on what the US is asking from China. It seems that the Chinese side is much, much more prepared at this point.Richard GrayHow do you think about the role of household spending here? Obviously, China, relative to OECD countries, has a pretty low share of household spending as a proportion of GDP. They've recognized this as a sort of long-term goal. The two sessions, there was a fiscal expansion. Some argued that it wasn't enough.Others would say it was a starting point of a larger program. One of the reasons why China does have these trade deficits is because of that low household spending. Of course, there'll be a deficit if people aren't spending money and they're just manufacturing. How do you think about the political reality of a fiscal expansion, both in terms of Chinese balancing books, but also the politics in terms of potentially being an olive branch to the United States, which is not just buying more products from the top down, but building up that consumer confidence from the bottom up and whether or not that's even possible?Victor ShihThere's a couple of policies that will, in the short-term, boost household consumption. There are subsidies where, if you have an old TV, and you want to buy a new TV, there's some subsidies for that. But I think that is very short-term policies. Because of the anticipated extra fiscal spending from the trade shock, the Chinese government is very conservative in terms of expanding welfare provision this year; if you look at the budget proposal for this year, anti-poverty spending has increased by two dollars per person per year, something like that; it's like, oh wow, that's great, that's really going to boost consumption, two bucks more. But that's because the Chinese government is digging in to prepare for a potentially prolonged trade conflict with the US.In general, I think you're right, the Chinese government has a very production-oriented way of thinking, it's constantly thinking about how do we make Chinese products more competitive, in terms of technology, in terms of features, but also in terms of costs. But to keep costs down, you do have to have what sociologists call a labor repressive regime, which is you do everything you can to prevent wages from rising too fast. At the same time, you don't spend too much money on social welfare, because that is just going to encourage people to exit the job market, thereby raising wages. I don't think these fundamental policy orientations have changed. As a result, I'm not so optimistic about boosting domestic consumption in the near future.Jersey LeeLooking beyond the current trade war, from the Chinese elite standpoint, there are two clear major milestones or points of risk. Number one, there's the question of Taiwan. And number two, this may be before or after that, there's a question of leadership succession. So how do you see these issues developing in the context of Chinese domestic politics?Victor ShihOh, God, if only I knew. Taiwan, I don't know, I'm not an expert. I think China is waiting for some certainty about what the U.S. would do. If it were to invade, if they can be very sure that the U.S. is not going to intervene, then there's some incentive to go for it. And by the way, I would say that the trade war doesn't help, because one of the big costs for China of invading Taiwan is that the U.S. would impose trade sanctions on China. But the tariff rates that we see today is a de facto trade sanction. So that part of the cost is already manifested. So China doesn't have to, in a sense, worry about that cost anymore because it has happened. That actually on the margin heightens China's incentives for invading Taiwan. And it's really not that helpful.On the succession, I don't think it's going to be in the near horizon. I mean, Xi Jinping is pretty healthy. He clearly wants to be the ruler of China for life. There's going to be a 15 to 20 year long process potentially, but of course, as he gets older, his ability to make decisions, because he's a human being just like everyone else, is going to deteriorate. What Chairman Mao did, this is of course the subject of my book,Coalitions of the Weak, was to appoint people who politically so weak or compromised, that they can't possibly challenge his power. I do see signs that Xi Jinping is increasingly pursuing that. And even some signs that he might be relying more on family members, like bringing his daughter to Vietnam with him in a recent state visit. So we'll see how that plays out, but I think increasingly he will need to pursue some kind of strategy to make sure that no one tries to usurp his power as he gets older and as his health is not as good as it is today.Richard GrayWell, thank you so much, Dr. Shih. It's been lovely speaking with you, and thanks for your time.Victor ShihGreat talking to you guys. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

In this conversation with Steven Okun, we discuss the evolving relationships economic relationship between Washington and Southeast Asia. During his career in and out of government, Steve has worked on policy issues on both sides of the Pacific. Today, as the founder of APAC Advisors, he counsels clients on sustainability and public affairs strategy. Richard GrayHello, everyone. Welcome to Pacific Clarity. Today we're talking with Steve Okun. Steve's career spans government service, consulting, and social impact. A seasoned Democratic presidential campaigner, Steve received a political appointment to the U.S. Department of Transportation where he was deputy general counsel.Thereafter, he entered the world of public affairs in Singapore, working for KKR and UPS. Today, he's the founder of APAC Advisors, where he counsels clients on sustainability and public affairs strategy. Steve maintains an active presence in the American expat community, having served as governor of AmCham Singapore and chair of AmChams of the Indo-Pacific.Steve, pleasure speaking with you.Steven OkunGreat to be with both of you.Richard GraySo we wanted to start this conversation thinking about the lattice work of existing trade frameworks in Southeast Asia and how they relate to US and China economic entanglement with the region. And so, Steve, as Americans, for better or worse, IPEF is kind of de facto dead at this point. However, the region is in many ways still very interconnected with a lot of these multilateral frameworks, whether it's the Comprehensive and Progressive Trans-Pacific Partnership, the China ASEAN Free Trade Agreement, and the Regional Comprehensive Economic Partnership. And, while original offerings of the TPP and IPEF were meant to be a countervailing force by the US against China's economic role in the region, these organizational remnants seem to be more connectivity between Southeast Asian and Indo-Pacific states as opposed to the US and the region writ large.In some ways, this has led to more economic engagement within ASEAN, although that's had limited success, but more so investment from Japan and South Korea into countries like Vietnam where they're maintaining pretty significant corporate footholds. And so, looking at the trends of all of these things, and particularly now as we think about the aftermath of the Liberation Day, tariffs, there's a renewed conversations about things like the CPTPP and RCEP integration, and the role that the Europeans might have as diversification of commerce and of supply chains.Taking into account all these different factors, how do you think about the developments happening in this period? Are the trends as simple as the US disengaging and other players increasing their engagement? Is there more complexity of this ecosystem?Steven OkunLet's break it down into four components, and then we'll figure out where the world is going to head next.If you think from a Southeast Asia perspective, the U.S. is the most important country in certain ways, historically had been from a trade, an investment perspective; China's now increasing, but the U.S. remains one of the most important markets, if not the most important market for everybody in Southeast Asia from an investment perspective, so what is the FDI coming in, which is critical, of course, and then a trade perspective, both a trade in goods, which is what you get from Southeast Asia to the U.S., but where the U.S. dominates is trade and services, which, of course, President Trump doesn't care about, although he should, right? So trade in services, trade in goods, incredibly important between each of the 10 countries, some more than others, and the United States.Now let's bring in China, which is increasingly almost as important, if not as important, as the United States, depending on the country in Southeast Asia. China is now, from a bilateral perspective, very much a focus both for trade in goods, less so for trade in services, and certainly increasingly for FDI.Now, what is it that the countries in Southeast Asia want to do and have been doing, and what Donald Trump, I think, Richard, to your question, may accelerate? Well, first, you need to get the countries in Southeast Asia to trade with one another, right? And so that's intra-ASEAN, that's trade between all of the 10 countries or some subset of them. They're OK when it comes to having increasing that intra-ASEAN trade, when you have things like an ASEAN single window, so you can have customs that's going to be user-friendly between the different countries in Southeast Asia.So you try and foster intra-ASEAN trade, and that has been going on. But there's only so much investment here. There's only so much manufacturing here. There's only so much domestic consumption here. You still have to sell somewhere else. But you do have this increase in intra-ASEAN trade.Can you replace the United States with intra-ASEAN trade? And those are things like the CPTPP, as you mentioned, where you have countries like Malaysia and Vietnam and Singapore and Japan and Australia and New Zealand being members. So you then can have intra-Asia trade, and then you also have China overlapping on that through another trade agreement, not nearly as comprehensive as the CPTPP, but the Regional Comprehensive Economic Partnership. So that's China, Japan, Korea, Australia, New Zealand, and the 10 countries now in Southeast Asia. So you have all of these dynamics, you have U.S. bilateral trade, you have China bilateral trade, you have intra-ASEAN trade, you have intra-Asia trade.And all of this is evolving in President Trump and what he has been doing, through his actions on Liberation Day, is to show the countries here, you have to come up with some rules-based system. You can't rely on the United States anymore. Now, they are also very concerned about China. So they're concerned about the U.S. and the tariffs that the U.S. is putting on. They're concerned about China. They are very nervous about all of these Chinese goods, which had been going to the United States, now need a new market. Well, in a trade term, these goods, if they get dumped into Southeast Asia, that harms the Southeast Asia manufacturing base, that harms Southeast Asia employment. So a lot of dynamics that we can try and unpack, but you have to think of it in all of those areas, not just that Trump is doing this, how are other countries going to react? Because there's too many other moving pieces to think about.Richard GrayAs an extension of this question, what would be like your case for why some level of US economic multilateralism is important? So obviously one of this would be supply chains, perhaps you need that connectivity, and so having some level of FTA is beneficial on that end. But if you were trying to say, this is why IPEF or at least like pillar two, which was focused on supply chains is important, what would like your main case for that be?Steven OkunWell, there's two cases. In one case, you'll make from just a trade perspective. And this is what you call the spaghetti bowl of bilateral FTAs. They're impossible for businesses to use because if you have a U.S.