Clyde Prestowitz has influenced U.S. foreign trade and investment policy for many decades, both inside and outside government.

• Clyde was on the frontlines when Japan presented the greatest trade challenge to the U.S.
• And his book on U.S.-Japan relations, Trading Places, was a bestseller.

As China replaced Japan as the focus of trade frictions, Clyde brought his experience and expertise there.

• His latest contribution to the issue is The World Turned Upside Down: America, China, and the Struggle for Global Leadership from Yale University Press.
• And it is terrific, with rave reviews in the media, such as the Financial Times, and cited numerous times in analyses.

To learn more, Clyde and I spoke on Zoom for about an hour and a half.

• Today, I want to share with you a few of the insights – laid out below - that emerged from our conversation.

When we spoke, Clyde emphasized that for four decades the U.S. has misinterpreted China. He gave five reasons for this.

• But the one that struck me as especially contrarian was the third.

‘The third is the ultimate fantasy in America: the idea that we wanted and that China wanted to become a 'responsible stakeholder' in the rules-based international order that had been established by the United States and the free world.

• ‘As a diplomat myself in the Regan administration, as one of the vice-chairman of President Clinton's Commission on Trade and Investment in Asia, I have spent a lot of time negotiating with countries around the world, but particularly with China, Japan, and Korea, in pursuit of American attempts, to persuade them to change their policies and change their objectives, and the way that they pursue building their economies.

‘And I have come to the conclusion that they're not going to change.

• ‘If they came to us and asked us to do the same thing, we wouldn't change. It's a waste of time.

‘So, all discussion of negotiations to engage with China or to persuade China to play by the rules, to play by WTO rules, this is all a waste of time.'

• ‘It only irritates the Chinese, and it doesn't do anything for us. We have got to stop.

Instead, he advocated that we ‘forget about China’ and focus on those actions that strengthen our side.

In technology, ‘We need to make sure that the United States and the free world remain the leaders and the dominant players in those technologies because those technologies are not some kind of national thing that can be separated by a nation.

• ‘They are global technologies. There are going to be global standards, and the leaders in those technologies are going to have immense global power.’
• ‘And we don't want to be under the power of a coercive system like the Chinese communist system.
• ‘Let's really build our own industry, our own technology. Make sure that we're at the top of the pole when the climbing contest is done.

In corporate relations, he noted that ‘global corporations, but particularly American global corporations are in both a power position and a vulnerable position. Let's take companies like Apple and FedEx.’

• ‘These companies are powerful. They have armies of lobbyists and lawyers. They have gazillions of dollars. They have instant entree to The White House, to any congressional office, to any senatorial office. Their staff in Washington help to write the laws.
• ‘They can defy the US government. They can take the US government to court and win.
• ‘Apple can refuse to cooperate with the FBI and get away with it.

‘In Beijing, they're on their knees. They kowtow. They have no stroke. They're hostage.

• ‘And we're in a crazy position where Beijing is in a position to direct the heads of major American global corporations to lobby for Beijing in Washington.

And, most importantly, in U.S. politics, ‘We need to have some unity in this country. We are so at the moment divided.

• ‘We need to recognize that, “Hey, wait a minute. We are all Americans. We all have common interests, and we need to focus on our common interests in order to have the cooperation, and the policies that are effective to meet this challenge from China.” ’

Get more of our conversation below.

• And be sure to get The World Turned Upside Down: America, China, and the Struggle for Global Leadership.

1 | The Interview: Clyde Prestowitz

BIG IDEA | ‘I have spent a lot of time negotiating with countries around the world, but particularly with China, Japan, and Korea, in pursuit of American attempts, to persuade them to change their policies and change their objectives, and the way that they pursue building their economies. And I have come to the conclusion that they're not going to change.'

‘If they came to us and asked us to do the same thing, we wouldn't change. It's a waste of time.'

‘So, all discussion of negotiations to engage with China or to persuade China to play by the 'rules' to play by WTO rules, this is all a waste of time. It only irritates the Chinese, and it doesn't do anything for us. We have got to stop.’

Malcolm Riddell: ‘Good afternoon Clyde. I just finished your new book, The World Turned Upside Down: America, China, and the Struggle for Global Leadership, and it is terrific.'

• ‘And congratulations on the excellent reviews in the Financial Times and many others and on the many analyses where the insights from your book have been quoted.'

‘Could you tell us a little bit about the main points you're conveying in the book?'

Clyde Prestowitz: ‘The first point is that the United States has misinterpreted China for the past 40 years.'

• ‘The misinterpretation arose from several factors.'

‘First is the long historical trend in America to think that China and America are somehow different kinds of countries that might share an ultimate destiny.'

‘Second, at the end of The Cold War with the Soviet Union, there was a feeling in America, perhaps best articulated by Frank Fukuyama and his book, The End of History.'

