>> narrator: tonight - >> the trade tensions are flaring up between the u.s. and china. >> narrator: with president trump upping the pressure for a trade deal with china. president trump announcing plans to increase tariffs on ll biions of dollars worth of chinese good >> narrator: frontline and npr correspondent, lra sullivan investigate...in >> china is to be number one market from any perspeive. >> sullivan: for ge or for everybody? >> for everybody. >> narrator: the forces behind the conflict. >> we're not in a trade wa we're in a techonomic war. >> narrator: both herend abroad. >> this is a great powergg stle. >> sullivan: do you think that americans should be worried? >> yes, i think so. >> narrator: and whas at stake. >> tariffs announced by the trump administration. >> china is now punching back. >> china has a 10-year, a 20-year,

a 50-year plan. >> they've outsmarted us. they've done some things that we don't agree with. we've got to fix our system to compete with china. >> we do have a chance to see the new cold war. think it's a comprehensive confrontation. htat's dangerous. >> narrator: tonn frontline - "trump's trade war". >> frontline is made possible by contributions to your pbsst ion from viewers like you. thank you. and by the corporation for blic broadcasting. major support is provided by the john d. and catherine t. macarthur foundation, committed to building a more just, verdant and peaceful world. nf moremation at macfound.org. the ford foundation: woeing with visionaries on frontlines of social change worldwide. at fordfoundation.g. additional support is provided by the abrams foundation, committed to excellence in journalism. the park foundation,gh dedicated to hning public awareness of critical issues. the john and helen glessner family trust. supporting trustwort journalism that informs and

inspires. and the ontline journalism fund, with major support from jon and jo ann hagler.on and addi support from the corey david sauer donor advised fund. >> wowthat's great. yay! >> air force one landing at them paeach international airport. >> laura sullivan: in apriles 2017, prident trump headed to mar-a-lago for the most important diplomatic meeting of his early presidency. >> the key to mar-a-las, once trump got there, as often he does, he finally focused on the schedule. >> a very large delegation ofst almovery relevant cabinet member... >> and said, "hey, why are we m having these btings? i want to spend as much one-on-one time as possible." de >> first one pre arrives, and then another. >> sullivan: within hours, president xi of cha was on the ground, bringing together the leaders of the world's two rgest economies. >> one of the things that president trump believes-- he

believes in this totally-- is that personal relationships of great powers can make a difference. >> the presidents face-to-fa for the first time. (cameras clicking) >> thank you, everybody. thank you. >> there was a lot of time in the schedule with them literally one-on-one, being together and crting the relationship th the, the two big economies ereded to have with each o >> sullivan: the leaders seemed to connect.an so did the families. t >> we wantedmake you feel at home. >> nihao. >> nihao. >> hello, how are you? >> that summit was important, because the two leaders established a strong personal relationship. i think the image is that the two leaders sit together, and two family actually sit together. president xi and his wife had a very good interaction with president trump. >> we've had a long discussion

soready, and so far, i have gotten nothing, tely nothing. but we have developed a friendship, i can see that. >> come on, thank you, thank you. >> we say, "okay, you see, president trump is a president that we can work with, and he is someone that we can talk to. he's a reasonable leader, and maybe he can do something the ordinary conventional u.s. leader won't do." so the expectation was very high, and the hope w, maybe they can control the situation and theyan work together to solve the problem gradually. >> thank you.va >> sul but long-standing problems between the countries were reaching a crisis. and despite the promising start and all the optimism... >> i believe lots of veryd potentially oblems will be going away. >> sullivan: ...within a year,um would turn on xi, imposing billions of dollars in tariffs d leading the united states

into a perilous confrontation. >> the fights were nasty that came out of mar-a-lago.en the most int fights and debates in the white house were about this issue of tariffs, but tariffs as a proxy to the great economic war with china that we're engaged in. there's no middle ground. t one side's goiwin, and one side's going to lose. and so we knew the stakes were high. ♪ li (cameras ccking) >> on the fron on the frontline oe rapidly escalating trade w, american companies are bracing for battle. >>adullivan: last fall, i he to southwestern ohio. president trump had fired the first shots in his trade war with tariffs on a wide array of imported chinese goods, from electrics to furniture to steel. >> president trump turns up the heat on china.

i wanted to see first-hand how these tariffs were playing out on the ground. >> as things come to a boiling point tween the two largest economies in the world, tariffs are now hitting too close too home. >> sullivan: trump claimed theul tariffs help american workers, boost u.s. businesses, anbring life back to place like this, which for decades had been hurt by automation and, more recently, imports from china.si >> pnt trump says he's keeping a campaign promise to bring back steel-industry jobs. >> on the streets of middletown, the signs of economic struggle are everywhere. n sullivan: the tariffs o imported steel were particularly welcome news to struggling communities li middletown, where i met with some steelworkers at a local coffee shop. >> there used to be a mall dow here. we had three city parks and three city pools, and now there's none. >> sullivan: what did you think when you first heard that trump was putting tariffs on steel? >> i thought it was, you know, it was about time. i've watched the, the farmers get their subsidies. i've watched the banks bailout,

