Dmitri Alperovitch: There’s just so many downstream problems you create from allowing this monopoly to be established that I think it’s just a complete no-brainer that this is not in our interest on any level.
Jason Bordoff: China’s dominance of global supply chains for many goods, including clean energy technology, is increasing concerns about resilience, security, and geopolitical influence in today’s new era of great power competition. At the same time, efforts to curb China’s dominance are raising concerns about the cost of clean energy at a time when it’s a rapid deployment is needed. So, are we in a new Cold War with China? Should American policymakers try to decouple from China? And how should policymakers address China’s supply chain dominance of the materials needed for the energy transition? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff.
Today, Dmitri Alperovitch. Dmitri is the co-founder and chairman of Silverado Policy Accelerator. He’s a co-founder and former CTO of CrowdStrike. Dmitri previously served as special advisor to the Department of Defense, and currently serves on the Department of Homeland Security Advisory Council and the Cybersecurity and Infrastructure Security Agency’s Cyber Safety Review Board. I brought Dmitri on to talk about his new book, World on the Brink: How America Can Beat China in the Race for the 21st Century. We discussed what the strategic challenges from China mean for American policymakers, how the United States can diversify critical supply chains away from China, and the security of America’s energy infrastructure. I hope you enjoy our conversation. Thanks for making time to be with us, it’s really great to see you again, and congrats on the new book, World on the Brink, it’s a fascinating read, encourage everyone to read it.
Dmitri Alperovitch: Thanks so much, Jason. Great to be with you.
Jason Bordoff: Obviously I want to spend time talking about the book, talking about what you see happening in the world today, but just want to help people understand how you came to do this work and your story. It’s a pretty interesting story, coming to the US from Russia, and then getting involved in the world of cybersecurity, and then from that to thinking about issues of national security. So, just help people understand your journey and how you came to focus on issues of technology, cybersecurity, and then we’ll talk about what you’re doing now.
Dmitri Alperovitch: Sure. So, I was born in Moscow, and immigrated when I was 13 years old, and got into cybersecurity really because of my dad, he was a nuclear physicist in Russia, and when we immigrated to this country, he was working in the energy field, actually working at Tennessee Valley Authority, but he didn’t find it as intellectually stimulating as building and designing nuclear power plants and simulators for nuclear power plants, so he got interested in the emerging field of public key cryptography, encryption, and he and I actually started a small company when I was still in high school providing encryption software to companies and individuals. And that’s what led me down the path of getting a degree in cybersecurity from Georgia Tech, and then ultimately going to work for startups, and ultimately founding my own startup, CrowdStrike, that became one of the largest cybersecurity companies. But the intersection with national security actually came very naturally.
So, I’ve always been passionate about foreign affairs and national relations, actually ended up taking tons of class in college on nuclear nonproliferation issues, missile defense, counterterrorism, almost got a minor, but decided that it was time to get out of academia and actually do some real work. No offense. But it was time to join the commercial world. But in 2010, when I was still at a company called McAfee, which was one of the largest at the time, I ended up running investigation of a major national security-related hack from China, into Google and about a dozen other firms, and I ended up calling it Operation Aurora. And it was really the first time when people realized that private industry, across numerous sectors, from defense, from technology, manufacturing, et cetera, were getting just absolutely pillaged by Chinese nation state actors, who were stealing intellectual property, stealing trade secrets, transferring it to both state-owned enterprises as well as private companies in China.
And that led me down a path for the last 15 years of my life of really focusing on this issue of great power competition with China, certainly with a cyber element being a key part of it, but looking at the broader issues. I’ve argued back in the 2010, 2011 days that we were in an economic war with China, that was one-sided, that China was prosecuting this war against us, and we were not responding. I was having senior meetings with White House officials at the time, pounding the table in the situation room in one briefing saying, “This is unacceptable, that we’re letting them essentially pillage us this way without any response,” and I would get this response of like, “Oh, Dmitri, you’re so naive.
We’ll just out-innovate them, as long as they’re stealing, they can’t innovate.” And I’m like, “Well, that’s just nonsense,” and actually having a background in the Soviet Union, I knew that was nonsense, that was not supported by history because the most famous [inaudible 00:05:46] perhaps in all of history, all of humanity, was the penetration by the Soviets of the Manhattan Project, the building of the atomic bomb, and they famously got to, the Soviets did, to the atomic bomb in 1949 because of the designs that they had stolen from America, but they actually got to their own hydrogen bomb design all on their own a few years later with Sakharov, a famous physicist, and later dissident in Russia, playing a key role in that. So, even from the Soviet Union days, I knew that stealing actually helps facilitate research, helps you figure out which roads to take, and which roads not to take, and ultimately accelerates your own development, and of course, exactly the same thing happened with China, where now, when you look at their EV sector, that I know you know well, their cars are on par or better than many Western cars.
There’s been massive amounts of IP theft, and battery technology in car design technology, I’ve personally worked on numerous incidents of infiltration of Western car makers by Chinese, over literally 15 year period. But ultimately, they took that research, took those designs and made them better, and improved, and that was, of course, completely expected, and the US government chose to bury their head in the sand and pretend that it’s not happening.
Jason Bordoff: I would imagine when you brought those concerns up and the responses you described, it was, “You’re so naive, we’ll out-innovate,” may have also been, not just that, but may have been, but yes, we need to protect US companies, we need to make sure rules of IP are not violated, but trade is good, and if China makes stuff really cheaply, this is not the Manhattan Project, it’s not high national security issues, if they make cheap solar panels, or make cheap iPhones, or whatever else, that makes everyone better off. Just talk about to what extent is there attention there, especially when we want to deploy clean energy as fast as possible, you want it to be cheaper, not more expensive. How do you think about how to balance that desire with what you just described, which are concerns about IP theft, about the competitiveness of US firms?
