Achieving Geopolitical Objectives: Andrew Grotto on American “Economic Statecraft”

>> Bill Whalen: It's Tuesday, March 18, 2025. And welcome back to Matters of Policy in Politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the world. I'm Bill Whalen, I'm the Virginia Hobbs Carpenter Distinguished Policy Fellow in Journalism here at the Hoover Institution.

 

But I'm not the only Hoover Fellow who is involved in podcasting these days. If you don't believe me, I encourage you to go to our website, which is Hoover.org, actually go to the following link, which is Hoover.org forward slash podcast, and there you'll find podcasts, commentary, we cover the whole waterfront, from foreign policy to economics to healthcare, politics.

 

You name it, we got it covered, including this excellent podcast. My guest today is Andrew Grotto. Andrew is a Hoover Institution Visiting Fellow as well as the William J Perry International Security Fellow at the center for International Security and Cooperation at Stanford University. His research interests center on national security and international economic dimensions of America's global leadership in information technology innovation and its growing reliance on this innovation for its economic and social life.

 

Andrew Grotto is also the co-author of an essay he penned with Hoover's own H.R. McMaster. The title of that is Economic the Need for An Integrative Approach. You can find that on our website as well Hoover.org, i encourage you to go check it, read it, and that's gonna be the top of our conversation today.

 

Economic Statecraft. So, Andrew, A.J, good to see you.

>> Andrew Grotto: It's good to be here. Thanks for having me, Bill.

>> Bill Whalen: My pleasure. So my first question was, what the heck is economic statecraft? But if you bother to read your excellent essay that you and General McMaster penned, you've defined it for us.

 

Let me read it to our audience. You define economic statecraft is the following, quote, a country's pursuit of geopolitical objectives using economic power. These sources of power include US Military strength, its global diplomatic reach, the gravitational attraction of American ideals such as liberty and opportunity, and the economy.

 

So question for you, Andrew. What possess you and General McMaster to write this? Is this something that we do pro forma when there's a new administration in Washington, or are we looking in 2025 at a rather unique set of circumstances given what's happening around the globe, giving the political reset here back in the United States?

 

 

>> Andrew Grotto: Well, we've been doing economic statecraft in the United States since the founding days of the country. If you think about how the country has grown geographically, that's been conducted primarily through economic statecraft, through purchases of land Other countries, other societies have been doing this since, you know, the ancient Greeks, using economic power to pursue any number of geopolitical objectives.

 

And what we've observed in particular over the last, say, 10 years is this acceleration and expansion of use of this toolkit by successive US Presidents with issues like US China, great power competition, economic sanctions on Russia in response to its full scale invasion of Ukraine, you know, being great examples of just how, how increasingly central this, this toolkit is to U.S. foreign policy.

 

 

>> Bill Whalen: How far back are you going with American presidents, A.J? Are you going all the way back or are you going back to Reagan, or are you starting post Reagan, post Cold War?

>> Andrew Grotto: Well, I think it started to pick up in the Obama administration and it has carried through Trump won, Biden, and certainly I think we'll see plenty of activity.

 

We've already seen plenty of activity using economic statecraft and Trump too. But, you know, the practice, as I said, has gone back. You can go back hundreds of years and use this toolkit. After the Cold War, you know, we kind of collectively expanded our toolkit. We expanded the use of sanctions.

 

If you think about the role that sanctions played in isolating Saddam hussein in the 1990s, the modern export control regime, the regime that tries to control the spread of dual use and other sensitive technologies was sort of born out of the Cold War. And so, and these tools, presidents find them attractive because they don't involve boots in the ground and they in some cases can, can actually achieve the, the objectives that leaders set out for them when they, when they use them.

 

 

>> Bill Whalen: Okay, so you went back to Obama. So we have Obama, Trump, Biden. Now back to Trump. We have kind of, this is like watching Oprah Winfrey go on a diet. We're yo, yo, dieting here in foreign policy, if you will. But if we go back to your definition here of what's in the toolkit, and we're talking military strength, global diplomatic reach, American ideals, liberty, opportunity.

 

You look at Obama, you look at Biden, you look. Have any of these gentlemen managed to achieve what we would call a balanced approach here? Or is each president kind of particularly fond, favorite, you know, favorite one particular approach? For example, you could argue Biden, Obama diplomacy, maybe we're seeing here with Trump, he likes to use weapons.

 

 

>> Andrew Grotto: Yeah, well, it's a great question. I wanna clarify sort of how HR and I use the phrase in our report.