• ‘The notion became strongly established that, from here on out, history was going to be democratic capitalism and that all countries will inevitably move in that direction, including China.'
• ‘That free trade capitalist economics, open market economics would inevitably carry with it China political liberalization in China. If not democracy, a much more liberal political system.'

‘But the third is the ultimate fantasy in America: the idea that we wanted and that China wanted to become a "responsible stakeholder" in the rules-based international order that had been established by the United States and the free world.'

• ‘As a diplomat myself in the Regan administration, as one of the vice-chairman of President Clinton's Commission on Trade and Investment in Asia, I have spent a lot of time negotiating with countries around the world, but particularly with China, Japan, and Korea, in pursuit of American attempts, to persuade them to change their policies and change their objectives, and the way that they pursue building their economies.'

‘And I have come to the conclusion that they're not going to change.'

• ‘If they came to us and asked us to do the same thing, we wouldn't change. It's a waste of time.'

‘So, all discussion of negotiations to engage with China or to persuade China to play by the rules, to play by WTO rules, this is all a waste of time.'

• ‘It only irritates the Chinese, and it doesn't do anything for us. We have got to stop.'

'The fourth point that is really fundamentally important, for the United States and the free world: take seriously the Made in China 2025 program and look at the technologies that it encompasses.'

• ‘If anyone followed the Five-Year Plans of China, over time it would be obvious that the Five-Year Plans were aimed at building industry to catch up with and surpass the United States and the West.'
• ‘But that didn't become evident until 2015 when China came out with a plan called Made in China 2025, and it identified semiconductors, artificial intelligence, robotics, all the high-tech areas, as areas which were going to be made in China. And obviously to challenge the US and other Western companies.'

‘We need to make sure that the United States and the free world remain the leaders and the dominant players in those technologies because those technologies are not some kind of national thing that can be separated by a nation.'

• ‘They are global technologies. There are going to be global standards, and the leaders in those technologies are going to have immense global power.’
• ‘And we don't want to be under the power of a coercive system like the Chinese communist system.'

‘Let's really build our own industry, our own technology. Make sure that we're at the top of the pole when the climbing contest is done.'

‘Fifth, critical to being able to achieve the leadership I just mentioned is to understand that global corporations, but particularly American global corporations, are in both a power position and a vulnerable position. Let's take companies like Apple and FedEx.'

• ‘These companies are powerful. They have armies of lobbyists and lawyers. They have gazillions of dollars. They have instant entree to The White House, to any congressional office, to any senatorial office. Their staff in Washington help to write the laws.'
• ‘They can defy the US government. They can take the US government to court and win.'
• ‘Apple can refuse to cooperate with the FBI and get away with it. They are powerful.'

‘In Beijing, they're on their knees. They kowtow. They have no stroke. They're hostages.'

• ‘And we're in a crazy position where Beijing is in a position to direct the heads of major American global corporations to lobby for Beijing in Washington.'

‘Tom Donahue, the head of The Chamber of Commerce, when he testified before Congress, would always introduce himself as the voice of American business.'

• ‘Baloney.'
• ‘If you looked at Tom's board of directors, they were all hostage to Beijing. Tom was the voice of Chinese business to the Congress.'

‘We need to get that element under control.'

'In sum, understand the reality of China.'

• ‘So, my thrust today is, forget about China.'
  

2 | 'Shame on You'

BIG IDEA | ‘The bottom line really is that if you're a major American company, and you're doing a lot of business in China, effectively, you are contributing to the torture of the weavers, to the crackdown in Hong Kong, to the threat to Taiwan.’

‘We have to face our CEOs with that moral dilemma, and just keep holding it out there.’

Malcolm: ‘How do you get that element under control?'

Clyde: ‘One thing is that we can shame them. Let me give you a good example.'

• ‘Tim Cook at Apple is politically very liberal, and he supports liberal causes, politically, openly in the US.'
• ‘Now, everything that Tim Cook sells, every product, every single product that Apple sells, had its origin in a US government-funded program. DARPA, DOD, everything.'
• ‘Everything that he sells is made in China.'

‘Now, a few years ago, the FBI had a problem trying to crack a crime and they needed to open an encrypted Apple phone.'

• ‘They asked Apple to help. Apple refused. It went to court. It was never resolved in court because in the meantime, the FBI found another outsider who could crack the phone. But Apple never agreed to cooperate with the FBI.'

‘Fast forward to 2019, and people are demonstrating in Hong Kong for democracy.'

• ‘And there's an app in the Apple App Store. It's called Hong Kong Map Live.'
• ‘Demonstrators could use the app to see where the police were and then they would go where the police weren't.'
• ‘The People's Daily, the Chinese communist newspaper on the mainland, began really complaining about this app, and within two days it was out of the App Store.'

