268: Robert Spalding | How China Took Over America

Transcript for Robert Spalding | How China Took Over America (Episode 268)

Jordan Harbinger: [00:00:03] Welcome to the show. I'm Jordan Harbinger. As always, I'm here with producer Jason DeFillippo. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most brilliant and interesting people and turn their wisdom into practical advice that you can use to impact your own life and those around you.

[00:00:20] Today Brigadier General Robert Spalding, he is the special assistant to the US Air Force Vice Chief of Staff, sounds kind of a big deal. All you need to know about that is that we did this show from a secure room in the Pentagon, which is kind of awesome. This is one of the scariest books I've read in a long time. There's a big part of me that wanted this all to be some sort of exaggerated scare-porn fiction. However, that belief is hard to maintain when you're talking to a China expert working in the freaking Pentagon. War looks a lot different than it did a century ago and the Chinese Communist Party has an outline -- literally has documents for economic warfare and subjugation of other countries and populations -- and it is well documented. Both parties in the USA have really slept on this. The whole of China trying to get the edge on everything. We have slept on this and today we're going to explore some of the current and potential future consequences of this policy or this disastrous policy.

[00:01:14] We already know that US manufacturing is being destroyed in part because of cheap stuff from China -- there's no secret there. This is of course of our own making and China is building electronics and sensors that send data back to China and using that data to feed artificial intelligence systems. And if you heard our episode with Kai-Fu Lee, you know that AI thrives on data and that race will be won with data. Also, the free market system can't exist when the second biggest economy in the world is not really a free market; we'll talk about some of the market manipulation that's happening over there. And we'll discover that China literally prints money and has a really bad balance sheet. We have no idea how deep the ponzi scheme goes. And guess which economies will be left holding the bag? There's a lot in this episode and we go pretty quickly. I hope you enjoy this one and take it for what it is. This is a discussion about China and the Chinese Communist Party, government, and the policy thereof. It's not about Chinese people. It's not about Chinese-Americans or even Chinese people living in China. I love this book and I love this discussion. I'm keen to hear what you think when you're done listening as well.

[00:02:15] If you're wondering how I get guests of this magnitude, well, it's all about that network, baby. Six-Minute Networking is where I'm teaching you how to generate connections for personal and business reasons. Anything you need can be found through your network and I want to teach you how to do it for free, not enter-your-credit-card free, but free, free because the more people that know this stuff, the better. And it's all at jordanharbinger.com/course. By the way, most of the guests on the show, they subscribe to the course and the newsletter. So, come join us and you'll be in great company. All right. Here's General Robert Spalding.

[00:02:48] As I was saying before, this is one of the scariest books that I've ever read and it's one of those situations where I hope you're wrong about a lot of this stuff, but obviously, I don't think you are and I'm pretty sure I'm just engaging in wishful thinking.

Brig. Gen. Robert Spalding: [00:03:02] I wish I was engaging in wishful thinking. You know, when I started digging into this and I thought, "Okay, at some point I'll get to a level where it stops," and it just keeps going. And what's funny, it's still going every single day. Like I was just out in Silicon Valley and I'm hearing more and more and more. You keep digging and you hope to get to the end of it and you don't.

Jordan Harbinger: [00:03:23] Yeah, it seems like a complete and total bottomless pit of problems and the book is called Stealth War. What does this mean in the context of China? Just a 30,000-foot overview because, of course, I've got a ton of specifics here, but I think a lot of folks need to understand what we're talking about in general before we kind of dive in.

Brig. Gen. Robert Spalding: [00:03:43] What it means is underneath everything that's going on in our peacetime environment, our democracy is essentially being undermined at nearly every connection with the Chinese Communist Party. It's not because we have Americans that are treasonous or traitorous; it's because they've essentially been deluded into a vision of the world that actually doesn't exist. I remember sitting in my office in the White House and people would come in and they'd sit on the couch and they'd talk to me about the Liberal Democratic Order and I would say, "Okay explain to me where that exists." As I look across the landscape -- UN, WTO, Bretton Woods -- none of the things that we put in place to ensure the survival of democracy, not just at home, but abroad, works anymore. And so essentially geopolitics that supported democratic principles had fallen apart. It had fallen apart primarily because of economic and financial relationships between the Chinese Communist Party and the rest of the world.

Jordan Harbinger: [00:04:46] So the book, a lot of people will think it's alarmist and think it's sensational. I assume that you don't agree with that and for me, of course, I have no idea. I trust your expertise as somebody who is on the front lines of this whole thing. Also, I think it's important to know this, especially because we get into some down and dirty details here on the show, and you do this well in your book. This is not against the Chinese people. This has nothing to do with American citizens who happen to be Chinese. My wife is Chinese. This about China, the Chinese Communist Party in particular. I want to say that out front because I don't want people to shut their ears because they got offended because they're from Taiwan or China, and they're upset about this. This is literally just the machinations of the Chinese Communist Party, right?

Brig. Gen. Robert Spalding: [00:05:26] Absolutely, and one of the things that the Chinese Communist Party does is try to convince you that when you're calling them out for things that they do that you're really being racist against Chinese people. I mean this one of their talking points. The first thing that I usually try to do when I'm talking to people about the challenge we face is please, in your mind, separate China, the Chinese people, and the Chinese Communist Party, because each of them is different. China is a big place. It's got a lot of different geographies. It's got history. Chinese people have a fabulous culture. They're great people, they're hard-working, they're resilient. I lived there amongst them for almost three years and loved every minute of it and they were such kind, generous people. But the Communist Party that basically sits over the top of that is another completely dark layer in that society. Unfortunately, the way that they've constructed it essentially permeates everything. So when people say China, usually when they're talking about nefarious behavior, they mean the Chinese Communist Party. But the dialectic that the Chinese Communist Party uses is to say they represent all the people of China. They represent 5,000 plus years of culture and history of the Chinese people and that's just not correct. It's not true. But if you don't know China and you don't know the Chinese people and you don't know the Chinese Communist Party, it's very hard in your mind to separate those three things.

Jordan Harbinger: [00:06:54] Yeah, I can imagine that's the case. Now I would love to hear about some of the IP theft because that's what, I think, a lot of us are aware of. In fact, I interviewed the former president of Google China, Kai-Fu Lee, about artificial intelligence a few months ago -- or last year, actually. Some of the feedback I got from people was, "How come you didn't bring up IP theft?" One, the guy is Taiwanese and also lives in the United States most of the time; it didn't make sense. But secondly, this isn't something you do normally with a guest who comes to your show and start accusing them of what their government is doing. But IP theft is a real big deal and I mean we've seen this. It's not just your iPhone cable getting made cheaply by a Chinese knockoff factory. I remember reading a story about how Volkswagen lost engine plans to a Chinese firm, that then started making fake Volkswagen engines in cars for, I think, the Russian market. It's everywhere.

Brig. Gen. Robert Spalding: [00:07:48] The techniques that they use and the strategies that they use to acquire technology are so diverse and so widespread that it's hard to explain the breadth of it all. You know, with just one of the stories and really how this whole thing got started, I outlined this in the book, a relationship that I started while I was at the Council on Foreign Relations with the guy that had a hedge fund invested in China sent me this briefing. In each briefing was a different vignette of a different company, how had been put under duress using some elements of cyber -- but cyber wasn't the primary methodology, it was just an enabler -- or even some methodologies for human what we would call human tradecraft. They had essentially looked at the motivations of the individual that they had gone after using tools for cyber, say to do phishing. Even deeper was the really intense knowledge of, not just a technology they're going after, but the business model that the particular firm was employing. In this one case, it was a chemical company that was essentially in year four of a five-year arc to IPO, where was the private equity company that owned it was intending to IPO the company in the fifth year. In the fourth year, they saw a slight decrease in logistics efficiency. They fired their sales manager. They got the team together. They said, "Hey, we need to pick it up to get back on target," and what they realized within a month, they got an unsolicited offer from a Chinese company that was 30% below the value of the company. And, of course, that 30% below offer exactly matched the performance decrease in the company. In other words, they knew what was going on in the company so that they could precisely value the offer for the company. At this point, the private equity company that owned the company got suspicious, because they didn't understand how these unsolicited offers could be so precise. They brought in an auditing company, they looked at it, and they said yes, not only is the company hacked, but the private equity company is hacked. Private equity company had targets for sales and logistics where they would know something was not right. The activity was happening just below those targets. What they were doing essentially was in sales every once in a while, they'd pull out a bid offer for a job so that the sales efficiency declined 2% to 3%, which is below the targets.