-Singapore FTA or a U.S.-Singapore bilateral trade agreement, you have a U.S.-Vietnam FTA trade agreement, and then you have a US-Japan trade agreement, then those agreements don't mix, intertwine with one another. Well, then how are you going to be setting up supply chains? How are you going to be taking advantage of these FTAs when you've got just a spaghetti bowl? It's literally impossible, and it's certainly impossible for SMEs to do. It's hard enough for huge multinationals to take advantage of a bilateral spaghetti bowl of agreements. That's why having a plurilateral agreement like the TPP or a plurilateral agreement like IPEF or RCEP for that matter, let alone the multilateral frameworks like a WTO. That's what businesses need.What the Trump administration has decided from a trade perspective is that the United States is worse off when it is in a plurilateral or multilateral framework. And the reason that is the case is because the US is the biggest, strongest, most powerful country, economy, military in the world. And anytime the US negotiates bilaterally, the U.S. is in a more powerful position; the U.S. has all the leverage, or as Donald Trump would say, the U.S. has all the cards. So you want to be in a bilateral negotiation because then you get a better deal. That is the America first philosophy. That does not work in an era of globalization and modern supply chains. And so that is one reason.The second reason is a geopolitical reason. If the US sees China as its greatest competitor, which of course it is, the US should be working with partners and allies who also see China as a competitor. Maybe in a different way than the United States does, but they see it as a competitor too. Every president, other than Donald Trump, works with partners and allies from a geopolitical perspective. And so when you go bilateral, when you hit Vietnam with massive tariffs, when you hit Singapore with tariffs, a country that you have a trade surplus with if you're the United States, you are going to lose geopolitical advantage by not working with partners in allies.That is the frustration I would say with the Trump administration, is that their America First bilateral approach doesn't advantage companies, businesses, or the United States, or the United States' economy from a trade perspective or a geopolitical perspective.Jersey LeeSo let me try to slightly make, I suppose, the Trump administration's case for them. Part of what they're doing right now, holding potential high reciprocal tariffs over the heads of many of the countries in Southeast Asia that run trade surpluses against America, is that they are threatening them to curb imports from China. There's some reporting that they specifically asked the European countries, including the UK, that you're either with us or you're with China.Part of the calculus or the justification is that this is intended to deal with the issue of transshipments, particularly in the case of Southeast Asia, which occurred mostly as a result of Trump's initial tariffs on China during his first administration. And Trump had said even before his re-election that he wanted to tackle this issue of transshipments. So would this be the kind of hard decoupling that you have argued against? And how should the U.S. deal with the real issue of transshipments, in your view?Steven OkunOkay, so the question is from a transshipment perspective, and obviously we're only talking about China, Jersey, as you said, what is the good that you are concerned about when it comes to China? And if you have a tariff on a Chinese good, you can make that tariff, you know, China plus one.So fine, if you say we don't want to have Chinese electric vehicles coming into the United States because these Chinese electric vehicles have been subsidized, because the government has protected Chinese domestic electric vehicles from competition, which has enabled them to become as good as these cars are, and there's no question these are world class cars that the Chinese are producing; but if they've done so because of unfair advantages, then you put the tariffs on those cars, whether they come from China or if they come from China through Vietnam or through Mexico or wherever else you want. If that's your issue, then tariff those cars. And you have a full justification to do that.To blanket reciprocal tariffs, whatever reciprocal means, but to have a universal tariff on top of reciprocal tariffs without a justification, that is what the issue is. So by all means, if you want to protect US manufacturing from unfair China competition, you can do that. There are ways to do that. The Trump administration did that in its first term. The Biden administration did that in his one term. The Trump administration could be doing that and is doing that to some degree in its second term. But not putting a 10% universal tariff on the world, that is not going to address that problem. And it's going to cause more economic harm than otherwise.And what we can get into, there are issues in other countries beyond the transshipment issues. There are non-tariff barriers that should be addressed; I mean, just because Peter Navarro says something doesn't make it wrong. So I agree that there are significant issues across Asia with non-tariff barriers. And by all means, the Trump administration should address those. The Biden administration should address those. The Obama administration should have addressed those. They tried to do it. The Obama administration tried to do it through TPP. The Biden administration did it in a less fulsome way in IPEF. Now let's see if the Trump administration does it. And we hope they do it. Speaking on behalf of the business community writ large, and not just the US business community, all of the business community wants to see these non-tariff barriers addressed.Jersey LeeMore broadly for Southeast Asia, it seems like there are no good choices. On the one hand, as you mentioned, a significant part of the economy is built on a China plus one strategy. And this sometimes leads into transshipments. On the other hand, as you mentioned earlier, they don't want there to be a flow of goods that were displaced, Chinese exports that were displaced from the American market to destroy their own domestic industries. So faced with a potential forced choice that Trump is apparently raising right now, what choice could they make? And how do you think this could develop if it ends up being this forced choice?Steven OkunWell, Jersey, that's what we're all watching to see what happens, you know, in the coming weeks and months, because it's not just what Washington is going to do. It is what is Beijing going to do. And now we have to watch both of those.Look, we already see tariffs from Southeast Asia onto China to protect their domestic manufacturing. Thailand has imposed tariffs. Indonesia has imposed tariffs. Russia has imposed tariffs on China. They don't want the Chinese automobiles coming into Russia to decimate the Russian domestic auto market because they need that for national security reasons, the same as the US needs a strong auto manufacturing sector for national security. So we need to watch what are the countries here going to do if China shifts its exports from the United States to Southeast Asia and other countries. So that's one thing we're watching.We have already seen the Malaysian government say to the Chinese government, do not put investment into Malaysia if it is just to avoid U.S. tariffs, we don't want that; if you want to put Chinese investment into Malaysia, that is going to play by Malaysianrules, that is going to hire Malaysian citizens, that is going to put money into the Malaysian economy, of course, you're welcome, but if you're doing it for tariff avoidance, we don't want it. I was very surprised when the Malaysian vice minister for trade said that publicly.So you now are seeing that the countries in Southeast Asia recognize that they don't want to see just a flood coming in from China, either from a transshipment perspective or from a goods perspective. And we're all watching to see how this plays out. Now, the countries in ASEAN have said, we need to come together, it's better if we negotiate together as one versus the U.S. It would certainly be true if that were the case, it'd be true against China.ASEAN has never shown any capability to be a player from a geopolitical perspective. So can Donald Trump do the impossible and bring ASEAN together? I'm not holding my breath, but we'll see if there can be some type of collective action, both to Trump and to Xi Jinping.Richard GrayIn March, the Singaporeans sounded the alarm that there were chips going from Singapore in servers that had those video chips internalized, and that those lacked compliance with the Biden administration's AI Diffusion Act, went through Malaysia and probably to China.Now, as of this past week, the Singaporeans seem to be trying to add more compliance mechanisms in working with the Trump administration to increase their leverage position in the tariff negotiations. As a broad sense, what do you make of these leakages of U.S. export controls? How are corporates thinking about this? And what even is the objective of the administration if this is one of their focal points?Steven OkunRichard, this gets to a