the automotive-industry bailout, and i've just watched us wither on the vine for the last 30 years.n: >> sullio you think it's going to help the town? do you think it's going to help your hometowns? >> sure. >> absolutely. >> sullivan: what are youpe ing to see? >> everybody always talks about jobs and america, and we hear that all the time. we want to see that, that reality happen. u yoow, you can't just depend on foreign countries for, for steel. we've got to make it in the united states. >> we just want china to play by the rules. >> right. >> that's it, we don't, we don't want a bailout. >> sullivan: so you're saying it's not that you want your industry propped u >> no, not at all. >> sullivan: you want your industry... >> a level playing field. >> sullivan: you want level playing field. >> that's all we want. ng sullivan: but using tariffs to level the plaield has a flip side. they've brought consequences for many other u.s. businesses. i saw that not far from middletown. >> the state of ohio could be the hardest-hit by this looming trade war with ameca's biggest trading partner. >> sullivan: at industrial tube and steel, damon gaynor is in

the business of buying and reselling steel. >> we buy from a bunch of steel mills. our main bread a butter is distributing steel tubing. >> sullivan: trump's tariffs on imported sel-- essentially a 25% tax-ended up raising the price of american steel, too. and that sent gaynorts skyrocketing. so how did you hane that? did you guys eat that, or did the customers eat it? >> see, thatpart.t we jve to pass it along to the customer, our customer has to pass it along to their customer, and so on, down the chain.ul >>van: do you think that there'll be a point, though, where the, the end consumer will just say, "i, i can't afford this, this is too expensive"? >> yeah, i, i think there's always that risk, and that's the thing with tariffs is, are you kind of artificially messing with the price of, you know, what the market dictates >> sullivan: and what people will be willing to pay. >> and what people will be willing yeah, absolutely. and i think that's the question with tariffs. is it going to do good, or is it going to do bad?

>> sullivan: manufacturers like shepherd chemical were also hitb hathe tariffs, especially when china retaliated with tariffs ofts own. >> so all these tanks around here produce various metalca oxylates. >> sullivan: c.e.o. tom shepherd sells products to china, and he also imports raw materials from china. >> our sales to ina have gone down, and our raw materials from china have increased in cost. yo sullivan: how big of a problem is that fo >> several million dollars of, of profit lost, in a year. >> sullivan: okay. yeah, you're getting it from all sides, the >> yeah, that's right. if what we're trying to do is protect the american economy, this is a bad way to do it. >> sullivan: but despite the uneven consequences, president trump was all in on the tariff strategy. it's a strategy he's bee talking about for years, as far back as the late 1980s, when he first tested the possibility of becoming president. >> our guest, the famed developer donald trump of w

york... >> sullivan: back then, trump's target was japan and its trade practices. >> the fact is that you don't have free trade. we thinkf it as free trade, but you right now don't have free trade. and i think lot of people are tired of watching other countries ripping off the united states. this is a great country. >> he believed from th beginning that there's really nothing worse than being laughed . >> they laugh at us behind our backs, they laugh at us, because of our own stupidity. >> and he came to see the japanese as laughing at th united states and taking advantage of the united statesg by steale jobs, by dumping product here. >> we let japan come in and dump everything right into our markets and everything. it's not free trade. if you ever go to japan right now and try to sell something, forget about it, oprah, just forget about it, it's almost impossible. >> sullivan: after japan's economy cratered, trump shifted his ire to a rising economic power, china.pp >> they are g us like we've never been ripped before. if you look at japan, if you look at china, where we lose $100 billion a year with china...

>> he's been saying the sameg thr 30 years. donald trump has a very binary view of life and certainly of the world. and, and so to confront chince which he pes as america's most important and dangerous rival, and to be ablto use blunt instruments against them, and to come d at least be able to say that you are a winner and they are a loser, there's, it's hard to imagine anything more appealing to the core of his personaly. >> please welcome the next president of the united states, mrdonald j. trump. (people applauding a cheering) >> sullivan: by 2016, trump's message had finally found an audience. hid his focus on trade andmo had found its ment. >> first time i ever met trump, i was, you know, coming out of goldman sachs, and, and somebody that had been in finance for a number oyears, i was set to be unimpressed. i was actually very impressed. h nodn't know a dn't know a lot of details.

he kw almost no policy. but what i found most extraordinary was, when we got to the section on chhich i kind of threw out there, of a two-hour meeting, almost 30 minutes or more was all about china. >> we have a $500 billion deficit, trade deficit with china. >> and you've got to remember, a lot of this he was just reciting everything he'd heard from lou dobbs. >> we're talking about a trade deficit of $315 billion lastth year witchinese. >> he's been a guy that's watched lou dobbs for 30 or 40 years. and the only thing he had formed as a worldview was chi. >> because we can't continue to allow china to rape our country, and that's what they're doing. it the greatest theft in t history of the world. >> he talked in th kind of vernacular that, that kind of hit people in the, in the gut,ic and paarly when he talked about trade and jobs and jobs shifting overseas. >> sullivan: what was hiss e to these people on trade? "china's to blame"? >> yeah, the message's very simple, is that, "the elite shipped the jobs overseas, and i'm going to bring them back." >> thank you, indiana.

