Confronting the China Challenge, With Dmitri Alperovitch

LINDSAY:
Welcome to The President's Inbox. I'm Jim Lindsay, the Mary and David Boies Distinguished Senior fellow in U.S. Foreign Policy at the Council on Foreign Relations. This week's topic is Confronting the China Challenge.
With me to discuss the geopolitical rivalry between China and the United States, its impact on U.S. interests, and how the United States should respond is Dmitri Alperovitch. Dmitri is the co-founder and chairman of Silverado Policy Accelerator, a non-profit geopolitical think tank. An expert on cybersecurity, he is the co-founder and former chief technology officer of CrowdStrike, Inc., one of the world's largest cybersecurity firms. He has served as a special advisor to the Department of Defense, to the Department of Homeland Security, and to the Cybersecurity and Infrastructure Security Agency. He's the author of World on the Brink: How America Can Beat China in the Race for the 21st Century, which was published last year.
Dmitri, thank you for joining me on the President's Inbox.

ALPEROVITCH:
It's a great pleasure to be with you.

LINDSAY:
Let me congratulate you on the terrific reviews World on the Brink has gotten. I saw several reviews, which use the word "important" and "must read". So again, congrats.

ALPEROVITCH:
Thank you.

LINDSAY:
I would probably be committing a podcast malpractice given your expertise on cybersecurity if I didn't ask you about so-called Signalgate, which began with senior Trump administration officials using an encrypted app to discuss plans for attacking Houthi targets in Yemen, but I guess has grown to a broader concern about the use of ordinary commercial software by Trump administration officials to communicate to one another. So before we talk about China, can I get your assessment of how big a security concern Signalgate is?

ALPEROVITCH:
Sure. Well, first of all, Signal is a very good and quite secure communications platform. It's end-to-end encrypted. Lots of people use it, including lots of people in the government. I've communicated with lots of people in the government in the past and lots of people in the intelligence community using Signal.
However, we have never shared classified information over it. It is not approved for classified information for many reasons, but one of them is that it is running typically these applications on insecure devices, either your phone or your desktop, as was the case with at least one cabinet official. And those devices can be relatively easily compromised by adversaries if someone knows your phone number. And the phone numbers of all of these officials are well known due to various leaks and hacks that we've had over the years. So we have to assume that their, particularly personal devices, but possibly even government devices have been compromised. And as a result, any communications that are residing on Signal, even though the transmission is end-to-end encrypted, the storage on the device can be accessed by an attacker who is managed to compromise that device.
So as a result, anything that's classified, anything that's extra sensitive should not be used on that platform. So I do think that the discussion of the issue of adding a journalist to the chat, which is bad enough, but using Signal itself for anything sensitive, particularly upcoming attack plans, is problematic.

LINDSAY:
And does the government have secure systems for communicating classified information? And are those systems more or less impervious to being hacked by outside actors?

ALPEROVITCH:
Well, nothing is impervious. There's no such thing as an unhackable device, but we have classified networks in the government which are disconnected from the public internet, so it makes it much, much harder for an attacker to get to them to try to compromise those devices.
So typically to have a classified conversation, you have to go into what's known as a SCIF, a special compartmentalized facility, that is lined with special materials to prevent someone from eavesdropping when they're sitting outside the building. Various Tempest-type of technologies. It's got sensitive hard networks, classified networks that can support VTC, video and audio conferencing, can support other digital communications. So that's where those discussions should really be had.
Now, I completely understand why there is a desire to use something like Signal, because getting to those facilities is a pain. You know, over the weekend, you may be on the road, you may not be near a facility, although usually cabinet officials have them in their houses, particularly if they're involved in the intelligence activities. But nevertheless, there's a reason for why this is enforced and why you want to protect those types of discussions from adversaries being able to eavesdrop on them.

LINDSAY:
Thank you for the cybersecurity tutorial, Dmitri. Let's talk China. You argue that the United States is in the middle of a second Cold War, this time with China rather than the Soviet Union, and has been in one since at least 2014. Why do you think that?