Jordan Harbinger: [00:10:12] So hackers are doing this. They're in the like, CRM or whatever, and they would just nuke or delete -- I shouldn't probably overuse that word, that's scary -- they would delete an order. They would delete some communications. So that something wouldn't go out on time or they wouldn't respond to a bid properly.

Brig. Gen. Robert Spalding: [00:10:26] Right, right, but what's so incredible about this is when everybody thinks about hacking, they think once you're in you just take everything. No, these guys were taking just enough, so that the private equity company wouldn't know something was going on. In the logistics, let's say they got an order for a thousand units of output. They would order a thousand units, but what would show up was 900 units of input because they were changing the orders as they went out. Then they'd have to order another hundred units to make it work and that would increase their cost of goods sold. So it was people that understood not just what they were looking for in terms of the technology, but how the business runs so that they could put it under duress in a way that didn't trigger any alerts. Now what they were looking for in this company was technology. It was only a small part of the company, but they were willing to go through all this effort in order to make this look like it's just another business deal, and usually 99% of the time it works and it was just because a private equity company, in this case, got suspicious about it that it didn't.

Jordan Harbinger: [00:11:30] Yeah, this is nuts. The hackers are in there. They're sabotaging the order system. They're sabotaging the bid system and they're doing it in such a way that it's not like they're taking down the entire order taking system. They lose a week's worth of sales and then they secure their stuff. This is like, oh wow no pun intended, Chinese water torture, it's a drip, drip, drip; and they just go what's going on. They're firing qualified people, they're blaming vendors, they're retooling the software, whatever it is they're doing; and it turns out that there's just somebody in there. It's kind of like Stuxnet. Remember that, where their centrifuges spun slightly too fast? So this is kind of that kind of attack.

Brig. Gen. Robert Spalding: [00:12:06] But even that was clumsy compared to that because it just spread through the machines. This was a targeted operation. That wasn't about cyber. It was really about: how can we put this company under duress so that we can get this technology? I mean you have to understand how business is done in the United States at a very fine level in order to conduct this. So, it's not just hacking, you know how the people are doing business. I would say at some point somebody was either working in that private equity company or they had done their research about the entire operation.

Jordan Harbinger: [00:12:39] So it sounds like what you're saying is somebody might have worked for this private equity company or even this chemical company, and then went and worked with the People's Liberation Army in China or Chinese intelligence or whoever was doing this, destroyed part of the value of the company in an effort to buy the company. To again to be clear, they didn't just want the company, they wanted the technology that the company had, so they found the company that made this technology. They wanted to buy it or steal it, buy it at super low value instead of paying what it was worth, and so they destroyed part of its operational capacity, and then made an offer when it was really struggling. That seems a little bit obvious, but maybe they don't even care about getting caught because at that point they knew the private equity company would want to cut their losses.

Brig. Gen. Robert Spalding: [00:13:22] There are a couple of things wrong. First of all, they didn't go to work for the PLA. What they did is they probably went and worked for a Chinese company, either a state-owned enterprise or a private company, and then that company paid them a bunch of money for what they knew and they took what they knew. And they went to the PLA and said, "Hey, can you help us with this effort?" Or it might have even been somebody that works in the PLA, but they had their own side business where you could go and say, "Hey, this is what I need," and they probably paid him a fee and sure enough, this is what was going on. So yes, I mean, it happens every single day.

Jordan Harbinger: [00:13:56] The idea that economic warfare is warfare seemed a little bit new. We look at things like the destruction of a company or damage to the economy and some of the other things that we're going to talk about here. And we think, "Oh, well, that's kind of crummy, they're cheating on trade agreements." We don't really see this as actual warfare, but it tends to be more effective. I mean you don't need to worry about blowing a hole in a wall if the company can't build the wall in the first place because they can't get supplies and the machines they've got aren't working and the concrete they're using is causing the pieces not to stick together. I mean, you don't have to worry about a missile that's going to blow a hole in that metaphorical wall. We're kind of slow off the ball here in realizing that this is the plan that the Chinese Communist Party has against the Western world, not just the United States but against all of us out here. This is a deliberate plan, according to your book Stealth War, you've seen these plans with your own eyes. This isn't like a hunch you got or based on looking backward and reconstructing facts. There's a document that says this.

Brig. Gen. Robert Spalding: [00:14:52] Yeah, I mean if what you're seeing is the actual execution of a document called Unrestricted Warfare and it was written by two PLA colonels back in 1999. Now I read it when it came out and I said, "This is ridiculous. We're never going to go to war with China." They were talking about using tidal waves and earthquakes. Everything became an element of warfare. It was really dense reading and didn't pertain to the way at the time I thought about warfare. That's part of the problem, because we think about warfare in very much geographic terms. In other words, you use military forces to take territory. In fact, when I looked at that briefing, and I was looking at what they were doing to the businesses, I realized here's a power company and here's a chemical company and I was looking at that and I was putting the pieces together in my head. So, there are two things that I had going on here. I have a PhD in economics and I was B-2 pilot, and so my B-2 pilot looked at that and I said, "Okay, I can see the elements of the way I would conduct an air war over a country that we were trying to put under duress so that we could force them to do what we wanted to do." One good example is Serbia. We used B-2s essentially to take out key industrial and infrastructure targets in order to make the leadership listen to what the US wanted them to do. And so, as I looked at this, I said, okay, these guys, I could tell from my economics background that this was pervasive across the society in such a way that you could see the elements of an airstrike using bombs, except you were using essentially ones and zeros in dollars and cents, data in finance, to essentially do the same thing that we had done in the US Air Force.

Jordan Harbinger: [00:16:32] So we're not just being paranoid here. Chinese Communist Party documents actually state they wish to displace the United States on the world stage and force us to submit, which is kind of terrifying because I don't want to live under the Chinese Communist Party -- say what you will about them being the best capitalists because they are quite capitalistic -- but still very authoritarian there. I don't have to explain this to you, but for the purposes of the audience, you don't have freedom of speech in China, Tiananmen Square, 10,000 or so people were killed there. People I know that live in China, they don't even know it. They've never seen the photos that are so famous over here. They have no clue and we've got to shed this notion that capitalism will quote-unquote fix this totalitarian government and authoritarian rule. That was kind of a Cold War belief, like, "Oh, bring them capitalism, give them a Big Mac, and they'll get rid of these notions," and that just hasn't worked with China.

Brig. Gen. Robert Spalding: [00:17:21] The problem with people -- especially sinologists -- seeing this, because they don't exactly say, "Hey, we want to take over the world." What they say is they want a harmonious world. But in their mind, a harmonious world is one where countries are led by strong leaders that essentially promise their people that they will deliver them economic freedom and for that right, the people give up the right for freedom of speech, freedom of religion, and freedom from oppression. And furthermore, the leadership gets to take an extra slice of the pie for themselves because they are creating this harmonious world for their benefit. They almost look at the people as innocent children that can't be trusted with freedom of speech, freedom of religion, and freedom from oppression. But unfortunately, what happens is they take from free countries that don't agree with that social contract. So in the west, you get all four freedoms, where in China you get just that one freedom. But because of the existence of the other three freedoms, the Chinese Communist Party has to constantly work to suppress those ideas so that they don't take root amongst their own population.