Dmitri Alperovitch: Well, of course, the theft was not limited to energy, which I understand is a more debatable issue, although I don’t think so, and we can talk about that in a second. But it was across the board, it was in manufacturing, it was in technology, it was in insurance, it was in agriculture. So, it was in lots of areas where there was no climate change goals to pursue, to enable cheap goods to flow into our country, and this was, at the time, the Obama administration, at least ostensibly they cared about labor, they cared about American jobs, and I think they did, so the idea that you would just let your own economy get decimated just so you could buy cheap goods from China, I don’t think was necessarily… Certainly, not something that anyone articulated to me in those meetings, that they welcomed this, they just thought that it would not have a big effect.
But there was certainly a pro-engagement mentality that ultimately more trade with China is good, let’s not rock the boat, yes, they’re stealing, but as long as we keep out-innovating them, it really won’t matter. So, let’s not respond with sanctions, with prosecutions, with any of the things that, of course, trade tariffs that we’re doing now. And by the way, this was not just a political view, there were many companies that I’ve met with, CEOs, boards of directors that had the same view of, well, we really hate that they’re stealing this, but we don’t really want to ask the administration to put tariffs on, or do anything because we have a big business there, and we just have to stay ahead of them and keep out-innovating them. That was the prevalent business view as well. So, they, on one hand wanted somehow US government to fix the problem, but not do it in any way that would jeopardize their own business, or cause their retaliation, or trade war with China, which was of course impossible.
So, this was very much a universal dilemma. Now, on the issue of cheap energy goods, because this is, I think, very much a minority view certainly today, but I have heard it from some circles, where people that care only about climate change… And look, climate change is important, we need to make sure that this planet remains livable and good for future generations. But it’s not our only goal, we have many national security goals, and the primacy I think of climate change over everything else is a faulty one. But the main problem I have actually with people that are particularly in this argument, and I had someone recently, former Obama administration, senior official, tell me this, that, well, in the areas of EVs, and batteries, and wind, and solar, it’s okay if China dominates those sectors and destroys our manufacturing there because it’ll be good for everyone, because they’ll make cheap stuff and it will accelerate our net-zero transition.
My response to that, and is now being supported by academic literature and research, is that in areas where China has achieved effectively monopolistic control over a market, the prices don’t remain cheap. In fact, they function like just any other monopoly, where once you secure it, then you can set prices as high as you want, or as high as the market will tolerate, then they will do that because they are socialist capitalists in a way. But certainly focused on maximizing profit as well as national security goals, so-
Jason Bordoff: Where do you see that happening? When you look at the prices for imported Chinese solar panels or batteries, it often is lower.
Dmitri Alperovitch: Well, because they don’t have yet a monopoly, and there are still industries that they haven’t completely dominated. But in other sectors, you’re absolutely seeing that. So, that is why we cannot let them dominate, for many reasons, but that is one of the reasons we cannot let them dominate the sector. And by the way, just the entire history of our economic development in this country has been, since the early 1900s, has been to thwart monopolies, right? Because we recognize that the creation of monopolies is ultimately not good for this country, not good for economy, not good for the development of the free and fair markets. So, why would you do this not just with a company, but with a nation state, that is clearly, in my view, an opponent, an aggressor, an adversary, however you want to describe it, that has national security goals that are diametrically opposed to ours? This just makes no sense whatsoever.
Jason Bordoff: So, I guess from the clean energy standpoint, then you’re describing maybe two concerns. One is energy security, and I’m curious to hear how you think about that, is our solar panels and batteries similar to oil, should we think about it the same way in terms of potential to restrict supply in the future, in the case of a geopolitical conflict or something? And definitely want to come to the start of your book, which is about what might happen with Taiwan before the end of the decade. And then, the second piece is maybe more economic security. How do we think about the health of US firms, US economic activity, and make sure people are playing on a level playing field? Is that the right way to think about the issues you’re bringing up?
Dmitri Alperovitch: It is, and you have seen China use its economic power and its monopoly already to pressure countries, it has been doing that for 15 plus years with Japan, with Australia, now even with the United States recently, with a restriction of exports of gallium and germanium to this country. They’ve done it with rare earth pressures on Japan, and various measures against Australia. So, they’ve demonstrated a propensity to use monopolistic power to further their international security goals and to effectively blackmail countries. So, why would you want to turn over your energy security, probably the most important thing outside of hard defense, to an adversary country? That just is absolutely insane, right? We’ve talked for so many decades now in the national security debates we’ve had in this country about reliance on fossil fuels coming from the Middle East, and the impact that has to our national security, I think everyone across the political spectrum realizes it’s a problem.
The people on the right recognize it by wanting to drill more, the people on the left recognize it by wanting to transition to net-zero, everyone recognizes it. So, why would you take the new energy sources that are clearly going to replace most of the fossil fuels, why would you want to have a reliance on one country, frankly, any country, but in particular, a country that you are literally preparing to go to war with, as the Pentagon, as the Indo-Pacific command is, as we speak?
Jason Bordoff: Yeah. The question I think some I’ve heard ask, and I’ve been interested in [inaudible 00:15:05], is whether the daily flow of energy is the same as a cheap manufactured product from which one derives energy? So, if there was a disruption, if someone said, we’re going to restrict the exports of solar panels, it would not affect your ability to turn the lights on today to get into an electric vehicle, it might affect your ability to put new solar panels onto the grid, and it is a cheap manufactured product that could be produced elsewhere, unlike oil that is in the ground in some places, but not others. Does that-
Dmitri Alperovitch: Well, it could be, but of course, it won’t be quickly. So, you’re not going to start up a solar panel plant overnight, it is going to take years, and by the way, if they also have the upstream control of the critical minerals that you need to produce solar panels, and all of the technological IP, then it may take many, many years before you could actually reproduce it. And secondly, this also belies the reality of what is actually happening with these energy technologies. It’s not that you just deploy solar panel and it’s going to work in isolation, increasingly, it is part of a smart grid, increasingly it’s interconnected, increasingly there are updates to this technology. So, more and more of it is online, more of it is command and controlled from China, and Chinese companies, so it’s not just the ability for them to prevent you from expanding your energy sources, or to replace existing panels, existing batteries, it is also what can be done to interfere with them in critical moments through disruption.