ALPEROVITCH:
Yeah, I actually think it might go even back much further than that, potentially even back to Deng Xiaoping's days in the 1980s when he was talking about a Cold War. He said in 1989 that he had looked forward to the end of the Cold War, but that he now felt disappointed because one Cold War has come to an end, but several others have already begun, Cold War being waged against countries of the South and the Third World, as we called it, and the against socialism.
So I think even Deng Xiaoping recognized that this was a confrontation with the United States, and of course his key guidance to the Chinese people that he formulated in the late 1980s to hide your strength, bide your time was an indication of that. We've all known that that was his guidance, but no one bothered asking in the West, particularly in the United States, who you hiding your strength from and what are you biding your time for? In retrospect, that was quite obvious because obviously the Chinese military built up had begun under Deng, had accelerated in the 90s and 2000s and was supercharged yet again by Xi Jinping when he came into office in 2012. So Xi Jinping really turned that strategy around to no longer say, "Hide to your strength, bide your time," but to basically guide the people to show off the strength and waste no time, particularly when it comes to this issue of Taiwan.
But I do believe we're in the second Cold War. And in the process of writing the book, I actually changed my mind. I thought that this Cold War, the second Cold War was quite a bit different from the first Cold War. And digging into the details of the first conflict and the minutia associated with the second, I actually came to believe that it's almost exactly the same. There are a few differences, but by and large, the conflicts are remarkably similar.
You have a global competition for supremacy that's playing out in every single corner of the world between the United States and China, just like it did in the old days with the Soviet Union. It is diplomatic, it is economic, it is technological, it is geostrategic. It is not just in Asia, it is in Africa, in the Western Hemisphere, in Europe. You name it, you have real preparations for war that are taking place. Both countries are in a war footing. I just visited a couple months ago, Admiral Paparo, the head of Indo-Pacific Command in Hawaii. His hair's on fire. He thinks that we might be in a war with China in a few years, and I think the Chinese are preparing in a very similar way.
You have an arms race that's going on, both a conventional one with both sides building up forces, but also a nuclear one, where China for the first time in many decades is increasing its nuclear arsenal. It now has about six-hundred nuclear warheads double from the number it had just over ten years ago. And the U.S. intelligence community estimates that it wants to get to well over a thousand by then of a decade to ultimately at least match our numbers of deployed warheads of about seventeen hundred.
We have a space race, right? The defining moment of the first Cold War was the race to the moon under President Kennedy. And what are we trying to do again? Get to the moon this decade before the Chinese do. And potentially after Mars from there.
You have a scramble from military bases. We are enhancing our deployments in the region in Japan, in the Philippines, where we are getting access to the bases there for the first time since we left in the early 90s. We're reinforcing positions in Guam, even in Perth, in Australia, with our submarine getting access to the Australian bases there. The Chinese are doing the same thing all over the region. Of course in the South China Sea, they've had this massive buildup in artificial islands in disputed territories. They're building bases as far away as Djibouti, Cambodia, Pakistan, et cetera.
You have an economic war. We're recording this on the day of potential Liberation Day, as Donald Trump calls it, of tariffs. And of course, he's already raised tariffs by twenty percent since coming into office. And President Biden had kept the tariffs that Trump originally put on China in the first term as well, and increased them a little bit as well. You have a spy war. The level espionage against this country is at its greatest level, according to the FBI, that it's been throughout the entire history.

LINDSAY:
Let me ask you about that, Dmitri, just given your work in cybersecurity, when did you first become aware of the extent of Chinese efforts to steal business secrets from the United States?

ALPEROVITCH:
Yeah, I write about this episode in the book. January 2010. That was the day when I got called by a company called Google that I was working in another company, cybersecurity company at the time, and they wanted to cooperate with us on an investigation of a hack into their system that they thought impacted dozens of other companies across the entire spectrum of the U.S. economy, defense, manufacturing, agriculture, technology, you name it.
And what we found out in the course of that investigation is that this was the Chinese government that was hacking into those companies and stealing intellectual property, gaining access to dissident data within Google, access to Gmail accounts of Tibetan activists and others. And it was a wake-up call for me and many others that realized, wait a second, you have China stealing secrets, stealing intellectual property, stealing economic secrets for the benefit of their own private company, for the benefit of their own economy.
And I realized that this was happening on an enormous scale. That original investigation I called Operation Aurora led to many others that I named Night Dragon, Shady Rat, et cetera, that showcase the full impact of this espionage. And I said at the time, this was back in 2011, that this is the greatest transfer of wealth in history that has taken place. That there are only two types of companies, those that know that they've been hacked and those that don't yet know. And of course, the problem has only gotten worse since then.
But that's what really woke me up personally to the threat that China poses because I started asking questions at the time, what is this being done for? Is this just being done for economic advantage? And clearly it was not. Clearly there were national security considerations. Clearly there was an attempt to gain access to U.S. military secrets. So it became very clear to me that this was a cold war long before I would say most of the U.S. government woke up to this. I remember-

LINDSAY:
Can I ask you about that, Dmitri? Because it strikes me that it seems as if the U.S. government was really slow to react to what was being reported in the news. Certainly companies across sectors here in the United States had very valuable intellectual property stolen, but the response from Washington, even in some sense from the business community, didn't seem to match the significance of what was happening, at least not for a while.

