This is the first ever QuickHit #CageMatch with a returning guest, political-economic advisor Albert Marko, and China expert Christopher Balding with us for the first time. This is Part 1 of a 2-part discussion. Visit this page for the second part.
Albert Marko helps a couple of financial firms, members of congress, and a couple governments to manage and navigate their way through the beltway and the legislative issues and the politics and how the economic, how the federal reserve and all the economic policies filter down. Albert is also the co-founder and COO of Favore Media Group.
Christopher Balding spends most of his time on the phone talking to people about the data about China. He is a two-time winner of Lifetime Achievement awards and a Professor at Fulbright University Vietnam.
Subscribe to CI Newsletter and gain AI-driven intelligence.
Subscribe to our Youtube Channel.
Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.
Check out the CI Futures platform to forecast currencies, commodities, and equity indices
Follow Tony on Twitter: https://twitter.com/TonyNashNerd
Follow Albert on Twitter: https://twitter.com/amlivemon
Follow Chris on Twitter: https://twitter.com/BaldingsWorld
This QuickHit episode was recorded on October 14, 2020.
The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
Show Notes
TN: We’ve got a bunch of questions off of Twitter and the first one is from @AxeRendale: If you were in charge of U.S. foreign policy. What are the top things you would change from the status quo? They asked about five things. I don’t think we have that much time. So, what are a couple things? Let’s say two things in terms of U.S. foreign policy that you would change. Of course we have the election coming up but regardless of the individual. We’ve seen some status quo upheaval over the past few years but what would you really change not just the top line but the way the U.S. acts?
AM: I would immediately start looking at South America and Africa and identifying and eliminating or at least hampering Chinese and Russian interests there, specifically Venezuela would be my number one choice right now. The Chinese and the Russians, they have a field day there. There’s almost no U.S. intervention in there and the same goes for parts of Africa. I know we have troops in Mali and Niger and a couple places to deal with terrorism but just solidifying some of the countries out there like Morocco, Angola and preventing the Chinese from making inroads. I would put make that a priority.
CB: So I would agree with Albert in general terms but maybe take it in a slightly different direction. The Trump administration has done a good job shifting the focus to the larger problems and China and taking those policy steps that are well within their grasp.
What needs to be the next step, and whether this is under a Trump administration or Biden administration, is the reality is that you can’t handle these issues on the cheap. The Germans and Asian countries are not just going to be persuaded by the moral rightness of confronting China.
Just to give you two examples of where you might see something. If the U.S. was to offer even to European countries to fund 5G rollout at like 0% interest loans because that what China is doing. This the way they run the finances is basically giving away the 5G gear. If the U.S. made like 0% interest loans, you could fund that if it was in some type of like a levered development finance corporation structure, where with a couple billion dollars a year honestly, globally. You could do that entire project globally and on the U.S. budget, a couple billion dollars a year is almost couch cushion money.
TN: Right, and this is similar to how Japan is competing with China for infrastructure in parts of Asia, right? They’re giving no interest or extreme like 0.3% interest loans for infrastructure, right?
CB: Yeah, exactly. Like in Vietnam, where I can speak a little bit more authoritatively, they’re not fans of China. At the same time, they recognize they have to work with China. It’s a very pragmatic approach. At the same time, they we want to give the French certain pieces of the pie, also the Americans. Vietnam is actively trying to balance where their economic investment comes from so that they don’t become too dependent on any one source.
TN: Yep, it’s smart.
AM: The only issue I have with that is that you’re absolutely correct and that’s exactly what should be done but it’s depending on the European partners to even come to play ball. Because, within the European Union themselves, there’s competing interests on all sides. And it’s difficult for the United States to try to compete with the Chinese who give 99-year loans for infrastructure in Africa to dictate which European Nation gets a slice of the pie when they’re all conflicting with themselves to begin with. So that’s the only thing I’d have to
say about that.
TN: That’s an interesting point. China is very successful in terms of foreign policy by peeling off one member of a block at a time and there’s no better example than the way they peeled off Cambodia from ASEAN in order to break the voting block that’s necessary to get anything through there. They’ve done the same with the E.U. with say Portugal or Greece, right? Do you see the U.S. being able to do that, go and interrupt a block by getting say a single or a couple of allies there? Because I haven’t seen the U.S. do that all that successfully say for 20 years. Do you think we can do that successfully again?
AM: I think that we absolutely can be that successful if we actually had the will to do it. The problem is the Chinese are just literally filling in the gaps. The vacuums that the United States have left, and this is something that the United States just needs to get over the dirty word of intervention and just get on with business and solidify U.S. interests abroad.