Jason Bordoff: Yeah. I’m hearing a few different rationales that all point in the same direction, obviously, and some relate to the dominance in a certain sector from a geostrategic adversary, because as you say, one could restrict exports, you gave some examples of critical minerals where that has happened, or licensing requirements have been put into place telling us it could happen. The second is just dominance, as you said, maybe any country could be an ally, it could be Canada, it could be whatever, not just China for supply chain resilience, whether you want 90% of any supply chain to have one country as a key piece of the link because of a labor dispute, because a hurricane hits a key manufacturing region, or whatever-
Dmitri Alperovitch: Or a pandemic, where we found that PPEs are hard to procure because it relies on China and they’re prioritizing their own country, as you would expect them to do.
Jason Bordoff: And then, the monopoly pricing point you made at the end, and I guess that also depends on the role of the state in the economic activity of firms in that country, and that may not be limited to China, but a lot of countries around the world.
Dmitri Alperovitch: But certainly we know in China there is no independence of the private sector, they will ultimately do, particularly in the areas of critical national security interest, what the party wants them to do, what Xi Jinping wants them to do, he’s established full control over every sector of the economy, even in tech, you’ve seen that with Jack Ma being essentially ousted from China, and [inaudible 00:18:01] to exile. So, this is very different, and I’ll just quote to you one statistic that’s interesting in the critical mineral space. So, there are two major rare earth producers in China, the companies that process the rare earths, effectively control over 90% of the market. Both of them right now are showing losses in their public disclosure of financials.
If you have full control of the market, why are you showing losses? Well, it’s because we have a competitor that has emerged in recent years, a US-based company called MP Materials, that I know well, led by great CO, James Litinsky, who’s a friend, and that company initially operated a mine in California, called the Mountain Pass mine, that mined rare earths and sent them to China for processing. And in recent years, James decided to go into the upstream business, and to process the rare earths on sites, so you don’t have a Chinese dependency. Immediately you’ve seen a lowering of the prices from Chinese processors to drive him out of business, and as a result, they’re showing losses on their income statements. Is that a practice that you typically see in any other market? Not really, right? This is clearly influenced and influence likely driven by the party, Chinese Communist Party, to ensure that they continue to have a monopolistic control over the sector.
Jason Bordoff: Yeah. And behavior that does violate WTO rules, if they matter anymore, but maybe they don’t, and it sounds like-
Dmitri Alperovitch: Yeah, that’s almost a quaint argument, the WTO rules at this point.
Jason Bordoff: Yeah, right. I want to come back to the WTO too, because you sort of write in the book about, among the many mistakes over years and years that government has made, China’s accession to the WTO, you view as one of those. Your point about the way that Chinese firms with state involvement are behaving, I’m curious if you could just comment on the view you hear from Biden officials and others about excess capacity, about over capacity. And when it comes to clean energy, you sort of see an argument that, well, they’re producing so much more than the market needs with the intention of deterring competition, driving out other actors, perhaps, as you just said.
I do hear others say, okay, but we are so far away from our climate goals, and we need green hydrogen, and electric vehicles, and things to be orders of magnitude more global deployment than they are today, let’s not get too worried if a country is producing more than the world needs today because it’s still less than the world should be using if we can get on track for these goals. How do you think about the over capacity argument in the context of a sector that we hope to scale dramatically as fast as we can?
Dmitri Alperovitch: Yeah, so there’s no evidence that the overcapacity of the Chinese production is done to try to meet the rising demand, there’s zero evidence of that. In fact, it’s mostly driven by political goals of Xi Jinping. Part of it I think is trying to destroy our sectors, but the biggest one, frankly, is trying to revive the stagnating Chinese economy, and that this is the only chance he has, domestic consumption is basically not going anywhere in terms of growth, and the export markets is the only thing he sees as potential for growth in those critical sectors. So, I think that’s the main driver of it, the other is certainly not unhelpful either. But again, because there’s no demand that’s increasing commensurate with the demand and supply, you’re not actually solving the climate change goal, you’re driving producers out of business, and creating less variety and less potentially competition down the road.
And we know that competition through the free markets creates better products, and ultimately enhances innovation, and if you create a monopolistic structure, at the end of the day, we’ll have less appealing cars. When we had protectionism in our automotive sector in the 60s and 70s, we had American cars that were kind of really crappy, and that’s why the Japanese were able to penetrate our market eventually, and succeed so well because their cars were better. And that encouraged American manufacturers to keep up and started innovating as well. So, having anyone establish a monopoly is just, we know from a century of economic research in this area is not a good thing.
The second thing is this idea that Chinese batteries, Chinese EVs are just a uniformly good thing for climate, when they are being produced with coal power. I’m not so sure that you’re benefiting in the end from their lower emissions because the emissions on the front end of manufacturing that vehicle are so high. Now, yes, they’re transitioning from coal, and you’re seeing huge deployments of solar, but at least today those are not clean cars in any sense, and certainly not up to our environmental standards, our labor practices, which we also care about. Again, I have this huge problem with the primacy that climate change is the only thing that we care about, above wars, above labor standards, above everything else.
Jason Bordoff: Using forced labor to make cheap solar panels.