ALPEROVITCH:
That's absolutely right. I remember being very frustrated at the time. There was one meeting early on back in 2011 where I was sitting in the situation room in the White House briefing national security staff on the latest hack that I've discovered, its implications. And none of what I was saying was a shock to these officials because they had classified information going back years essentially confirming what I was seeing in the sort of open source unclassified world.
But I was providing context on the breadth of this and the impact to the companies and really trying to push them to take action, to start punishing China for these activities. And you know I remember one official sitting across from me in the Situation Room literally said, "Oh, Dmitri, as long as they keep stealing, they can't innovate. We'll always be ahead." And I just thought it was such a condescending view and historically incorrect view because having grown up in the Soviet Union, knowing the history of the first Cold War fairly well, of course I knew about the theft of secrets from the Manhattan Project in the 1940s that enabled the Soviet Union to quickly catch up to the United States and build an atomic bomb.
But then they actually got to the hydrogen bomb all on their own with their own designs, designed in part by Professor Sakharov, who later became a huge political dissident in the Soviet Union. So you can absolutely steal and then innovate. And that's exactly what's happened with China in the last fifteen years where now they're the leaders in battery technologies and telecommunications, even in social media with TikTok. A lot of that success has been underpinned by early theft, but then they started improving all on their own. They have a lot of smart people there. And no, you can't just out-innovate them. You can't just out-compete with them when someone is cheating. It's sort of like in sport, if you're competing with someone who's doping, just training harder is not going to help you because the fundamental competition is unfair. And that's what the U.S. officials refuse to appreciate at the time.
I think we're past that. I think now if there's one bipartisan issue in Washington, it is China and the realization that we're in a confrontation with China and we need to win it. But it took a long time to get there, and you have to give credit to President Trump because his first term was really all about upending that. And people forget now, but the justification used originally for the tariffs that were placed on China back in 2018 was this intellectual property theft, was this massive espionage campaign that the Chinese were doing, and that's what gave him the justification initially to place tariffs on a variety of Chinese products.

LINDSAY:
Dmitri, let's talk a little bit about the prospects for war. You mentioned the concerns that Admiral Paparo has aired as the head of INDOPACOM. And you in your book argue that Taiwan is really the central strategic flashpoint in Cold War II. You liken it to a new West Berlin. Why are the stakes so high over Taiwan?

ALPEROVITCH:
Well, Taiwan is incredibly strategic both to China, and really as a result of that, to the United States as well, right? First of all, its geography is incredibly important. It really sits at the center of that first island chain stretching from Japan through the Filipino islands that keeps China bottled up within East China Sea and South China Sea.
If you look at the map of China, you start to appreciate immediately its geographic dilemmas, right? It basically feels, and correctly, as if it's surrounded by U.S. allies and U.S. military bases. If you are in China, you look to your East, you see the Korean Peninsula, half of which is South Korea with twenty-eight thousand American troops, air bases, naval installations. Further down, you see the Japanese islands, the headquarters of the U.S. Naval 7 Fleet Marine Expeditionary Force on Okinawa, very capable Allied Japanese self-defense forces. And from the other side you have the Filipino islands where, as I mentioned, we are back, and not just back and gaining access to nine military bases on those islands, but deploying medium-range ballistic missiles, the so-called Typhon system, that can range mainland China, something that aggravates the Chinese to no end. And then in the center of all of that is Taiwan, viewed as an outpost of U.S. power.
So from a defensive perspective, if China wants to escape this containment and establish dominance over East Asia, Taiwan is absolutely crucial, in part because it would give it strategic depth of the deep waters that are on the eastern shore of Taiwan. So if you look at the geography in the Taiwan Strait on the western side of Taiwan, the depth of water is only about three-hundred feet. It's too shallow to even put a submarine in without detection. But on the other side of Taiwan, it's twelve-thousand feet. You can have deep water port access, which China does not have. You can have sonar installations, submarine bases that will allow you to dominate that whole region. And then flip the table on the United States where now you would endanger the U.S. sea-based lines of communication to Japan, to South Korea, to the Philippines, and push us potentially all the way out to Hawaii.
So strategically, it's very important. Secondarily, of course, economically, it is vital. Everyone talks about how Taiwan is the epicenter of advanced chips production. They produce over ninety percent of all advanced chips. More importantly than that, they produce forty percent of all chips. So just an absolute behemoth in terms of semiconductor production that is not going to be replaced anytime soon, not by the fabs we're building in Arizona, which are just a drop in the bucket compared to the overall capacity for semiconductor production that exists in Taiwan, not by anything else that's happening around the world.
So both economically and strategically, Taiwan is very important. And then of course, you've got the human rights concerns and the fact that this is a fledgling democracy that you don't want to see vanquished by China. And the fact is that their historical claim to Taiwan is completely bogus because there's actually never been a single moment in history when whoever fully controlled China controlled Taiwan. Taiwan has been conquered by various parties over the years. The Dutch conquered it, the Spanish conquered it, the Han Chinese had an outpost on it, and then ultimately the Japanese were the first ones to actually establish full control over that island in the 1890s and held it until the end of World War II. So that historical claim that Taiwan always belongs to China is just complete propaganda on the part of the Chinese Communist Party.