broader change from a trade perspective. I used to say, in my career going back into government in the 90s, that I used to work at the intersection of business and government. And now I say I work at the collision of business and government. And you just described that collision. And it's because in the old days, if you looked at trade in goods, you had national security on one side, and it was very clear you could not trade in items that would harm the US national security; most countries have this, but we'll just use the US. So you would have export controls on military equipment. You couldn't sell military equipment to the Chinese. You couldn't sell it to the Russians, or whoever right.So military, no good; everything else was okay, with this very little category in themiddle called dual use goods, and these were goods that could be used both for civilian purposes and military purposes, and you need to make sure that, if you're selling a dual use good, it would only be used for civilian purposes. For example, a helicopter could be used both for military purposes, but it could be used for putting out forest fires. It could be used for search and rescue. So you would say it's okay to do it for one, but not the other. So that dual use was kind of a complicated area, but it was a pretty narrow area of what would be considered dual use.Now, national security and trade are almost completely intertwined, especially on technology. There's no question, AI, how do you know if the AI is being used for civilian purposes or for military purposes? Facial recognition, drones, all of the things that go into making those drones in AI, you need semiconductors, you need certain chips, all of that is now national security. It now becomes much more difficult for businesses and governments to know what is a product that you can't send to a country, in this case, like China.What happened here in Singapore, and this is obviously a very public example, is you had these Nvidia chips go into a Dell server. The Dell server then comes here to Singapore. It then goes from Singapore to Malaysia. And then, as you say, presumably on to China. And so now the businesses, the government say, the US company sold it to a Singapore company. It was a licensed Singapore company. The Singapore company sells it to a Malaysian company, which is permitted. Who's responsible for it going from Malaysia to China? And the answer is kind of, now it's everybody. So the amount of due diligence you now need to do in terms of your supply chain is much more than you ever needed to do in the past. Just because somebody has a Singapore business license, will the U.S. consider that to be a Singapore company? Maybe, maybe not. If the company has a Malaysian business license, will Singapore and the U.S. consider that to be a Malaysian company? You can't rely on that anymore. You now need to go and look behind it. And then who are they selling to?This is why IPEF wasn't necessarily designed for this. IPEF was the Indo-Pacific Economic Framework, and this was the Biden administration, which would not go as far as having a trade agreement, because trade is now a four-letter word in the United States, but would try and bring the like-minded countries together to focus on supply chain resilience. A lot of this came out of COVID, and we can talk about the breakdowns in supply chain on COVID, but it's equally applicable in a national security perspective. And so you want to have governments like Singapore, Malaysia,and the United States all talking to one another, with their businesses, when you are in an era of national security and trade being intertwined. And that's not happening right now. And so every government and business is going to have to become much more intertwined, into knowing exactly who and what is in their supply chain and your trade costs, your compliance costs, your due diligence.Jersey LeeTaking the broad view on what's going on, despite how terribly Trump has prosecuted this trade war, which you've argued a lot over the past months and also you argued a bit earlier in our conversation, you've also said that America likely still has an advantage or at least it's a wash. You know, even if America antagonizes all its allies, it would still be kind of a wash between whether it or China comes out on top. If that's so, why hasn't perhaps a more competent previous administration tried to decisively “win” competition with China with this kind of massive approach, as opposed to the more specifically targeted approach that, you know, there's been some frustration that it's not really doing enough, or engaging with the problem of China in a systemic enough manner.Steven OkunGreat question. And to answer, you've got to go back to the early 2000s, basically. I'm not I'll keep it brief. But you've got to understand the history to know how we got here. So the U.S. position on China starting, I mean, maybe you don't want to start with Nixon and Carter who opened up China, President Carter formally did. But if you look at it, certainly President Clinton and maybe President Bush before him, but President Clinton onward, the view was that our policy towards China is going to be engage and accommodate; we are going to engage with China, we are going to bring them, invite them into the global rules-based system that we've all been following, that has been developed post-World War II. In particular, we want China into the WTO, and that we're going to bring them in as we engage with them. And we accommodate their rise. We are not going to expect them to follow all the rules immediately, because certainly in the 90s, China was a poor country and had a lot of people in poverty and did not have the systems in place and the businesses in place to fully follow the rules as they were written back then. So we will accommodate China. We'll accommodate their rise. And as they grow, they will become more like us and they will follow our rules.That didn't happen. Now, you can argue that that was never going to happen. And the Americans in the West and the Japanese were always wrong to begin with, that was never China's plan. Or you could argue that China was on that path, and, let's say in 2012 or so, China diverted off of that path.It doesn't matter why the Americans were wrong, either because they were always wrong or because China changed. China changed. That's what counts. And what happened was the Americans were late to the game on this. Everybody was late to the game on this. And you saw in particular in 2015, when China came out with its Made in China 2025 plan, and they said, we are going to use the power of the state and we are going to use state subsidies and we are going to protect our domestic market. We are going to create the champions of the 21st century on the key sectors, tech, AI, renewables, electric vehicles. pharma, all of those areas. And China was extraordinarily successful. They didn't accomplish everything they tried to do to dominate the 21st century key sectors, but they came close. And in some sectors, they did succeed.That is what is now trying to be addressed. President Obama recognized this, started to recognize this, and he shifted away from accommodate and engage. And this is where TPP came in. This was how he was going to address what China has done, is that we are going to work with like-minded partners. We're going to not allow China to trade with us until they change. And that is what the TPP was all about. It got caught up in U.S. domestic politics. Even though it was signed by the United States, President Trump pulled out on day three in his first term.Now, President Trump understood what was happening in China and he went much harder than President Obama did. And he went direct and he went with tariffs and export controls. And then President Biden kept up what President Trump was doing. And he upped the tariffs. He didn't take anything down that President Trump had put on, President Biden kept what President Trump did.What Trump is doing very differently in Trump 2.0, is the tariffs that are going on China are at astronomically high levels, levels that have never been seen literally ever; forget going back to the 1920s, ever. And that way he is doing tariffs is having a great damage on the U.S. economy. But he's not only going after China on tariffs. He's going after the entire world with tariffs. He is going after tariffs on islands that only have penguins, okay? Everybody is getting hit with these tariffs. And that is where there is going to be such a pushback from other governments and businesses eventually are going to say this is not what is in the US interest. And that's where we are right now. And so we'll see if President Trump course corrects, and goes back to the focus mostly on China where it belongs, and hopefully on some non-tariff barriers in the rest of the world, or whether this keeps up and we end up in a global recession. And we also then have to see what China does, which is then going to have other knock-on effects.Richard GraySpeaking of recession, when you arrived in Singapore in 2003, Southeast Asia was approximately six years out from the 1997 Asian financial crisis and would face the 2007-2008 global financial crisis just four years later. Then the world faced economic shocks from COVID and now with reciprocal tariffs. Based on your experience now within Southeast Asia, what do you think about the region's resiliency? What has it learned in 1997 and 2007 and 2019 and perhaps now in 2025? What were those key lessons and what do you think are the remaining challenges to further booster that resiliency?Steven OkunObviously you have 10 different governments, some of whom learned different lessons. But I think one of the lessons that they've learned is that liberalizing when it comes to investment, when it comes to trade, is going to help their economies. What they have tried to do and what they are doing is shifting from being an export driven economy, to having your own domestic market, to having domestic consumption, to serving your own people, not just exporting so that you're so subject to external shocks. There's been a lot of great businesses that have been created in SoutheastAsia, for Southeast Asia, for particular businesses, companies. I would say that is one of the lessons that has been learned.The other thing is that it's also just demographically speaking, a very good time for Southeast Asia. A lot of people talk about the BRICS, you know, Brazil, Russia, India, China, and if you want to add S, in South Africa. Well, in this part of the world, we talk about the VIP countries, Vietnam, Indonesia, Philippines. What do