Dmitri Alperovitch: Correct. Correct. Are you in favor of slavery just to get a greener planet? I’m not. I think that’s morally unjustifiable to say the least. So, you have to look at that issue, you also have to look at the issue of, from again, a national security perspective dependence, on an adversary, as I’ve said. So, I just see no argument that you could credibly make that this is a good thing for the planet in the long term, that this is a good thing for us. And by the way, if in the process of allowing them to dominate our manufacturing sectors, you are weakening the workers, and getting more unemployment, getting more desperate areas across this country, you’ll have more poor people that can’t afford to buy those cars and trade in their gas-powered vehicle for an electric vehicle, and you’ll create other problems like populism, and so forth, that we have seen in recent years, when economic situation in the Midwest and other places has not kept up with growth on either coast.
So, there’s just so many downstream problems you create from allowing this monopoly to be established that I think it’s just a complete no-brainer that this is not in our interest on any level.
Jason Bordoff: And that point you brought up about the carbon intensity of Chinese manufactured goods, that was something at our big annual conference this year, John Podesta gave, I thought, an important speech about opening the door to the idea of things like carbon border adjustments, you have support actually on both sides of the aisle here for that, and Europe is going down that road as well, to try to level the playing field.
Dmitri Alperovitch: It’s just basic fairness. So, if they’re cheating because they’re not manufacturing a clean way, or to certain labor standards, or to certain environmental standards, vis-a-vis us, we want to level the playing field.
Jason Bordoff: You mentioned part of the reason for stimulating that kind of domestic manufacturing to deal with a stagnating economy, and in the book you talk about where that sources of strength come from, the workers, the capital, the resources, and you said “All appear to be beginning to be exhausted,” I think in China you see arguments like from Hal Brands and others, about maybe this is a declining power. I’m wondering how you think about that with China, and is it such a big threat if that is actually the case?
Dmitri Alperovitch: So, really interesting, so I do agree with the premise that, and in fact, I have a whole chapter in the book titled, They’re Not as Strong as we Think They Are, with the premise that China is not going to be the world’s greatest superpower. Now, it’s not a declining power today in any sense of the word, because its economy is growing, it’s not growing in double digits that it has been for last 40 years, it’s growing probably around three to 4%, maybe lower, depending on the estimates you want to believe. But basically, maybe slightly better than us, but roughly on par, right? Their GDP, of course is 25% smaller, so if that continues, they’re never going to catch up with us in terms of just nominal GDP equivalents of our economies. But it’s still growing. Big question of whether that continues or not.
Obviously there’s a lot of headwinds in the economy, you’ve got the population demographics that are going from bad to worse, and will really start hitting in the 2030s. You have huge mismanagement of the economic sector, enormous real estate bubble. Their real estate, just to give people a sense, is 30% of their GDP. The real estate sector, at the height of 2008, our real estate bubble, real estate was 10% of our GDP, right? So, the scale here is just absolutely enormous. The banking sector is terribly mismanaged. So, lots and lots of problems, whether they can overcome them and continue to grow, not at a double-digit rate, but at a small growth rate, no one knows, right? The future is hard, and predictions are very hard, as Niels Bohr famously said, especially about the future. But here’s what I think people should understand from a threat perspective, and this is where I disagree a little bit with Hal, and Michael that wrote a terrific book on this issue, Danger Zone.
So, even if you look at just demographics, right? China has 1.4 billion people today, by the end of century, so 75 years from now, they’re predicted to have conservatively 550 million or so. And you can on one hand look at that and say, oh my God, this is a collapse unlike any we have seen in human history, this will have such huge ramifications economically, socially, demographically, on every level, and that’s absolutely correct for you. Another way to say this is, 550 million, we in the United States have 330 million today, that’s still a lot of people, particularly when you think about military power and so forth. Another way to look at this is that their economy may not grow quite as significantly, but their economy will continue for many, many decades, if not forever, be orders of magnitude greater than Russia’s, than North Korea’s, than Iran’s, all of which clearly present significant military threats to us.
So, this idea that just because China will not be as strong as perhaps was erroneously predicted that it will not be a problem from a national security perspective, from a military perspective, is just a wrong-headed view, in my estimation. And again, look at Japan, right? For the last 30 years, Japan has been in stagnation, economic stagnation, demographic collapse taking place there, but it’s military, no one argues that it’s military is not a strong one, and getting stronger by the day, in fact, as they’re investing more. And particularly in an authoritarian country, when you can allocate more of the economy to the military and other national security goals, it’ll still be a problem. Again, look at North Korea.
Jason Bordoff: Yeah. And I would imagine in a scenario where economies are stagnating and maybe that affects public support for an authoritarian regime that could lead one to take measures that would make a country more not less dangerous as it tries to ensure its retaining power, maybe that takes us to the beginning of your book, and for those who haven’t read it yet, talk a little bit about how you start with regard to Taiwan. And I don’t know if that was a prediction or a scenario, you were early to warn that Putin would invade Ukraine, and you were right about that, so when I read what you think is coming for Taiwan, that’s concerning. Just talk a little bit about how you begin the book and why.
Dmitri Alperovitch: So, one of the big themes in the book, I argue is that we are unquestionably in a Cold War with China. If you look at every comparison between what happened in the first Cold War, what’s happening today with the US-China relationship, I think the case is basically closed and shut. We have a global competition for supremacy around the world in the tech sector, in the energy sector, in the broader economy, in the military, diplomatically playing out in every corner of the world. We have an arms race, a conventional one, and a nuclear one, we have a space race for God’s sakes, and the defining moment of the first Cold War trying to get back to the moon. We have a struggle to secure military bases in the region, both us and them. They’re trying to do it in Djibouti, in Pakistan and Cambodia, we’re trying to do it in the Philippines, shore up our presence in Guam, in Japan, even in Taiwan, there’s a small expansion of our forces, mostly training forces there.