Jordan Harbinger: [00:18:33] Right, so this is like a paranoid delusion where freedom and our rights are an attack on the Communist Party. This is literally the plan. It's not just, "Oh, we hate freedom." No. "Freedom is bad because it leads to all these other problems. Look at all the problems you're having; let's get rid of this pesky freedom." What do they use? The sunflower analogy: every nation will face the sun, which happens in their opinion to be China, and then look, we're all living in peace because everybody that disagrees with us is dead or in jail.

Brig. Gen. Robert Spalding: [00:18:58] In 2013, an internal Chinese Communist Party document came out called Document Number Nine. It was translated and essentially if you read that, that's exactly what it says. It says universal freedoms are not really about that's the right way that people should live. It is really designed to destroy the Chinese Communist Party. And this is about the time, by the way, that Xi Jinping was taking power. So if you want to find somebody that truly buys into the Chinese Communist Party Maoist-Marxist-Leninist doctrine, the epitome of the good soldier is Chairman Xi.

Jordan Harbinger: [00:19:36] I'm going to go to a little historical perspective here for a second. Earlier on during the Cold War, China was allied with Russia and essentially leeched off their technology and their money during the Cold War. So do you think that China has then switched over to the United States since maybe Russia is less useful these days?

Brig. Gen. Robert Spalding: [00:19:53] Of course they used the Russians to get nuclear weapons to get essentially fighter jet technology, most of it was military. But in reality, they copied some of the economic models of the Soviet Union and, of course, we all know how that turned out. So, in the '70s, Deng Xiaoping basically said, "We're going to open up and reform." He has a famous statement. "It doesn't matter if the cat is white or black, as long as it catches mice," which meant that we needed to be more pragmatic in how we organize ourselves economically and the best way to do that, and he went on a famous tour of the United States, and for almost every time that a Chinese Chairman of the Communist Party would go to the United States, they would go to DC, of course, but they would actually spend most of their time talking to US corporations. So I think back then, it was like Ford, and I think one of the oil companies, and Boeing that Deng Xiaoping went to. But every single time they would come, they would come to one of these big US corporations and they would ask for help. And of course, the implicit guarantee would be, "Okay. You can have access to 1.4 billion Chinese, just give us your technology when you do that."

Jason DeFillippo: [00:21:01] You're listening to The Jordan Harbinger Show with our guest Robert Spalding. We'll be right back.

Jordan Harbinger: [00:21:05] This episode is also sponsored by HostGator.

Jason DeFillippo: [00:21:08] It's 11 o'clock. Do you know where your website is? Looks like there's another outage at your target audiences' primetime. Costing you precious dollars every minute when it's down. It's a grim scenario that's played out daily across the globe to the frustration of small business owners like yourself and your customers. With web hosts as plentiful as the stars in the sky offering the park that prized domain within your modest budget, it's no surprise you're going to pick a few duds along the way. If you've entrusted it to anyone who's not been in the business of providing secure, efficient, simple and affordable web hosting services since 2002, it's anybody's guess as to why your site's down again. But if your website is handled by HostGator one of the oldest and most trusted services on the Internet, it's up and running just like it should be. HostGator's 99.9% uptime guarantee and around-the-clock support ensure your website is available to the eyes of the world every day and night of the year. Got a tight budget. No worries. As long as you're a new user you get to try any HostGator package for up to 62% off the normal price, just for hearing the sound of my voice. And if you're not completely satisfied with everything HostGator has to offer, you've got 45 days to cancel for a full refund of every last penny. Check out hostgator.com/jordan right now to sign up. That's hostgator.com/jordan.

Jordan Harbinger: [00:22:21] This episode is sponsored in part by Xero. We've been using zero four years here. It's a cloud-based accounting software. We actually went after them to sponsor the show because Jen loves it. It's fast. It's intuitive. It's easy to use. It's for people maybe some people like me who hate the idea that they even have to do accounting in their business. Xero makes the whole thing painless. They're really, really good, especially with multiple currencies. So, if you're accepting payment in a lot of different currencies, Xero is a really good product to have, if you're international if you're doing a bunch of business online. A lot of our entrepreneur friends use it. It's what the cool kids are using these days for accounting in their business. You can give access to an unlimited amount of users, so you're not swapping your login with someone who maybe shouldn't have access to everything. Also, it works really, really well to give access to your accountant. They've got access to everything that you need them to and if you need an accountant, Xero can actually connect you to the experts as well. You can also pay by month. There's no contract. Let's say that you're hypothetically a terrible manager you go out of business in a few months, you don't have Xero banging down your door for some annual contract. Not that they would do that. They're extremely nice people. They're based in New Zealand and I know New Zealand, how am I going to get help when I screw something up at 7:00 PM on a Sunday. They've got 24/7 support for you. These are very nice people that are also willing to stay up 24/7 and make sure that the thing is working for you. So, you can make your mistake over the weekend like many of us small business people do and not wait till Monday to have to call someone who's angry that you interrupted their coffee break to get help. 24/7 support from really nice people, really great piece of software. You can also view things from iPhone or Android apps, and that, of course, helps when you need to check your dashboard in an Uber, on the way to the airport, on the way to a meeting, or you're just checking your business status under the table during a boring lecture because knowing you're making money sometimes makes all those meetings worth it. Jason.

Jason DeFillippo: [00:24:17] Try Xero risk-free at xero.com/jordan. That's zero with an X, X-E-R-O xero.com/jordan for a free month. You'll thank us later.

[00:24:25] Thanks for listening and supporting the show. To learn more and get links to all the great discounts you just heard from our amazing sponsors, visit jordanharbinger.com/deals. Don't forget we have a worksheet for today's episode so you can make sure you solidify your understanding of the key takeaways from Robert Spalding. That link is in the show notes at jordanharbinger.com/podcast. If you'd like some tips on how to subscribe to the show, just go to jordanharbinger.com/subscribe. Subscribing to the show is absolutely free. It just means that you get all of the latest episodes downloaded automatically to your podcast player, so you don't miss a single thing. Now back to our show with Robert Spalding.

Jordan Harbinger: [00:25:05] When you're not talking about a cellphone charger and you're talking instead about an intercontinental ballistic missile, it starts to get a little scarier, or Internet firewall technology and things like that -- surveillance technology.

Brig. Gen. Robert Spalding: [00:25:16] Yeah, and they couch it in very benign terms. "We want the same thing you want. We just want peace. We want a harmonious world. We are essentially like you." Everything that the Chinese Communist Party does is obfuscated. They have very little knowledge of what they do and what they believe. It sounds wonderful and in fact, the Chinese Communist Party functionaries are probably some of the most professional liars that you ever meet because they're taught to lie. And in fact, you know, everything that they do in terms of their promotion is based on how well they are able to essentially tell that lie and believe it. And so Americans essentially get sucked in and they believe that they're building a world that's better for both sides. But in reality, they're promoting a world that actually has a completely different worldview than our founding fathers did for the country.

Jordan Harbinger: [00:26:12] Can you explain how IP theft hurts us and not just some big company? Because I think a lot of people are going, "Wah-wah-wah. Who cares if Apple gets some stuff stolen? I don't have stock in Apple. Who cares if they're making cheap iPhones? Keeps them on their toes." I think there's a certain subset of people that really do think that way. "Okay, fine. You lost your advantage, but look, people are still buying Apple products. What's the big deal?"

