CrowdStrike Co-Founder & Author Dmitri Alperovitch on Winning the Tech Race | Technovation 939

I coined this phrase maybe 15 years ago now, it has been often repeated, that we don't have a cyber problem, we have a China, Russia, Iran, and North Korea problem. When you look at the vast majority of the attacks that you're seeing, they're emanating either from the nation states of these four countries or criminals that are being harbored, supported, or simply even allowed to operate within the borders of those countries.

Thanks so much for having me, Peter. Always good to be with you.

Yeah, it's such a great question. You know, I've been convinced for years, of course, based on my background in the cybersecurity industry and uncovering and investigating Chinese intrusions into our critical infrastructure, into our businesses, and U.S. national security systems. I've been convinced that we are in a Cold War, but I had this assumption that this was quite a bit of a different Cold War from the first one with the Soviet Union. In the course of writing the book and doing the research for the book and putting all the materials together, I realized that it's actually almost identical to the first conflict. The number of similarities are just so numerous that it's been staring us in the face for so long that we've been ignoring it. Let me run you through a few of those. First of all, we have a global competition for supremacy between the United States and China that is playing out in every corner of this world, not just over there in Asia, but in Latin America, in Africa, in Europe. We're concerned about Chinese influence, we're concerned about losing access to markets, losing access to investments and infrastructure to the Chinese. It is playing out in the economic sphere with a trade war that's been going on for eight years and is about to escalate even more. It's been playing out in the military sphere, capabilities both on the Chinese side and our own side. Obviously, geostrategic and diplomatic sphere as well, and technological, where we have a real tech war going on with all the debates about AI and TikTok and Huawei that we've had for over a decade now. You also have real preparations for war that are taking place. In fact, I was just spending a lot of time with Admiral Paparo, the head of Indo-Pacom this year, and his hair is on fire about the prospect of conflict with China. The U.S. military is really getting ready to fight China if called upon by the president. Of course, the Chinese have been preparing for this conflict also for 40 years, and much of their military modernization and buildup has been squarely focused on one thing: confronting the United States in the Pacific, and in particular being able to take Taiwan. You also have both a conventional arms race that's been taking place, but also a nuclear one. In fact, the Department of Defense in December of last year released their annual report on Chinese military buildup, and they now say that China has 600 nuclear warheads, double the number that they had just about five years ago, and they're on the way to well over a thousand, trying to match the United States numbers by the mid of next century. Very similar to the arms race that we had with the Soviet Union during the first Cold War. We have a space race. Perhaps the defining moment of the first Cold War was the race to the moon, and we're once again trying to get to the moon before China does, and perhaps even further going to Mars in the next decade as well. We have a scramble for military bases both in the region and broadly, as China is expanding its military presence as far away as Eastern Africa in Djibouti. Economic war with trade tariffs, a spy war. The level of espionage against this country, in part enabled by cyber, is at the highest levels it's ever been, even throughout the first Cold War, as told by the director of the FBI. And a tech war, as I mentioned, that's taking place. And a major regional flashpoint. I argue in my book that Taiwan is the new West Berlin. West Berlin was that one place that throughout the first Cold War there was a high risk of confrontation between the U.S. and allies and the Soviet Union and the Warsaw Pact countries. Now that is Taiwan, with China, I believe, being intent on trying to take Taiwan in the coming decade. You also have an ideological struggle. China under Xi Jinping is a Marxist-Leninist country in every sense of the word, but beyond just the communist ideology, you also have the authoritarian axis that has been forming increasingly in the last couple of years since Russia's invasion of Ukraine between Russia, China, Iran, and North Korea that the United States is increasingly worried about. So you have all those similarities between the two conflicts. The only difference, the only significant difference that anyone I can find brings up is this obviously deep economic interrelationship between the United States and China that exists, which is massive and can be underestimated. But my response to the arguments that some people make that this can't be a new Cold War because of this economic relationship is: I don't know how you can ignore the almost dozen reasons that I've just given for the way the two conflicts are similar and say that this one issue outweighs all the others. But even if you look at that economic interdependence, you see a couple of interesting trends. One, that we are in the midst of at least a partial decoupling or de-risking, as some call it, where we're increasingly trying to reduce the amount of trade between the United States and China, and particularly reduce our vulnerabilities in critical sectors like semiconductors, energy sources, batteries, electric vehicles, as well as critical minerals. Also, it's a bit ahistorical because what I found in giving talks about my book is that a lot of people assume that there was no economic relationship between the United States and the Soviet Union during the first Cold War and the broader West, and that is just completely false as well. There were numerous connections and trade, both in automobile manufacturing. PepsiCo was selling sugar water to the Soviet Union. There was robust trade in all the various aspects, certainly smaller than it is today with China, but there was a great deal of reliance both ways. In fact, since the 1960s, the Soviet Union was investing in its fossil fuel production just as Russia is today, and all of that industry was running on Western technologies that were sold to them. In exchange, they were selling oil and gas to Europe and others. So there were always very deep economic connections, even in the midst of the most tense periods of the first Cold War. So I think it's practically indisputable now that there is a new Cold War going on with China, and the similarities between the two Cold Wars are very stark.