>> Bill Whalen: Please do.

>> Andrew Grotto: You know, economic statecraft Economic. The toolkit draws on economic power. There are other tools in the foreign policy toolkit, diplomacy, words and ideas, and military power that draw on different sources of national power.

 

And, you know, the essence of economic statecraft is the use of economic power to achieve any geopolitical objective, whether it's economic, it could be a military objective, it could be a diplomatic objective, and obviously different. To come back to your question, different administrations put different emphases on elements of national power and pursuit of US objectives.

 

But the one trend that I think we've seen going back several administrations is this rise in the use of economic tools. And in particular, economic sanctions and export controls are probably two areas where we've seen the most growth. You consider, for example, the semiconductor export controls that began in Trump one that were extended in by Biden and now sort of fall in Trump two's lapse to decide what to do with them.

 

The idea that the export controls and semiconductors have, it's almost unthinkable to imagine ten, 15 years ago the US considering controls that sweeping. But here we are. And a big reason for why there's such a heightened focus on economic statecraft is US China, great power competition, which in many ways is a technological competition, it's an innovation competition, which obviously involves economics.

 

And naturally, economic tools like export controls played a big part of the country's strategy across successive administrations to deal with China.

>> Bill Whalen: Right. And that economic competition was missing from Cold War one. Right.

>> Andrew Grotto: Yeah, there wasn't a ton of trade between sort of the Allies and the Soviet Union, the Warsaw Pact.

 

So the degree of interdependence was virtually zero. The Europeans did some trade with, with Warsaw Pact countries, but even there, it wasn't nearly like what you see today with respect to U.S. and allied economic relations with China.

>> Bill Whalen: Yeah, I'm not gonna do something AJ that I probably should not be doing in the age of Donald Trump, but I wanna talk about.

 

Two things that are in the news today. And I offer a word of caution here because things move fast as Donald Trump has come back to office. And so hopefully this is not old news or stale news by the time people are watching and listening to this podcast.

 

But let's first turn our attention to Russia. So news out today that Vladimir Putin and Donald Trump reportedly had a 90 minute phone call. CNB said, CNBC reporting that Putin and Trump, quote, agreed that the movement to peace will begin with an energy and infrastructure ceasefire, meaning Russia, Ukraine will not target each other's infrastructure energy outputs.

 

Fine, now here's the US Readout. I want to read this to you. AJ Quote, the two leaders agreed that a future with an improved bilateral relationship between the United States and Russia has huge upside. This includes enormous economic deals and geopolitical stability when peace has been achieved. So I know you're not a criminologist, but those three words, enormous economic deals, kind of screen in the middle of that statement.

 

So what are we getting at here? What are enormous economic deals? Because this trajectory is kind of tricky because at the heart of ending this war is the idea there has to be some Russian culpability here for invading this country. You do not want to, in effect, reward Russia for its bad behavior by giving them trade deals or things like that.

 

So explain to me enormous economic deals.

>> Andrew Grotto: I can only speculate. I mean, enormous economic deals is a very Trumpian turn of phrase. And I mean, we've seen this going back to his career as a real estate tycoon in New York, and he fancies himself a deal maker.

 

And, you know, throughout, you know, the campaign, this, this past year, you know, even, even in, in, in, in, you know, speeches and comments he's made since, since inauguration, he's emphasized, you know, how, how good his administration would be for American business.

>> Bill Whalen: Right.

>> Andrew Grotto: And I think, I mean, I don't wanna play armchair psychologist here too much.

 

But like, my, my read of the situation is, you know, Trump, Trump tends to see the world in transactional terms.

>> Bill Whalen: Yes.

>> Andrew Grotto: And, you know, his, his frame of reference is business. And I think that, you know, that it's, it's, it's easy to, you know, in some ways to, to, to, to sort of fall into this assumption that interdependent economic interdependence breeds peace and that if only there were more economic connections between the two countries, you know, you'd have this Sort of win, win economic situation that would sort of pave over all the underlying geopolitical disputes we have with the Russians.

 

And, personally think that's wishful thinking, but yeah, I think that's the way that the President sees the world. I think it raises really interesting and hard questions about China as well, you know, what his orientation might be towards China.

>> Bill Whalen: And I would get to that at the end of the podcast.

 

But it stands out to me, AJ, because when we talk about Russia and economic consequences from this war, you always hear those in terms of sticks, sanctions, more sanctions, tighten the squeeze on Russia. This would suggest that maybe carrots could be involved.