We have really preparations for war, and a regional flashpoint, and I argue in the book that Taiwan today is really the new West Berlin. And people have forgotten now in part because of the huge presence of the Cuban Missile Crisis in people’s memories of one of more defining events of the first Cold War. The importance of West Berlin and how West Berlin was just as dangerous, if not even more dangerous than the Cuban Missile Crisis, and I talk about this in the book, that that period of 1961, one year prior to the Cuban Missile Crisis, was incredibly dangerous. That summer where Kennedy went to meet with Khrushchev in Vienna, and coming into that meeting, Kennedy, who had just gotten into power, who had just suffered the humiliating defeat in the Bay of Pigs, attempt to defeat Castro in Cuba, walks into that meeting in Vienna with an expectation that he could get to effectively [inaudible 00:32:27] with the Soviet Union. He wrote to Khrushchev saying, our two countries should not be confrontational with each other, let’s figure out a way to coexist, and work for the benefit of our two people.
And by the way, in some of the same ways that you hear people talk about China, both today and certainly in the past 40 years. And Khrushchev wants none of that, he talks about one thing and one thing only, also not unlike China, and that is West Berlin. And he demands that Kennedy withdraws American and force other allies to get out of West Berlin. And Kennedy is so shocked by this, he does not understand this fixation on this little enclave within [inaudible 00:33:09] Germany, West Berlin, but he gets back home and says, no, we’re not going to do this, and he goes on American television and tells American public to prepare for nuclear war. That we are going to defend West Berlin, not just with conventional forces, but we’re going to be ready to do a nuclear exchange with the Soviet Union over this little piece of land surrounded by the huge Soviet armies, and that has really no strategic value in terms of resources or anything like that.
But symbolically, he felt it was really important to stop Soviet advancements across Germany, and across Europe, and demonstrate the strength of American will and power. And for much of that summer of 1961, America was preparing for a nuclear war. Cuban Missile Crisis was obviously very dangerous, but it was 13 days, and half of that time, Americans didn’t even know that we were in a crisis until Kennedy revealed it. This was the entire summer, where he was asking for funding from Congress for fallout shelters, he had these duck and cover drills, and everything else that was taking place. And then, he wakes up one day in August, and he’s told that the East Germans on [inaudible 00:34:23] of the Soviets are building the wall. And you know what he says, Jason? He says, “Thank God.” 25 years later, Reagan says, “Mr. Gorbachev tear down this wall,” Kennedy says, “Thank God. A wall is not a great solution, but it’s better than war, if he’s building a wall, he’s not invading.”
And the wall actually stabilized the conflict, right? Because the threat of invasion of West Germany, of West Berlin, declined precipitously and allowed us to ultimately, in the 70s, to get into a detente with the Soviet Union, get to arms control, and all the things we got them. I argue that Taiwan is that today, that we have this incredible threat to Taiwan that has been always there, but has dramatically increased after Xi Jinping had come to power, because I believe that he wants to accomplish it on his own watch. The man is now 71, so do the math in terms of his life expectancy, his expectancy to be in power in the Chinese Communist Party. By the way, they don’t tend to elect their leaders into their 80s, and Xi Jinping may break that trend, but not a certainty. So, I believe next 4 to 8 years are incredibly dangerous for him potentially attempting this takeover of Taiwan. And the scenario that I open up the book with is set in 2028, where I think the window opens up potentially for invasion, and it lays out step-by-step how China could potentially-
Jason Bordoff: Why that timing, just so people understand?
Dmitri Alperovitch: So, we know that he’s not ready today, and not only do we know he’s not ready today, we know that he knows he’s not ready today because the CIA has publicly assessed that he has given an order to the People’s Liberation Army to be ready by 2027 to invade Taiwan. Which means that he knows that they’re not ready today. 2027 is very much a political and symbolic deadline in my view, because there are two things that are happening in 2027, first of all, you have the 100th year anniversary of the establishment of the People’s Liberation Army, the Chinese military, it was established before the Chinese state because it’s actually not the military of China, it is the military of the Chinese Communist Party. And as soon as the party was established, they established the military arm, which became the PLA.
And secondly, in 2027, he’s up for another reelection as the Chinese party chairman, in October, November of that year, there’ll be a party Congress, and you can imagine if you’re him, that you would love to go in front of that Congress, as you’re going to get reelected almost certainly, and announce to the world and to most importantly, the Communist party, that you have achieved something that no Chinese leader has ever achieved, including Mao, that established the People’s Republic of China, which is that you now have the PLA ready to invade Taiwan at the time of your choosing. That’s an incredibly symbolic and politically strong statement to make. Now, ’27 itself I think is not a great time to invade because of that political process that’s going to happen, his reelection. And while there’s little doubt that he’ll get reelected in 2027 because he’s put loyalists across the party, he’s jailed any figures that could potentially oppose him, or expelled them from the party, but it’s still work, and it’s still an effort to make sure that the support is uniform, and that there’s no issues and so forth.
So, it’s akin to us launching a war of choice and one that is incredible on its scale, because invasion of Taiwan would be the world’s most complicated military operation in history. It is that difficult to pull off doing that during our campaign season. Even if you are winning as a candidate, you wouldn’t even consider that, right? You’re too busy with other things. But once you get past that election in the fall of ’27, and you still have to do a lot of things in terms of put together the ideology for the next five years, put new team in place, all the bureaucratic things that happens behind the scenes for six to eight months, and you kind of get past all that in the summer and fall of 2028, and you can sit back and say, well, what is it that I want to accomplish for the next five years?
And you’re looking at the five-year term ending in 2032, by that point, you’re 79. If you’re Xi, maybe you’ll get another term, but maybe not. And who knows how your health is going to be. So, this is an opportune window to actually do this, and the other thing you’re looking at is that the investments that the Americans have started making in the late-2010s, and early-2020s in its presence in the Philippines, in Guam, and Japan, all over that region, the AUKUS agreements with Australians to build new submarines, the revitalization of the Japanese self-defense forces, what Taiwan is doing to invest in its defenses, that’s all going to start coming online in the late-2020s, early to mid-2030s.