>> sullivan: that message helped propel trump to the presidency. and once there, he assembled his team of advisers on trade. to oversee economic policy, he idbrought in the former prt of goldman sachs, gary cohn. >> the job had in the white house was to convene everyonesi who lly had an onion on an economic topic, and try andme p with a recommendation or two, or present to the president completely diametrically opposed opinions and allow the president to make a decision. >> in the roosevelt room, we would have a trade meeting every tuesy, and then we would tak some version of that into the oval in a smaller group.ak if youall the other nastiness on the things like the paris accord and tppthis other stuff, roll it up, and put it to the factor of ten, they don't compare to these weekly nasty trade meetings. ♪ >> sullivan: from the start, the weekly trade meetings surfaced deep divisions among trump's

advisers over how to deal with rising economic tensns with china. the two camps came to be known as the globalists and the nationalists. on the one side, thelists included former wall street executives like gary cohn and steve mnuchin. on the other side, thenc nationalistsded bannon, along with robert lighthizer and per navarro, a hawkish economist whose film "death by rgina" caught trump's attention. >> one of the mostt problems facing america, its increasingly destructive trade relationship with a rapidly rising china. t >> sulliva two camps disagreed sharply over whether aggressive measures like tariffs would help or hurt the american economy. >> we had a mindsethat great power, you know, it wasn't just your military. you had to be a great economic d wer. and a great power be built upon, had to be built upon a great manufacturing base. to "make america great again," you've got to bring

manufacturing back to the country. >> sullivan: some of the people that are very pro-tariff right now make an argument that e united states has lost its manufacturing base, and that this is actually real people's lives at stake here. >> well, the data would show manufacturing jobs have gone down in the united states, so it understand whey're saying there. the flip side is, factory output, or what we produce in the united states, has actually gone up. ere's this thing called technology that's happened in the united states. factories have changed. but we have also created millions upon millions of jobs in new industries that didn't exist 20 years ago. >> sullivan: the split between globalists and nationalists was about more than just industrial policy. it reflected a fundamental difference over how st to confront china and what each sae as the end >> the nationalists said, "this is a great hegemonic, you know, great-power struggle."

it's definitely two systems thae couldn't be adically different, right, and, and one of these two are going to win. weeed not just a trade dea we need fundamental structural changes in their economy. >> sullivan: some of your formea colleagues havexactly where you are and said, "this is a winner-takes-all situation." >> yeah, i, i understand that, and that's the nationalist versus the globalist. >> sullivan: yeah. >> the globalist, okay. as a globalist, as a marketth practitioner, k that we can have a globalized world that works well. the question is, "can we both bo complementarach other?" i think the answer is yes. >> these arguments would get quite personal. we would get through the factsau quickly, b the two sides are just never going to agree what the facts are. then it would get, then it would gepersonal. >> from time to time, there were people that tried to use un-footnoted, undocumentedfa s. it's my job to get rid of the undocumented, un-footnoted facts, and make sure that those don't enter the oval office. >> and a couple of times, we had

blowups. i mean, there was a blowup inal the ffice that kelly had to... we kind of... the first couple of days general kelly was the, we had to exit and go back into the roosevelt room, and it's kind of a, it's kind of, uh, in-your-face with a couple of people. >> sullivan: where was trump whe these two parties are different sides of this? >> he has a default position. his defaulposition is, you know"build the wall." his default position is, "engage, engage china in the economic war you know, "get tariffs," but he's going to let you fight it out. president donald trump arrived in china for his first official visit there. >> sullivan: with the battle between the two camps playingde out, trump hto beijing in november 2017. it was a royal welcoming... (band playing march) ...filled with pomp and ceremony, and the two leers seemed ready to work together. (band continues playing) their negotiators agreed on a plan for china to buy billionsrs

of doln u.s. products, like beef and natural gas. ♪ but behind the celebrations, trump's nationalists had devised a different plan. >> we had a couple of tricks up our eeves. nafrro and i start to dust the, the secret weapon we had, to call a national-security emergency, kind of what we're doing on the border right now. (people applauding) to use the natnal-security emergency powers that are invested in the defense department to really start to go after steel, aluminum, maybe autos, but eventually technology. it's time to get it on. >> sullivan: by march 2018, the president was ready to take action. >> thank you very much, everyone. we have with us the biggest steel companies in the united states. they used to be a lot bigger, but they're going to ba lot bigger again. >> sullivan: executives from the steel and aluminum industriesly

were hasathered in washington. >> they were all called to the white house, hadhe meeting. and at that time, the president announced what he was going to do. >> next week, we'll be imposing tariffs on steel imports and tariffs on aluminum imports. >> sullivan: what was theti re? >> the reaction was surprise. >> it will be 25% for steel. it will be ten percent for aluminum. >> this moment was a seminal moment in trade policy, becae it's the most aggressive use of this kind of trade law approach ever. this is done under the theory os nationurity. >> and we need it. we need it even for defense. if you think, i mean, we need it for defense. we need great steelmakers. >> steel was important to ourur national secy broadly. military, critical infrastructure, and the economye as a w and that had never been done before. >> thank you very much,od ever thank you.th ank you very much. >> sullivan: the sweepinsteel tariffs also surprised america'l

