As with an emergent disease, there are warnings today concerning the primary basis for civilization, which involves economic relations between nations. Nowhere are these warnings more pronounced than in the actions perpetrated by the People’s Republic of China.

Economic life is a central concern of every state, for the subject of economics touches everything. Abundance and deprivation, resources and inputs, exchanges between parties, and processes wherein decisions are made all constitute parts of this vast topic, which begins with economic security—for, without it, freedom is forfeit. Since World War II, America’s economic might has lifted the better part of humanity out of dire poverty. We have done so by sharing our technology, by opening our markets, and by providing a standard for global development, which is based upon the example of our nation’s working men and women.

In my address at the Nixon Library on July 23, 2020, I discussed the massive imbalances, built up over decades, in our relations with China. I said we must “engage and empower the Chinese people— a dynamic, freedom-loving people who are completely distinct from the Chinese Communist Party.” During my tenure as Secretary of State, America’s conduct of foreign policy was based upon four principles: the dignity of the individual, fairness, absolute candor, and reciprocity.

The pandemic that began in China and Russia’s invasion of its neighbor have shattered the prism through which the United States must see the world, including our global economic relations. We have no option but to face new geostrategic realities that cannot be shirked, lest we face intractable conditions in the years to come. Therefore, we must comprehend that American weakness in the face of aggression will only beget further assaults against our country, our allies, and our friends.

Freedom and the Present Crisis

Freedom is crushed if virtue is not prized. Virtue is the prerequisite for freedom, for it provides the boundary that enables its exercise without unduly limiting or infringing on the rights of others, thus safeguarding the exercise of freedom in its totality.

Liberty is freedom from molestation by an obdurate government or authority. Liberty, as promised in our Declaration of Independence, is thus only possible if limited government is practiced and not enlarged, for expansive government, through its sundry actions, subverts individual agency and choice, ultimately destroying liberty.

The world is blistered by the war in Ukraine. Substantial portions of that country lie in ruin, the world economy is fractured, and supplies of cereals, fertilizers, and key industrial inputs such as neon have been obliterated. Russia has attempted to destroy Ukraine as a nation and as a people to mask its criminal regime, which has betrayed a nation so that a selfish elite might steal from everyone else.

This is a global disaster that could have been averted if America and our allies had acted in 2008, when Vladimir Putin invaded Georgia, or in 2014, when he invaded Ukraine. We dare not repeat the same mistakes with China, for it, unlike Russia, is a near-peer competitor to the United States. We, therefore, must rigorously challenge China where we must, while seeking opportunities to work with it where we can.

Failures within Russia have motivated Putin’s unrealized geopolitical objectives, which include seizing control of the immense energy resources in the Donbas, confronting NATO by creating a border that stretches from the Baltic Sea to the Carpathian Mountains, and disrupting Western economies. Russia, however, is not the People’s Republic of China. The challenge China poses is far greater, for it contests our nation in geostrategic reach, in economic power, and in technological advancement.

Moscow’s objectives in Ukraine are mirrored by Beijing in the Indo-Pacific. They hinge on the perception that America and its allies are dominated by political discord. Our past inaction in the face of Russia’s assaultive acts, combined with Western energy dependencies, created a tinderbox that exploded this year.

This series of mistakes, which failed to repulse a revanchist state, must never be replicated. China strives to make the West reliant on resources, on products, and on supply chains that it controls. Through this strategy, and its economic and military might, China seeks to seize territories, to create an empire of unmatched power. This augurs for America’s decline if China’s plans are not aggressively countered.

China has sickened the world through its treachery in hiding the origin of SARS-CoV-2, thereby permitting its worldwide transference. Its actions in Central Asia, in Xinjiang, in the South China Sea, and on its contested borders with India were prologue to what it has done to Hong Kong and what it seeks to do to Taiwan. China must not be permitted to supplant the United States as the world’s preeminent power, for if it does, freedom will be in jeopardy everywhere.

Our Nation’s Course

As Director of the Central Intelligence Agency, I began the recalibration of the intelligence community to focus on the time-urgent acquisition of information relating to Beijing’s use of hard, soft, and sharp power. In the wake of China’s recent actions, we must increase our surveillance and proliferate the results of our inquiries throughout our government, our businesses, and our institutions.