Yeah, so at the end of the day, what we're trying to do is make sure that we deter conflict over the Taiwan Strait, that we prevent China from being able to take Taiwan, which would change its entire trajectory. I believe that the United States is actually a rising power, not a declining power as Xi Jinping believes, and that China has actually peaked or is about to peak in terms of its overall power, and the rest of the century is actually looking very bleak for them. The power of China and the reason for their amazing economic miracle that they've undergone over the last 40 years has been underpinned by four factors, and all four of those factors are really under threat today. The factors are workers, and their population is now declining. It has been for a number of years now, and that decline is only accelerating. They're projected to lose more than half of their population before the end of the century due to the demographic changes underway, a scale unimaginable in human history, and it's going to have enormous repercussions for them in the economic sphere but also in the social sphere. Secondly, the second factor that contributed to their rise has been access to capital, foreign capital in particular, that is now in decline as well. In fact, foreign direct investment in China is down 20% year-over-year. Countries around the world, but most prominently the United States, are restricting outbound investment going to China with the executive order that's been passed by the Biden administration, but increasing interest on Capitol Hill to cement that in law. So you're seeing more and more industries and companies restricting their new investments in China or even pulling out of China or reducing their footprint there. The third pillar that underpinned that growth has been access to foreign markets to enable trade and really the buildup of their manufacturing industry, and that is increasingly under threat with the trade wars that are taking place not just with the United States but really with countries around the world. Even the countries that are part of the so-called BRICS system, obviously the founding members are Brazil, Russia, India, and China, but others are joining in as well, and many of these countries are now instituting tariffs on Chinese goods, particularly electric vehicles but also others, because they don't want to see their domestic industry being destroyed by Chinese subsidies and overcapacity. Obviously, the European Union is announcing tariffs, so that pillar is increasingly problematic for China. And the last one that they still have and has contributed to their rise has been access to natural resources that they've been able to import in order to drive their manufacturing base. That is still continuing, but those resources are coming from places that are very friendly and in alliance with the United States, like Australia for example with iron ore, or they're coming through naval passages that are controlled by the United States Navy and in case of conflict can potentially be shut down by the U.S. military. So China is facing a very uncertain future over the rest of the century, and I think the only way that they could potentially change that future is to escape this containment that they believe that they're in, and there's some truth to that, in the South China Sea and East China Sea by taking Taiwan and allowing them to dominate the Western Pacific and pushing the United States out of this region where you have in Asia 40% of the world's GDP, most of the supply chains, most of the economic growth. So if we can deter China from taking Taiwan, I believe we can outlast them and win the Cold War because their declining power will continue our rise. The key to that, as you mentioned, is this four-pronged approach. Investing in innovation means making sure that we dominate the critical industries that I think will define the 21st century. Those industries are AI and autonomy, fairly self-explanatory given the enormous innovation we've seen in that sector particularly in the last three to four years. Biotech and synthetic biology, a really important sector that I think will be powered by AI and will not just revolutionize medicine but potentially will revolutionize bioenergetics, creation of new energy sources in the lab effectively, bio-manufacturing, creation of new materials through bioengineering capabilities. Really exciting and transformative capabilities that we might see in the next 10 to 20 years. Aerospace, you're seeing incredible innovation in space technologies, in part revolutionized by SpaceX and the reduction of cost of lift into space through reusable rockets and massive spaceships like Starship. Those capabilities are enabling new forms of communication, new forms of navigation, much more resilient systems where you no longer have a school bus-sized satellite in space that is very vulnerable to jamming or even direct targeting by anti-satellite weaponry, but now you have these lower orbit constellations of thousands of satellites that are very difficult to jam and destroy. And the last piece of that is green energy. We are in the midst of a transition to more climate-friendly energy sources, and things like nuclear, wind, solar, batteries are going to be critical to that. Whoever dominates that field is going to really dictate the next oil, control of the next oil, and will have enormous power. So when you look at all those four fields, we're actually doing fairly well. We are still leading in AI, but that is a very precarious situation because our lead is empowered by a single factor, and that is semiconductors. There's a lot of concern that I have that China is catching up in the semiconductor manufacturing space and can potentially dominate that sector if we allow them to. In biotech and synthetic biology, whoever wins the AI race will also dominate that sphere. For now, we're leading, but because of the precarious situation with AI, it's not guaranteed. Aerospace, we are far ahead in part because of companies like SpaceX and Blue Origin and others. Green energy, we are losing very badly to China. They are leaders in battery technology, their EVs are cheaper and better than anyone else's, wind, solar, even nuclear, they're leading. We have a lot of innovative startups that are inventing new technologies there, but they can't compete with the subsidies and dumping practices of China unfortunately. So we have to do a lot to make sure that we can win the race there. In the defend innovation space, it's really all about defense technologies. We need to rebuild our military focusing on building cheaper weapons in mass, because if there's one thing that the Ukraine war has taught us, it's that great power war can last a long time and our magazines are not deep enough to engage in a conflict with an adversary like China for more than a few weeks, and that needs to change dramatically. Obviously, a focus on autonomy is going to be very important there, and also responding to the massive amounts of economic espionage that China is continuing to engage in and has engaged in for almost 25 years now without any repercussions. We need to start sanctioning Chinese companies that have benefited from this IP theft and cutting off their access to global markets in order to show them that there is a real cost to cheating and trying to gain market share at the expense of competitors by taking their technology. So those are the principles from an economic and manufacturing perspective of how we win this competition for the 21st century. The others have to do much more with diplomacy and making sure that we are enabling our allies, continuing to build strong coalitions that we're going to need to confront China in every area, whether it's economic, military, diplomatic, but also making sure that we're not distracted by other engagements around the world. I'm not the person that believes that China and Taiwan is the only issue that the United States should care about and that everything should be focused on that, but I do think that it should be one of the primary issues. We have to look at all of our engagements across the world, whether it's in Europe, the Middle East, and elsewhere, and ask the question: is it significantly deterring us from being able to engage more deeply in the Pacific and succeeding in our mission of confronting China and preventing them from taking Taiwan, or is it helping, or is it neutral? If it's helping or neutral, we should continue doing those resources, but if it's hurting that mission, I think we have to ask hard questions about prioritization of resources and making sure that we're focused on the main thing, that the main thing remains the main thing.