est allies. it turns out, those tariffs hurt u.s. allies more thachina. that's because allies like canada sell much more steel to the u.s. than china does. at the state department, the top china specialist quickly started getting complaints.wh were some of the united states' allies saying? >> well, certainly the allies were very much taken aback that they were the target of the steel tariffs. they don't understand the focus on tariffs, they don't understand the focus onon deficits, they understand the rejection of the international trading, you know, norms and institutions. they don't understand the u.s.'t ren of global free trade, since this is the system that we basically set up. >> sullivan: trump had upended decades of u.s. trade policy, determined to start a fight he felt was his. >> in several meetings, even in high-level meetings with the president, some foreign leaders. you know, offered, they said, e want to help with china, we

want to do this together with you." but he seemed to think that this was his fight alone and that he wanted to do it mano a mano. >> sullivan: at that point, were you disappointed? were you frustrated? >> if you adamantly believe that something doesn't make sense, you're personally disappointed, but ultimately, it's not your decision to make. >> sulvan: within a month, cohn would leave the white house. the nationalists had won. >> president trump turning tough trade talk into action. y >> new tariffs announcede trp administration on $50 billion worth of chinese exports. >> china is now punching back with an equal amount of tariffs on american exports. >> president tmp has just slapped tariffs on another $200 billioof chinese exports. >> igniting the biggest trade war in economic history. (train bell ringing) ri sullivan: this was the fight that had first brought me to ohio.

it what was dominating the headlines and the politics. but e view was much differen 7,000 miles away, in china. ♪ i arrived in shanghai last fall, in the middle of what was being billed as the world's largest a import expeek-long trade extravaganza that drew more than a million people. it had been eight months sincers trump's tariffs, and i wanted to hear what businesses at the expo had to say about the trade war.♪ ♪ thousands of compani from all around the world were here...(m speaking on p.a. system) ...focused on selling their products in the growinese market. >> we have actually a, a very special italian wine. the eam of the top of the italian wines. >> sullivan: u.s. companies have been doing business here for decades and seemed unfazed by the trade war. i >>s going to be number-one market from any

perspective, and...or >> sullivan:.e. or for everybody? >> for, for everybody. >> sullivan: with 1.4 billion customers, china's a market u.s. companies can't resist.e' >> been in the china market for 34 years. we have over 40 wholly owned or joint-venture subsidiaries in the market. so very, very important to dupont. >> sullivan: it seemed like business as usual. so what do you think the trade war will do? >> that's another thing lyu reust have to not worry about, because today i met myriads ofhinese businesspeople... >> sullivan: okay. >> ...men d women, that look you in the eye, and they want to do business with you. >> sullivan: they do. >> and you're going d a way. >> sullivan: it was hard to gauge if trump's tariffs were ving any impact here. as i traveled around the couny... nihao. >> nihao. >> sullivan: hello. some chinese businesses told me they'd been hurt a bit, andrs otot much at all. when it came to the trade war,ov even the gernment was

downplaying it. one of china's top tra officials agreed to talk to me. >> sullivan: why do you think the u.s. and china aren a trade dispute right now? >> i think we may have different perceptions. we think that thpacific ocean as, in president xi's words, "big enough to accommodate the two economies." we do not want to have a war, even a trade war, with any country in the world. and we do not have the secret strategy to replace the united states as the global superpower. ♪ >> sullivan: but u.s. companies have long complained about an economic strategy that china does use. they say it gives chinesen businesses afair advantage.

the govement plays a heavy hand in the market here, through massive subsidies and support. special economic zones, forex ple, have been created to spur industries the government believes are critical to china's success. i found one six hours south shanghai, in the industrial port city of wenzhou. this economic stragy is called "the china model." >> the china model is a blend between nationalontrol and ownership of resources and economic activities dominad by private entrepreneurs. 90% of the new jobs are in the private sector, but all the land is still owned by the state. control ofnergy resources controlled by the state. control of the financial system, basically by the state. you come up with this socialism with chinese characteristics, or socialist market economy, which is what china calls itself. ul

>> svan: here in wenzhou, the government has prioritized high-tech development, providing support to companies like wm motor to build electric cars. in 16 months, wm built a massive manufacturing facility that will be able to produce 200,000 electric cars a year. (music playing in commercial)cu >> we on the intelligent smart car.r. >> sullivan: and this is them? these are the cars? >> yes, this is actually thely anry e-stage car... >> sullivan: freemhen is the c.e.o. of wm motor. ♪ the china market for auto sales is now the biggest in the world. it's also where american car s companies makee of their biggest profits. but they're facing increasingom competition hinese companies, like wm. how does this represent sort of a changing china? >> oh, interesting. you know, when a country

upgrading the whole industrial base, the best example wou be a, a vehicle, the car ry.u >> sullivan: car industry. >> yeah, car industry is the representative of the whole industry. >> sullivan: you're saying, like, the, the cars are the, the bellwether of how a country... >> exactly, exactly-- exactly.li >> sn: why, why do cars... >> because, you know, it's assembly of all kind of e,chnology. it's equally softw mechanical, lighting. you've got, cybersecurity's in there.o >> sullivan:u're saying that countries that can build a car... >> you've got all kind ofdu inry very strong before you can build a strong car in that country. >> sullivan: and if you can build a car, it means you are logy chain.he tech >> exactly, exactly. >> sullivan: you're coming up. >> the value chain, basically. >> sullivan: the value chain.s >>ing up. >> well, the communist party has long seen the automotive industry as a pillar industry. and so they've devoted huge amounts of resources and policies towards building up that industry. it's all about bringing china up into the top er of global economies, in terms of its