the VIP countries have in common? They have large populations, close to 100 million between each of the three. Because you have such a large population, you can have a domestic market. These are young countries. This is not China, which is aging. It is not Japan, which is beyond aging in a way. They are going to have young people who are just now entering into the workforce, who are going to build a new middle class.So you have a great demographic dividend that is about to pay off in these countries.And you can see that governance has been improving in these countries, in terms of transparency, in terms of rule of law, in terms of attacking corruption. Now, they have ways to go on this, right? All of these governments, and arguably, the United States has a way to go on transparency and rule of law now. But they are moving forward. And so it is an exciting time in Southeast Asia, especially when you look at the VIP countries, obviously you look at Singapore, which is gone from when I got here from being, you could argue, a sub-regional hub, and then has gone to becoming a regional hub. I'd argue that Singapore is a global hub right now. And so you've got that global hub here in Singapore. You've got the VIP countries. You've got others that are developing. Myanmar is a disaster, so we kind of put that one off to the side. But there is still excitement and opportunity here.Jersey LeeSo a little bit on your current job at APAC Advisors. Part of your role involves ESG. Over the past few years across the Pacific, the idea of ESG investing has been all the rage in China, it's been all the rage here in Australia and until recently, America. Now it seems to be going the other way.An example of this: I hold a certificate in ESG investing from the CFA Institute, but the name of the certificate was just changed, literally last month, April the 1st, into “Sustainable Investing Certificate”. This seems to fit into a broader pattern of global retreat from the concept of ESG. Do you see this as a specific response to Trump's return, or reflective of a broader and enduring change in the industry's understanding of this concept? And for Southeast Asia specifically, why is ESG an important tool for corporate operations?Steven OkunThe answer is both. It is for both of those reasons. I'll start with what ESG was supposed to be and had been. I was the first person in global private equity to work on ESG in Asia. And that was not my foresight. That was when I joined KKR in 2011. As the head of public affairs for Asia, they said, you're going to work in three areas. You're going to work in government relations, public policy, communications, and ESG. I had to Google ESG. I had no idea what ESG meant in 2011. And most people didn't.ESG is, had been, should have remained a financial term. ESG is about making money. That is what ESG is about. ESG is about how you reduce risk and create value. Sometimes you do both at the same time. Sometimes it's one, sometimes the other. And so, what do you do as an investor or as in a business? You ask yourself, how does my business impact the environment? How does my business impact my employees, my customers, my broader stakeholders? How is my business governed both internally and in dealing with government? How, in a material way, look at each factor in those three categories, and if that impacts my bottom line, either from a risk perspective or an opportunity perspective, then I need to focus on it, because I need to protect my business. I need to make money. I need to make a return for my shareholders, whatever the case may be.So it was always about that, or it should have been always about that. That is what ESG was. Now, ESG got broadened out into a policy term. ESG never was a policy. It was financial. People conflated ESG with policy goals, and they would say a business should be making people's lives better. No, a business should be about making money. If they can do that and make people's lives better, that is a way to make money. That is different. But not all businesses are out there to have a social impact; some are. You need to look at ESG from a financial impact only. Every business impacts the environment, their workers, and customers, and this can impact how the business generates revenue ESG is not there to achieve a social or policy goal – a business incorporates ESG to reduce risk or create value from a financial perspective. ESG is misunderstood as a framework to achieve a policy objective – that is why the blowback to ESG occurred.The other issue that we had is that people got away from explaining why an ESG factor impacted the bottom line. And an illustration of this is diversity in quotas. If you say, 50% of our board has to be women, or if you say, 50% of our senior management has to be women, the answer would be, well, why is that? What are you trying to achieve with that? And then you start getting into quotas, and then you start saying, we're just hiring somebody because of their gender, not because they're good at their job.Instead of saying that, if you were to say, our board needs to be reflective of our customers, we need to make sure that our board is reflective of who is buying our product or our service, we need to make sure that our board is representative of our employees. And if it happens that the people who are making 70 percent of the decisions are women, of who's going to buy your product or service, you better have a lot of women on your board. You're not smart financially if you don't know how your customers are thinking. So instead of saying a quota, instead say, we need to have a diverse board that matches our customer base or matches our employees, you can't argue with that. And so that's what the shift now is.ESG writ large, we lost a little bit of sight that this is about the bottom line. This is about businesses. This is about for-profit businesses. Look, government should be doing policy. NGOs can be doing policy. If you're an impact investor and you want to be doing policy, that's fine.But if you're a business, focus on the bottom line and acting responsibly. So, Jersey, when you told me your story, I figured your certificate was either going to change to being a sustainability professional or a responsible investing professional, because that's what we've always been when we talk about ESG.Richard GraySteve, to close our conversation today, I want to go back to the beginning of your career when you were a campaigner in three successive campaigns for Clinton and Gore twice and then Gore-Lieberman in the third roundabout. While we're still three years out from the 2028 election, what would your Asia policy recommendations be for a 2028 Democratic campaign?Steven OkunWay too soon right to figure out; we don't know so much. First of all, I would say let everybody possible campaign on the Democratic side, we need to see who's the best,so please run. If I’m a democrat, you know, AOC, if you want to run, get into the race; Pete Buttigieg, if you want to run, get into the race; Governor Pritzker, if you want to run, get into the race; Governor Whitmer, Governor Moore, there are so many potential good candidates.So one, you don't know who's going to be good until they run. And then you will see who is going to be a good candidate or not a good candidate. And this really hurt Vice President Harris last time that she never had the opportunity to really run. I think it would have made her a much stronger candidate. And we can blame Joe Biden for that. But that's another story. So one, you don't know who's good until people run,you’ve got to get as many people to run as possible. And also, your arguments get stronger as you run against one another. And I think you know, President Obama became such a strong candidate because he had such a tough race against Secretary Clinton, then Senator Clinton, right? That is what really made him a good candidate,you had two different candidates. You've got to put them into that pressure cooker of a presidential campaign, and then you see what arguments the American people will buy.So way too early to figure out who the right person is or even, and then the other thing we don't know, where the world is going to be two years from now. Is the US economy going to be in a depression? God, I hope not. Is it going to be in a recession? Is the US economy going to be very strong? Is Donald Trump right in that his plans are all going to work and turn around? What's the economy going to look like? What are the American people going to think about immigration? Are we going to still have wars going on in Ukraine with Russia, with its unlawful attacks and continuing to slaughter Ukrainians? What's going to happen in Gaza? Are we going to have peace in Asia? All of those things, until you know what that situation is, it will be impossible to say this would be the right candidate.Do we want somebody with more of a foreign policy experience? Do we need someone with a domestic experience? Do we want a strong economic experience? Who knows? So just get everybody in, see what works, see who's the best, and then let's watch what happens, at least in the midterms, which are still too far away to predict.Richard GrayAll right, great. Well, thank you so much, Stu. It's been lovely speaking with you.Steven OkunRichard, great to talk to you again; Jersey, great to meet you. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

What is China’s grand strategy? What are the PRC’s principles in foreign affairs, and how does it’s government structure inform matters of decision-making? These are some of the questions we attempted to answer on this episode of Pacific Polarity with retired Senior Colonel Zhou Bo. During his career in the People’s Liberation Army, Zhou engaged extensively with foreign counterparts and was a consistent participant at the Shangri-La Dialogue. Today, as a senior fellow at Tsinghua University’s Centre for International Security and Strategy (CISS), he continues to share China’s perspectives on security issues with the world. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

In this episode, veteran Australian diplomat Richard Broinowski reflects on Australia’s historical discomfort with its geographic position in Asia and the strategic shift that began in the post-Vietnam War era toward deeper engagement with the region. Drawing on his experience as ambassador to Vietnam and other Asian nations, Broinowski discusses the challenges and missed opportunities in Australia’s regional diplomacy, critiques the AUKUS agreement as limiting Australia's strategic autonomy, and calls for a more pragmatic and constructive relationship with China. He also highlights the importance of nuanced diplomacy amid the intensifying U.S.–China rivalry and reflects on the broader regional dynamics involving ASEAN, Japan, Korea, and Iran. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

