On Friday May 22, 2020, Emily de La Bruyère, co-founder of Horizon Advisory joined Rick on the show to discuss China and their push to dominate global manufacturing, the risks associated with China dominating 5G technology, Tariffs, and more.  Rick has been talking about the dangers of associated with Communist China’s rise to superpower status and the need to address the decades long abuses by the capitalist communist state.  The US has lost 5.1 million jobs since 2001 due to China gaining Permanent Normal Trade Relations status in 1998.  This discussion is ranks among the top of the many conversations on China over the 15 years the show has been on the air. Here is a lightly edited transcript and video link.

Rick Smith: Yesterday I spent some time viewing the web conference, the digital conference put on by the good folks over at the Alliance for American Manufacturing, entitled Crisis Brings Consensus. They brought in Marco Rubio, with whom I agree on virtually nothing, and he had this moment–I’m sure it had to hurt–where he said that capitalism wasn’t the end all, be all, do all. Sometimes you need government. 

He also said something I’ve been saying on this program for the last 15 years, that we really can’t be this dependent on China. 

One of the speakers they had who really caught my attention was Emily de La Bruyere. She’s the co-founder of the Horizon Advisory. She was one of the fantastic speakers there, so I asked her on the program. Emily, thanks for taking time for us.

Emily de La Bruyere: Rick, thank you for having me on. 

Rick Smith: The fact is that Marco Rubio came out and said that capitalism isn’t the end all, be all, do all, and he also said China’s a problem. We cannot be this dependent on China. 

Emily de La Bruyere: This is something; at this point, it’s not political.

This is a matter of having eyes open or eyes closed. China has spent the past 40 years explicitly trying to make sure that the U.S. and the global system depend on China without, of course, China depending on anybody else. This is codified in China’s industrial policy. They’re explicit about this. They want to take a place for themselves in the international division of labor without letting their own labor be divided.

It’s a total subversion of free market economic theory.

Rick Smith: We’re told though, Emily, that they’re a capitalist society and American business chose where the dollars went. I hear a lot of people tell me we’ve lost all these jobs.

In fact, the number is 5.1 million manufacturing jobs lost since 2001 and I say, we didn’t lose them. We gave him away. We know exactly where they are. They’re just not here. 

Emily de La Bruyere: Yeah. Rick, you’ve been saying this for years. China offers big U.S. companies, or small U.S. companies, its market share, or it offers them a small boost to their quarterly returns and that does it.

Ours is a fragmented system that’s bound to immediate profit and that is desperate for the U.S. market. And so we buy that promise and we keep buying it, even after, oh, wait–surprise!, China’s market stays closed to us. China just uses the innovation, the expertise, the resources that it requires from U.S. players to bolster its own state champions so that they can then go out.

That’s the name of China’s industrial strategy. Go out to Congress, strategic industries, and hollow them out all over the world. 

Rick Smith: What do you say to the person who says they’re just doing what the U.S. did in the 1950s, that they’re just replaying the U.S. playbook? What do you say to that?

Emily de La Bruyere: That’s absolutely the line. 

Here’s the difference: China is trying to set global rules, and it’s trying to build a CCP-controlled [Chinese Communist Party-controlled] information infrastructure for the world. So the U.S. may have been, may still be Walmart, China’s Amazon. Do you want a big brother, big tech in charge of the world? Because also this is an authoritarian player and it’s doing this from the point of design.

The ambition here is not accidental. It’s to make our system dependent on it so China can achieve coercive control in the military, in the economic, in the information domains.

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Rick Smith: It’s basically a mercantilist system. They are like predators. They find an industry that they want to take over–it was auto parts a couple of decades ago–and we’ve moved industry after industry that they’ve gotten their hands into them.

Right now it’s rail cars and subway cars that they’re dominating the globe with, by undercutting everyone else. They’ve got a strategy and, unlike the U.S., they’ve got a very focused strategy. 

I know Donald Trump loves to think that he can be the one who’s going to take them on and he’s going to go it alone.

There’s no way possible that we can have a go-it-alone strategy when dealing with China. This has to be something that’s global.

Emily de La Bruyere: Oh, absolutely. As you just said, they’re parasitic. China’s great fear is what they call a high tech blockade, that we will cut off their access to the innovation, the intellectual property that it steals from us.

But when China talks about this, it says, “Oh, yes, sure, there’s a risk that the U.S. will cut off their technology. That’s cool. We’ll just go to Europe.” And that’s what they’re already doing. They’re building those footholds. When trade war comes to a head, China says, “Great, let’s just make sure we have the beachheads we need in Germany.”