Hard power essentially uses force and coercive tools, which may be economic, to obtain policy objectives. Soft power, in contradistinction, involves cooption in the pursuit of shared ends. This had been a sphere of uncontested American supremacy, but such supremacy has now evaporated. China has penetrated Wall Street, our universities, our businesses, and our media, to devastating effect.

As can be seen in the NBA’s obsequiousness, Hollywood’s obedience, and hedge funds’ deference, the Communist Party of China has not only thwarted American soft power, it now exercises a degree of control over our institutions through sharp power, which is the imposition of “or else” tactics and stratagems. This form of intimidation lies between hard and soft power, and China is its master.

It is glaring that some still doubt Beijing’s earnestness concerning its stated aim to displace the United States as the world’s preeminent power. Such indolent myopia is contradicted by China’s rampage against the international economic order.

The pandemic that issues from China’s mendacity has sickened the globe, causing the deaths of millions. At the height of the global catastrophe it created, the Chinese Communist Party did not moderate its odious objectives; it accelerated them. With utter disregard for its commitments to the United Kingdom and to the people of Hong Kong, China broke the Sino-British Joint Declaration.

This declaration constituted a treaty, granting Hong Kong a high degree of autonomy; China was obligated to maintain Hong Kong’s market economy and its freedoms until 2047. It did not. Given China’s actions in matters concerning world health, biosafety, and Hong Kong, we must ask: On what important document is China’s signature meaningful?

As a nation, and on a bipartisan basis that persists over multiple administrations, we must compile the policy tools, laws, regulations, and customs that can be employed to block China’s usurpation of our institutions. Our intelligence community must be continuously tasked to investigate the illicit practices that China employs. American companies or institutions that submit to Beijing’s direction must be sanctioned and be excluded from participation in any governmental contract, grant, or activity.

Our government and our institutions must work together to ensure that America’s economy is not subject to China’s control of key sectors or bodies. This requires that all important elements of our nation’s relationship with this belligerent state be under constant examination.

America should not try to decouple itself completely from China’s economy, for this would be impossible given its size and the myriad of relationships between Chinese and American businesses. Active reciprocity in our relations with China should be our standard. This principle may be defined as awareness, comprehension, and action.

Countervailing actions are only possible if all Americans are vested with awareness, which is the result of scrutiny. Relations with China, of whatever nature, must not be allowed to place us in a dependent status. Neither should we divorce ourselves from China, for to do so would limit what suasion and leverage we have in facilitating needed change.

Once a state’s power is absolute, it is absolute until it is broken. Perhaps the most consequential crime of communism is that it cannot even live up to its philosophy of dialectical materialism, for communism allows no meaningful conversation. We must act decisively in contesting China’s tyranny, for a dictatorial state is bound to see international economic matters as the province of force, for to do otherwise would be to lose its grip on power.

By resolutely engaging with China and by potently unseating the dictates, plans, and parlays effected by its communist party, America gains footholds that may one day yield China’s transition to become a modern, democratic state. America owes the great people of China, who are the direct victims of communist rule, this opportunity, for our nation was founded in freedom, and this is a gift that must be shared.

Economic Warfare

We must not allow the communist model for development to proliferate, for it is a kleptocracy. It is rule by thieves as is demonstrated by the magnitude of China’s theft of intellectual property.

Intellectual property theft by China has caused cumulative, total losses to the U.S. economy that far exceed two trillion dollars in the last ten years alone. This sum, if divided, could have made one in every forty American families, instant millionaires.

Intellectual property theft is a hydra that damages many aspects of our economy. It thwarts incentives for business development, for the specter of theft increases risk. It has been estimated that three-quarters of China’s business-software market is filled with pirated code. The result: Key software expenditures are a small fraction of comparable spending by American companies, conveying enormous, unearned competitive advantages to Chinese firms.

One answer lies in greatly enhanced cybersecurity. Cyberwarfare separates us from reality, for it may create a false simulacrum or delete, repurpose, or misuse vital information. Volitional or intended actions may be rendered impossible. America has been buffeted by nonattributable cyberattacks, which in certain contexts are instruments of war.