Brig. Gen. Robert Spalding: [00:26:33] Well, let's just take it down to just an example that people would totally understand. Let's say you want to go start a business. You have a great idea for some new product that you think everybody will love because it will make their life more convenient. So you pay somebody to do the engineering for you, you pay somebody to do the marketing and advertising, and you invest your own money in it. You work and you build a business and say you build a business for a product and you begin to sell that product on Amazon. You're selling it and over the course of three, four, five, six months you develop a great reputation on Amazon, five-star rating, the product's selling like crazy, you're doing well. And then all of a sudden, you notice you got a four-star rating, you got a three-star rating, then you get a returned package. You open it up and it's a broken thing that looks like the product that you made, but you can tell right away that this is not the product you made, because you engineered your product not to break in the way that this did. Clearly, the packaging is not what you sent out. And so you call Amazon up and you say, "Hey, I built this business and you're letting this counterfeit be sold on your website in my name using my same marketing and advertising materials." And Amazon says, "Hey, that's not my problem. That's your problem." And you say to Amazon, "Okay, but can you give me the name of the company? And I'll call them up and say stop it and we're going to file a lawsuit." And Amazon says, "Well, that's not our policy." So it not only hurts big companies, it not only hurts the United States economy to the tune of $300 to $600 billion a year, it hurts individual entrepreneurs that want to start businesses in the United States. As everybody knows, most of our new jobs come out of startups -- entrepreneurs that are coming up with a different way to do things -- that is being absolutely destroyed by this pervasive ability to just steal everything.

Jordan Harbinger: [00:28:29] Right, so this happened with the Frywall from Shark Tank. This guy had this really good product and Amazon didn't care. They let Chinese counterfeiters run rampant, and damage his business. Also, A.J. Khubani, the As-Seen-On-TV guy, had a multi, multimillion-dollar business and Amazon just didn't care. It's disappointing because I like to think Amazon is one of these great American success stories and it's almost like they just don't care about other Americans doing business, which is really disappointing.

Brig. Gen. Robert Spalding: [00:28:57] Well, I think to them, it's really part of the cost of doing business, like you can't do anything about counterfeiting. I think what I try to explain in the book is that during the Cold War, there was a tight integration between democratic principles and free trade. In other words, these democracies all had rule of law. They all followed the rules and that's how our international order was able to function. When the Cold War ended, we basically said, "Okay, all of you former totalitarian governments, you're going to democratize now, so come on in," and even after June 4th, 1989 when we had Tiananmen Square and it looked like the Communist Party might be going the other way, we still said, "We're going to keep you in because what happens is over time open markets lead to wealth, and if you get the wealth, you're going to democratize. And so we know that you're not going to follow rules in the beginning, but eventually you will begin to follow the rules."

[00:29:47] And even when I was living in China, I lived there from 2002 to 2004 the first time, and all of my neighbors were building Fortune 500 factories in Shanghai economic zone, and what they told me is, "Oh, we are going to instill Western business practices into our Chinese employees." And you know, I thought at the time that was hubris, but at the same time they were very convinced and they believed that it was going to happen. So, we believed that once they got to $6,000 to $8,000 meeting income for society, then all of a sudden, the Communist Party would say, "Okay, we're going to open up and democratize." Of course, what the Chinese Communist Party said is, "Okay, you're going to let us have access to everything and you're not going to prevent us from doing these things? Well, we're going to take advantage of it. We're going to keep control of the society, and we're going to use all your technology, talent, innovation, and capital to increase the power of China and to fill our pockets."

Jordan Harbinger: [00:30:44] I know that US manufacturing has been destroyed essentially because of cheap stuff from China. I don't think that's controversial and I don't think we probably need to explain that. But what's scarier is the Chinese-built electronics and sensors that end up sending data back to China. Can you tell us a little bit about like 5G networks? TVs and phones are one thing, having surveillance technology in your TV is scary. Obviously, the phone is scary. 5G makes it a hundred times scarier because it's a hundred times faster and it's machine-to-machine.

Brig. Gen. Robert Spalding: [00:31:18] In the 4G world, the network itself is a pipe and the platform for the app services and business models of that world is the smartphone, so Android and iOS, Google and Apple were the two primary platforms of the 4G world. That's because, in 2007, the iPhone came out and then the United States was the first to build, or actually the second country behind, I think, Finland, to build a nationwide 4G network. And so the combination of this smartphone as platform in the 4G pipe led to the Facebook, Apple, Netflix, Google -- the fangs that we talked about today in a rapidly growing economy -- and all these unicorns like Uber and Airbnb. In 5G, the platform migrates to the network itself. In other words, the network blends the pipe and the computer all in the same platform. And so what China realized was that if they could build the platform for 5G and they could be the first to build the 5G Network in China, then they would own the 5G economy. So all that explosive growth that we got from the Facebooks, the Amazons, the Netflixes, the Googles, the Ubers, the Airbnbs, they would have the 5G version of that and the ones that would benefit are Baidu, Alibaba, Tencent, and their essential tech companies. More importantly, as that 5G network blends computing and networking, that that platform would allow you to eventually move away from the smartphone because, rather than needing to have that device to call an Uber, that because of the cameras and the microphones that were arrayed around the city, that you could essentially walk out to the street and say, "I want an Uber," and an Uber would show up, and facial recognition would recognize you and charge your account, take you where you want to go, and that all this data would be available to these large tech companies. So they knew everything about you, so they could influence the way you thought about how to make money. What's interesting about this is all of the algorithms that Amazon uses, that Netflix uses, that Google uses to influence you, we're taking over to China and repurpose, so that they cannot just influence you for commercial purposes, they can influence you to be a good citizen in the way that the Chinese Communist Party defines it.

Jordan Harbinger: [00:33:35] Wait, I'm going to be able to walk outside without my phone and just say, "Give me an Uber," and something hears me and sees that it's me and then sends something to my location?

Brig. Gen. Robert Spalding: [00:33:44] That's what 5G is about.

Jordan Harbinger: [00:33:46] I sound old, but I don't want that. I know I sound like an old person like, "I don't need one of the smartphones." But I don't want that at all. That's really weird. I know I'll probably in 10 years be like, "This is so convenient," but I don't really want that and I certainly don't want that sending my data back to China. We interviewed Kai-Fu Lee earlier on the show as I mentioned before. He said one of the strengths of China is in AI and why they're going to win that race in his opinion is because they have more data, and data is the gasoline in the AI engine. So if they're taking our data from 5G devices and piping that back to China, I have to just trust that the Chinese Communist Party, who treats their own people almost like slaves, is going to treat me better and not do that to me.

Brig. Gen. Robert Spalding: [00:34:27] And Kai-Fu Lee is absolutely correct, but it's not because they have more data. The United States has data, the government has data about you, Facebook has data about you, Amazon has data about you, but there are laws. There are privacy laws, there are silos around that data. The benefit that the Chinese Communist Party has is they have access to all of it. And so when you start to bring all of those pieces together, you get a fulsome view of the person -- who they are, what their motivations are, what their weaknesses are, how they can be influenced one way or the other, who they surround themselves with, essentially everything about them. And then you can begin to put things in their life that are either impediments to them being successful because they are essentially an outlier and that's why I call it Six Sigma fascism. It really is about suppressing the outliers in society using automated algorithms based on all the data you're collecting on them. Now, if you're worried about ideas coming from afar and being interjected into your society, you need to export that, so that's what the Belt and Road Initiative is about. That's what Made in China 2025 is about. So you own the technological fabric of the whole world, your tech companies ride on top of that technological fabric, and then you're able to influence people at the individual level to do the things you want.