This is a contest that’s determined by scope and by scale. The U.S. alone can’t rival China’s scope and scale. The U.S. and its allies and its partners have a fighting chance, and they have a fighting chance if the private sector’s on board, too.

Rick Smith: We’ve lost four years of Trump bloviating and pounding his chest while they’ve been playing along.

They’ve still been moving forward with the 2025 plan where they’ve gotten robotics and aviation and transportation and telecom as their main focus, where they’re putting their investment and where they’re looking to dominate the world, as you’ve said. And once they dominate the new 5G world, it’s over for the rest of us because there’ll be no such thing as privacy left, let alone from our government, but also from theirs. 

Emily de La Bruyere: Also, it’s one thing when the aviation and the pharmaceuticals and the advanced manufacturing are all separate buckets, but what the 5G world threatened to do is put all of those on the same interconnected infrastructure.

If China has the rules and the systems for that interconnected infrastructure, it has an inherent advantage in every industry built on top of it. It’s not just that this has been going on for four years since China launched Made in China 2025–those industrial priorities and the ambition behind them date back to the 1970s and ‘80s. 

At least for the past four years we’ve been talking about it. Until then, we just had our eyes closed, heads in the sand, and our palms out to China. 

Rick Smith: Did we really have our eyes closed, though? I’m not that bright. I’m a truck driver by trade; I’ve been doing this as my passion for the last 15 years. I read as much as I can, but I’m not the brightest bulb in the box, but even I saw this coming. 

I saw that if you’re a U.S. company and you’re going to go to China, take our tax breaks to move, and you’re going to give half of your company to a Chinese entity and hand over your intellectual property and they steal it from you, didn’t you ask for it? Didn’t you in some way say, “Yeah, here you go. You can have it.”

Emily de La Bruyere: Well, let’s talk about two key differences between you and everybody who is out there talking about China for the past 40 years. 

First of all, you’re in touch with reality, and none of the academics who are sitting there studying China, making our China policy, were in touch with reality. They’re busy listening to Chinese propaganda. 

Second of all, you’re not making money off of the sweet, short, short term deal that Beijing’s offering you in order to move all of your production industry to China. So I think you’re then a whole lot smarter than everybody else who’s setting our China policy.

Rick Smith: Well, evidently, because we’ve lost 5.1 million manufacturing jobs since 2001. Look, I’m seeing the faces of those people who lose those jobs. I’ve seen the broken communities left behind because 70,000 factories have closed since then. Our policymakers have left us behind. This is one of my great fears of the next election. 

While I’m not a fan of Donald Trump by any stretch of the imagination, and I think he’s buggering China up even more, at least he’s identified it as a problem.

This is where I’m trying to get Democrats on board with the idea that this is a serious issue, something that needs to be taken seriously, and we need to have a real policy on. Other than that, China’s not a problem. 

Emily de La Bruyere: This is the first time, as you said, we’ve talked about China as a threat.

It is, and it’s just insane that this is still a matter of contention. All the facts are clear. We have an adversary that treats this as a war time environment and that wants to entirely subvert our country and the world order that projects our norms and our values, and there is no rallying around that. Like, there goes the future. 

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Rick Smith: How do you stop it? I’ll give you an example. A couple of years ago, I’d say it’s probably been about eight or nine years now since I talked to this guy, but there’s a little manufacturer here in Pennsylvania that made something called the Navy chair. Back in the day before World War II started, before the U.S. got involved, the Department of Defense said we needed a really light-weight chair for our submarines. 

This guy’s grandfather made such a chair and tells the story of throwing this chair out the 6th floor window of the Department of Defense building and bringing it back undamaged. Producing this chair created jobs for decades. The Chinese got one, retro-engineered it, and made a cheap knockoff for like $39.95. This guy has no recourse whatsoever because I can still buy it on Amazon for $39 where his is $100.

He just got his entire family’s legacy stolen out from under him, our government does nothing about it, yet we hear that all we care about is intellectual property. How do we hold these people accountable? Is there any hope in this? 

Emily de La Bruyere: That’s definitely the big question.

Let’s just bring in quickly the insanity of the present moment with this pandemic thing. This is really bad. China sees us as a huge opportunity, and they explicitly in their government planning talk about using COVID-19 as a chance to accelerate their global strategy. So we’re all sitting around inside on Zoom, what have you, and they are moving in to seize market share and proliferate their information systems and capture depreciated strategic assets.