So, the longer you wait, the harder it’s going to be. So, that window is going to shrink in terms of the opening to launch a successful invasion. So, that becomes a really opportune time, and the other thing that happens in 2028 is that your enemy is distracted. The year kicks off with the Taiwanese election, both a presidential election and legislative election in January of that year, potentially inauguration of a new president in May of ‘2028, and even if it’s the current president [inaudible 00:40:02], who would win the second term, you still are going to have some churn in the national security apparatus, rotations, new people coming in, et cetera, so disruption in Taiwan.
You have the Los Angeles Olympics in the summer of that year, so you know what every American is going to be paying attention to, and it won’t be Indo-Pacific, and then you have our own elections in 2028, right? In November of 2028. So, you are past your distractions if you’re Xi, your enemy is distracted, and that could be an opportune time. Now, I’m not predicting that 2028 is going to be the year, I don’t think he has penciled a date certain in his calendar. It’s going to be very much opportunistic, looking at his capabilities, looking at the opposing size capabilities. Can he do it?
Can he get away with it? But the minute he says, I can do this, I think he’s going to go for it. And the key to all of this, which brings us back to the energy conversation as well, is to absolutely ensure the success of this operation, you have to do one thing, and that is to keep America out. Because if we’re not getting involved, the Japanese, Australians are not going to get involved, the Taiwanese are going to be on their own, and they just don’t have the capacity to withstand a Chinese invasion on their own, and they know that. So, if you somehow manage to deter the United States from fighting to protect Taiwan, your victories are short. And a key part of that is making sure that America remains economically dependent, and from an energy perspective, highly dependent on China, so that you can basically send a signal of, do you want us to turn off your power?
Do you want us to stop sending our batteries and EVs to you? Do you want us to stop sending critical minerals to you, or semiconductors that we are produce in huge quantities, on and on and on, because that will devastate your economy? And maybe this thing is not worth it to you. Right? That’s key part of his calculus. That is, the flip side of the Made in China 2025 plan, which will probably become made in China 2030 because he missed the deadlines on most of these targets. But it’s not just achieving independence in those sectors, and reducing dependence on the United States and the broader West, it was also becoming the dominant power in all of these critical technologies so that the rest of the world, and America in particular, are dependent on him to give him leverage to enhance his deterrence.
Jason Bordoff: That’s really interesting and concerning scenario. Let me ask you also with regard to energy and energy security, one other thing I wanted to bring up earlier when you were talking about your background with CrowdStrike… And to be clear for listeners, that’s not a company you’re involved with anymore, including troubles that they had recently. Where are we with cybersecurity, when you look at the world broadly, and in particular as it may relate to energy infrastructure, the grid, pipelines like Colonial, give us a sense of, have we made a lot of progress trying to address cybersecurity vulnerabilities or not?
Dmitri Alperovitch: We made some progress, I do think we have a lot of resiliency in our infrastructure. On one hand, people moan about the fact that we don’t have a single grid in this country, we have regional electric grids. That’s inefficient, it actually creates a lot of problems, obviously, for the green energy transition. But on a resiliency and cybersecurity metric, that’s actually a good thing because taking down the whole country is actually very, very difficult.
Jason Bordoff: It’s like voting systems, they’re so disparate that it’s-
Dmitri Alperovitch: That’s right. Different technologies, different operators, different levels of security. So, very, very challenging to do one attack that does a huge cross-country impact. But regional blackouts are possible, and there’s a lot of worry right now in the US government, you hear them talk a lot about this phrase volt typhoon, [inaudible 00:43:58] have read about in The New York Times and in testimonies of senior US government officials, which is, Chinese military affiliated campaign that is penetrating, unlike the intrusions that they have orchestrated literally over the last 25 years into every sector of our economy, into private companies, into government agencies to steal, right? To steal intellectual property, and trade secrets, as we talked about, to steal national secrets. This is different because they’re targeting electric utilities, water utilities, other organizations that have no trade secrets or intellectual property that is of any interest to anyone. And the assessment of the US government is that this is being done to bury themselves into those networks to potentially disrupt them at, again, at a time of their choosing.
And this, again, plays into the scenario of potential invasion, could you use that leverage of holding the US electric grid, the US water supplies, et cetera, hostage, and basically say that if there’s any intervention in the strait, we’re going to do severe damage to you. But also, at a tactical level, it takes a lot of logistics, a lot of power, a lot of resources to flow forces from continental United States to the region to fight a war with China, and if you’re able to turn off the ports, or the power to the ports, or to our military bases, or impact water in the region, that is going to impact the readiness and our ability to mobilize in the region for a fight with China. So, both tactically and strategically, it’s a really important campaign, and we are, frankly, not ready for it.
And we have a gap in authorities in terms of what US government can do with private industry, and regulations on the level of cybersecurity that you need to have, you have a gap in capabilities because a lot of these utilities are owned by municipalities, in many cases they don’t have a lot of resources, they may not even have a cybersecurity team. They may have an IT guy that dual-hats as a cybersecurity guy or gal, and the revenue stream for that is basically set by governments, municipal governments, or state governments, and it’s very hard for them to invest more based on that structure. So, there’s a lot of problems in that space.
Jason Bordoff: In our remaining time, let’s talk a little bit about what we should do about all of this. When I say we, I mean our leaders. So, talk a little bit about the prescriptions in your book, what you think US policymakers, national security leaders, and others should be doing. And in particular, I’m curious about when you want to diversify supply, when you want to build up domestic capacity, how do we do that in the United States, in ally countries, in partner countries for critical minerals or anything else, and do we have the toolkit that is anywhere close to robust enough?