LINDSAY:
Can I draw you out a bit, Dmitri, on Taiwan's role in producing semiconductor chips? I've often heard it argued that China would never invade Taiwan for the simple reason it fears destroying Taiwan's semiconductor industry. I think it's referred to as the Silicon Shield that protects Taiwan. I take it you don't think that's the case?

ALPEROVITCH:
I don't for two reasons. So one, Xi Jinping does not seem to be motivated much by economic factors. In fact, a lot of the things he has done since coming into office in 2012 has been to the detriment of China economically. The wolf warrior diplomacy that he has practiced in the initial years. The attempts to crack down on the tech sector in China, famously Exiling Jack Ma, the founder of Alibaba, making it much more difficult for foreign companies to operate in China. So if he actually cared about economics, he would not be doing any of that. But he seems to prioritize national security, at least what he views as national security, and above all, the idea of unification of Taiwan above those concerns.
That's number one. Number two, since coming into office, he instituted that famously, that made in China 2025 plan, which he's going to miss this year, but part of that plan called for establishing independence in a variety of technologies, but particularly semiconductor manufacturing. He's going to miss it for a variety of reasons, but a lot of them have to do with the export controls that the United States has placed on the Chinese semiconductor manufacturing industry. But he's certainly trying to achieve that independence of production from Taiwan. And look, he's not looking to invade Taiwan next month, next year. This is a longer term timeline. As I write in the book, I think '28 through '32 is probably that window that he's going to be thinking about, post his reelection in 2027. And I think in his mind at least, he's hoping that he's going to be independent of Taiwan for chip production. So destruction of those fabs that might occur in a conflict will not matter to him that much.

LINDSAY:
What do you make of the argument, Dmitri, that is a strategic error for the United States to elevate the importance of Taiwan as you seem to do? The argument that I hear over and over again is that Taiwan is a country that will be very hard for the United States and its allies to defend, at least at a price acceptable to the American public. And as a result, we're talking ourselves into a situation in which our bluff is going to be called, and we will be maximizing the diplomatic fallout, or we will find ourselves having to make good on a threat that we really haven't prepared ourselves for.

ALPEROVITCH:
Well, I would say that of course, I'm not the first person to call Taiwan strategic to United States. In fact, general Douglas MacArthur in 1950 said that this is an unsinkable aircraft carrier that is vitally important to U.S. interests. So long before the age of computing, long before the age of chips, it was viewed as critical to U.S. national security.
If Taiwan is not important, what is important? Is Asia important? Because I think you're going to lose Asia if you lose Taiwan. And what I mean by that is not that Xi Jinping is going to move on some sort of Hitlerian march across Asia after Taiwan and invade Japan or the Philippines. I don't think that's likely. But Taiwan will give them an opportunity to become a regional hegemon. I think it will realign everyone else in the region towards China, towards appeasing China, because we'll be far away, we'll be much less consequential, and China will be the player that they'll have to deal with, much in the same way that Russia has really unchallenged influence in Central Asia or the Caucasus, for example, where those countries, Kazakhstan, Uzbekistan, Tajikistan, Armenia, et cetera, don't have any other options. China and the United States are not going to help them. So when Russia says jump, their only answer is how high? I think that will be Japan, that will be Korea, that will be the Philippines. They'll be in the appeasement mode.

LINDSAY:
But let me ask you just on that, Dmitri, why would that be bad for the United States? And I ask that against the backdrop of what seems to be the zeitgeist in at least part of the American political spectrum that says America has impoverished itself because it's had all these interests overseas, and we would be better off just retreating to our own hemisphere, sort of a revival of the idea of spheres of interest going back to the arguments made by Colonel Lindbergh before World War II.