‘Tim Cook should have to face that.'

• “Tim, how is it that you bow down to rumors in the People's Daily, but you can't cooperate with the FBI?”

‘We're beginning to see that with this cotton and Xinjiang.'

• ‘But the bottom line really is that if you're a major American company, and you're doing a lot of business in China, effectively, you are contributing to the torture of the weavers, to the crackdown in Hong Kong, to the threat to Taiwan.'

‘We have to face our CEOs with that moral dilemma, and just keep holding it out there.'

• ‘That's relatively easy to do, and we ought to be doing it.'

3 | 'Made in America'

BIG IDEA | ‘President Biden made the statement in a speech: “Buy American. Make it in America.” Why can't we make wind turbines in Pittsburgh, as well as in Beijing?’

Malcolm: ‘Let me go back to your earlier point about the US and the West, its being imperative that they win in these tech races and the other things that are involved in Made in China 2025.'

• ‘In the US especially, we have grown to doubt government's role in industry directly, and even sometimes indirectly. China is very active in promoting the Made in China 2025 initiative plus a lot more. Is there a role for the US government in developing our industries to win?'

Clyde: ‘Absolutely. De facto, our government has, and does play a very significant role in a lot of industries. Take the aviation industry, for example.'

• ‘Most people think of Boeing as a company that makes commercial airliners, but it makes a lot of jets for the military as well.'
• ‘None of the aviation countries in the world would be what they are had they not had a government help somewhere along the line.'

‘President Biden made the statement in a speech: “Buy America. Make it in America.” Why can't we make wind turbines in Pittsburgh, as well as in Beijing?'

• ‘Biden has got the right idea. We have companies in America that make turbines, and what Biden is saying is, "Okay. Let's have the companies and the government sit down together and ask ourselves, what is it that needs to be done to enable American turbine companies to compete with Chinese turbine companies, and whatever it is, let's do it." ’
• ‘The government can help in some ways with regulations or financing or whatever, but it can be done.'

‘We're already seeing that. The semiconductor industry in the Infrastructure Bill that Biden is proposing, I think the semiconductor industry is tagged for something like $50 billion to shore up the production of chips. This is a very important point.'

• ‘Many people imagine that the United States is the leader in semiconductors, and it is in the design of semiconductors.'

‘You may have read recently that Apple and Amazon are going to begin making their own chips.'

• ‘That is false.'
• ‘They will design their own chips, but their chips are going to actually be fabricated, made, produced by TSMC, Taiwan Semiconductor Manufacturing Company in Taiwan.'

‘And why is that? Because the US chip makers have fallen behind.'

• 'TSMC is today the leading chipmaker in the world. Number two is Samsung in Korea. Number three is Intel in America - Intel used to be the top guy.'
• ‘Out of this Biden infrastructure program, Intel will get maybe a bit of help in recovering its competitiveness in actually making semiconductor chips.'

'I love TSMC. I’ve known the founder, Morris Chang, for 40 years.'

• 'But to have the world's most important chip company in Taiwan right now, is that dangerous?'

4 | The Chinese System

BIG IDEA | 'Now, how does The China Daily get into The Washington Post? It gets there because the United Front Work Department of the Chinese Communist Party is funding that. And so it's a whole of society attack.

Malcolm: ‘Is there anything else you'd like to add?'

Clyde: ‘Yes. It's very hard for Americans or anybody living in a free-world country to understand the nature of the Chinese system. One way to think about it is like this:'

• ‘Imagine that the president of the United States appointed every governor. Appointed the mayor of every city. Appointed the CEO of every Fortune 500 company. Controlled all the newspapers, all of the internet companies, all of the TV broadcasting companies, and effectively wrote what they all say. That's China.'
• 'So when you hear the statement the Chinese will often say, "Oh, you're hurting the feelings of 1.4 billion Chinese." Well, China can say that because they control it. What all 1.4 billion Chinese say.'

‘Another element of this is every once in a while I pick up The Washington Post and inside what do I find? I find a copy of The China Daily, a Chinese Communist Party-backed publication.'

• 'Now, how does The China Daily get into The Washington Post? It gets there because the United Front Work Department of the Chinese Communist Party is funding that. And so it's a whole of society attack.'

'It's not just in semiconductors. It's not just in trade, or soybeans. It's a whole of society approach, and it's all over the place all the time.'

• ‘We have to understand that this is what totalitarianism is about and that's what we're facing.'

‘What that means, and that's so important, is we need to have some unity in this country. We are so at the moment divided.'

• ‘We need to recognize that, “Hey, wait a minute. We are all Americans. We all have common interests, and we need to focus on our common interests in order to have the cooperation and the policies that are effective to meet this challenge from China.” ’