CB: I would actually slightly differ from Albert on this and I see it in a very structural in a very structural way. If you take the E.U. to basically take to move against Chinese interests in Europe, there’s an asymmetry here. The U.S. has to get everybody to agree. China only has to get one to disagree, okay?
TN: Why does the U.S. have to get everyone to agree?
CB: Because basically, if the E.U. for instance is going to pass a let’s say a regulation blocking Huawei gear, it’s a unanimous vote, okay? That’s the only way it gets through the E.U. is through a unanimous vote. So the U.S. has to get everybody to agree. China only has to get one to disagree.
If you look at like the U.N. with the human rights council, we can talk about the U.S. should do this or that with the human rights council. The reality is that China till the end of time is going to have enough votes to put Russia, Venezuela, Libya, etc. on the human rights council because of the the number of countries that there are in the number of countries that they can get to agree with them. So people talk about, “well, it’s a Trump issue.” No. That’s the reality that’s the systemic nature of the international system.
AM: And one of the things that the United States has absolutely not done is use the United States Dollar as a weapon to combat that. But that’s a whole different topic and we can get all sidetracked on that one but…
TN: Yeah, we can spend a lot of time on that. Here’s a question from @RemaniSrikanth: How much is China policy hinged on who wins the U.S. election? Do you believe that fundamentally the democrats and republicans would have different China policies?
CB: After the Russian debacle that they had in the Obama administration and the people that came out of that, I would be surprised if they did like a complete reset, okay? I don’t think democrats really have any real agreement about what they want to do with China. Even within people within the Biden administration or what would supposedly be a Biden administration. You have people that are people that honestly I think would be, if they weren’t democrats, would probably fit well within a Trump administration and you have people that would practically be German in their approach in that there’s no concession. You’ve heard things about well they want to focus on climate change and this 2060 promise is great. We have something to go with here. I don’t think anybody really has a good idea.
My own personal suspicion would be more than anything the Trump administration has actually been very deliberate in turning up continuing generally speaking across policy domains and turning up continuing to turn up the pressure slowly, like a pressure cooker. I don’t think you would see that under Biden administration. I don’t think necessarily you would see a rollback of most Trump policies.
TN: Albert, do you agree?
AM: Yeah, I agree with Chris wholeheartedly. Xi is at a do or die moment with Trump being re-elected. If trump is re-elected and the pressure’s maintained or even raised, I do not think he lasts two or three years in there. As for a Biden presidency, what it would look like? All we have to do is go back to the track record of the Obama presidency and see what they’ve done. They just ignore whatever China does and let them run around the world and do whatever they want. We sat there for two years in 2013 watching China militarize islands while there was absolutely no response. Having Samantha Power back, Valerie Jarrett, Susan Rice doesn’t give me any confidence whatsoever into dealing with dealing with the Chinese.
TN: I was in Asia during that time jumping up and down and was told that I was overly aggressive so I share your frustration. Here’s a question from @JamesRoberta7: What does a Xi Jinping and China situation look like if Trump is elected and Pompeo stays at state? What does that look like the first say 24 months of of that type of situation?
AM: It really depends on the actions of the Trump administration. Do they ramp up tariffs again? Do they start pressuring them in China? Do they pressure them in Vietnam, in the Philippines? I think they do.
The Chinese are going to have to respond to safeguard their own interests. What do they do? Maybe cause a skirmish with the Indians again. Threaten the Taiwanese a little bit more. They can’t really act militarily. They just don’t have the capacity to do that and they’d be completely embarrassed. That’s a whole different argument to itself but like I said, the days are numbered, if Trump is reelected, for Xi. I don’t think the elite families within the Guangdong province would put up with further losses of their wealth.
TN: I think that’s something that’s lost on a lot of the American analysts. There is not a monolithic kind of Chinese Communist Party. There are facts within the CCP. There are different power centers. A lot of even the think tankers in America act as if there is this single head at the CCP. He has definitely solidified some power but there are still some very powerful factions. Chris, what do you think about that if there’s a kind of a Trump-Pompeo, that partnership continues, what do you think that looks like for China and the CCP?
CB: So, I’m going to slightly diverge from from Albert here in that what we’ve basically seen in the first four years of Trump, especially in the past two years is that Trump is taking a lot of things that are well within the executive purview that he can do. Whether that’s sanctions of different kinds. Although you know in a way the amount of pain that he can cause China within that basket of tools is at this point, it’s increasingly limited. In different ways probably, the biggest thing that he could do is do something that really blocked like IPO or really crimped dollar access.