A summary of our conversation is available here.Note: Our conversation took place on the eve of Trump’s “Liberation Day.” Due to Patrick’s connectivity issues, the conversation was conducted via phone call, leading to less than ideal audio quality. The transcript below has been cleaned up and can be referred to for a more polished version of our conversation.Jersey LeeToday we're delighted to be talking with Patrick Buchan. So Patrick, could you briefly give us a bit on your background?Patrick BuchanThanks, it's great to be on your podcast. I'm a keen listener to the podcast, and I think you guys do a great job; it's also good to be working with my old outfit, CSIS. My career has been varied across foreign policy. I'm currently working here, in Australia, we've got our big federal election, so I'm working in the campaign for the Liberal Party; today I speak to you not as a member of the Liberal Party, but as a former member of CSIS.I, like many people of my generation, we grew up in the era when Australia was making its great political and diplomatic entries into Asia. I went to university in the late 1990s where I studied politics and very much focused on those big geostrategic shifts from the Post Cold War era as Australia engaged into Asia, particularly into Southeast Asia, but also deepening our relationships with countries, particularly Japan, which by that stage was our largest trading partner, and also newer countries that we hadn't so much engaged with, like South Korea and so on. But Indonesia was very much the focus of my background. From there I went to the Department of Defence in Canberra, where of course, promptly having studied Indonesia and focused on Indonesian strategic issues, they put me on the Iraq desk.Jersey LeeFrom there, you later moved to the US to work in the Pentagon and then to CSIS, as you mentioned. Is that right?Patrick BuchanWell, that's exactly right. I did time at the Department of Defense where I worked on numerous policy teams and issues from Iraq to counter terrorism to ballistic missile defence, a lot on the US alliance engagement.I worked at the department of Prime Minister and cabinet, where I did work on Southeast Asia, and then in 2014 I went to Washington, where I arrived in the Pentagon, into the office of the Secretary of Defense during the Obama administration. And from there I worked on great power relations, so very much focused on China. At that point, I guess the issues regarding US China relations were not as profound as they are now; we were trying to work out at that point what the US relationship with China is, and what it is not. We were still in the great era of the Global war on terrorism, and those of us working on China and great power relations were still sort of sitting in the 2nd row of policy, as the Obama administration was very much struggling with how to bring the global War on Terror to its finality.Jersey LeeSince you've worked both in the Australian and American defense departments, could you give us a bit of a comparison between the two, and what it's like to work in the two?Patrick BuchanObviously the United States system is so much bigger. I think the key thing that I found at the start was, as an Australian official, your focus was very much twofold: it was on the US Alliance and on South East Asia. Once I got to the Pentagon, I had to broaden my horizon, to realize that all of the world's foreign and defense policy problems could only be solved here, that is in the Pentagon or at the White House. So I found myself very much having to lift my gaze. And that did take me a little while, because, again, as an Australian policy practitioner, your whole focus is just primarily focused on the US and Southeast Asia.Jersey LeeWith Australia facing a new and more challenging era, could Australians have something to learn from this American broader vision?Patrick BuchanCertainly, there's no question that that the world is going through a great geostrategic shift. One of the things I would note with U.S. policy in Asia, and what Australian policy practitioners and politicians can learn from, is that most of the Trump administration is very much focused on bilateral engagement, it doesn't do multilateralism. One of the things I think the Australians have done so well for so long, in the post Second World War era, is doing its business through associations such as ASEAN, and now the Quad, but its bilateral engagement has also been world class, in its diplomacy and the way it does its defense diplomacy. So I think we're actually quite well set.We haven't put all of our eggs in the basket, like many Europeans have, where their primary focus has been working through multilateral systems, be it NATO or be it EU. I think for Australian policy practitioners, that sense of experience and long-term way of doing business bilaterally, which is very much how the Trump administration likes to do its business, sets us up quite well.Of course, if you're an Australian practitioner, you are certainly not sitting at the top of the great power tree, so there's always going to be a key difference in the way you do business. But I personally think that the Australian system is very well placed to manage this new order that we're seeing.That said, I actually don't think that the breakdown in some of the systems we're seeing, in the way the Americans have done business in Europe, is as impactful as it is here in Asia. And again, the reason I say that is because the American hubs and spokes model in Asia is very much geared towards bilateralism. So what we're seeing in Europe, with Washington very much—whether they're dismantling it or not, I'll leave that for others to comment—but we're very much seeing NATO fade to a point where it really has to have a long think about how it wants to reinvent itself.Jersey LeeRight now, there's a live debate in Australia on AUKUS, that's been brought back by recent moves by the Trump administration, primarily in Europe; people are again debating on whether we should even have AUKUS. That's a parallel debate to what's going on in Europe, where a lot of people are questioning the wisdom of relying on American F-35s, whether there's a potential Pentagon kill switch or some other way in which Americans could use their leverage against European defence; this has really negatively impacted the American Defense Industrial complex. For Australia, given that one of AUKUS's primary selling points has been that it's going to be a sovereign Australian capability going forward, is there some way for Australia to make it even more sovereign, in terms of the system operations, the maintenance and the components manufacturing, such that regardless of what happens to the alliance with America, Australia will have submarines that are fully its own?Patrick BuchanI know there's a lot of debate around, in certain sections of the media and in the commentariat, regarding AUKUS and at the heart of it Australia's sovereignty. What I would add to that is what's called full knowledge and concurrence, FK&C. FK&C came about in the early 1960s, during the Menzies Liberal Government of Australia, when the United States proposed very sensitive facilities such as Pine Gap, at the heart of Australia and the United States’ most sensitive areas of alliance cooperation. Full knowledge and concurrence was an Australian caveat which was that no US activities could occur without the full knowledge and concurrence of Australian officials and the Australian government.That mentality has seeped through the entire Australian defense system establishment, and is very well understood with the Americans. So some of these lines I do hear about AUKUS undermining Australian sovereignty, I'm just not sure I buy that. Additionally, when you look at Australia's most sensitive capabilities, be they aircraft, be they ships, be they satellite systems, the reality is that the overwhelming majority of those systems are US systems anyway, so I'm just not sure I buy this; I know it's a very cute media headline, but I'm not sure I buy this.The other thing I would add to that is, when you look at our AUKUS partnership, these are Australia's most long-held, trusted defence, political and diplomatic relationships with the United States and the British going back, in the US case more than a century, and in the British case far longer. I'm just not sure that the risk of Australia “losing sovereignty” is actually there. Of course we need to monitor that. But I take the view that the risk of a loss of sovereignty, so to speak, is a little bit overblown.Jersey LeeLet’s continue to discuss the alliance with the US. In terms of intelligence sharing, the big recent news has been the Signal leak, which I'm sure you're aware of, and there's some discussion about its implications for the future of Five Eyes intelligence cooperation, given the way America is treating intelligence that comes from its allies. For example, there's been reporting that information from the Signal leak implicated and exposed Israeli intelligence. There's also been some discussion in Washington that's semi-serious, of Canada possibly getting kicked out of the Five Eyes due to the general situation between the new administration and Canada. So what do you think of the future of Five Eyes cooperation?Patrick BuchanThe first thing I'd say on the Signal leak, look, it was sloppy, there's no other way to put that. I appreciate, having been in that world myself, that it can be difficult at times, based on using highly classified systems, to communicate, particularly those at the political level with each other, without having to jump on their classified systems, what we refer to as high side systems. In that age-old problem of the need for secrecy versus the need for speed and the decision-making cycle, people can get lax, and clearly that happened here. Whether these are fireable or dismissible offenses as well, I'll leave that for others, and ultimately that's going to be something that President Trump would have to decide.Based on what I have seen in the media and what the Atlantic has published of the full Signal chat leak, I wouldn't say that any great national technical means of intelligence gathering was compromised. I saw Secretary Hegseth's comments about what the strike package looked like, so clearly this was sloppy, there's no way to get around that, no two ways about it. But to draw a bow and