Well, look, the incoming administration, I think there are a lot of positives with the team that so far has been picked, particularly in the national security sphere. People like Mike Waltz as National Security Advisor, Marco Rubio as Secretary of State, Jamieson Greer as U.S. Trade Representative, and some of the others. This is by far the most hawkish team on China that we've ever had in this nation's history, so that's a positive. We'll see whether they can avoid the distractions that have really curtailed efforts of a number of administrations we've had in the past, from Barack Obama's administration to Joe Biden's administration, that have wanted to pivot to the Indo-Pacific, have announced it, and then have been dragged into conflicts in the Middle East or in Ukraine and have been unable to focus as much as they wanted to on China. We'll see what happens with the Trump administration on that score, but I do think that you're going to see much more rapidly implemented and hardline policies vis-à-vis China, particularly in the economic sphere, than we have seen in the past.

Yeah, so a lot of people don't appreciate how difficult it is to conquer Taiwan. I spent time on the island. The book actually opens up with a detailed scenario of how China could potentially execute this operation, which if they ever go for it will be the world's most sophisticated and complex military operation in history. I'll give you one reason for that. There's an incredible document that was put together by the Joint Staff in 1944, the American military Joint Staff, and it was a plan to invade Taiwan, or Formosa as it was called at the time. It was called Operation Causeway. It was put together two months after the most successful amphibious invasion in the history of the world, of course that being Operation Overlord, D-Day, the landing on the beaches of Normandy by about 150,000 Allied troops. They left England, crossed the English Channel, which is about the width of the Taiwan Strait, and landed on the beaches of Normandy and proceeded to liberate France and go further into Germany from there. So on the heels of this incredibly successful operation, you might even say kind of drunk a little bit on its success, the U.S. military put together this plan to take Taiwan, which was at the time of course occupied by Japan, and this was one of the stepping stones, this island-hopping campaign that we were executing in the Pacific on the way to Japan. The plan for Operation Causeway called for double the numbers that we used in D-Day. D-Day, the world's largest amphibious invasion, used 150,000 Allied troops. The plan for Causeway called for 300,000. It expected for us to engage in a two-month brutal campaign across the island. The casualties were estimated to be at 45,000. By the way, we lost just 2,500 Americans on D-Day. So just enormous casualties that were expected to be suffered. Ultimately, the leadership of the nation and the military, President Roosevelt, General Douglas MacArthur, and others looked at this plan and said, 'No, this is too hard, too complex, too costly. We're going to bypass Taiwan. We're going to actually go for Okinawa instead,' which is obviously what we did. So for the United States military that had just executed the most successful amphibious invasion in history, this was deemed as too hard 80 years ago. In the intervening 80 years, this has only become harder. At the time, Taiwan had 60,000 Japanese troops on the island. Today, the active duty force of the Taiwanese military is about 100,000, and you also have over a million in reserves, although their quality is quite questionable. Nevertheless, the task here is much more complex. Defensive weapons have improved dramatically in terms of range and capabilities, air defense, anti-ship missiles, on manned vehicles and the like. So this is very, very difficult. China has not fought a war since 1979, 45 years ago, when it invaded Vietnam, a war that did not go over well for them. They suffered enormous casualties and ultimately withdrew. So there's literally not a single person in the Chinese military that has any active duty combat experience at any scale. So we should appreciate how difficult this is, and they know this. They've been studying this for many decades. This has been a long ambition for them going back to Mao, to take Taiwan. So the Chinese military is very well aware of how incredibly difficult this operation would be. But you now have a leader in Xi Jinping that is impatient and wants to do this on his own watch. The man has just turned 70, so I think he's thinking about the next decade that he might have in power, potentially maybe even the last decade of his life, who knows. He has given an