Crimp dollar access is an enormous weapon. But I think the next step is, and you’re actually seeing a lot of groundwork being laid is and you just saw for instance some comments out of India where the U.S. state department is talking about really ramping up its alliance with India. And you’re starting to see a lot of these very foundational type of stuff. So whether it’s increased congressional spending to military things, alliances, different stuff like that, that would be likely where you would see a lot of the focus, especially, legislatively to get authorization to do those types of activities.
TN: Okay, that’s a great point as you bring up India to ask this question from @dogthecynic: “How durable do you think the China-Russian alliance is?” And I bring that up because India and Russia traditionally have had a strong alliance post-war. If the U.S. and India continue to get closer at some point, will Russia have to choose between China and India as an ally? Is that even a choice? Let’s start with how strong is that China-Russia alliance? Is it just a resources for weapons type of alliance or is it really a tighter alliance?
AM: If you look at it historically, it’s nothing more than cyclical friends with benefits, if you want to call it that. It comes and goes. Their interests are aligned in one area, they conflict on another. Right now, they’re conflicting in Africa quite a lot more than people understand. The Indians, they’ve used Russia as a counter balance to the to the Chinese for decades. It’s quite clear.
I don’t think the Chinese and the Russians trust each other. They never will. The Chinese have been encroaching on their borders. Is it strong? No. Can India-U.S. alliance possibly tip it more in their favor? I really don’t think so. I don’t think the Indians are ignorant to the fact that they need Russia as a counterbalance just as much as they need the United States security blanket.
CB: The way I would phrase it is that there is what is the honor among thieves. They clearly are frenemies. The Russians know that China is stealing plane designs and engine designs and all this kind of good stuff at the same time, Huawei is working with Russia to hire local hackers and setting up things in Russia to engage in cyber warfare and whatnot because they have a very common enemy. As long as there’s a common enemy for them to focus on and it benefits them to fight that common enemy, I think absolutely that partnership is at least to a plausible degree is going to exist for the sake of the kids, for lack of a better term.
TN: Okay, I’ve got some very similar questions from @gabrielfox1 @jschwartz91 and @americacapitalone about Taiwan. So China, Taiwan, U.S. pretty delicate relationships and a lot of the questions are really about the kinetic conflict but also the business aspect of China-Taiwan relations and increasingly Taiwan-U.S. relations with some of the semiconductor activity that the U.S. has undertaken against China. So can you open that up a little bit for us?
First of all do you think a China-Taiwan conflict in the next say 24 months is more than say 30% possible? Which it’s just a hedge right? I mean is it realistically possible? That’s kind of a yes or no. But do you think there will be more difficult commercial relationships between China and Taiwan or do you think this is just something that is kind of window dressing and they need each other?
AM: Do I think there’s a conflict brewing in the next 24 months? Absolutely not. I don’t think the Chinese have the capabilities. I don’t think they want to be embarrassed furthermore. The Chinese elite, they have money wrapped up in Taiwan. They’re not going to sit there and cut off their their money supply just because Xi wants to prove a point that I don’t believe they can win a war quickly. It would hurt.
CB: I will disagree with with Albert here. My understanding of the military capabilities actually align with Albert and what the people I trust have basically said, it’s really going to be 2022, 2023 before they probably have the capabilities necessary.
Albert said something very interesting, which I think is worth repeating. They don’t want to be embarrassed. Well let’s look at how China’s behaved in the past year, okay? I don’t think you can project that level of rationality on Xi Jinping. Why the hell are they fighting over some frozen tundra in the Himalayas? It logically makes zero sense, right? I’m not saying that there’s going to be a war. It could be some type of low-level conflict. There’s a lot of different ways that it could be. This doesn’t necessarily mean full-scale invasion
but I would definitely put some type of event conflict distinctly higher.
TN: I think it’s unlikely but given my exposure to mid-levels of Chinese ministries they are not the rational, thoughtful, wise organizations that many Americans think and Xi Jinping as you say Chris, why are you fighting over some icy hills in northern India? It’s just stupid, right?
So I don’t believe the Chinese government is as thoughtful and wise as many westerners suspect. They make stupid mistakes like everyone else. I’m not saying they’re more stupid than anyone else. I think they’re just as they’re human beings.
Now let’s move along a little bit more into economics and talk about the Belt and Road initiative, which something that I actually worked on for about a year and a half. There’s been some talk in the last few months about the anglosphere and does the west have an answer to the BRI? This is really aN eight-year-old question, but my first question is, does the U.S. need a response to the BRI as a government initiative and if so do you think they can do it?