ALPEROVITCH:
Yeah, it's a great point. Of course, if you look at the prosperity that the United States has enjoyed, economic prosperity that led to our unprecedented military power over the last century, it is because of our ability to conduct global trade around the world, for the U.S. Navy to secure trade routes in every corner of the planet to make the world for commerce for export of our goods, for imports of cheap goods into the United States. That's what's made us so rich, the richest country in the history of the planet.
And if you retreat and if you allow China to dominate Asia, where you have almost forty percent of the world's GDP, most of the supply chains, most of the economic growth, you are basically ceding that number one spot to China. And China that is adversarial to our interest, China that is not seeing their sphere of influence contained just to that region, but wants to be a global player. You know, see what they're doing in Latin America and Africa and elsewhere. And do we really want to become a vassal state to China where we are economically dependent on China for things like semiconductors, critical minerals, a variety of goods, where we're no longer in charge of our own security?
And the other thing I would say is, quoting Ronald Reagan in 1984 when he gave that famous Pointe Du Hoc speech on the fortieth anniversary of D-Day, he said, "We in America have learned bitter lessons from two world wars. It is better to be here to protect the peace than to take blind shelter across the sea, rushing to respond only after freedom is lost. We've learned that isolationism never was and never will be an acceptable response to tyrannical governments with an expansionist intent." I think we should heed the lessons of Ronald Reagan.

LINDSAY:
Dmitri, in World on the Brink, you lay out what you call a game plan for victory. Before we discuss the steps you recommend the United States take, what is your vision or definition of victory in Cold War II? What is your best case scenario for the ending of this Cold War? Is it with regime change in China? The collapse of the Chinese government? A peace deal negotiated with Beijing? What is the end state you envision we can get to?

ALPEROVITCH:
That is a really great question and one I spent a lot of time thinking about because as much as the two conflicts are similar, the first Cold War and the second, I think the end state is different. And if you go back to George Kennan and his famous Long Telegram in the 1940s where he outlined the strategy of containment of the Soviet Union, his great insight was that the Soviet Union was in a natural phenomena, and all we had to do was outlast them and it would eventually collapse. And mostly because he realized there was this amalgamation of various nations, various ethnicities that were kept together by force and would not be sustainable, which is exactly what happened. But you have to remember that the Soviet Union ended, the Soviet Union fell apart. Russia never did. Russia, in fact, remains as much of a threat as one would argue as it's ever been, particularly since its invasion of Ukraine.
So I think that when you look at China, we have to be cognizant of the fact that China will likely remain a strategic problem for us as long as you know they're a powerful nation, which they can certainly be for a very, very long time. And whether China is ruled by the CCP, something of course over which we have no influence over. So whoever rules China is really up to the Chinese people, not to us. But even if it's not ruled by the CCP, but ruled by a nationalist leader like Putin, none of the problems that I talk about that we have with China would actually go away. And if you were to have a poll of the Chinese population, it's obviously very difficult to do given the censorship regime and the dictatorial nature of the regime that is in China, but if you were to have a free and open poll, I would suggest that the outcome would be probably very similar to the Chinese propaganda, that most of the Chinese people do want to take Taiwan, and even if they weren't ruled by the CCP, that desire would still remain.
So I think we need to buckle up and realize that this is a long confrontation, that this may outlast the CCP, and of course, the CCP itself may last for many decades, maybe even centuries, who knows? And that the goal is to contain China, to keep it constrained within that first island chain to make sure that they never become a more richer and more powerful country than the United States and deter conflict. And this will take a very, very long time. So the end state is really a continued fight, hopefully not a kinetic fight. We can hopefully avoid that. But an economic fight, a technological fight for supremacy that we have to win over the long haul.

LINDSAY:
Dmitri, let me ask you a question related to what you see as victory. And that's the question of do you think the United States is capable of winning? And I ask that because Xi's theory of the case seems to be that the West is in terminal decline, that China's rise is inextricable, that the forces of history favor Beijing, not Washington. I take it you don't agree with his understanding or assessment of the correlation of forces, if I can use that phrase, but walk me through that particular issue.

ALPEROVITCH:
Yeah, I completely reject that. China is much, much weaker than we think they are. In fact, this is one of the sections of the book. First of all, their GDP is twenty five percent smaller, and of course their growth rate is now in single digits. So just mathematically speaking, unless something dramatic happens either here or in China, they will never catch up with us. Their economic and political boom has been powered by four things, workers, capital, resources, and willing trading partners. And all four of those things are increasingly appearing exhausted because of course, they're facing ruinous demographics where the population is already collapsing. That started about-

LINDSAY:
They got old before they got rich.