We must be ready to pierce this threat to force accountability in our present age of hybrid warfare that blends attacks of different natures upon vital economic and financial assets, including our energy grid. Deterrence requires that America possess both defensive and offensive cyber capabilities.

Resource War

China is intent on dominating global infrastructure through its Belt and Road Initiative. Although presented as interconnecting nations across borders, thereby facilitating commerce, the Belt and Road Initiative is something else.

It is a corrupt attempt to entrap developing countries with loans, which may use national assets as collateral. Countries such as Sri Lanka are paying a terrible price, for these loans are designed to ensure noncompliance.

Beijing also intends to dominate the supplies of strategically critical materials needed for the production of renewable energy and other emergent technologies. According to the United States Geological Survey, we are dependent on imports of such materials as cobalt, manganese, and indium. All are vital in the production of products that will define this century.

Also critical is the production of rare-earth metals, including erbium, neodymium, samarium, and many others. China dominates in the supply of these metals, and the secure mining of other critical elements, such as lithium, is hampered by environmental restrictions, which are alien to China. Thus, all are subject to Beijing’s design to wage a resource war against American interests.

Beneath the South China Sea lies great stores of energy and minerals: Therefore, China’s creation of militarized islands in the South China Sea must be contested. President Xi Jinping must not be allowed to steal these resources, which properly belong to the nations that brace this sea.

Energy use is directly correlated with income and wealth. Fossil fuels are essential to human development and to the production of goods such as chemicals, asphalt, and plastics.

China’s intent to claim the South China Sea will permit Beijing’s exploitation of the immense energy and mineral wealth of this area. We must work with affected nations to lacerate China’s hegemonic objectives. The resource war, which Xi seeks, cannot be won if we do not recognize Beijing’s goals.

Conquest

Beijing’s ambition is to destroy what it views as its geostrategic obstructions. As Ukraine is to Moscow, Taiwan is to Beijing, whose trajectory of conquest centers on the subjugation of that state. The conquest of Taiwan would remove the key strategic chokepoint to a Chinese military breakout, which would threaten the entirety of the Indo-Pacific, including Guam, Hawaii, Japan, and Australia.

A successful invasion would shatter American prestige and influence in the Indo-Pacific, threatening America’s status as a superpower, which would invite armed conflict. Possession of Taiwan would also eliminate a primary technological and economic partner of the United States.

Taiwan is a principal supplier of semiconductors to the U.S. economy. If these supplies are interrupted by war or by conquest, America’s economy will falter, which will make us more dependent on China.

China’s Belt and Road Initiative, which seeks to control resources and supply chains globally, is thus part of a larger strategy that centers on the invasion of Taiwan. The 1979 Taiwan Relations Act requires that we maintain Taiwan’s defensive abilities to thwart an attack from the mainland. Presidents from both parties have acted forcefully in demonstrating American resolve in this regard. America must defend Taiwan, for to do so is to defend America.

In my recent trip to Taipei, in the presence of Taiwan’s president, I declared that America should immediately recognize Taiwan as a "free and sovereign country." This action will support global stability if it coincides with the provision of arms that can overmatch any invading force. Failure, however, to match deeds to words will undercut deterrence and may precipitate armed conflict.

The West must not replicate its errors in failing to decisively arm Ukraine before Russia’s invasion. If through indifference or ineptitude our government allows the People’s Republic of China to invade Taiwan, such malfeasance could constitute as great a strategic miscalculation as the appeasement that precipitated World War II. Further, should China enable Russia to continue its assault against independent countries that were once forcibly bound to the Soviet Union, America and our allies will be flanked by pincers that will be difficult to contest.

Capital Markets

Markets operate as self-correcting systems. It was hoped for decades that the inculcation of markets within China would presage its political transformation. What was not considered is the fact that there are no true self-correcting systems when a government rules by decree and by compulsion.

If violence and theft become a nation’s currency, free trade becomes impossible. In history, the usual progression from such a point has been degeneration followed by war, which we now see in the case of Russia’s assault against Ukraine.