[00:35:47] Here's a very clumsy example of the 4G world. Roy Jones, I talk about in the book, a guy that works in Omaha, Nebraska for Marriott Corporation, who's working for them, looking at social media, likes a tweet. Somebody in Shanghai sees it, calls the Marriott Corporation, says to fire the employee and to apologize for liking that tweet. And what did Marriott Corporation do? They fired Roy Jones and they apologized. The kind of influence that I'm talking about that's pervasive throughout the 5G world is something that you will never see because your kid won't get into a college that they had applied for, but nobody ever tells you why and nobody ever tells you why you didn't get that job, and you're not going to know that you pay more for your car insurance than your neighbor or you pay more for your mortgage than your neighbor unless you compare notes and you're not going to know why you paid more because the entire system is built to slow you down and speed other people up. And this is all based on whether or not you're a good citizen in the way that the Chinese Communist Party defines it.

Jordan Harbinger: [00:36:54] This is like the social credit score that we have over there. It makes sense when my Chinese teachers talk about this -- I take Chinese lessons in the mornings usually -- she'll say something like, "Oh, what happens if you shoplift in the United States?" And I'll say, "Oh, well, you won't be able to shop at that store anymore." And she goes, "What other negative consequences happen in your life?" And I said, "Oh, well, you know, you can get caught and arrested." And she goes, "But what else?" And I'm like, "Well, that's pretty much it." She's told me that if you're a bad dog owner in China, you can lose your dog. They'll just come and take it away. If you smoke on the train and you don't respect that rule, you can't ride the train anymore. And I was like, "Well, that sounds like a reasonable thing to do." But what I read, of course, in your book and what she didn't explain because maybe she doesn't even know this, is that if you are related to somebody who spoke out against the government or who is an artist or who maybe is a freethinker, you just can't get into any colleges and then you can't get any good jobs and your kids can't get into any colleges and get any good jobs and it just seemed they might say, "Oh, sorry, the school's full." What they don't say is the school's full of people that did the right things and 10 years ago, your dad did the wrong thing and now you are never going to get a break. You're always going to look like you have bad luck. And it's actually engineered that way on purpose.

Brig. Gen. Robert Spalding: [00:38:02] You think, wow, this is 1984, this is a science-fiction movie. It can't be real. You know, a country can't actually be doing this and they can't be designing it. So it actually arrives on top of the international economic and financial order, but yet there it is. I mean when you look at for instance what Huawei has done and what the Chinese companies have done in terms of 3GPP, which is the standard-making body for 5G, they have so many engineers that are working in those standard-making bodies to essentially engineer the 5G technology.

Jordan Harbinger: [00:38:34] By the way, the tweet that Roy Jones got fired from Marriott for was he liked a tweet about Tibetan Independence and I don't know if they tagged Marriott in there. He's just liking things that mentioned his company. It was literally his job. Somehow, they expected him to be an expert on the Tibetan independence Chinese political situation. And they fired him for that because it looked like Marriott then supported Tibetan independence from China. It's ridiculous.

Brig. Gen. Robert Spalding: [00:38:59] Which is exactly what happens in the United States, you know in diplomacy when you're taught to do diplomacy for the United States on the China account, the first thing you're taught is we never ever, ever confront China in public about the things that they do. We only do it in private. And every time there is a dialogue between a US leader and a Chinese leader, it doesn't matter if it's a State Department or Defense Department, usually the Chinese will put out a press statement right afterwards and usually the US side won't put out a press statement. And so what happens when you never confront the Chinese in public and when you always decline to have your own version of what happened is that they own the narrative. Not only do they own the narrative, they're able to make it look like the United States supports everything that they're doing.

Jordan Harbinger: [00:39:45] It's almost like consent through silence. Well, you didn't say anything, so we're going to put out our version of events and just keep doing that, and that's the version of events that actually takes hold, but we're talking about a propaganda state that is very well versed in telling people what they should think. So, for us, not to sort of counteract that version of events seems dangerous. We're slowly having our freedoms eroded by our economic connections to a totalitarian state that openly opposes our core values as Americans.

Brig. Gen. Robert Spalding: [00:40:11] Right, when you negotiate with them for things as I did for the confidence-building measures in the Department of Defense with regard to maritime issues, they went over every single word in the document and they would parse words. And then finally when we couldn't agree on the word that they wanted, they just went ahead in the Chinese version, they put the word that they wanted and then we had the word that we wanted in the English version. So even for their own people, what they are able to do and then for all Chinese language speakers in the United States and in other places, their version of events, even an agreement essentially is often at odds with what the other party is doing.

Jordan Harbinger: [00:40:50] A lot of people argue that, look, free market forces are self-regulating. So what's the problem here? This is the free market to play. This is what happens -- there might be some externalities or negative externalities -- but this is what happens in a free market system.

Brig. Gen. Robert Spalding: [00:41:05] Well, and that's exactly the point, as I said in the beginning. It's not that people are traitorous or treasonous, it's that they believe in the free market system. The problem is that we've so allowed the Chinese Communist Party to hijack the free market system that it no longer represents a market-derived price for goods. It is a China-derived price for goods. In fact, I was working on an effort to bring back microelectronic manufacturing in the United States and what you find out is one of the challenges we have is that China has negotiated component prices from all of our manufacturers, chip manufacturers, and then when somebody from the United States says, "Hey, I want to manufacture a circuit board here," they go to those component manufacturers and they say, "Well, I'm not going to give you the China price." And so if you want to do manufacturing here for circuit boards, you have to go to China to buy components that were manufactured in the United States, because there you can get the China price. So essentially they hijacked the supply chain using the fact that the entire economy is driven by the Communist Party, and they can force entire industries to do exactly what they say.

Jordan Harbinger: [00:42:16] This isn't free market then, because China's market isn't free and they're looking at long-term gains. They can make something cheaper than it actually costs to make in order to drive US manufacturers out of business or US suppliers or foreign suppliers out of business, and then they can do whatever they want. And I guess you can't really have a free market system when the second biggest economy in the world isn't actually a free market. I mean, we know about currency manipulation -- we hear about it in the news. What about things like ownership rights and IP rights? I know you mentioned that in the book as well. The Chinese Communist Party can just take your company and say, "Your company belongs to this other guy now because we like him better and we say so."

Brig. Gen. Robert Spalding: [00:42:54] Well, ownership rights and property rights depend on this thing called the rule of law. And there is no rule of law in China. It is the Chinese Communist Party rule by law. In other words, they use the legal system to get what they want. So for instance, if you're running a company and they don't like what you're doing, essentially the Communist Party can grab you, put you in detention for up to six months, and then they'll figure out what they're going to charge you with, then they'll take you out of that detention, they'll put you into the legal system, and the legal system will essentially prosecute you for whatever the Chinese Communist Party has decided they want to prosecute you for. And you know, of course, there's a 99.99% prosecution rate.

Jordan Harbinger: [00:43:39] Yeah, conviction rate, I would imagine.

Brig. Gen. Robert Spalding: [00:43:41] Conviction rate, yeah.

Jordan Harbinger: [00:43:42] So the Communist Party controls all aspects of the economy. They control all the companies. They own all the companies in China. They control all the infrastructure. They control all the laws. They control all the contractual agreements. And I know that you mentioned that Chinese attorneys take an oath to the Communist Party. So if you hire a Chinese lawyer to fight anybody -- another company -- that lawyer is loyal to the Communist Party before you. As an attorney here in the United States -- or former attorney here in the United States -- the idea that I might be loyal to the government before my client is absolutely insane.

[00:44:15] You're listening to The Jordan Harbinger Show with our guest Robert Spalding. We'll be right back after this.