>> Andrew Grotto: Yeah. And, you know, for example, you know, the Russian energy infrastructure is dilapidated.

 

It's not modern, you know, so, you know, in theory, there's a big business opportunity for American and allied, you know, energy companies to come in and help help the Russians modernize. The Russian economy has been starved of tech since the start of the war. You know, the export controls have tried to clamp down on, on supplies of, of technologies that could be used to advance the war machine from getting to Russia.

 

The controls aren't perfect, but they've certainly had an impact. Getting those controls lifted has got to be an attractive carrot, from Putin's perspective. But, you know, like, as you said, there is this underlying geopolitical dispute, right, over, you know, what forms of government, you know, are, you know, best suited to liberty and other values.

 

Questions about, you know, whether sort of a 19th century view of the world as, you know, involving spheres of influence is still the way to think about, you know, international affairs today. Putin certainly thinks about the world in those terms, and I'm just not sure how an economic deal paves over those issues unless we decide that those are no longer issues.

 

And we could just decide, you know,what, we don't care. Maybe if great powers carve the world into spheres of influence, we don't care if an authoritarian leader with, with a massive nuclear arsenal, you know, kind of gets away with murder, literally. We could decide those things. I think that would be a huge, you know, betrayal of our values and the national interest.

 

But, you know, you could, you could imagine a deal where those issues just kind of get paved over. I hope it doesn't happen.

>> Bill Whalen: Now, let's apply economic statecraft to Ukraine, the other party in the war, and what that might look like. Is it as grandiose as a Marshall Plan to rebuild Ukraine or what?

 

What would you look for well, you.

>> Andrew Grotto: Ukraine's economy has obviously been devastated by the war. And, you know, there are huge infrastructure needs, huge human development needs. And, you know, I don't have the numbers off the top of my head, but, you know, this is, this is, you know, hundreds of billions of investment needed in the country.

 

And, you know, some of that investment, a lot of that investment could come from the US and its allies. I also think that there's a good chance that we don't have the industrial capacity to hit, to supply all those infrastructure needs. And so China would probably benefit as well, I would imagine.

 

China has excess industrial capacity and has become very skilled at undercutting US and allied companies in competition for infrastructure projects. So there's certainly, there's a big economic dimension to Ukraine. But again, the question becomes, is sacrificing all these other values worth whatever economic gain U.S. industry and allied industry get out of a deal.

 

 

>> Bill Whalen: All right. The other region in the news, AJ would be the Middle east, where hostilities have broken out again. Israeli forces are back in Gaza fighting. US Forces are bombing the Houthis in Yemen. And we suggested that if Iran gets involved in this in any way, we will go after Iran as well.

 

Let's talk about the economic component to settling the Middle East. We talk about peace, we talk about land and so forth, but the economy. So there is a Trump plan to turn Gaza into the Riviera of the Mediterranean. Very quietly, there was the India, Middle East, Europe Economic Corridor done in September of 23 under the Biden administration.

 

This is developing a transcontinental infrastructure corridor as well. But tell us a little bit about how economics, how economic statecraft will factor into any form of lasting Middle east peace solution.

>> Andrew Grotto: Yeah, there are a couple different dimensions to it. One is using tools like export controls over semiconductors to try to control access by the Chinese to advanced AI from developing advanced AI capabilities.

 

And you've got several countries in the Middle East that are making big bets on becoming technological hubs themselves. So the UAE is certainly. One of these countries. And you know, the US has an interest in, you know, the Middle east developing digital infrastructure that is based on American technology.

 

There are both economic reasons for that, but also strategic reasons, because the alternative is China, right? And you know, from, from my perspective, you know, the less dependent on China the Middle east is, the better off certainly they will be. But also, you know, us here in the United States, China, you know, the Chinese telecommunications and digital infrastructure comes with, with goodies inside, with surveillance goodies inside.

 

And so the idea that China would expand its surveillance apparatus to these critically important in some cases allies, is worrying. So there's an economic value proposition. Now, we also use economic tools to coerce, right? We have economic sanctions in place against Iran export controls with varying degrees of efficacy in terms of denying them the ability to access technology for military uses and also putting pressure on the leaders to moderate their behavior.

 

What's been missing, and this was a major driver of the report that HR and I did, is thinking about these tools in an integrated strategic manner, right? So we, you know, historically we've, we've wielded this toolkit in silos. So if you, if you go talk to someone at the Bureau of Industry and Security, the part of the US Government responsible for, for the dual use expert control regime, and ask them what they do, they'll say we do export controls.