China seeks to control vital elements of our capital markets, including a long-term strategy to wrest the dollar as the world’s reserve currency. Today, capital from American investors funds Chinese companies traded on U.S. exchanges.

In its 2021 Report to Congress, the U.S.-China Economic and Security Review Commission cited the massive exposure of American investors to Chinese equity and debt securities. U.S. holdings of Chinese equities may well exceed one trillion dollars; debt holdings amount to many billions more. Precise calculations and verifiable valuations have been made difficult to ascertain, for China uses complicated legal structures and tax havens to mask its activities involving U.S. exchanges.

Today, there are thousands of Chinese companies in the investment portfolios of scores of millions of Americans. The true level of American financial exposure to Chinese state-controlled companies is not fully known, due, in part, to failures in oversight by the Securities and Exchange Commission and the Treasury Department.

American investors are not only at risk, they are almost universally uninformed that their pensions and their stock portfolios are riddled with holdings in Chinese companies that may be sanctioned or may directly serve China’s war machine. This infusion of wealth into China has allowed its regime to eviscerate human rights with impunity, for it believes itself invulnerable due to its intertwining with Wall Street, American industries, academic institutions, and Hollywood. In response, financial, energy, technology, currency, cyber, and data security must become our watchwords, if our investors and institutions are to be free of Beijing’s yoke.

Opaque and vested financial interests cannot be allowed to govern the long-term security and economic interests of the American people. China’s business lobby and Wall Street cannot be permitted to continue to influence our corporations or to dictate the fortunes of American retail investors.

Sadly, we have learned that money can kill, that human rights abuses can be intensified, that our national security can be compromised, and that investor protections are too often given short shrift. Nazi Germany and the USSR were empowered through their attraction of capital and resources from Western democracies. We cannot let history repeat itself through our somnambulant funding of a totalitarian police state, for Xi counts on greed and short-term thinking to facilitate his nation’s emergence as a juggernaut, intent on global hegemony.

Greed is corrosive and is the formula for the loss of our fundamental freedoms. Our strengths must not be allowed to be turned against us. American corporations and institutions have been forces for democratic development and market creation throughout the world. Today, Hollywood has been infiltrated by China. This creates subversive pressures that impact our nation’s media, publishing, and news sources, because the conglomerates that dominate Hollywood also control these industries.

Hundreds of Chinese companies are listed on our largest financial exchanges. These firms are capitalized in the trillions of dollars.

With the resolute support of the administration that I served, the U.S. Senate, on May 20, 2020, without objection, approved the bipartisan Holding Foreign Companies Accountable Act (HFCAA); the House of Representatives concurred. On December 18, 2020, President Donald Trump signed into law the HFCAA, which amended the Sarbanes-Oxley Act of 2002.

According to the summary of the legislation, written by the Congressional Research Service:

This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board [PCAOB] is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer's public accounting firm for three consecutive years, the issuer's securities are banned from trade on a national exchange or through other methods.

Chinese corporations, which are covered by this law, will be required to use public accounting firms subject to inspection by the PCAOB. This is a great achievement in protecting both American investors and the nation’s security.

As a subsequent measure, the United States, through our Department of State, working in conjunction with other U.S. agencies, must urge America’s allies to adopt similar laws or rules. Nations with important capital markets should, of course, be our first priority.

As we close one door, Communist China, abetted by avaricious globalists, breaks through another. The HFCAA does not penetrate or capture index funds that may include great numbers of Chinese firms. The world’s largest asset managers are pouring hundreds of billions of dollars of investment capital into Chinese corporations controlled by that nation’s communist party.

China’s hope is that global finance will prove too complicated for retail investors to understand, and its country’s true intentions will remain hidden. These assumptions must be proven wrong.

Beijing's fundraising through opaque financial instruments and passive investment funds has passed the trillion-dollar threshold. President Trump and I, working with Congress, designed a financial architecture to defend scores of millions of Americans who, without their knowledge, have had their savings, in the form of investments, directed to sanctioned companies or those facilitating egregious human rights abuses or the underwriting of China's military-industrial complex.