say that it somehow compromises Five Eyes intelligence cooperation, I'm not sure about that. History’s littered with leaks; to quote Donald Rumsfeld, that's a known unknown, it's always going to happen. There are going to be leaks in intelligence gathering, of the national security business, there always will be, always has been.The key is how damaging are those [leaks]; in my assessment this doesn't appear extremely damaging at all, but politically very sloppy.You talk about there being word around some of the Washington media establishment, about Canada being kicked out of Five Eyes. In the early 1980s, when New Zealand made its decision regarding US visiting nuclear ships to New Zealand (note: banning visits), the United States suspended the ANZUS alliance and its legal alliance obligations to New Zealand; Five Eyes was never impacted. So when you're dealing in this business at the political level, you have to silo relationships. The Americans in the Reagan administration siloed that component of their disagreement with New Zealand, because they made the assessment that the Five Eyes relationship was far more beneficial. I think the same will be happening here.Obviously, the Canadians and the United States are going through a very turbulent period in their bilateral relationship. I'm certainly no expert in Canada US relations, but I reckon you'd have to go back to the early days of the Second World War to have seen their relationship in such a tawdry state, obviously with the tariffs, and then the tit-for-tat in the media between President Trump and the Prime Minister of Canada. But I wouldn't foresee a circumstance, based on open source information and the media that I'm reading, that that any serious people would be talking about keeping Canada out of Five Eyes simply because it's not in the US interests to do so, that's the first point of call. And we've seen this before, with New Zealand and the ANZUS disagreement. So I would dismiss that as inside the Beltway chitchat.Jersey LeeYou mentioned tariffs, which were imposed on Canada, obviously there's also tariffs against Australia, despite Australia's trade deficit with America. There’s also the April 2nd “Liberation Day” of global tariffs on every country, presumably including Australia. I'd just like to get your general thoughts on the new global trade framework that the Trump administration brings in, and what it means for Australia and for the Pacific region. We've seen America for example in 2017 walking away from the TPP, which was basically a multilateral trade framework that was arguably designed to keep China out and be a part of America's framework for a pivot to Asia. What do you think of this new approach by the Trump administration to trade and its possible impact on Australia?Patrick BuchanThis is a personal position, perhaps not a position of my party or others, but my personal position would come down to the fact that tariffs have been a very much a part of the international economic order for a long time. I think the last 20 years in international economies and international political movement has seen tariffs coming down. We have now become accustomed to what is not the norm, that is free trade. I support free trade.What we're seeing from the Trump administration now has to be seen through a strategic prism. It's not just an America First economic model. I have enough faith in the national security establishment in Washington that many would see this as a way to deny potential adversaries access to key technology. I think we have to read it through that through that prism. But again, I would remind people that this great era of free trade we've seen in the post-Cold War environment is not the norm, tariffs have been the norm for the last couple of 100 years.Under the current tariff regime that the administration's announced, there has been a marginal impact on Australian exports, particularly in Australia's aluminum and steel industries. I think the key is how does the Australian Government and its officials ensure that there's no further imposition of tariffs in other key exports for Australia, and I think the second thing is to ensure that our other key trading partners, be it China, be it South Korea, be it Japan, that we ensure that tariff imposition “contagion” doesn't spread between other key export markets. Secondly, this administration has only got another 3 1/2 years left to run. Perhaps this is not the new normal. This is just a blip on the radar. So my view is we'd have to wait and see.Jersey LeeIn regards to China, there's been more than a decade old debate in Australia about balancing trade ties with China, and security and other economic ties with America. Over the past decade both relations have been subject to some degree of turbulence and uncertainty. How should Australia manage these two important relations? Also, is there a “third way”, is this kind of a “false choice”, as people like to say?Patrick BuchanYeah, exactly. That's the great strategic question of Australia's day, and has probably been in the public mind for 10 years, but I know from my own experience, [it’s been] in the mind of Canberra officials for 15 to 20 years: how does Australia walk that high wire act of its strategic, political, military and cultural relationship with the United States, versus its key economic relationship with China. That's the key issue of the day, and I think we saw very interestingly in the Turnbull government in Australia, that they managed to take hard, principled stances.So the exclusion of Huawei from Australia's 5G network was an example of that: without damaging the economic relationship, whilst also understanding that the United States remains our key strategic and military alliance partner. This so-called balancing act is not new, the Australian political elite have been doing this for 15, 20 years and doing a pretty good job, with the Australian governments, particularly under the former Liberal government, doing a very good job in taking principled values based national interest stances on where they disagreed with China and cooperated where they needed to, particularly in the area of the economy. Going back to those dark days of COVID, then it was the Australian government under Prime Minister Morrison, who led the charge at the World Health Organization.So this concept of being able to balance without making a third choice: I know people like Professor Hugh White, who's a very well-known Australian international relations scholar, he talks about a third way. I think that's a bit of a false choice in my opinion. I think we can continue to have a productive economic relationship with China, and a productive, deep and broad national security alliance with the United States. Of course, if the balloon goes up—and we all hope that it won't, and through sound and prudent planning and diplomacy, we can avoid that, that is the international system can—if that did occur, that's a very different proposition. But in this current phase of where we are at as a global system, from the Australian point of view, I think that relationship can be continued to be balanced.Jersey LeeYou mentioned former Prime Minister Morrison during COVID leading the charge at WHO; many people would argue that as a result of this, in the years from 2020 to 2022, economic relations with China were in fact adversely impacted. What do you think those few years showed us: any issues with how we were either messaging or how we were managing this balance?Patrick BuchanYeah, and even earlier [as well]. If you go back to 2013, in the Abbott government, Australia took a strong stance—in a largely forgotten episode in Chinese strategic behaviour, when they declared the Air Identification Defence zone, Australia came out very strongly early on. So I think we've seen that strategic instinct by the Australian government to take stances on its own, or in consultation or at least solidarity with our allies, but where it needed to, it came out hard and early. Huawei, under the Turnbull government, was the real standout where Australia came out strong, hard and early. I believe that will continue, where Australia does call out Chinese behaviour, that it sees not in its own strategic interests, or where it sees that a values-based argument needs to be made to constrain Chinese strategic aggressive behaviour, they will continue to do so. And I applaud them for that.Jersey LeeWhat if Australia takes this strong stance, and China retaliates in a way that they did from 2020 to 2022?Patrick BuchanI think Australia rode that out very well, and I think China was surprised about that. Australia was formally issued a list of demands by China, which the Australian government did not kowtow or crumple under. The Australian government rode through those tariff impositions that that the Chinese government placed on Australian imports. From memory, coal and the seafood market was impacted by that. They rode that out and I think China was quite taken aback by that. And we've seen the warming of relations—well, maybe that’s overstating—but we've certainly seen a cooling down of the rhetoric between the Australian Government and the Chinese government. From my reading of the situation, China were quite taken aback, and they realised that what was once called Wolf Warrior diplomacy, which was a very popular phrase thrown about by the media 5 or so years ago, didn't work. I think China is adjusting its diplomatic engagement behaviour, learning lessons, in many ways largely on the leadership stance that the Australian government took under Prime Minister Turnbull and under Prime Minister Morrison.Jersey LeeBased on your judgment, you think that China wouldn't attempt something like that again, because at the time, there's lots of reporting in Australian media of agricultural producers and other big exporters to China, they were really suffering during those years.Patrick BuchanYes, they were suffering, but certainly not on their knees. And the reality is there are other enormous markets opening up for Australian exporters; when I think about that, I think of the potential of India, I think of the potential of Indonesia. A Chinese assessment would have been made that, OK, this is clearly not working and Australians do have other options.A few years ago, when I worked in Washington, we used to speak of decoupling, this potential that the United States will decouple and delink its integrated economy with China, and some of the Australian scholarly and media types picked that up as well. Obviously that hasn't come to pass, and to be frank, I hope it does not. What I think the last few years did