[00:44:23] This episode is sponsored in part by BiOptimizers. Here's a shocking fact about probiotics which by the way are all the rage right now. I'm sure you've heard about it. You get to take them before, during, after eating. I don't even know. But according to Naveen Jain, who is the founder of Viome, the at-home test that measures gut bacteria count, almost no probiotics show up in people's gut analysis and that means that 99% of probiotics out there don't colonize your gut as claim. I know a supplement that doesn't do what it says it's going to do; I can't believe it. But research still shows that we need good bacteria to fight the bad guys. So, what do we do here? There's a single-strain proteolytic probiotic called P3-OM. It uses a patented/natural process to upgrade a well-researched probiotic strain. So, this super strain is like the Navy Seal of probiotics. It kicks bad bacteria is butts. In fact, I recently went to Mexico got a little bit of the Montezuma's Revenge here, toss down some P3-OM. Let's just say you could sense the Battle of Epic Proportions going on inside my stomach. I'll leave it at that but P3-OM, the patent proves the strain is proteolytic meaning it digests proteins, like viruses and antivirus stuff like that. It eliminates pathogens. It eliminates waste of maintainable in the digestive system. And what's it's in your body. It doubles every 20 minutes and then you get rid of it. It doesn't colonize your gut. You get rid of it after it does the job, so to see it in action go to p3om.com/jordan, p3om.com/jordan. You can watch it dissolve a piece of raw steak. What I love about them and these guys is they offer a full 365-day full money-back guarantee so you can try it for a year and see how you like it. And if you don't find it to be potent, if it doesn't work for you, the support team will give you all your money back. And my friend runs this company so it's not like, "Yeah, we're not going to be around until the end of the year." My friend runs it, a successful guy. He's going to give you your money back if you so require. So, when you go to p3om.com/jordan, just be sure to enter the coupon code Jordan20 and get 20% off. So, try it risk-free and enter Jordan20 to get 20% off and let me know how everything comes out. Actually, keep it to yourself.

[00:46:36] This episode is also sponsored by UNTUCKit. Button-ups that are traditional look long. They look baggy if you wear them untucked and that's because they were never meant to be worn that way. UNTUCKit shirts were specifically designed to be worn untucked. So, it's the brand you've been looking for. UNTUCKit it is, it's the original untucked shirt, a modern solution to an old problem with no tucking, no tailoring required. No matter your size or shape, their shirts are the perfect untucked length. And you also don't get that weird sort of high-thigh cut weird shirttail front-back thing because those are designed to be tucked in. That's why shirts that are designed to be tucked in look weird when they are untouched so if you've been frustrated with shirt buying in the past. UNTUCKit is going to help you out with that. They've got all these great stores around some of the big cities. You can go in and try stuff on they've got more than 50 fit combinations. So, they look good on tall guys, short guys, slim guys, athletic guys, guys of all ages. My torso is like an inch shorter or something than most guys, so everything looks a little off. UNTUCKit can help fix that and they've got great material design and color options. So, you're not wearing something that looks like straight-up dad mode, unless of course, you want to look like straight-up dad mode. They've got online brick-and-mortar stores all that stuff, so if you're one of those people who's like, "I need to see it and feel it before I buy it," go in and try stuff on and then you can order from there. Jason.

[00:47:58] You can try it on in person at one of UNTUCKit 50 stores or go to untuckit.com to get started. They even offer free shipping and returns on all orders in the US. You can save 20% on your first order by using our code JHS at checkout. That's untuckit.com, promo code JHS for 20% off your first order.

Jordan Harbinger: [00:48:18] This episode is also sponsored in part by BetterHelp. If there's something interfering with your happiness or preventing you from achieving your goals might be a little time for therapy all know. I'm a huge proponent of therapy here on the show and BetterHelp offers licensed professional counselors who are specialized in issues, like depression, stress, anxiety, relationships, sleeping, trauma, anger, family, conflicts, grief, self-esteem. Humans are complicated and it helps to have someone to talk to who knows what they are doing. And you can connect with your professional counselor in any sort of safe and private online environment that you want. You can text. You can chat. You can go sit in your car and do frigging FaceTime. You can do phone calls. You got to get help at your own time and at your own pace, and I know you're not going to do it if you have to drive all the way across town. You got to sit in a waiting room. You've got to deal with that whole thing. You just not going to do it. You're going to rationalize that you don't need it. With BetterHelp. You can go to the parking lot, sit in your car during your lunch hour, and do a quick session. If you're not happy with your counselor, you can always request a new one at any time. There's no charge for that. It's your sanity. It's priceless, but we do have an offer for you. Jason.

[00:29:25] You get 10% off your first month with discount code Jordan, so get started today. Go to betterhelp.com/jordan. Simply fill out a questionnaire to help them assess your needs and get matched with a counselor you'll love. That's betterhelp.com/jordan for 10% off your first month.

[00:49:41] Thank you for listening and supporting the show. Your support of our advertisers keeps us on the air. To learn more and get links to all the great discounts you just heard, so you can check out those amazing sponsors, visit jordanharbinger.com/deal. Don't forget we have a worksheet for today's episode. That link is in the show notes at jordanharbinger.com/podcast. If you're listening to us in the Overcast player, please click that little star next to the episode. We really appreciate it. Now for the conclusion of our episode with Robert Spalding.

Jordan Harbinger: [00:50:09] Let's talk about Belt and Road a little bit because this reminds me of this book I read a while ago Confessions of an Economic Hitman.

Brig. Gen. Robert Spalding: [00:50:15] Right, I did read that. That was great.

Jordan Harbinger: [00:50:17] Belt and Road sounds like, "Great! China's investing in Africa and Central Asia. This is good news. They need infrastructure." What's the real catch here?

Brig. Gen. Robert Spalding: [00:50:25] It's actually interesting. A consulting firm came in while I was in the White House and they had this presentation and the first page of the presentation said, "We have this great idea that the United States should partner with China in Africa to do development." Then they proceeded to explain how the Chinese essentially had a six-step process for taking the authoritarian countries that are in Africa and bringing them into an IT-based, authoritarian, modern version of what they had. So you go all the way from dirt roads to 5G networks within a generation. And essentially, it's all connected to the Chinese Communist Party. And so what they would do is they would find a resource that China needed for manufacturing. Let's say like cobalt in the Democratic Republic of the Congo, they would build a mine. And they would find a port where you could take that out. So, then they would build the port, probably in a different country because the Congo is in the middle of Africa. And then they would build the rail, and they build the road, then they would put fiber, and telecommunications, and electrical power, and water. So now you have essentially the skeletal pieces of an industrialized economy. And then what was happening and what this company said is the biggest investment in Africa right now is low-value added manufacturing, so textiles, shoes, the type of things that China wants to offload, so they can have high-value manufacturing like computer chips. Well what happens after you have manufacturing? You need housing, so you have urbanization. But what happens after that? Then you start installing the AI-powered cameras, and you start selling smartphones. So they had designed these $50 smartphones that they were selling to the African citizens. They were so proud of themselves, this consulting company, and they even made the picture app better recognize dark-complected faces. I'm sitting there and I'm just amazed and horrified at the same time because I'm realizing that essentially this thing is an entire engineering of exactly the society that China wants to have and it's all under the auspices of doing good for other people. By the way, there were tens of thousands of Chinese working in this in these countries because there's excess in the male population in the country of China. It was a win-win-win for the Chinese Communist Party. And it was interesting and I looked at it and I listened to the presentation and I asked the presenter, I said, "Okay, who did you interview?" First I said, "You got a lot of Chinese speakers to do your interviews, didn't you?" And they said, "Yes," and I said, "Who did you interview?" And they said, "Well, we interviewed the owners of the companies who were Chinese and we interviewed the government leaders." I said, "Did you interview any of the citizens?" And they looked at me strangely and they said, "Well, you know, every once in a while, I would talk to a taxi driver," and I said, "You know, this is a problem because we look at the modernized world as a net-net win, but we don't understand all of the things that are going on underneath to actually continue to make essentially modern-day slaves using this IT-based authoritarianism." It was incredible.