It is up to us to address this hidden onslaught, which we did not seek but must counter. The financial security architecture that President Trump and I were erecting, strengthened investor protections, human rights, and our nation’s security. On November 12, 2020, President Trump signed Executive Order 13959: Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.

In signing this executive order, the president determined that the People’s Republic of China was “increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses.”

The executive order was designed to block American capital from being used directly to fund the Chinese military-industrial complex. Specifically recognized was China’s strategy of military-civil fusion that camouflages the purposes of putatively non-military Chinese companies, which, in fact, are obligated to support China’s belligerent actions.

Thus, the ability to peer inside China’s maze of companies and their interconnections is imperative but is masked by the inclusion of unregulated Chinese companies in global equity indexes. The economic-security structure that the Trump administration designed must be completed by creating market transparency for American investors, by banning Chinese companies that support the regime’s illegitimate ambitions, and by restricting China’s insertions into our media and thus into the companies that dominate the provision of information within our country.

We must not allow millions of American retail investors to be placed in the position of unknowingly funding Chinese companies that abet genocide and slave labor. We must not enable Chinese corporations that are complicit in these outrages as well as the communist party’s conduct of intelligence operations and those of its armed forces, including the construction of militarized islands in the South China Sea.

Simultaneously, we must confront the Biden administration, and we must challenge Wall Street and our nation’s corporations, for we cannot allow any misguided force to cripple America. In this battle, we retain great strengths. Indeed, we must inform our compatriots that our adversary has miscalculated in choosing financial and business domains as its new theater of warfare, for we dominate these endeavors. American capital markets comprise more than fifty percent of total world equity market value.

America leads the world in net financial assets per capita. The gross financial wealth per adult in the United States is almost thirteen times that in China, and the amount of capital that we can invest far exceeds that of any other nation.

The United States and our allies dominate this arena. The Bretton Woods Agreement of 1944 established the mechanisms that have governed international economic relations, which must not be adulterated.

Our dollar is the world’s reserve currency—not the nonconvertible yuan. These are the positions that our nation must hold and fortify despite China’s and Russia’s machinations. We must understand and use to our advantage the fact that while China’s economy approaches our own, it remains a far less affluent country, for its GDP must support over four times as many people. This fact must be used to our advantage if we are to negotiate with China from a position of strength.

Opportunities

The creation of new supply chains for medicines, critical components, and strategic materials, which do not rely on adversarial states, must be prioritized. Any action in this regard, however, must not erect new bureaucratic structures; instead, existing elements of the federal government should be reconstituted to deal with our reliance on uncertain or potentially hostile sources of supply.

We have the opportunity to use technology to link together vast numbers of businesses throughout the free nations of the world to build supply chains that do not contain companies resident in adversarial states. Unalterable, digital ledgers, such as blockchain, may provide one means of creating vertical supply chains that do not involve Chinese, Russian, or Iranian companies. Certain products contain thousands of components; only by harnessing the power of technology can we ensure that complex finished goods cannot be subverted by the withholding or the compromise of components made in adversarial countries.

President Biden’s Indo-Pacific Economic Framework (IPEF) acknowledges that the Trans-Pacific Partnership, which the Obama administration negotiated, was “fragile” and unacceptable to Congress. The new framework, however, is not posited as a treaty subject to the advice and consent of the Senate, nor does it address core trade inadequacies that involve the World Trade Organization (WTO). The new framework is not stout enough to meet our present challenges; it does not incorporate Taiwan; neither does its focus on decarbonization meet the economic realities of today.

China, the nation with the second-largest GDP in the world, must no longer be able to claim that it is a developing nation, entitled to benefits within the WTO. In addition, the WTO must take a firm stand against any commerce that is based upon enslavement.

Blockchain-enabled certifications may be used to attest that no constituent component of an item was produced using slave labor. We must apply advanced technologies to ensure that the scourge of slavery is permitted no refuge, for it is practiced within China, causing immense harm to that nation’s Muslim population.

Building upon America’s multilateral and bilateral alliances, new economic treaties should be negotiated that will become a phalanx, barring China’s domination of world trade. Our objective must be the creation of security-driven economic alliances that support secure, resilient supply chains that link together businesses in many countries, for this approach will constitute a major stimulus to small- and to medium-sized businesses outside China.