illustrate to the hard heads in Beijing was that there are other options, that China's economic centrality to the global system is not as powerful or as essential as perhaps they estimated it was.Jersey LeeRecently we also saw a different aspect of the relationship between China and Australia, when China sent a flotilla to do a circumnavigation of Australia.Patrick BuchanAnd occurring now with the Chinese surveillance vessel.Jersey LeeYes, so you can already see a slight repeat of that. Do you think that this is a glimpse into the future for Australia, with a more assertive China and a more uncertain US, and how should Australia deal with more such visits by China?Patrick BuchanIn your question on my view of the future, I guess I'd quote a former US secretary of defence, who famously said that, when it comes to predictions in international relations, the only thing we get right is we always get it wrong. So I'm not a big believer in making grand predictions on the future, because in my experience, throughout my career working in this business, is that all the big changes that I was told were going to happen did not happen. That's the first thing I'd say, and often you have to deal with events as they as they come, because once you get into that prediction game, it gets very difficult.China's provocative behaviour by sending a flotilla circumnavigating Australia a couple of months ago, one of the things I noted in my current work in domestic politics was how many voters raised that with us out on the campaign trail as an area of concern, and I just don't think that previously many Australians thought about China in those regards. So from a Chinese diplomatic perspective, if it was intended to intimidate Australians, based on people I’ve spoken to in the street, it didn't work.Secondly, the Australian system did come together quite well to manage that, and we saw China's flotilla move away. As a bit of a hawk, I would like to have seen a bit more of a robust response from the Australian Government on it. And then of course, we've got this surveillance ship circumnavigating Australia in the middle of a federal election campaign, and I just think those sorts of behaviours don't work, and only run counter to China’s interests; if it is seeking to improve its relationship with Australia, that's not going to do it. And if it seeks to intimidate Australia, I don't think that's going to do it either.Jersey LeeYou mentioned that you'd like to see a more robust response; given Australia's current capabilities, especially because a lot of reporting during that circumnavigation was that Australia’s Navy was in pretty poor shape, what do you think a more robust would ideally be, given the fact that what the Chinese Navy did is legal under international law?Patrick BuchanMaybe it is legal under in international law; many things are legal under international law, but that doesn't mean that they accorded with international norms of good behaviour. I think that was an example of something that did not conform to norms of good behaviour, especially after Beijing had opened up a diplomatic channel to Australia in the last couple of years, and I don't think it was a good way to go about it. But equally it misunderstood the Australian mood.What I do think would have been a more robust response was to put a larger military presence there to shadow those vessels, both air and naval assets, and to have come out very strongly. And I'm sure it was done, that our diplomats in Beijing made very strong representations to the Chinese Government, but I would have liked to have seen Australian assets deployed, much like you see the United States and the British doing with Russian incursions in the northern hemisphere, when you see Russian aircraft trying to penetrate British or American or US airspace, particularly in Alaska. So I would like to have seen something like that; had I been advising the senior leadership, or been a senior leader myself, that would have been the response I would have taken.Jersey LeeIn your previous response, you had discussed Australia's ties and Australia’s need to build more ties with countries, especially Indonesia, which was your original background. That's something that almost everyone in Australia agrees it need to do more of, especially people in either the foreign affairs or defense or other such departments. However, beyond the recently signed defense pact, it seems that Australia has been talking about building ties with Indonesia for decades, and not much has really happened on that front. Why has that been the case, and what do you think could be done to change the trajectory, or at least to build on the Defense Pact and expand it to other realms of cooperation?Patrick BuchanNow you raise an excellent point. All my life we've been told Indonesia is the next big key relationship in a strategic sense, and in fact, I wrote my thesis on that. What I would say to that question is twofold. The first thing is, it's not through a want of Australia's engagement and its own desires. That's a largely a bipartisan thing in Australia from both Liberal governments and Labor governments, strongly pushing for a deeper relationship with Indonesia, and credit to both sides, they both have feathers in their cap in that regard.But the important thing to remember, deep in the psyche of the Indonesian political elite runs the strain of the non-alignment. I'm sure many of your listeners are well aware of that post-War, post-colonial, non-aligned movement, of which President Sukarno and President Suharto were key leaders of. I think among the Javanese elite, that strain of sovereign independence and its non-alignment runs very deep. So it’s very difficult for that mindset of such an enormous country to move.I think the second thing I'd point to is that Indonesia is a country of 17,000 islands, one of the most ethnically and culturally and linguistically diverse countries in the world. Keeping that country together, from a security perspective, is extremely challenging. If you're sitting at the heart of Indonesia's political establishment, your first priority, down to your 50th priority, is how do I keep Indonesia together? We've seen so many times in Indonesian post-independence history where that's been really challenging; whether it was in the 1965 coup, the Timor crisis, so we see that the Indonesians have got to focus primarily on Indonesian sovereignty, on keeping Indonesia together, therefore their international relations suffer as a result of that, and that's understandable.Jersey LeeYou mentioned that Indonesia has a particular non-alignment mentality, but that's pretty much the same for most other ASEAN countries—there's a few notable exceptions. Given that ASEAN is Australia’s closest and biggest partner—and India also has a long history of non-alignment—all of these powers in Australia's neighborhood, other than China, which is a bit further away, are mostly non-aligned to some extent. Given that's the case of Australia's neighborhood, how should Australia go about this? You could also mention the US as well in their Pacific strategy.Patrick BuchanYeah, that's right. I would point to India and say that under the current BJP, the political incumbents, non-alignment doesn't run as deep as it does in their political opponents, the Congress party. And we are seeing India, compared to its non-aligned movement partners, moving at a more rapid pace in terms of taking its place on the international stage. So that's the first thing I would say there. When you make a comparison between Indonesia and India… if you could remind me of the second part of your question?Jersey LeeThe second part is basically, you mentioned India, but that's the same for ASEAN as well; also I asked about how the US might engage as well, given that non-alignment is the regional mood, they like to talk about ASEAN centrality, and don't really appreciate potentially having to choose sides between China and the US.Patrick BuchanObviously, Indonesia's focus as a foreign policy actor remains very much through the ASEAN way, the ASEAN model, and ASEAN centrality. We have seen that frayed a little bit. Certain countries in ASEAN, who we won't name on such a reputable podcast as this, have behaved questionably; I do question whether great external power actors have influenced their decision calculus, so I'll leave it at that.In terms of the United States and the way it maneuvers through the non-aligned movement or even multilateralism in Asia-Pacific, I'd get back to the point that I made earlier, that the way the post-World War Two US Alliance structure was designed in Asia, was very much on that hub and spokes model. It is much easier for the Americans to do political strategic business in the Indo-Pacific, when it comes to security and foreign policy because of that. That hubs and spokes model, that bilateral relationship, whether it's with the Japanese, whether it's with the South Koreans, the Thais, the Australians, the model that exists in Europe through a multilateral prism does not exist in the Indo-Pacific for a myriad of reasons, geography being a large one. The Americans feel far more comfortable as a great power in doing relationship management bilaterally, and they're very good at it. They make mistake, but from my experience in the Pentagon, sitting in many bilateral meetings with key bilateral security partners, the Koreans, the Australians, the Japanese, the Americans do it very well, so I will give them credit on that.Jersey LeeIn terms of economics or other aspects of cooperation, what can US and Australia offer them? For example, you see Indonesia joining BRICS and also Malaysia and Thailand expressing interest. Is that something that might be a concerning development? Could US and Australia offer more in the way of economic benefits to entice Southeast Asia, to have a better relationship?Patrick BuchanThe first thing I'd say to that is any economic relationship is and always will be built on mutual interest. That is, you've got to have something that one party wants to buy, and that another party wants to sell. Sometimes that is limited when it comes to separating an economic relationship with a strategic relationship.The second way you can avoid it is don't go putting tariffs on people, is another good way of ensuring that countries bilaterally can grow their mutual economic interests and trade. What the Australians and the Americans can offer is lowering any barriers to market entry. Again, you've got to do that based on your own self self-interest first and foremost, as any government should. I think it’s those two issues that I pointed