ALPEROVITCH:
Before they got rich, right? Capital. They are increasingly in debt. Their debt levels, particularly at the local level, far surpass the debt load that is sustainable. Resources, they're highly dependent on import of resources from allied countries, from U.S., allied countries like Australia and others, and over sea lanes that are controlled by U.S. Navy. And will in trading partners. Obviously, your senior protectionist movement, not just here in the United States, but really across the world. Even Russia is establishing tariffs on Chinese cars today, right? This great friendship without limits that has been touted since 2022, apparently has a lot of limits. And Turkey, Brazil, all those BRICS and other partner nations are all saying to China, "We don't want your over capacity to decimate our domestic manufacturing."
So, you know, their economic and political boom is really significantly under threat. Xi Jinping is facing a really challenging economy to manage. And then when you look at the military dimension, taking Taiwan would likely be the most difficult military operation in the history of the human race. You know, when the United States looked at this issue in 1944, two months after we did the greatest amphibious invasion in history, D-Day, Operation Overlord, the United States military put together the plan to invade Formosa, as Taiwan was called at the time, because it was of course occupied by the Japanese forces, and even then was viewed as a very strategic place on the path to mainland Japan.
And the plan for Operation Causeway, as they called it, called for double the number of forces that we used in D-Day. Right, we used about a hundred-fifty-thousand Allied troops to land on the beaches of Normandy and take those beaches. The plan called for three-hundred-thousand, operation Causeway, forty-five-thousand casualties estimated just against sixty-thousand entrenched Japanese forces. This would be a very different operation eighty years later, of course, defensive technologies have improved dramatically, various ISR assets, anti ship missiles, you name it. Taiwanese military has about a hundred-thousand active duty forces that are actually pretty good, and about a million reserves, which are not good, but maybe could be improved. So this is a huge operation that the Chinese military has never pulled off. Their last war was over thirty years ago, or forty-five years ago actually, in 1979, with Vietnam, a war that did not go over well for them. This is very, very complex.
So on all of those fronts, political, military, economic, China is facing lots and lots of challenges. And if we use our strengths, the fact that we have the world's biggest economy, the greatest innovations and technology and AI, the greatest investment landscape in the world with ten-thousand banks and credit unions, thousands of venture capital firms, private equity firms, family offices that can finance companies, enormous influence of the U.S. dollar, U.S. military, our alliance networks, the marketplace of ideas that we have both political and economic, and immigration, the flow of human capital that comes into this country every year. If we don't screw those things up, you know, we can absolutely win this race for the 21st century and avoid war. But of course, it's up to us what policies we would choose and whether we would preserve those strengths and enhance them or waste them.

LINDSAY:
Well, let's talk about those policies, Dmitri. I take your point that the United States holds better cars than people may think. How do you play them wisely? What is it that you want to see the U.S. government do in the years to come?

ALPEROVITCH:
Yeah so I think it comes down to several things. First of all, it's not about decoupling from China. We can't decouple from China. We need to end that idea because we have six-hundred-billion in trade with China. Even if somehow you could decouple without an absolute economic calamity, other nations certainly won't follow us over that cliff. No one wants to choose between us and China. But when you start looking at category by category of where do we have dependence on China, a lot of the categories actually are not that strategic. The number one product that we have the greatest reliance on China in that eighty-five percent of that imported product that is sold in the United States is manufactured in China, is, you know what? Toys. I don't necessarily want to decouple from China on toys, right? I don't honestly care.

LINDSAY:
So you want McDonald's to continue to have toys in its Happy Meals?

ALPEROVITCH:
Yeah, I want them to be safe. I don't want them to have lead and so forth. But if they're manufactured in China, fine. What I don't want to see happen is that we continue to have reliance on China in critical minerals. And it's not that they're mining so much of those critical minerals. They do own a number of mines around the world. But they're of course a lot of these minerals in lots of places, including here in the United States. The issue is mostly processing and refining. Depending on the mineral, they can dominate as much as ninety percent of processing and refining for those minerals. That is a solvable problem. We can work with our allies to offshore that capability either here domestically or in other places around the world, preferably from, environmental perspective, closer to the mines, so you're not shipping those minerals back and forth for processing or refining and are doing it on site and reduce our dependence on China.
Similarly, we need to make sure that China remains dependent on us on critical technologies like AI and semiconductors and other advanced tech, because as long as we have leverage over them, that's something that we can wield over them like a sword of Damocles and say that, "If you invade Taiwan, we're at a minimum going to cut you off from those technologies and ruin your economy." So we need to kneecap them in that race.