 

They won't say we do economic statecraft. The same is true if you go talk to a trade negotiator. They don't do economic statecraft. They do trade negotiations. You talk to someone in economic development. We don't do economic statecraft. We do development cooperation. Even though these tools all rely to varying degrees on American economic power.

 

And in many cases involve that there's either synergies between them, or in some cases the tools can work across purposes. And I'll give you an example. So, you know, as the US has ratcheted up its export controls and semiconductors to China, the main way that China has responded so far is by putting export controls on various critical minerals that, that US Manufacturing relies upon.

 

China has a real chokehold on, on refining and mining of these, these, these minerals. It refines 70% of the world supply and mines 90% of it. So China has a real true hold on that critical node in global supply chains. Well, that retaliatory action then fuels interest here in the United States in industrial policy to develop an alternative supply to incentivize an alternative supply for China.

 

And so we have this synergy between export controls on the one hand, industrial policy on the other hand. And we just haven't done a very good job historically in thinking about how these tools can affect each other and even come together and have sort of an amplifying effect.

 

So what we call for in the report is pretty straightforward and new administration should have a strategy, try to bring these different parts of the economic statecraft ecosystem together to frame out an actual strategy that use these tools in an integrated manner consistent with American values around free market principles, liberty and other other important values.

 

So that, that's, that's the gist of the report. And so far, you know, haven't seen a ton of indications that that President Trump is, is headed down a path of using these tools in integrated way. But you know, it's still early days.

>> Bill Whalen: Well, in your report you want Trump to sign an executive order.

 

 

>> Andrew Grotto: Yeah.

>> Bill Whalen: Which would kick start this, which would call for the integrated strategy and it would be done by the National Security Advisor. This is the job HR McMaster once had, now held by former Congressman Mike Waltz and also the director of the National Economic Council, who the last time I looked, I believe is one Kevin Hassett, formerly maybe still currently of the Hoover Institution.

 

So I'm gonna joke with you, he's signing executive orders left and right, why not just slip one in there and see if he'll sign it? But I'm curious why the NSA and why the National Economic Council? Maybe A.J. you want to spend a couple minutes explaining what exact the National Economic Council does within the White House?

 

 

>> Andrew Grotto: Yeah, well, so the NEC, the National Economic Council, is in many ways the sister coordinating agencies of the National Security Council, right? So the National Security Council is responsible for coordinating a national security policy for overseeing the implementation of the President's agenda. And the NEC is, is supposed to do the same for, for economics, for economic policy.

 

And insofar as economic statecraft relies on economic tools, any effort to formulate a strategy has got to involve that part of the White House. Now historically, and I worked in both the Obama and the Trump White Houses on the National Security Council staff and different administrations bring a different culture to the way that they handle these sort of complex cross cutting policy issues.

 

 

>> Bill Whalen: Right.

>> Andrew Grotto: In the Obama administration, especially by the second term, there's just sort of a lot of process. Trump one started pretty entrepreneurial, and sort of ended up at the end with a fair amount of process. The Biden administration, same deal. And a big question now is, you know, the first few months of the Trump administration don't show a ton of signs of broad sort of strategic thinking about how these different tools in the economic statecraft toolkit can come together.

 

But it's still early and, you know, in time, it's certainly possible that a more systematic. I hate to use the word traditional, but for lack of a better word, traditional approach to formulating national security policy, right? Where you just sort of have this National Security Council process to bring options up to the president, that takes hold.

 

But the time will tell, it's still early days and we're still in this, I use the phrase entrepreneurial,phase of the administration.

>> Bill Whalen: I think it might have been the late Bill Walsh, or maybe it was George Seifert, who succeeded him. But when they coached the 49ers, they had a rule which was that basically the first five to ten plays of the game were already scripted.

 

We're going to run those no matter what. And that kind of strikes me as the first 100 days of theTrump administration. They walked in with a lot of things they wanted to do. Tariffs, for example, and we'll get to that in a minute. So maybe this is kind of what you do after you take a collective breath after the first round.

 

But, you know, we talked about nsc, we talked about nec, but there are other players I'm curious about and who would have a potential role in this. What about the Commerce Department? What about the USTR? What about the Pentagon? What about the State Department?

>> Andrew Grotto: Yeah, all those agencies have, have an important role to play along with the agency formerly known as usaid, which, you know, is a big, big the, the develop of the economic statecraft toolkit.

 

 

>> Bill Whalen: They've kind of been in the news lately.