Jordan Harbinger: [00:53:32] Now that we're all thoroughly depressed, what are China's vulnerabilities here? I know that you've mentioned we can't audit China's books. So we actually have no idea if this is sustainable, and it sounds a lot like, in a way, a Ponzi scheme with all the construction, and the loans, and the fake bonds, and the fake fundraisers, and companies with no value that are trading on US stock exchanges based on assets they just say they have that nobody's seen, these reverse mergers and things.

Brig. Gen. Robert Spalding: [00:53:59] Right, and essentially the Chinese Communist Party has the same vulnerabilities that any totalitarian regimes have, and that is that they don't permit basic freedoms for their people. Now the way they get past that, and the way that they have legitimacy, is to essentially deliver constant economic growth. It's almost like a shark that has to continue to swim in order to survive. Their economy has to continue to grow in order for the Chinese Communist Party to have legitimacy. And so once you start disconnecting them from the Western capital markets, from Western innovation, from Western talent, and Western technology, then they have to essentially make it on their own auspices, and essentially, they can't because at the end of the day, they are a totalitarian regime. So once you start to do that and you begin to once again invest in the West, invest in the United States and other democracies, then you can have economic growth in those countries again. And essentially, you can say the model isn't better. It was just a parasitic economy on democracies.

Jordan Harbinger: [00:55:00] What happens when you've tried to ring alarm bells in Washington on this? Because it sounds like this should be really easy to fix. We just need to stop China from cheating within our economy. What's the problem?

Brig. Gen. Robert Spalding: [00:55:12] The problem is really that a lot of people in the United States, a lot of very wealthy people, got a lot more wealthy in the last 20 years because of what was going on. All of the offloading in manufacturing took away millions of blue-collar jobs, but it increased the margins for the people that own those businesses. So look at Apple, for example. Apple has $265 billion in cash. Now it has offloaded its manufacturing to a country that essentially exploits labor and pollutes the environment, and it did so in order to increase its margins. With that much cash on hand, Apple could have easily manufactured in the United States and made more of a normal profit. They didn't need to make margins in the manner that they did. So in essence, what the Chinese Communist Party did is co-opt the rest of the world. The way they did it is the same way that America used to be successful: individual profit motive was aligned with national interest. In other words, if you were getting rich, the country was getting stronger. What they figured out how to do is hack that and make sure that if you were getting rich in America, in Asia, then China was getting stronger, because they had built the incentive system according to this model that said we can let China do whatever they want because they're a developing economy.

Jordan Harbinger: [00:56:32] Right, so we have this massive influx of Chinese government money into things like hedge funds and securities brokerages that looks like China's investing in the United States, but those investment dollars to China, they're not invested in the United States. They're invested in China and then the funds can't be repatriated to the US. So all these US companies, banks, and everyone who says, "Oh, yeah, we've got all this money. We've got all this money." It's in China and you can't get it out. So it could, overnight, just go to zero and then we as taxpayers, we might have to bail out these banks again. I was really concerned that the bank bailout money didn't just go to our economy, a lot of it was pushed overseas in the name of profits where it remains.

Brig. Gen. Robert Spalding: [00:57:10] And that's exactly right. We're $5 trillion in arrears in infrastructure, our spending on basic science research is at historic lows, our STEM education. We used to send kids on federal grants particularly during the space race. Those were how we educated our scientists. And then our manufacturing base is decimated to the point where now you have essentially the Chinese companies manufacturing the circuit boards for F-35.

Jordan Harbinger: [00:57:36] What can we start to do about all this? I know you only have a few minutes, but where do we begin?

Brig. Gen. Robert Spalding: [00:57:41] So as I lay out in the book, it is fairly simple. Start talking about democratic principles and free trade principles as a complete package. In other words, we can't just open ourselves up to totalitarian regimes. We essentially have to pair ourselves off with democracies. Protect our financial system, protect our trading system, protect our investments -- particularly in technology -- protect our schools -- we've got 400,000 students in our universities -- protect our media -- we have all Chinese language media in the United States is run by the Communist Party, protect our political system, because a lot of our politicians get donations from these Chinese individuals and companies, and then finally, most important, protect our Internet -- a secure, encrypted Internet -- so that it's not so easy to influence the population or steal their data. And then invest in America, invest in STEM education, research and development, infrastructure, and the industrial base. Use some of the $800 billion that we're spending on defense to stimulate reinvestment in the United States in manufacturing. And then finally, get back together with other democracies, forge a new consensus around democratic principles, rule of law, civil liberties, and human rights. And enforce that at the UN and the WTO, make the totalitarian regimes follow the rules by sticking together as democracies, not just in the security sense, but also in economic, financial, and trade sense, as well -- in a diplomatic, in a cultural, in a political sense where we promote these foundational values.

Jordan Harbinger: [00:59:16] General, thank you so much. I know you've got to run, you've been very generous with your time and expertise. And after we close, I'm going to explain why it's even worse than we explained here on the show. But thank you very much for coming in today.

[00:59:28] So General Spalding had to go, but there's a lot more in this book. I read this all weekend, Jason, and it was one of those terrifying things you just can't put down. And I am a little worried about how this might go. I mean the US pays for world security. China does none of this. They instead focus on the Belt and Road Initiative, essentially building things in other countries that they then control. And we're talking about islands in the South China Sea. We're talking about seaports that are in Sri Lanka and next to India that they then own and control that could be used for naval purposes. This is not just like them investing in telecom in Africa. There is more to the story. And all of these assumptions of free trade are flawed. People who lose their job in manufacturing can't just go do other work. That's an academic exercise that you learn in Econ 101. It's not what happens in real life. Some people become poorer even if the country is richer as a whole, leading to addiction, leading to the public health crisis. This was all so surprising to me how deep this all goes, and China's GDP might be based on cooked books. And if that's the case, we are the ones who have funded this. So China literally printing money, having this bad balance sheet, this would normally lead to gross inflation, but they peg and manipulate their currency. And so, therefore, they don't necessarily suffer from this, because they can control every industry inside the country. It's just absolute madness. And as their instability in China grows, they need resources like metals and chemicals and oil to keep growing at an unsustainable rate. They can't allow investment from abroad to be repatriated, and this seems like they're weak, but what it means is that they're unpredictable, and they're potentially dangerous because they're not going to be the ones that take a hit. They're going to let our system take the hits, and that's scary.

[01:01:20] Jason, I read in the book as well that China can ship anything to the United States. There are only a handful of inspectors and there are 33,000 containers -- those big, truck-sized shipping containers coming to the US every single day. Almost none of them are inspected before shipping. I say almost none, but it's probably actually none because they're not allowed to open the containers. They're only allowed to look at the manifest.

Jason DeFillippo: [01:01:42] Wow. Yeah, that's going to keep me up at night. Well, this whole thing is going to keep me up at night. So, thanks for that one, Jordan. I really appreciate that.

Jordan Harbinger: [01:01:49] Yeah, so it turns out there are like five inspectors inspecting outgoing shipping containers. Each inspector would have to inspect 8,000-plus containers every single day. Obviously, that's not happening. Again, they're not opening the container, they're just looking at the shipping manifest. So, if it says iPhones and it's heroin or just some other stuff -- fentanyl! Oh, well. Here it is by mail.

[01:02:13] Also, mail service is subsidized. So we spend about $170 million dollars a year subsidizing packages and shipping that come from China. That's one reason why things you buy on Amazon can be so cheap because we're subsidizing that as a taxpayer. There's no reason it should cost $3.85 to mail something from China; it should be $23.85. So we're spending a ton so that somebody can counterfeit a good and ruin the livelihood of a US-based businessmen. It's horrible.

Jason DeFillippo: [01:02:41] This is really scary stuff.

Jordan Harbinger: [01:02:42] It is.