order, we know based on the reporting from the U.S. intelligence community, that he's given this order to be ready to invade Taiwan by 2027. That doesn't mean it's going to happen in 2027, but it is remarkable that this order has been given. I think the most important thing about that order is that now, given the Chinese authoritarian system and how he has basically removed anyone from power that is at all either a threat to him or someone who would present a different opinion from the one that he likes, now that that order has been given, there's no one in 2027 or later that's going to come to him and say, 'No, sir, we can't do this.' Because what do you mean you can't do it? You've been given an order to do this and to be ready to do this, and that means you failed in your order, and that could be not just a career-limiting move but potentially a life-limiting move. So we're entering a very dangerous period. 2027 is just two years away. I don't think they'll invade in 2027, but after 2027 and 2028 through 2032, when you might see the expiration of his last term in power, he'll be 79 in 2032 and up for another five-year term election. In the Chinese system, they don't tend to elect their leaders into their 80s, perhaps something that we could learn from in our country. But that is going to be top of mind for him to establish his legacy, go down into the pantheon of Chinese history as someone who's greater than Mao, who accomplished the one thing that Mao could never do, which is take Taiwan. That would be a very dangerous time.

Well, first of all, on the dearth of young people, yes, their population is shrinking, but we still need to be cognizant of the fact that it's still a country of 1.4 billion people. Even if by the end of the century it halves, they'll get to about 550 to 600 million people. The United States today is 330 million. It's still a lot of people. Russia is 140 million. So we should appreciate that this is still going to be a huge country for centuries to come. The second thing that I would say is that this is an active discussion among pundits of what China is learning from Russia's invasion of Ukraine. I think you could make the case on both sides that it might make them more cautious or it might actually embolden them. At the end of the day, yes, things didn't go well for Russia initially, but today things are going actually pretty well for Putin because he is still capturing territory. In fact, the rate of advance of the Russian forces today is the highest they've been since spring of 2022. Ukrainians are under enormous pressure. The aid from the West is dwindling. The Russian economy, while not doing spectacularly well, is not collapsing, and they've managed to go to a war mobilization-style economy and are producing a number of capabilities to help them sustain this conflict. They still have a lot of people signing up, as many as 30,000 a month, to volunteer to go fight in Ukraine. So things are not a disaster for Russia by any means. Secondly, to the extent that Xi is a learner, which I'm not convinced that he is, there are a couple of things we should take into account. First of all, the Chinese have a very negative view of the Russians and their capabilities. They always kind of tend to think of them as screw-ups. In fact, their nickname for the Russians in Mandarin is 'the hairy ones.' So just because Russia has screwed this up doesn't necessarily mean that Xi is going to be convinced that his own forces are going to screw this up. I'll tell you, I had a conversation at dinner right after the full-scale invasion of Ukraine with a very senior Pentagon official, and I asked this very question: 'What do you think China is learning from this war?' What he said was very interesting. He said, 'I think they're learning that the United States will not fight a nuclear power.' So they might actually be extracting a positive lesson from that, that the United States is going to be deterred from intervening, which means that their task of taking Taiwan is going to be much easier because they'll only be fighting the Taiwanese. So you could make the case for both sides. It's hard to say that it's going to be a deterrent or an accelerant of the conflict. At the end of the day, those two conflicts are very different. One is a land war in Europe, and another one is an amphibious naval battle in the Pacific Ocean. I think that Xi is going to be much more focused on what is happening in his own backyard, how capable the PLA is, the capabilities of the Taiwanese, the United States in the region, Japan, whether he thinks that he has enough leverage over us. That's going to be way more important than what is happening halfway around the world with Russia.