>> Andrew Grotto: They've been in the news lately. Yeah, they have been. And we can come back to that, I think, That the core functions of USAID will come back. I just can't imagine. You know, I mean, we need those tools, in addition to all the great humanitarian work that USCID has done over the years, to compete with China, you know, coming back to the Middle east, looking especially elsewhere in the Global south, you know, we're.

 

We're not gonna, the playing field is not level when competing with China for infrastructure projects for data centers, for example, which I think you'll see a big demand for, not only here in the United States, but also in the Global South. China undercuts us on price, and our best option is quality.

 

But price still has to be part of the equation. And there are some tools in the development toolkit that can help address some of those problems. Coming back to the Commerce Department, yeah, the Commerce Department is certainly a core player in economic statecraft. Before I worked at the White House on the National Security Council staff, I was then Commerce Secretary, Penny Pritzker's senior advisor for tech policy.

 

And I spent a lot of time working on export controls and cfius, the process that the government uses to screen for investment, for national security risk. And it always struck me that, again, we sort of approach these tools in these kind of institutional silos without really putting enough time and energy into thinking through, okay, how do these tools intersect?

 

How could we use them in a more strategic, integrated manner? So Commerce Department's a big one. Well, I should also mention, I mean, it's not. It's not just export controls at the Commerce Department, the Bureau of Industry and Security, but, you know, the International Trade Administration is a part of the commerc.

 

The International Trade Administration is the agency that does countervailing duties and other trade remedies, which is an important part of the economic statecraft toolkit. The State Department does diplomacy on economic issues, The Pentagon does economic statecraft. They have this thing called the Office of Strategic Capital that's aimed at essentially incentivizing development of technologies that the military can use that the market may or may not supply on its own.

 

That's economic statecraft. There are dozens of agencies across the federal government that are involved in one way or another in economic statecraft. And that's part of the challenge is how do you even begin to identify this group of agencies? And one of the recommendations we have in the report is that this EO that we recommend the president issue to direct creation of the strategy also include a direction for agencies to essentially raise their hand if they do economic statecraft so that the White House, the NSC and the President can actually get a full picture of what this toolkit looks like because it's a sprawling toolkit.

 

 

>> Bill Whalen: I think one thing I like about this idea, AJ Is it allows this administration, would allow this administration to give some thought to very complicated issues. I'm a big fan of Trump giving more scripted speeches, for example. Now I'm a speechwriter to pass live, so I always come down on that but my thinking is that the more speeches he would give scripted, the more input he has to have from staffers, the more some speechwriter would have to go around and find out where actually the administration comes down on positions.

 

So let's go through four topics here and let's talk about how they apply to economic statecraft. The big one, tariffs.

>> Andrew Grotto: Tariffs are a big one. They're, they're popular.

>> Bill Whalen: Well, I'd liken it to economic gunboat diplomacy that it's kinda the equivalent of parking a battleship off the coast of a nation, that instead of the battleship, you just say, I'm dropping tariffs on you.

 

 

>> Andrew Grotto: You know, with, with the caveat that, you know, tariffs also impose costs on Americans.

>> Bill Whalen: Right.

>> Andrew Grotto: So it, and that's the rub is these instruments are not costless, right? There's, you know, anytime, you know, the government kind of reaches into the economy, right? There, there is, there's some, there's some cost.

 

Now the benefits may be worth it in the end, but there's some cost. And you know, with tariffs, you know, we'll see what the inflation numbers look like. You know, there's the effect that the tariffs could have on the ability of the US to marshal support for export controls on, you know, to address China's military modernization.

 

Again, you know, cross cutting issue that, you know, within the sort of the narrow confines of trade policy. I'm not sure that there's no evidence that I've seen that this administration has sort of factored that piece in.

>> Bill Whalen: Right.

>> Andrew Grotto: Which to your point, if at some point a more sort of regular interagency process kind of kickstarts and has actual influence on the President's decision making.

 

You know, you could, you could, you could see then, you know, this more scripted strategic approach come into play. But time will tell. I, you know, it's ultimately the President's decision, how he wants to use his national security team.

>> Bill Whalen: Okay, policy area number two, artificial intelligence.

>> Andrew Grotto: So in many ways the, the US China competition can be considered a, you know, Sort of a competition about AI.

 

You know, I mean, there's, there's other, there's other technologies that are, that are really important to the competition, you know, energy, bio, life sciences. But to me, AI is probably the big one because it will have, has the potential to both reshape the way that wars are fought, but also fundamentally change labor markets productivity within companies and have very big economic consequences.

 

A lot of US economic statecraft, coming back to the export controls on chips in particular, has aimed at this, this AI competition.