There is hope in all of this, which is that maybe this crisis is what wakes us up to what they’ve been doing and gives us a chance not just to respond in language or in a whack-a-mole reactive way, but actually to craft a deliberate strategy where we play defense. We don’t make unforced errors, we don’t let them steal our innovation and our market share.

We also play offense and compete for the networks, the standards, the platforms they’re trying to build. And of course we change the narrative. We start actually talking about the fact that China has spent 40 years stealing our jobs and stealing our freedom, and we don’t let them get away with that.

Rick Smith: One of the things that I talk about quite often on the program is this idea that we need to be much more conscious consumers. As consumers, we’ve got to be looking where this stuff is made.

It’s no longer about, Hey, we can get a whole bunch of cheap plastic crap at Walmart and fill up our baskets for 50 bucks and be really happy about it until it all breaks and we have to throw it away. We’ve got to be much more savvy consumers and look for American-made products. 

I’ll give you an example. I’m looking to buy a car for my daughter. I actually had to explain to the salesperson why I wanted the VIN number before I would talk to them about the car because I wanted an American-made car. This salesperson didn’t know that the first number of the VIN number is the country of origin, and here in the U.S. if it has a 1, 4, or a 5, it’s an American-made car. That means I can buy one of them. As consumers, we’ve got to know this stuff and we’ve got to be much more savvy. But will that do it, or are we too far down the road for that? 

Emily de La Bruyere: It can’t just be a matter of all of us waking up and acting the right way, because the short term incentive is not to do that. It’s just too difficult. 

Like you try to go and buy a fridge that’s not made by a Chinese entity, and that means that there has to be a movement from Washington that shapes our short-term incentives so that they align with our longer-term interests. Nothing happens until that does. 

That also doesn’t happen until the government and the private sector get on board and actually cooperate on this subject.

Is there still hope? Yes. Is there much time? No. 

Rick Smith: Right. Again, I’m not a fan of Donald Trump’s by any stretch of the imagination, but I’ve been calling for tariffs for over a decade. I don’t know if they worked or not, based on the way they played whack-a-mole with all this, but there’s a part of me that goes, there’s gotta be some tool that pulls them not into line, but helps us defend ourselves.

The question is: Can we give up on the incentive or the thought or the hope or the dream that somehow China’s going to be like us in that they’re going to open up their society and they’re gonna let us in? Can we give up on that at this point? 

Emily de La Bruyere: Yeah, let’s give up on that, because the more we say that’s going to happen, the more we cooperate, the more they leverage that to be even more coercive.

I think it’s time we give up on that. 

Rick Smith: Since Trump came out with the tariffs, I’ve been getting hammered by my Democratic friends who say it’s stupid, it’s a dumb idea. You’re going to raise prices on consumers and I say, no, you’ve got to figure out a way to protect domestic consumption and domestic production.

I’m a huge fan of producing what you need and trading for what you can’t. We can make t-shirts and lawn mowers and washing machines here. We don’t have to buy them all from China.

Emily de La Bruyere: And China noticed the tariffs. That’s one of the big things. And that scared them because it meant that we were finally taking the competition seriously. 

Rick Smith: I think people need to walk away with at least some hope.

I think at the beginning you framed it perfectly. This isn’t a right, left, Democrat, Republican issue. This isn’t a political issue whatsoever. This is about our survival. What message do we want people to have walking away from this? 

Emily de La Bruyere: We’ll go with the hope here. The U.S. is still the world leader, and the U.S. still has enduring advantages.

We have the greatest innovative capacity in the world. We undergird the entire global system. You’re near the Army War College–we have the strongest military in the world. We lose this contest if we let China subvert those advantages. 

The first thing we do, and this is a fun task, is we take those advantages and we rethink how we apply them so that they are actually suited to competing in a modern environment, and so they’re strengths rather than vulnerabilities. 

Rick Smith: So this isn’t solely about punishing China. It’s about pulling them into line. There’s a lot to talk about with punishing China, with currency manipulation and all of the state-owned enterprises that they’ve got. There’s a lot to talk about there.

Emily de La Bruyere: Oh, yeah. And this can be a positive narrative, all of this. This is a chance for the U.S. to remember what its norms, what its values are, what its strengths are, and to rebuild around a threat.

Rick Smith: We always do better at times of war, so we should call this being at war. Maybe that’s the only way we’ll get our heads out of our behinds.

As you said, we’ve got the strongest, most powerful military machine in the entire entity in the entire time of civilization. The only problem is if we can’t get the screws to keep it together because we make them in China, we have a problem. 

Emily de La Bruyere: Exactly.

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