manucturing capabilities and technological capabilities. you're not going to get rich, you're not going to become a superpower if you're just making the low-end stu ♪ he >> sullivan: ttate-sponsored china model is credited with transforming the country's onomy. china's middle class is now bigger than the enti united states. and its economy is growing twice as fast. this success has become a major source of tension in the trade war. >> the question is, is america complaining about the way china handles economy, or is about china's legitimacy to become a prosperous and powerful country? our population is four times bigger than the u.s. we have 1.3 billion people. right? you have 300 million people. so china's economy should be four times higher than the.s. economy.

now we are only... >> sullivan: that would be t for people in the united states to accept. >> yeah, of course, i know, this is, this is difficult to, toaccept, right? today we are only 60% of the size of the u.s. i think we do have the right to be at least as powerful as the u.s. and even, one day, much powerful than the u.s. >> sulvan: do you think that americans should be worried? >> oh, yes, i think so. >> sullivan: yes, they should? >> you know, the chinese government thinking we are become stronger and stronger. >> sullivan: yeah. >> and the u.s. still number one, big brother, right? >> sullivan: big brother. >> and hope that big brother not trying to nch me on my face. and big brother were thinking, you know, "this little brotherme y probably will do something to me." i think that the... it is... i think that really depends on the, the intelligence of bothde countries' lto make sure. worry is fine. but please, don't fight.

♪ di (audience applau) >> sullivan: but back in the u.s., trump was eager to escalate the tariff fight. >> thank you very much >> sullivan: in fall of 2018, he upped the ante by threatening en more tariffs. es as you know, we have $250 billion at 25% intwith china right w, and we could go $267 billion more. and china wants to talk very badly. and i said, "frankly, oo early to talk." can't talk now, because they're not ready.ey because e been ripping us for so many years. >> sullivan: trump's position was that it was time to hitan backthat prior administrations had been too soft on china. >> they have a surplus of $375 billion-- with a b-- with the uned states, and it's been that way for years and years and years. e china, i blame ourer leip. they should have never let that happen. and i toldhat to president xi... >> sullivan: but while trump was blaming his predecessors, weea

werering about other reasons why the problems with china had gone on so long. dozens of interviews we did in china and the u.s. pointed to an unlikely obstacle-- american businesses themselves. >> they were worried about the operations they had na, whether they would lose the profitability. >> sullivan: one of the biggest problems the u. has had with china over the years is what's come to be known as forced tech transfer, where companies wanting to do business in china say they're pressured to give up thr technology. >> china started adopting what were calledigenous innovation policies to make sure that their own companies, state-owned or otherwise, were ing to be the ones who really were the leaders in the new economy. u' >> sullivan: so saying they didn't compete fair. >> they engaged in predatory and protectionist policies. ey demanded that many foreign companies seeking to come into their market had to do i

through joint ventures with their own firms. and in many cases, requiring that their technology bed transfer empower chinese entities to become, you know, great world companies. >> sullivan: china wasn't supposed to be doing this undery rules set he world trade organization, which it had joined in 2001. and though china says it has no official policies forcing companies to hand over technology, u.s. trade officials started geing complaints about the practice just years after china joined the wto. but the complaints came with a catch. >> companies would come in and complain. they'd he great information, but, "oh, by the way, you can't use any of this, but solve our problem. and so that was always a challenge.n: >> sullihy did that make it harder? >> it made it harder, because you couldn't really prove your case. >> sullivan: so you saw the u.mu business cty not only say, "don't use my name," but they would say to your office andhe administration, "we don't even

want you raising this issue too loudly." >> right, right, right. >>ullivan: "because if you raise this too loudly..." >> "they're going to think it's y , and we will be hurt." >> sullivan: and td too much money at stake. >> they had a lot of money at stake. >> sullivan: how did that...f sortving your hands tied behind your back in a way, how did that affect, in the long run, the, the u.s. position against china? >> yeah, it probably embdened china a bit, right? because as more and more problems came up, individual companies were verspooked and didn't want to, you know, visibly be assocted with any strong action by the u.s. vernment. ♪ >> sullivan: by 2008, u.s. companies were facing more and more competition from chinese companies, and china was becoming an economic force. >>inhe chinese tonight reachg their hands out to the worldn a really unprecedented way. >> sullivan: the china model was working, and rea for prime time. that opening ceremony, do you

remember it? >> i was the. sullivan: what did you see? >> oh, my god. i sat up in a high seat, and i was around all these chinese people who'd come in from all over the country. >> (cheering) >> they were beaming with pride. >> sullivan: hat do you think the world saw? >> the world saw a pretty incredible place. i think itlew the world away. on, "holy cow." and all a sudden, they just do this incredible opening ceremony.ro wd cheers) they know how to put on a show it was like the biggest coming-out party in history. >> (cheering) >> it was go-go years in beijing. everything was possible. you know, and there was still a lot of respect for the u.s. an the u.s. economic system, the u.s. financial system. and, you know, there was stillof a loespect for the big banks, and the idea that the u.s.... they understoo how to run a financial market. and then... the crash happens. (closing bell ringing)