>> Bill Whalen: Right.

>> Andrew Grotto: The chips that have been targeted for control are the kinda chips that are optimized for developing and using AI algorithms. China, you know, is almost certainly going to be a fast follower of the United States in AI innovation.

 

I think we're still trying to get our heads around what that means in practice. What that means for the future of export controls, right, is will the controls have the effect that we hope they have if China's still able to achieve a certain level of sophistication. What does it mean for competition in other markets?

 

If, you know, China is able to, you know, be a fast follower and offer AI capabilities that may not be as expensive, that may not be as innovative or sort of cutting edge as American, but might be good enough and probably a lot cheaper, what does that mean for us, China, competition over influence in the global South?

 

I could talk about AI for days. So I'll stop there and see if you have any follow on.

>> Bill Whalen: We will come back to it. Now the third policy area, AJ Cybersecurity.

>> Andrew Grotto: Yeah, so in cybersecurity. Scenario I spent a good chunk of my career working in. And we have used tools of economic statecraft in pursuit of cyber security objectives.

 

So for example, I was in the Obama NSC. I was the senior director for cyber policy when the sanctions executive order focused on malicious cyber activity was, was signed by the President. And you could ask, okay, you know what, what, when I had this conversation with my students all the time, it's like, what, what does it mean to say those sanctions have or haven't worked if the overall volume of attacks, say from China haven't, haven't dissipated?

 

And a lot depends on, you know, sort of how you, how you define success. Economic statecraft tools have been used. There are export controls that have been imposed on certain cyber capabilities to stop their spread. But cyber security, I would describe cyber policy as an instrument of economic statecraft per se.

 

I would, you know, there are tools however, in the economic statecraft toolkit that are relevant to US interests in cyberspace.

>> Bill Whalen: And then the fourth area of semiconductors, I would note that a couple years ago the Hoover Institution had a meeting in Arizona and then Governor Doug Ducey came and talked to us and he must have mentioned semiconductors about every 30 seconds in his speech because his state was bringing in companies from Taiwan to build in Arizona.

 

 

>> Andrew Grotto: Look, chips are foundational for not just AI innovation, but you know, whether it's your automobile, your refrigerator, you know, chips are ubiquitous. And any country that is able to gain a chokehold on elements of, of, of the supply chain for chips may find itself with a lot of leverage over, over its targets.

 

And China has leverage when it comes to the critical minerals and materials that are used in chips and chip technologies. But you know, here in the United States we have a chokehold over the technologies that are most relevant to high end advanced node semiconductor manufacturing. For the time being, there really isn't a competitor at the high end for say Nvidia, for example, produces the kinds of, the most popular chips that are optimized for AI applications.

 

Part of the export controls have targeted the equipment needed to produce chips. In both suppose both the controls on the spread of chips as well as the machinery needed to produce them are intended to deny China access to advanced known semiconductors. But over time, right, you know, I mean, China has, you know, an innovative tech ecosystem of its own.

 

It is willing to spare no expense in, in terms of overcoming this, this, this chips barrier that we've, we've put before them and so there's a good chance that in time, you know, China, China will, will come close, if not match US innovation and chips. Is that in 10 years, 20 years, you know, who knows?

 

But that, that time will come. In the meantime, China is going to be a fast follower, you know, and even if it's not able to produce the most advanced chips, which you know may be most efficient for use in a data center for AI algorithms, if China can accomplish a similar level of performance and innovation with lower end chips that are more expensive, China will spend that money.

 

And so I think we will be able to tell in the next, I'd say year or so whether the export controls that began under President Trump, that President Biden has really amplified, extended, have sort of caught China at that point in the curve where their ability to be self sufficiently innovative is truly hampered.

 

So stay tuned.

>> Bill Whalen: Let's talk about China's economic statecraft. The view from Beijing. What does Beijing do differently from the US AG in terms of Belt and Road, in terms of money for infrastructure in other countries? Is there something the US could learn from what China does? Is China do things that we should be doing?

 

 

>> Andrew Grotto: That's a great question, and I see this temptation in a lot of US policy debate about China to mirror image what the Chinese do when it comes to industrial policy, when it comes to other actions, economic statecraft and beyond, there's much we can learn from China. I think the Chinese in particular have been really effective going back decades at identifying areas of vulnerability from their perspective in their supply chains and going out and trying to fix them.

 

Energy diplomacy in Africa and elsewhere aimed at assuring China a supply of fuel. They've done similar actions with iron and certainly in critical minerals where they've been able to really acquire a chokeholder for global supply chains.