LINDSAY:
Do you think that's possible, Dmitri? And I asked because it was a couple of months ago that I was hearing about how the United States could use export controls to limit the growth of Chinese high-tech sectors, and America was running away with the AI race, and NVIDIA was the only company that made the chips needed to do this, and they were expensive and we were denying them to China. Then suddenly the DeepSeek model comes out and I'm being told a very different story. And I'm not a technologist, I'm only relying on what I see in headlines, but it seems as if the Chinese in fact, have been able to innovate despite our pressure. I'm actually reminded of a conversation I had way back in the late-1970s with an executive at one of the big three automakers who assured me that the Japanese could never make really good cars. They would always make these small, relatively cheap knockoffs and that Detroit would own the big sedans. Well, history looked very different in part because the Japanese learned to innovate in part because of a variety of trade policies that the Reagan administration pursued.

ALPEROVITCH:
Let's talk about DeepSeek. So DeepSeek should not have been a surprise to anyone who was closely watching the developments in China. In fact, they published a paper in December, it seems to have only been noticed about a month later, talking about how they arrived at that model. And guess what that paper says? This is coming from DeepSeek engineers. They said they trained the DeepSeek model on NVIDIA H800 chips. What are NVIDIA H800 chips? Those are a variant of the NVIDIA H100 chips that the Biden administration originally in 2022 put export controls in place to prevent China from importing those H100 chips. And what did NVIDIA do? They said, "Okay, the threshold is at this level. We're going to go one inch below that level and slightly change that chip so we can sell it to China." And that became the H800 chips. The Biden administration came back a year later, said, "No, no, no, we're not going to let you do this. We're going to ban those chips." But in that year the Chinese imported a ton of those chips, and that's what they use to train the DeepSeek model.
So this idea that they don't need our chips for AI is just a fallacy based on their own statements. And by the way, most people believe not only did they use the H800 chips that they could procure legally for a small period of time, but they also imported through the black market a lot of the H100 chips.

LINDSAY:
But that raises a related question, is even if we have sanctions that could retard their progress, are we going to be able to keep them from getting those chips? Because the Chinese clearly are going to be very ingenious in finding ways to get things that are banned. That's the history of smuggling in black markets.

ALPEROVITCH:
Yes, but we have to try. And the reality is we haven't tried. In fact, you know, right now, in the last couple of years since a lot of those export controls have been issued against China, guess what? Malaysia and Singapore have become massive importers of NVIDA chips. They're not building huge data centers in Malaysia or Singapore.

LINDSAY:
That's not an accident.

ALPEROVITCH:
It's not an accident. You know exactly where it's going. It's similar to what's been happening in Central Asia where Kazakhstan and Uzbekistan are suddenly becoming huge importers of all those goods that can no longer go to Russia. Oh, wow. What's happening there?
The reality is that if we actually do enforcement, and the Biden administration actually in its last week announced a remarkable order that most people did not pay attention to, executive order, which Trump administration has so far kept, which is called an AI diffusion rule, which basically regulates the global, not just to China, but global export of advanced semiconductor chips. It basically creates three categories of countries, the category of countries where it's completely banned like China and Russia, North Korea and Iran. It creates a category of countries where it's allowed, and it's a very small number of countries, not even all of Europe, but traditional allies like UK, France, et cetera, are in there. And then the second category, which is the rest of the world, where they can only get very few number of those chips, and only if they go to American cloud companies like Amazon, Google and Microsoft that would host them and would ensure that the end customers of those chips would be using them not for something that is detrimental to the interest of the United States.
So this essentially is an unprecedented order for the global control of the chip export market that, if it comes into force in May, would make it much more difficult for China to acquire those chips at scale. And by the way, even with all the black market import activities, even with the chips that they managed to procure legally because our policies were too slow to catch up, they're still behind. Deepseek is at least a year, maybe eighteen months behind the cutting edge models from OpenAI, Google and Anthropic.
So we still have the lead, and we can make that lead even bigger because of course, the volumes of those chips that you need are growing exponentially. So the last generation models that have been released, it took about $100 million to train them for each of those companies. This year, those models will probably cost over a billion dollars to train. Most of that cost will be going to the CapEx related to the acquisition of those chips and the power to run them. So the numbers are just growing exponentially here, and it's going to be very, very difficult for China to procure those chips even on the black market in the volumes necessary to catch up.
So yes, it is absolutely doable. We did it with the Soviet Union, by the way. We didn't say, "Well, it's going to be impossible for the Soviet Union not to smuggle in some computing equipment including advanced supercomputers, so let's just let them buy it," right? No one in their right mind would've said that during the first Cold War. We didn't. There were attempts to reverse engineer. In fact, I grew up in the Soviet Union in the late eighties. I remember going to my dad's workplace and playing on a copy of IBM PC that the Soviets manufactured indigenously. There were very, very few of those, and they weren't as good. And that's what we want China to be.