I worry that we talk a lot about domestic manufacturing, refining, processing, but when you think about the actual tools we have to work with to support that, it’s a tax credit here, it’s the development finance corporation in some partner countries, but sometimes this seems like a BB gun versus a bazooka in terms of the authorities and the tools we’re working with versus what the Chinese is working with. Talk a little bit about what you think we should be doing given the world we’re in, which is it’s hard to get new legislation passed through Congress, we’re in a pretty divisive environment in Washington.
Dmitri Alperovitch: Well, look, we could always use more tools and more authorities, but I would argue that we have plenty, what we don’t have is the will to actually use them. That’s the trouble that we’re in. Because we want to have our cake and eat it too. We want independence and resiliency, but we don’t want to pay more for it and those are incongruent. So, look, the basic strategy here is that, as I said, you’re in a Cold War with China, Taiwan is a hot flash point, a potentially hot flash point, like West Berlin was, so first of all, you have to prevent them from taking Taiwan, and there’s a lot that you have to do just on hard power to be able to deter the Chinese from crossing that straight and taking Taiwan.
And we don’t have time to go into it here, but the book goes into great depth of the importance of Taiwan, which we haven’t really talked about, and a lot of people reduce it to chips, and chips is certainly important, but that’s far from the only or even the most important reason why Taiwan is essential from being prevented from falling into Chinese control. The second piece of that is making sure that we are not self-deterred from intervening on behalf of the Taiwanese, and that means reducing our reliance on China, but also increasing their reliance on us. And that’s the point that is not being talked about a whole lot. And that’s where I disagree with the framing that many people use with regards to the trade with China, you hear the words decoupling or de-risking often used, I don’t think they tell the whole story.
Well, first of all, decoupling and not pro-decoupling, and I don’t think [inaudible 00:49:20] is either because you can’t decouple from China, they’re too big, it would be too devastating, and by the way, no other country would fall us over that cliff anyway. So, if United States decouples, but no one else, it doesn’t actually accomplish a whole lot. De-risking and focusing on key strategic sectors is important, but again, it doesn’t have that asymmetric dependence component where you want to tie China more to us, so that he’s going to think twice about going because of the sanctions and other things that we could do to hit his economy.
Jason Bordoff: This is what you refer to as unidirectional entanglement.
Dmitri Alperovitch: That’s right. That’s exactly right. And in fact, this is the Chinese strategy. Made in China 2025 is all about this. So, I’m actually arguing that we should adopt the Chinese strategy here, and the phrase I use is unidirectional entanglement, because there’s a defensive and offensive component here. Which is that not only do we want resiliency in key critical sectors, like critical minerals, like green energy, like AI and autonomy, semiconductors, biotech, and synthetic biology, and space, but you also want to limit their progress, and to make them more dependent on us. Which means export controls, which means potentially sanctions against companies that have benefited from stolen USIP and the like. But what are the tools here? So, first and foremost, I don’t think we need a lot of subsidies, we needed subsidies in the semiconductor space because that is a unique sector that is so capital intensive, where the market, the free market is really failing, that new investments in semiconductor production really have stalled from the private sector over the decades, and you needed a government stimulus of the Chips Act to get it going again, and it worked.
Because for 75 billion or so of taxpayer funds, 52 billion in grants and research projects, and about 25 billion in tax breaks, we got in our estimation at Silverado, our think tank, $1.2 trillion worth of international private sector investments all over the globe outside of China in that sector. It stimulated really a reinvigoration of that space. I don’t think we need that necessarily in other spaces. I used the example earlier of rare earths, and this amazing company MP Materials, that I had a pleasure of visiting their mine a few months ago, an incredibly clean operation, just a stellar company, and is the only rare earth mine in North America, right? If that mine were not to exist, we would be completely dependent on China for process [inaudible 00:52:06] rare earths, and now they’re trying to build up refining processing for the output of that mine.
That output of that mine is now 15% of the world’s rare earths, and they have many, many decades of proven reserves for basically, all of our needs in the United States, and probably many of our allies. They’re not processing or refining all of that capacity, but when I asked the CEO at our summit in Napa, our annual summit, what it would take for him to process and refine the output of that mine all on site, he said it would take two things. “It would take an investment on the order of single digit billions.” Single digit billions, that’s less of a cost of an aircraft carrier. And two, most importantly he said, “It would take a level playing field, where the Chinese are not artificially adjusting their prices on refined and processed minerals below market so that it’s not sustainable for me to do this.”
So, what we need is tariffs on their minerals, which the Biden administration finally announced in May of this year, I don’t know why we waited three and a half years, we should have done a lot sooner, the tariffs are not going to place for many months yet. So, that period should be shortened, they should be higher in some of the areas, but we’re moving in the right direction, we have the tools to do that. And I think that in many areas, including critical minerals, if you have a level playing field, you don’t even need government investment, you can raise money in private markets where there’s assurance that the Chinese won’t drive you out of business. Because it’s a lucrative business, and MP Materials is a public company, a very successful company, showing great results, they have great customers across defense, across automobile industry, battery producers, and people would invest more in that company, if they had confidence that the Chinese would not drive their refining and processing out of business.
And I think that applies in a lot of areas. Now, rare earths are a little bit different, and one of the benefits of the Mountain Pass mine, which is very unique, is that there’s no radioactive elements in that mine because of the specifics of its geology. So, the refining processing is exceptionally clean, again, they’re in California of all places, right? The strictest environmental controls you can possibly have in our country. And the California government loves that mine, Governor Newsom has visited it, they have no issues on environmental processes, they don’t have any issues with permitting, or anything else like that because the process is very, very clean. That’s not always true, as you know, mineral by mineral, some of it is dirtier, some of it is more challenging to do in a non-polluted way, more expensive.