>> Bill Whalen: Now the, the way that they have gone about doing this is primarily through a combination of state owned enterprises and heavily subsidized national champions.

 

 

>> Andrew Grotto: That's not something that we ought to, to mirror.

>> Bill Whalen: We don't have state-owned enterprises, we don't have national champions.

>> Andrew Grotto: And so that, that's just that that's an area where we need to find other ways to compete.

>> Bill Whalen: And I think there it's, you know, competing with, with these companies on quality.

 

 

>> Andrew Grotto: Right?

>> Bill Whalen: We can, you know, in many cases we, you know, the US and its allies can offer higher quality infrastructure.

>> Andrew Grotto: Whether that's, you know, a data center, whether that's a train, you name it.

>> Bill Whalen: But we also need to get better at competing on price.

 

 

>> Andrew Grotto: And so there, there's a lot of, there's been a lot of innovation around how to sort of harness and channel private capital in support of some of these, these overseas projects.

>> Bill Whalen: The Development Finance Corporation is the part of the US Government that holds, you know, the most promise for facilitating those, those kinds of deals.

 

 

>> Andrew Grotto: It was actually created under, under the Trump administration.

>> Bill Whalen: China's, it's got this excess industrial capacity.

>> Andrew Grotto: We see that, you know, in, in, in chips where, you know, they, they, they dump chips in the global market.

>> Bill Whalen: They have excess industrial capacity, which part of their, their economic statecraft strategy is to go out and find countries to essentially spend that excess capacity because they spend it at home.

 

 

>> Andrew Grotto: It has this inflationary impact on their economy, which the Chinese government's very keen to manage.

>> Bill Whalen: So you see China become the largest source of bilateral investment in the world.

>> Andrew Grotto: Now, the way that the Chinese do call it development cooperation is very different from the way that we have done it.

 

 

>> Bill Whalen: And, you know, there may be something to learn here.

>> Andrew Grotto: Chinese tend to provide loans, whereas the.

>> Bill Whalen: The model in the US and OECD countries more broadly has really been to focus on aid.

>> Andrew Grotto: Maybe we ought to think about mirroring that aspect of China's strategy and look at not just aid but loans as a vehicle for both helping countries meet their infrastructure and economic development needs, but also defend against Chinese incursions, political or otherwise, into some of these countries.

 

 

>> Bill Whalen: Speaker 2: Final question for you, A.J., so Washington has been awash in Doge for the past couple of months.

>> Andrew Grotto: Doge has touched all corners of government, including USAID, which you mentioned earlier.

>> Bill Whalen: Question for you.

>> Andrew Grotto: Can will economic statecraft survive DOGE or is DOGE going to have an impact on how we economically play around the world?

 

 

>> Bill Whalen: Speaker 1: Yeah, economic statecraft will survive doge, but already the elimination of USCID is put, has removed, at least temporarily, an important tool pool from the economic statecraft toolkit.

>> Andrew Grotto: Speaker 2: Don't you think, don't you think part of that will come back, though?

>> Bill Whalen: Speaker 1: Yeah, I think some of it will come back.

 

 

>> Andrew Grotto: Speaker 2: But it seems to be, not to get too far off topic, seems you have two pools of money here.

>> Bill Whalen: One is the stuff that's hard to defend, the stuff that FOX News goes crazy on when you're, you know, setting, you know, $2 million worth of, you know, profile affix to Uganda or something like that.

 

 

>> Andrew Grotto: But then there's the investment side, which is the more serious money, I think.

>> Bill Whalen: So maybe, maybe cooler heads prevail and that side of usa USAID comes back.

>> Andrew Grotto: Speaker 1: Yeah, I think certain core aspects and funding streams within U.S ID will come back.

>> Bill Whalen: Now when that happens, who knows, maybe this summer, maybe later.

 

 

>> Andrew Grotto: But what it's done in the meantime is reinforce for many countries that are sort of sitting on the fence between the US And China at least would rather not pick a side that actually maybe the Americans aren't the most reliable business partner, to say nothing of the humanitarian impact, which is, which I think is going to be pretty, pretty catastrophic.

 

 

>> Bill Whalen: The other way that I think DOGE is gonna affect economic statecraft is these kinda mass layoffs over the last couple months, which have targeted disproportionately federal employees who are in that sort of probationary period of their employment.

>> Andrew Grotto: You know, people who were hired in the last couple years in many cases were hired because of their technological expertise.