LINDSAY:
Dmitri, coming to the end of our time, so let me just ask you a question about one other recommendation you make in the book, and you put it under the heading of Say Yes to Friends. And I guess I would summarize it as their strength in numbers. The United States has a lot of friends, partners, and allies that we can turn to and should turn to. Do you think we're doing enough on that score? And I ask that against the backdrop of you mentioned it's Liberation Day as you record this podcast. And it was just twenty-four or thirty-six hours ago, I saw the unusual site of Chinese official with a South Korean official with a Japanese official talking about how they were aligning to counter the tariffs they anticipate President Trump putting on them and on the world. So I just would like your sense of how it is that we navigate and build up or say yes to our friends?

ALPEROVITCH:
Yeah, look, well, my position on tariffs is that they can be really good on our adversaries, on China, for example, and other countries that are not friendly to us. I would use them very sparingly on our enemies,

LINDSAY:
Sparingly on our friends.

ALPEROVITCH:
Sparingly on our friends, excuse me. Yes. I understand their goal to try to rebalance trade. And we do have imbalances in trade, by the way, particularly with the Europeans. There's a lot of regulations that they've put in place over the years around tech companies and others that are designed to keep us out. They're making it more difficult for us to operate in Europe. So we do have the most open market in the world, and the rest of the world is not necessarily reciprocating to that. So I understand why they're upset. I understand why they want to rebalance. You know, I wish we would do this in a more gentle way, in a more cooperative way.
Frankly, you know, in the first administration, they did that with Mexico and Canada. They said, "We don't like NAFTA. We think that NAFTA has outlived its usefulness. It's now too beneficial to you guys. We're going to rebalance NAFTA. We are threatening to pull out to get them to the table." Once they got them to the table, we negotiated this new deal, USMCA, that was objectively a much better deal for the United States. So that's what I wish we would be doing in the second Trump administration. We'll see where it all ends up.
But yes, I do think we need our allies. I think NATO's the most successful military alliance in history. I think the Five Eyes intelligence partnership with Canada, UK, Australian, and New Zealand is the most successful intelligence partnership in history. The key allies we have in the region, like Japan, like Korea, like the Philippines, like Australia, are absolutely essential to our attempts to contain China. So we need to empower those countries more. But we also need to ask more of them, and I think that's where the administration is right, to say to Europe, "Look, you've been under-spending." By the way, Trump administration is not the first one to say that.

LINDSAY:
It goes all the way back to Harry Truman and Dwight D. Eisenhower.

ALPEROVITCH:
Indeed. And these guys are saying, "Look, the reality is that the United States cannot fight a two front war. Forget whether we want to or not. But if there is a possibility that we'll be in a conflict with China, most of the assets we have in Europe will flow to the Pacific, whether you like it or not." I've been telling that to the Europeans at the Munich Security Conference and other places for years, "You guys are completely unprepared. It's not even about our will. It's about our capability, and we don't have it anymore. So you got to step up because if we're fighting China in the Pacific and Putin decides to do something opportunistic against the Baltics or somewhere else in Eastern Europe, we can't bail you out. We don't have that capability. You need to stand up on your own two feet." So, you know, the messaging and how it's delivered, I may have quibbles with, but the core message of Europe, you need to stand up for your own defense, I think is actually a right one.

LINDSAY:
On that note, I'll close up this episode of the President's Inbox. My guest has been Dmitri Alperovitch, the chairman of Silverado Policy Accelerator and the author of World on the Brink: How America Can Beat China in the Race for the 21st Century. Dmitri, thank you for joining me.

ALPEROVITCH:
Thanks so much.

LINDSAY:
Please subscribe to The President's Inbox in Apple Podcasts, YouTube, Spotify, wherever you listen and leave us a review. We love the feedback. The publications mentioned in this episode and a transcript of our conversation are available on the podcast page for The President's Inbox on CFR.org. As always, opinions expressed on The President's Inbox are solely those of the host or our guests, not of CFR, which takes no institutional positions on matters of policy. Today's episode was produced by Justin Schuster, with recording engineer Jamie Stoffa and director of podcasting, Gabrielle Sierra. This is Jim Lindsay. Thanks for listening.