>> a meltdown on wall street, the worst since 9/11. >> the worst financial crisis in morn times. >> three of the five biggest investment banks are gone. >> you can see it in some of the polif circles and the, sort o the academic wtings, the chinese think tanks, but i just saw that with my friends was this idea of, like, "we thought you guys kw what you were doing." >> a crisis which is unraveling homeownership, the middle class, and the american dream itself. >> i definitely look at the, the financial crisis, 2007, 2008, ay a, as a reey turning pointow the thinkers saw the u.s., where the u.s. maybe was up here in terms of something to emulate inys certain went down to here or lower, because basically the emperor has no clothes. >> the attitude changed profndly. c.e.os. who used to be able to go see the, the premier, and president, they would come, and they would have to meet a dw-level official, who wo berate them.

it was, it was stark. buyou got to remember, for for all these years, we had, you kn, we had low-voltage congressmen or businesspeople coming in and, and shaking their finger in chinese, saying, "you should have all theou childrenant, you should do this, you should do that." and these very capable chinese ople would just bite their tongue and say, you know, kind of, "thank you for your wisdom," because they, they needed, they needed america, they needed, they needed us, so they had to tolerate us. then all of a sudden, global financial crisis, and it was payback time. it was, like, "you listen to us for a while. (crowd applauding) >> sullivan: pubcly, china would promise to open its markets more to u.s. business. is>> the new chinese leade revealed. >> sullivan: but internally, it would double down on the china model. >> (speaking chinese) (translated): china needs to arn more about the world the world also needs to learn more about china. >> sullivan: and under xi jinping, it embraced an ambitious national plan, called

"made in china 2025," that put even more focus onominating key global iustries. >> there is this belief that china is destined to return to its former glories, and you can't restore your, your fabled glory if you're not the leading country in all sorts of eas, be it military, be it technology, be it, be it manufacturing. ♪ >> sullivan: but earlyn, u.s. businesses discovered china wast ahead. >> in early january 2010, i get a call from google, who had just announced that they had been hacked. >> google traced the sabotage back to china. >> in the course of the investigation, they actually realized that there were many more companies that had been targeted. >> not only was google itself targeted by the cyber-spies, buw e at least 20 other major corporations. >> slivan: you thought at th time, "this is something bigger." >> for the first time ever, we were facing a nationtate, an

intelligence service, that was breaking into companies, not governments, not militaries, but private-sector organization. >> in all more than 72 organizations were hacked by spies, dating back to 2006. >> sullivan: the google hack led to revelations about dozens of other chinese cyberattacks. >> ...dubbed operation shady rat. is it coming from one particular place? >> sullivan: and alperovitch was called to the white house situation om to brief obama's top national security officials. >> i briefed them on what wewi were seein both aurora, night dragon, shady rat. >> sullivan:hat did they say? >> my impression was none of this was a surprise. and when i pressed them on why they were not taking stronger action against china, their response was, "it's complicated." >> sullivan: "it's complicated." did they explain that? >> well, they were telling me straight out, "those same customers that are getting victimized by china, they are the same companies that are coming in to tell us, 'don't do anything to harm the relationship with china. we want to continue doing business there.on

we want tonue making money there. we need that market.'" >> you know, the, the u.s. government listens to companies, so if the companies are saying, "chill," they'll chill. >> sullivan: how can businesses enwalk into united states es and complain about being treated unfairly, if they're the ones that are preventing anaction from being taken? how do they get to have it both ways? >> sometimes two things can be true at e same time. i mean, their incentives are to make money. if your buness is in china, xi jinping is more important to you than donald trump or o barama. and it's, it's not that these arbad people who don't car about america, but their incentives are to shareholders, not to the government of the united states. (band playing "hail to t chief") >> sullivan: neither google nor any of the other companies we contacted about cyberattacks would agree to talk to us. and chinese officials deny

they've been involved in such practic. but by 2015, american businesses and government officials we increasingly alarmed. in negotiations with president obama, xi edged that china would not engage in economic cyber-hacking. i believe that we have made significant progress in enhancing understanding between o nations. >> sullivan: obama also brokered a major trade agreement with allies, the trans-pacifi partnership, or tp (crowd applauding) it was supposed to put pressure on china to fie growing economic problems between the two countries.wo but all of thad come unraveled with a new president in the white house. (march playing) trump quickly withdrew from the tpp agreement. and by the fall of 2018, th his own trade negotiations stymied, the conflict was wening.

the administrationook a tough turn, confronting china aggressively. . >>..releasing a new report tonight detailing just how big the threat china poses. >> sullivan: it accused china of ntbreaking the cyber agree. >> chinese intel officers charged with hacking u.s. businesses... >> sullivan: ...and engaging in widespread technology theft. >> this latest indictment adds to the growing tension betweene s. and china in the middle of this fierce trade war... >> now, through the made i china 2025 plan, the communist herty has set its sights on controlling 90% oforld's most advanced industries,in uding robotics, biotechnology, and artificial intelligence. >> really an extraordinary speech, attacking china on the domestic politics front, the trade front, and the military front. >> chinese security ag have masterminded the wholesale theft of american technology. >> they don't want to wait 20 more years to catch up. they're just reaching into theak cookie jar andg whatever they want... >> and using that stolen technology, the chineseco unist party is turning plowshares into swords.