Jason DeFillippo: [01:02:44] I'm trying to wrap my head around the scope of it and you can't, you just can't.

Jordan Harbinger: [01:02:48] You can't. No. In the State Department, they can't do much about this. The military isn't mandated to fight this, even though often it's the Chinese Army hacking these companies on behalf of the Communist Party. So in China, the government, the military, and business, they are all one thing. It's not like it is here in the West where we have separate interests. The Communist Party says what goes, the military does it. If they need the technology that you invented in, they're going to have the Army damage your business and then try to acquire you potentially. That's what they did with that chemical company. It's just madness and of course, I know what you're thinking. "Well, thank God that our military components can't come from China because we have laws against this." Well, we have laws mandating that things come from the USA, but propellant for hellfire missiles comes from China. The glass in night vision equipment has metal in it. It's a rare earth metal; it's mined from China. Cement, China. Steel, China. Fertilizer, China. China has these covered. They could restrict export. They could raise prices. Everybody is screwed if that happens, everybody. And this isn't something that could happen. This is literally the plan this has been written down to take over these key industries and then tighten the noose. This is on paper. China uses more concrete in the past few years than the United States used in the entire 20th century.

Jason DeFillippo: [01:04:02] Wow! It reminds me of the book on sand.

Jordan Harbinger: [01:04:06] Yeah, exactly. That show that we did about sand. Concrete needs sand; often the sand is gained illicitly. Electronics require sand. China's got a complete monopoly nearly on that supply chain and that plus our military components coming from China. I mean, we think we can do it here, but we can't. We have outsourced ourselves to the point where we have major battlefield vulnerabilities. And this is aside from the financial stuff. We didn't even get a chance to go into the financial stuff. There are a lot of instances in the book in Stealth War where investigators found that -- here's one example. I remember reading about it this morning, one bond that was on the Frankfurt stock exchange for $1 billion that was invested in by tons of people, including pension funds from patriotic Americans, people that are working to save, people that have nothing to do with China, they're buying these bonds for, let's say, a shipbuilding company or some other company. Well, they hide the source of that deal and investigators found that the Chinese were using this to build an aircraft carrier. And that aircraft carrier is state-of-the-art and that's a war machine. It's a war machine and it's financed by European and American dollars. It's financed by a teacher's pension because they're hiding the source of that and we have no way of knowing that, so one of the things he recommended was saying, "Look, we've got to investigate how China's using Western capital and technology to strengthen its army, because we are actually financing the construction of the Chinese military, the government, all of their cities, and if we can't repatriate those funds, which so far we haven't been able to do, they can just say, "We're not giving you these back, ever. We're never going to give you this back,' and we just financed the construction of their whole country that they are now using to try to control the behavior of the rest of the world." It's just outright insane.

Jason DeFillippo: [01:05:50] so bonkers.

Jordan Harbinger: [01:05:51] Yeah, it's just crazy. And again, this has nothing to do with Chinese people, American citizens who happen to be Chinese, et cetera. This is the Chinese Communist Party. People who live in China are just as much victims of this as anyone else and the book was just nuts. There's blackmail going on, personal data going on. One of the things that that totally makes sense to me, hackers have been stealing a lot of hotel data and people are like, "Why? Who cares?" Well, they're thinking that intelligence agencies are analyzing who's staying where, so if I work for a defense contractor and you work for another defense contractor, they can tell we're working together on something when 200 employees over the course of the year are all staying at the same hotel. They can see who's working together. They can track the staff. They can track the employees. So he's saying we need a cyber command that isn't just part of the Air Force or the Army. We need a separate branch of the military that is as well-financed and as strong as any other branch of the military because that's what China has and we are not able to fight it at all. We're basically saying, "Hey, Apple, buy a firewall and keep hackers out." We're not doing anything. There's no coordination. I mean we are just totally, totally sleeping on this.

[01:07:02] So China does have vulnerabilities and we didn't get to go through all of those. but he did give a nice outline at the end. I asked him before he left if this book was coming out in Chinese and, no surprise, a publisher in Taiwan is going to be releasing this and that should be interesting. I assume it's going to immediately be banned in China. There's just no way.

Jason DeFillippo: [01:07:18] You think?

Jordan Harbinger: [01:07:20] Yeah, but interesting, I want to gift this to my extended family because I have conversations with them and I'm like, "Why would you do this or vote that way or what do you think about this?" And they're like, "Because China, because China, because China." They are very concerned about China. No surprise, Taiwan is under existential threat from China and has been for years. So my Taiwanese extended family is all very, very concerned. I mean, this is like at the top of their list. That we've got to stop China and I thought they were kind of crazy and a little narrow-minded until I read this book.

[01:07:50] So Stealth War, we'll link to it in the show notes. A fascinating and terrifying read that will keep you up at night, will be depressing, will not leave you feeling too good about the future but might be very realistic unfortunately in this day and age.

[01:08:08] Big thank you to General Spalding. The book title is Stealth War: How China Took Over While America's Elite Slept. That link will, of course, be in the show notes. There are also worksheets for each episode, so you can review what you've learned from General Spalding. Those will be at jordanharbinger.com in the show notes.

[01:08:25] We also now have transcripts for each episode and those can be found in the show notes as well. We're teaching you how to connect with great people and manage relationships using systems and tiny habits. That's our Six-Minute Networking course. That's free. It's over at jordanharbinger.com/course. Don't do it later. Don't kick the can down the road. You can't make up for lost time when it comes to relationships and networking. The number one mistake I see people make is postponing this and not digging the well before you get thirsty. Once you need relationships, you're too late. It takes 6 minutes a day, not even. Come on people. I wish I knew this stuff 20 years ago. I'm teaching it to you now for free at jordanharbinger.com/course, and by the way, most of the guests on the show, they actually subscribe to the course and the newsletter. So, come join us, you'll be in smart company. Speaking of building relationships, you can always reach out and/or follow me on social. I'm at @JordanHarbinger on both Twitter and Instagram.

[01:09:17] This show is created in association with PodcastOne and this episode was produced by Jen Harbinger and Jason DeFillippo and edited by Jase Sanderson, show notes and worksheets by Robert Fogarty, music by Evan Viola, and I'm your host Jordan Harbinger Our advice and opinions and those of our guests are their own and yes, I'm a lawyer, but I'm not your lawyer. So, do your own research before implementing anything you hear on the show. And remember, we rise by lifting others. The fee for the show is that you share it with friends when you find something useful or interesting, that should be in every episode. So please share the show with those you love and even those you don't. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.

[01:10:01] A lot of people ask me which shows I listen to and one that never fails to entertain and is done by a really smart friend of mine is The Kevin Rose Show and I've got Kevin Rose here, which is one of the reasons why I have to be so complimentary, Kevin, you understand. You've done a recent show with Sam Harris who is a freaking brilliant guy. What was that all about that has to be really super interesting and engaging?

Kevin Rose: [01:10:23] Yeah, Sam is definitely one of the smartest people I know, I mean, trained neuroscientist, but what we really got into is a deep understanding of the ego and meditation. Sam has a meditation app that he launched and I would say that while so many other meditation apps out there are very kind of -- I mean, we've all heard of the big names, right? They're all very prescriptive and that you come in and say, "Oh I have a fear of flying" or "I have a little anxiety," and there's a great place for those but Sam's is like if you really want to take meditation seriously and go deep, deep into this like monk style meditation. That's what Sam's kind of bread and butter is and what he focuses on and his training is in that. We get into kind of like exploring what consciousness is, what the ego is, and then how to really go deep and develop and cultivate this kind of deep sense of calm that comes with real practice.

Jordan Harbinger: [01:11:15] Perfect and you can find that episode of The Kevin Rose Show linked up in the show notes for this episode, and of course at kevinrose.com.