to: don't do tariffs and ensure that markets have got goods and services that they seek to sell to the other.Jersey LeeWe had previously mentioned that Australia faces a challenging environment, especially in terms of security. But there's also economic challenges, particularly flatlining productivity, which everyone's been talking about in the current election. What do you think should be done to boost productivity?Patrick BuchanAgain speaking and from a personal perspective, I would argue and that much of it does begin with empowering employers to make labor decisions based on need; it is critically important that we have a strong employee employer relationship through a social contract. Obviously we've seen certain unions exploit that here in Australia; a notorious union, the CFMEU, is one that is often pointed to, but if we want to improve productivity in Australia, you have to improve the conditions in which productivity can grow, and so that does start with continued deregulation of labour markets.I think we have also seen in the post-COVID era—that came as such a cultural and strategic and economic shock to shock to people, and I think we still haven't recovered from that in many ways as a society—the imposition of strong regulations on what people could and couldn't do.I would argue labour market reform, particularly ensuring that people have that direct relationship between employers and employers without third parties, be they unions or interest groups being in the way of that relationship, is certainly one way that you can start to generate productivity and labor productivity particularly.Jersey LeeYou've also been to the US recently. Across the West, there's a broader feeling that productivity growth is falling behind, especially compared to countries like China, and that it's just making any potential competition with China that much more difficult, if you are unable to make anything, and you also see the difficulties in trying to reshore manufacturing by the US. Could you briefly comment broadly on this general Western phenomenon?Patrick BuchanI think that's a historical byproduct of societies reaching economic comfort, reaching an economic plane and where people don't have to perform manual labor for long hours, for low pay. Through free market ideology, through political liberalisation over 100 or more years, Western societies have reached a certain point. Now if we look at developing economies, let's take China as an example, and also a command economy through a centrally controlled one-party system, through a carrot and stick approach, it does make it far easier to ensure you've got higher levels of productivity. But ultimately that will reach a plane where that's no longer the case. That would be my response to your question.Jersey LeeSo far, most of what we've discussed has a somewhat pessimistic outlook. From where you stand, what makes you most optimistic in the Pacific region? And I suppose do you have any other concerns that hasn't been raised yet?Patrick BuchanYeah, I am an eternal optimist and I am a big believer that ultimately the United States, after it has exhausted all other options, always does do the right thing. That's point one. Point two, I think that the United States, even under this administration, recognises China, China’s rise and whether to cooperate or compete with China is the central strategic issue of the day, and I am confident that wise heads always do prevail. I'm not minimising the risk that something could go wrong. But I've heard certain commentators putting percentage likelihood risk of conflict with China. That's just ludicrous. Again, all of the big strategic assessments over the last 100 years are always wrong. So my view is that ultimately we may see something like a Cold War 2 between the United States and China. We may see a world in which we have a bifurcated economic system, not as integrated between the US and China as it is now, or indeed two blocs may occur as well, but I don't put an immediate conflict between the United States and China as likely.Jersey LeeHow do you think Australia should navigate a potential bifurcation as you say?Patrick BuchanI think they're doing a pretty good job at the moment. That is, continuing its strategic relationship with the United States—and its economic one well, one of the things I think people forget is the United States is the largest foreign direct investor in Australia, it's not a very well understood fact. Also walking that line with our economic relationship with China.However, ultimately—and here's the hard headed political analysis—the decision on that will be largely out of Australia's hands, as it will be out of the hands of the vast majority of countries in this world, because ultimately the great powers will set the tone in which the world order will be shaped. What I do hope is that those great powers realize that the post-Cold War system that was created, the so-called rules-based order, has served the interests of all nations whilst minimising the risk of war, has served all nations in the best way possible. So yes, adjust the system, but maintain that system in which the great powers aren't going to war with each other every second or third generation, that would be my assessment.Jersey LeeAs you say, ultimately this decision is in the hands of the great powers and not in the hands of most countries. But could other countries—for example, there's talk of Australia teaming up with Japan, Korea, the Philippines, other countries in the region to build up a bloc, so that even if America leaves, there's still a credible counterbalance against China. Do you think that's enough to change or deter great power behavior?Patrick BuchanPerhaps deter, but not an ultimate decision factor in the end, and this is a personal view. In the end, the great nuclear powers are the ones that ultimately determine the international system. So, keeping the United States engaged in Asia in the Pacific should be the first and foremost and paramount strategic ambition of all those nations you just mentioned. But again, I'm not a pessimist on this. This sort of Chicken little argument that Americans are about to cut and run from the Indo-Pacific—perhaps some would argue that that we're seeing elements of that behaviour in Europe—I just don't personally see it. Why? Because the United States has far too much strategic and economic interests in the region to do so. It would have to be a very significant strategic shock event that the United States would undertake such a decision.Jersey LeeI guess you don't think Australia should prepare a Plan B just in case that shock does come to pass somehow?Patrick BuchanOh, no. I never said they shouldn't have a Plan B, and I'm confident that the Canberra based officials do consider that, based on my experience in that world. But I don't think there's any sort of Plan B sitting on a shelf, that is a guideline to that, but certainly those discussions are being had and even today as we speak, former Prime Minister Turnbull has hosted with foreign and defence policy experts in Canberra a discussion on this exact topic, on AUKUS. I think that's a healthy thing to do. It's healthy in a democracy to have debate. But I don't believe there's some sort of Plan B sitting there. But sure, any strategic or foreign policy analyst worth his or her weight sits there and does consider all the options. That's just a good logical way to go.Jersey LeeYou've worked all your life in defense, international affairs, national security, etc. How does that translate into running a political campaign? Could I run a political campaign tomorrow?Patrick BuchanYes, it does prepare you in many ways; in other ways, perhaps it doesn't. But additionally I've been involved in Liberal Party politics for some time, so I can fuse both of my experiences together. I have enjoyed speaking with you today because I am very much focused on hyper local political issues; it is nice to get back to my primary and first love, which is foreign policy.Jersey LeeFinally, you mentioned a few times some big predictions that people made didn't come to pass. What's one that stands out to you?Patrick BuchanOne that stands out to me is, if you look the 1988 U.S. National intelligence estimate, where all the agencies the United States system come together, none of them picked that in less than a year, the Berlin Wall was coming down, and the Soviet Union would cease to exist in three years. Another one is that no one picked Saddam invading Kuwait. No one picked that Osama bin Laden and his cohort would crash aircraft into the Pentagon, into the World Trade Centre. Those are three big ones where no one predicted, the so-called Black Swan events.So the only consistent that foreign and defence policymakers can rely on is: one, demographics, which do take a long time to change, so that is one predictor for behaviour, it can rely on. The second is to be always aware that a Black Swan event will happen and the whole game will change on you. Even in my time in the Pentagon, as we're set there focused largely on China and Indo-Pacific, the ISIS event came out of absolutely nowhere. The fall of Afghanistan, how quick and rapidly that occurred took everyone by surprise. So the lesson for practitioners out there, or those in your audience who may be considering a career in that, is always be aware of the Black Swan event, the event you don't see coming, and actually it's good life lesson as well. Many events in your life hit you from the left side, and you never saw it coming. So that's the one constant.Jersey LeeYeah, that's definitely great life advice. Thank you, Patrick, for coming on Pacific Polarity, and we really greatly appreciate hearing your thoughts and your insights on these great and important topics in Australia and around the Pacific.Patrick BuchanThanks, Jersey. I really enjoyed being on your program. To all of your listeners, particularly younger people, I do strongly encourage you to—the systems, the foreign policy and defence systems, whether you're in the United States or wherever you are, your country does need you. We need the best and the brightest going into government, or going into academia, or going into think tanks, to be able to provide advice to our national leaders at a time when the world is in a very precarious strategic situation, and I can also promise you it's a hell of a ride. It's fascinating to be involved in it. So I encourage as many people as possible, if that is your love, do go for it because it's a very rewarding career experience.Thanks for reading Pacific Polarity! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com