>> that speech was n a hawkish speech, that speech was a declaration of economic war and potentially a real war. >> in china, it was read by everybody all the way up to the top. >> did the vice president issue any kind of evidence? >> sullivan: as what? >> as a harbinger of, yoknow, something really, reallyd different mething that was really alarming for them.n: >> sullihy was it alarming for them? >> it was a very unnuanced, undiplomatic speech. it was kind of a bill of indictment. >> both china and the united bates need to make an effort to make sure that tateral relations do not get out of control.ge >> our meso china's rulers is this: this president will not back down. (audience applauds) >> that was the point of no return, and it's not beingow acdged enough. it was the most important speech of the whole trump administration. ♪ ♪ >> sullivan: early on, the focus of the trade war had been on tariffs and reviving

20th-century industries. but it'd now become about far more. about who will dominate the cutting-edge industries of the 21st century. so i headed to silicon valley, where the battle was being waged. >> the fear inside this white vast financial resources to leap ahd, technologically, of t united states. >> sullivan: the trump administration was trying to restrict china's access to valuable technology developed by american companies. first up, though, this morning, the trump white house announcing a pivot. >> using existing law lated to national emergencies to restrict chinese investment in sensitiv technologies. l >> sullivan: on sand hilroad, i met one of the most experienced high-tech bankers in the valley, who was troubled by what he was seeing. he told me about a flo of calls he started receiving from chinese investors about five years o. he remembered one chinese investor in particular. >> he'd been sent to invest in technology; could i help?

and i said, "well, what kind of technology?" and he, he had difficu answering the question. an and if i phed him hard, clearly in the end, it would be artificial intelligence, tomiconductors. maybe things havino with automotive. >> sullivan: the chinese government top priorities. >> the chinese government's top priorities, right. and, and then i said, "well, how much do you have to invest?" and he claimed that he had access to a billion dollars. la>> sullivan: a billion d? >> yeah. and then i met a private equity firm that had $15 billion from some entity in the chinese government sullivan: how much money? >> $15 billion. >> sullivan: with a b. >> yeah, and they told me that their only, thr only mandate was to invest in semiconductors. >> sullivan: what did you thinkt t? >> i thought, "this is... i don't know if this is good."ea >> sullivan: i you've been at the heart of silicon valley financing...

>> yeah. >> sullivan: for 35 years. >> yeah. >> sullivan: what do you think is happening here? i think china is doing its absolute best to make itselfuf selfcient, from a technological point of view. they realize that in order to accomplish that,hey either have got to start pedaling faster otheir own, or they've got to b a lot of technology. (talkingoftly in background) >> sullivan: that one. thank you. at stanford university, i foundn vestors and entrepreneurs grappling with china's high-tech ambitions. >> silicon valley is very much at the heart of the trade war. >> sullivan: why do y that? >> the u.s. needs to keep a technological advantage. silicon valley, 's generating a lot of the innovations that are powering the u.s., in terms of all sorts of different technologies. >> on this chart, in terms... >> somebody from the business coreunity said, you know, "w not in a trade war, we're in a techonomic war." and i think that's what we probably are really worried

ab >> a lot of chinese technology companies invest heavily in 5gs... re >> now there areas where they're actually, you ow, quite competitive, and some edeas where they even seem to be maybe having an, a. >> and you know what? chinese companies already working on 6gs. >> sullivan: despi their worries about china, people here also depend on chinese investments and were concerned that the trump administration would go too far. do you think the administration had good reason to cla down on investments from china in silicon valley?o, >> i thinkut there's a difference between, "yes, there's a problem," and the response being measu appropriate, and grounded. i think they, they may end up opering to our detriment broadly economically, but also, without the ability to collaborate, it's going to be very difficult for the u.s. to keep up. >> business used to be the llast in the relationshi because american companies made money, american consumers got cheap goods, kept inn down.

china got know-how, capital, et cetera. the business relationship is now the major conflict, 'cause we're both going for all the technologies of the future. we're both racing for global leadership influence. so now business is, is an irritant, and it's the conflict. ♪ >> sullivan: as i drove around the valley, i could see the challenge of this high-tech conflict. chinese busisses are visibly present, tightly connected to the economy. and few people i met here ought the trump administration's hard line on china would be good for anyone in the long run. >> the endgame here is the decoupling of the american and chinese economies. >> wdych, by the way, is alrea underway, and it's going to continue. >> i think there are people who think that sealing ourselves off is, is ultimately the best solution. >> sullivan: to break china and the united states' economies apart. >> yeah. buthat seems so sad, becau we could do so much for each other.