So, not all of it will likely, almost certainly, happen here domestically in the United States, and we have to look at friendshoring. It doesn’t have to be all on shore. I’m in a ABC strategy, anywhere but China, as long… Obviously not Russia, not Iran, North Korea, but in friendly countries, if we build refining processing plants, like in India for example, that would be fantastic, right? It doesn’t have to be all here, it would be great if it were here, but frankly, labor costs, permitting, environmental costs make this very difficult to be competitive in many areas. So, we need an all approach, and frankly, from a climate perspective, the best thing you could do is actually marry refining and processing locally, on site, with the mining, right? Because we’ve talked to the Chileans, and the Canadians, and saying, okay, you’re mining all these resources out of the ground, shipping them to China for processing and refining, then they’re shipping it back to you for making something with it or somewhere else, that traversal across the oceans is not particularly great for climate.
And by the way, from an economic perspective, you’re losing most of the value because most of it is upstream, not downstream. So, for many reasons, economic and climate-wise, you actually want to do it next to the mines themselves. And some of the mines are in the United States, many are not. So, there are solutions here, if we just have the will to focus on it and to move faster. And honestly, I don’t have a lot of criticism of our policies in the last eight years vis-a-vis China from a strategy perspective, both the Biden administration and the Trump administration before them, I think have largely moved in the right direction, what I have an issue with is the velocity of that move. We have to be a lot faster.
If you buy my argument that 2028 is when the window opens for him to potentially do something, that’s less than four years from now, that is not a lot of time. It’s some time, but not a lot of time. We got to move at the speed of light here, on all of this stuff, we don’t have a moment to waste, and that is where most of my criticism of our policies comes from.
Jason Bordoff: Interesting. Yeah. What I hear you talking about is tools of economic statecraft, like sanctions and tariffs, maybe some support for domestic firms, but it sounds like maybe in some cases not even that much needed, easier to build things in the US, and then the point you made, which I think echoes something Meghan O’Sullivan and I wrote about in foreign affairs recently, when we talk about something like friendshoring, maybe again, other than North Korea, and Russia, and a small number of countries, everybody needs to be our friend, we need to be building more economic partnerships with a lot of countries if we’re going to figure out how to build and diversify supply chains at scale, whether it’s clean energy, or chips, or other things. Sounds like… Did I capture correctly, the broad view of how we think about moving forward?
Dmitri Alperovitch: Yeah, we need to reduce our dependence on China, in those areas that you mentioned, and some of the others, and we need to increase their reliance on us. That second piece of it, to prevent them from establishing dominance in production of semiconductors, for example, to prevent them from establishing dominance in AI and autonomy, and other critical technologies, is also a really important part of the battle here. And I don’t even know why this is so controversial to say. Can you imagine during the first Cold War having an actual debate, policy debate, about whether we should send supercomputers to the Soviet Union?
It would just be nonsense. People would be like, what are you even talking about? Of course, we won’t do it. And yet, people are actually trying to make an argument that restriction on GPU chips that are necessary for training and running AI models, that is this controversial policy that we should undo it, it is just mind-boggling to me. We’re talking about going to war with China. You go visit the Pentagon, you go visit Indo-Pacom, their hair is on fire about the prospect of a hot conflict with China in the coming years, this decade, and you are arguing about whether we should arm the Chinese military with AI technologies? What are you even talking about?
Jason Bordoff: We’re out of time, but just one last thing, which is we jumped into the substance so quickly, we didn’t finish your story, and I just wanted to make sure you had a chance to explain Silverado Policy Accelerator to everyone, we, over here, love working with Maureen, and Sarah, and the whole team doing great work, but just explain to people what you’re doing now.
Dmitri Alperovitch: Absolutely. So, we founded this nonprofit, Silverado, basically a think/do tank, designed to focus on preserving and accelerating American prosperity in the century, basically want to make sure that this century, like the last one, remains an American century. The one country I believe that could stand in the way of that potentially is China. So, it is in large part about a great power competition with China. We do some work on Russia as well, but most of our efforts are on China. And it’s about the things, the themes that I talk about in the book of how do we ensure resiliency in our economy, less depends on China, how do we increase their dependence on us? How do we focus on the security of Taiwan? And we work on trade issues, energy security issues, where we’ve partnered with you guys and others. We work on hard national security problems, defense industrial based production, military strategy, and so forth, cybersecurity as well.
But it’s all about preventing war, right? At the end of the day, war is hell, I’ve visited the battlefields in Ukraine, it is incredibly depressing place to go and see the casualties that come back, the impact on the country. We don’t want war, I don’t want a war of China on every level that will be a devastation unlike any we have seen since World War II, since the global depression on the economic front. We don’t want that. We want to avoid that, and a key to that is deterrence. And doing nothing, or allowing China to go on its merry way, continue to undermine our economic system, our trade system, while they’re building up a massive military capability to invade Taiwan is, frankly, treasonous.
Jason Bordoff: Strong words. Thanks for joining us, and thanks for the work you guys are doing, you and Maureen and the whole team, as someone who spends a lot of time thinking about the need for innovation and policy ideas, really appreciate the work you guys are doing at Silverado. And thanks for the conversation today. The book is World on the Brink, super interesting read, and really recommend it to people who are interested in US-China relations, great power rivalry, industrial strategy, economic and national security, and how it all relates to the energy transition that we need to accelerate. Dmitri Alperovitch, thanks for joining us today, really appreciate it. A great conversation.
Dmitri Alperovitch: Thanks so much for having me.
Jason Bordoff: Thank you again, Dmitri Alperovitch, and thank you for listening to this week’s episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show is hosted by me, Jason Bordoff and by Bill Lovelace. The show is produced by Tim Peterson from Latitude Studios. Additional support from Caroline Pittman, Lily Lee, Q Lee, and Sagatom Saha. Roy Campanella engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu, or follow us on social media at ColumbiaUEnergy. And please, if you feel inclined, give us a rating on Apple Podcasts, it really helps us out. Thanks again for listening, we’ll see you next week.