 

 

>> Bill Whalen: And so these are the people who were brought in to help the government think strategically about, for example, how best to develop export controls and semiconductors, how to advance U.S interests in AI innovation, right, where if those people are gone, who's gonna pick that work up?

>> Andrew Grotto: The, the long term effect on the government's reputation as a good place to work, I think is, is potentially catastrophic.

 

 

>> Bill Whalen: Students that have the technical skills to go support development of export controls and semiconductors, for example, are going to have private sector options.

>> Andrew Grotto: And many of them are certainly my students here at Stanford.

>> Bill Whalen: Many of them are willing to forego that extra income that would come from a private sector job in exchange for being, being part of a public service mission and having the opportunity to work on some really cool policy areas that in the private sector just aren't, aren't, aren't, aren't available.

 

 

>> Andrew Grotto: Speaker 2: Now could Doge in some way aj affect the economic statecraft and the great powers competition in this regard?

>> Bill Whalen: Other nations look at what the United States is doing.

>> Andrew Grotto: They see an administration that wants to downsize.

>> Bill Whalen: Government was really not fond of the idea of foreign entanglements.

 

 

>> Andrew Grotto: That was seen to present an opportunity for China.

>> Bill Whalen: Speaker 1: It does.

>> Andrew Grotto: And you know, I think development cooperation areas, one where we'll certainly see impacts.

>> Bill Whalen: You know, the Chinese have, have been running a, a propaganda campaign to denigrate the effect of US Export controls on China to try to persuade Americans and, and, and the Europeans and the Japanese, all of whom have important, you know, roles to play in the supply chain and therefore are key to have on board these export controls that the controls aren't working, that they're futile and therefore why, why bother?

 

 

>> Andrew Grotto: Why, why impose costs on domestic, in your own domestic industry if, if you aren't going to achieve the objectives that you hope to, and you know, it doesn't help the US in making that case when you have, you know, the President, you know, doling out tariffs, you know, like, like he is and in general treating allies like punching bags.

 

 

>> Bill Whalen: You know, it's, it's, it's hard to, you know, you can imagine the conversation, you know, that, that, that, you know, that an ally has internally.

>> Andrew Grotto: If the US says hey look, we need you to roll back, for example, your export of semiconductor manufacturing equipment to China on the one hand, on the other hand, we're going to beat you up economically.

 

 

>> Bill Whalen: It's just, there's just a cognitive dissonance there that I, I don't think administration has thought through yet and comes back to the need for having an integrated strategy in the use of all these different economic statecraft tools.

>> Andrew Grotto: Speaker 2: Well, you know, when the man's not doing tariffs, he is signing executive orders and maybe, who knows, AJ One day yours is going to show up.

 

 

>> Bill Whalen: Speaker 1: I hope it does.

>> Andrew Grotto: I hope it does.

>> Bill Whalen: And there are some really excellent people working in the administration and I hope that they are empowered to pick this up and run with it.

>> Andrew Grotto: Speaker 2: Okay, we're gonna leave it there.

>> Bill Whalen: A.J, congratulations again on the paper.

 

 

>> Andrew Grotto: It's titled again, Economic State Craft, the Deed for an Integrated Approach.

>> Bill Whalen: You can get into the Hoover Institution website, hoover.org so definitely check it out.

>> Andrew Grotto: So enjoy the conversation.

>> Bill Whalen: Thanks for coming on the podcast.

>> Andrew Grotto: Speaker 1: Great to be here, Bill.

>> Bill Whalen: Thanks.

 

 

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>> Andrew Grotto: Andrew Grotto, as I mentioned, co-author of the Essay Pen with HR McMaster, Economic Statecraft, the Need for Integrated Approach.

 

 

>> Bill Whalen: Once again, that's at the Hoover Institution's website, Hoover.org for the Hoover Institution, this is Bill Whalen.

>> Andrew Grotto: We'll be back soon with a new conversation.

>> Bill Whalen: We'll be talking education reform with my colleague Michael Hartney.

>> Andrew Grotto: What's going on in Washington with the Department of Education?

>> Bill Whalen: Also where education stands five years after pandemic brought classroom instruction to halt.

 

 

>> Andrew Grotto: So you don't want to miss that.

>> Bill Whalen: Till then, take care, thanks again for joining us today.

>> Andrew Grotto: Speaker 1: This podcast is a production of the Hoover Institution, where we generate and promote ideas, advancing freedom.

>> Bill Whalen: For more information about our work, to hear more of our podcasts or view our video content, please visit hoover.org.