if your goal is to stop china from advancing, you're not going to accomplish that anyway, because they'll, they'll just innovate around you. why would you want to stop m anybody fring progress? i, i don't see that. what i tnk our goal should be is to... >> sullivan: some people would say because they could becomel more power the world marketplace than, than the united states. >> the better goal is for us to spend time on becoming more powerful ourselves, i think. ♪ >> sullivan: that was ant ent i'd been hearing throughout my reporting on the trade war. and back in oh, where i'd first seen the impact of the tariffs. >> the future is on the line for more workers at general motors. >> sullivan: people were the same point in the face of seemingly unstoppable economic forces. >> a large american factory stopped producon today... >> sullivan: earlier this year, the gm plant in lordstown stopped producing cars. (horn honking, crowd shouting) the latest hit to auto workers. >>his plant can't close. when it first opened, it was the largest plant under one roof in

the world. >> (chanting) >> sullivan: with china aggressively pursuing next-generation technolo, the talk in lordstown that day was how this plant could transformed to keep the u.s. competitive. >> my personal hope is that general motors, which is investing billions of dollars in all-electric, emsion-free, green cars, will decide to build them right here. (car horn honking) >> we've got to fix our system to compe with china. we've got to internalize some of this blame and not spend all oug time blat on china. they've outsmarted us, they've done some things that we don't agree with, they've done some things against the agreementsbu they've madethey're focused and moving ahead. >> china has a plan. en they got aear, a 20-year, a 50-year plan. i mean, we really need to get seriss about this in, in termle ofric vehicles, in terms n of, ofew technology, in terms of manufacturing, and make sure that our government is supportive. >> we didn't do what china's doing. we didn't look at, "where are

the industries of the future? where ... what kind of training do we need? what kind of people do we need? whatind of incentives do business need to do this?" weis is where, actually, the chinese system thae always looked down on actually has an advantage now. ♪ >> sullivan: over the past several weeks in washi president trump has been upping the pressure to get an agreement on at least some of the long-standing issues. >> we are rounding the turn. we'll see what hapns. we have a ways to go, but not very far. >> what's still le to agree to, sir? >> we have things, we have things. we're talking intellectual-property protection and theft, we're talking about certaitariffs... >> sullivan: despite challenges, he says a deal is possible. >> this is the granddaddy of them all, and we'll see if it happens. it's got... >> sullivan: but whether a deal is made, trump's trade war hasht heed the economic conflict.

>> i think i'll quote my chinese friends... >> sullivan: and the specter of a prolonged rivalry looms large. what does trump want from china? what did the camp inehe whitehouse that you w in, what do you want? >> i believe you need... you need actually a change of the top leaders in the chinese co unist party. >> sullivan: how on earth... >> i think the goal into chinate is qimple, is to bring them... is to break the ck of this talitarian mercantilist economic society... >> sullivan: you're tameing about rehange. >> well, first off, nobody in the white house is talking about that, okay?en and the preswould never even consider that. they're talking about a trade deal and some fundamental econom change. i'm saying, one of these two are going to... this, either, this, this mercantilist, totalitaria system that has a network effect, or the kind of, you know, liberal, democratic west. one of those two systems ise going toe system at the end of the day. (man speaking chinese) >> trade wars can get out of

control pretty fas t the arrest of a top executive at chineecom... >> this is really the united states ramping things up again huawei.on >> tensiin the south china sea escalate. >> taiwan has become a hot-button issue.ex >> ourt major war could be fought against china. >> this is my optimist scenario, that we will have a managed tension. but we do have the, uh, pessimistic scenario. we do have a chance to see a so-called... i don't like the term, but the new cold war. i don't think like the one the u.s. had with the, with the ussr. but we will have another type of cold war that nobody have ever experienced. but i think it's a comprehensive confrontation. that's dangerous.da that's reallerous, and if uiat happens, if that happens, it will last for a long time. then that's a tragedy for everyone, i think.

♪ >> go to pbs.org/frontlinefor more reporting on "trump's trade war". >> some of the people that are very pro-tariff right now makerg an aent that the united states has lost its manufacturing base. >> we have also created millions upon millions of jobs in new industries that didn't exist 20 years ago. >> then visit the frontlinech e where you can stream more than 200 frontline documentaries. connect to the frontline community on facebook and twitter. then sign up for our newsletter at pbs.org/frontline. >> today we officially opened the united states embassy in jerusalem. >> ...jerusalem claimed by both palestinians and israelis as their capital... >> what a glorious day. >> ...violence erupted after thousands of palestiniansur dircers toarheemad b protecting tders of israel

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>> you're watchi. ♪ ol ♪ hold, hd on hold on to me ♪ 'cause i'm a little unsteady ♪ >> what's the situation there? >> how do you explain that? >> are you readyor this world that we are facing today? ♪

♪ -♪ nighttime comes, and the lin ts go out ♪ ♪ and tu can't help what you think about ♪ ♪ just another number in the prison machine ♪ ♪ ♪ waking up rrow is the same routine? ♪ ♪ waking up ♪ in berrim [ indistinct voice over [ loudspeaker ] g -time to get u dressed, make your bed, go to your room, and prepare for... -[ whistling ] -...time to get up, get dressed, make your bed... ♪ -prisoner melvin,prison, make your bed... come to the control room.♪ ♪