Conclusion

How must we contest China in the years to come? How can we ensure that the atrocities Russia is committing today are not perpetrated by China tomorrow?

As a cadet at the United States Military Academy at West Point and as a young officer serving as a tank platoon leader in Germany before the fall of the Berlin Wall, my standard for discernment, conduct, and action was Ronald Reagan, then president. This giant’s realism and grit established the course of my life.

In transcribing these words, my mind harkens back to Ronald Reagan’s great triumph. We live in the present, but we must study history to create a better future.

Think of the world that greeted our fortieth president. Not only were interest rates, energy prices, and inflation metrics sky high, but our principal adversary was living off Western democracies’ largesse. Concurrently, the Left speculated that Marxist socialism would prove to be superior to America’s market economy. Sound familiar?

President Reagan led the free world with unshakable faith in human liberty, which propelled his unambiguous animus to a regime that was the enemy of freedom. President Reagan detested communism and its veneration of the collective at the expense of the individual. He understood its internal contradictions, its corruption, and its dearth of innovation. He comprehended that the command economy of a totalitarian police state was doomed to failure.

The Reagan administration derailed the colossal, twin-stranded, Trans-Siberian gas pipeline project, which the Soviet Union intended to use to dominate the supply of natural gas to Europe. This would have radically increased Moscow's hard currency income at a crucial time.

If that massive project had been completed as conceived, in accordance with Moscow’s timetable, total Soviet domination of West European gas supplies and the near doubling of the Kremlin's annual hard currency income would have been assured. Indeed, Russia's weaponization of natural gas today is emblematic of the use of energy as a tool for coercion.

Then, as now, many businesses cared more about profits than America’s security. The Soviet Union's hard-currency financing gap had been funded by Western governments and commercial banks. A consortium of German banks helped finance this Soviet project; later, French banks and the Export-Import Bank of Japan would supply needed capital. These funds facilitated the systematic theft by Moscow of dual-use technologies that permitted their fielding of new weapon systems at a breakneck pace.

Beginning in late 1981, the Reagan administration imposed sanctions that prohibited American companies from exporting technologies and material to the Soviet Union that were needed to construct the pipeline. Sanctions were next expanded to enforce these restrictions upon American corporate subsidiaries located in Europe. Ultimately, it took the imposition of U.S. import controls to effect dramatic change; America would close its market to European companies that continued to supply the USSR with equipment based on American designs.

President Reagan understood—as we must today—that unrestrained greed begets crime and subverts America’s central security interests. The cessation of the Trans-Siberian pipeline was part of the most successful implementation of a strategy to achieve geopolitical objectives in modern history. This strategy constituted an operational plan that helped cause the Soviet Union to collapse.

Measures by the Soviet regime to free its society from insularity, destitution, and rampant corruption, precipitated a cascade of incriminating responses that hobbled its ruling class, marking the USSR as a pariah among nations. Internal forces were thus unleashed within the Soviet Union that could not be repressed or mitigated due to their immensity.

Such a strategy must evolve from a comprehensive understanding of purposes, objectives, and means. In the case of the Soviet Union, an operational plan was enacted by America and its allies that achieved strategic objectives without the resort to war. What was done to the Soviet economy by the resolute actions of the Reagan administration defines the essence of strategy, for strategy is the formulation of plans to influence the outcome of events. The genius was to achieve these aims through non-military actions, though both powers possessed massive nuclear arsenals.

The Cold War was waged by nine presidential administrations, but it was won by Ronald Reagan. President Reagan understood that the individual must remain superior to the will of the collective.

In our enforcement of economic security today and in our future relations with China, we must not forget the timeless lessons this giant taught the world. We must act without delay, for Beijing is an aggressor of similar malevolence to that which Ronald Reagan vanquished, but of greater might across the spectrum of power. Observance and concrete actions are demanded.

Michael R. Pompeo served as Secretary of State and as Director of the Central Intelligence Agency under President Donald Trump. He is currently a distinguished fellow at the Hudson Institute.

Image: Reuters.