>> narrator: tonight - >> the trade tensions are flaring up between the u.s.. and ch >> narrator: with president trump upping the pressure for a trade deal with china.mp >> president tnnouncing plans to increase tariffs on billions of dollars worth of chinese goods. >> narrator: frontline and npr correspondent, laura sullivan investigate... >> china is going to be numb one market from any perspective. >> sullivan: for ge or for everybody? for everybody. >> narrator: the forces behind the conflict. >> we're not in a trade war.a we're ichonomic war. >> narrator: both here and abroad. >> this is a great power struggle. >> sullivan: do you think thatou americans be worried? >> yes, i think so. >> narrator: and what's 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 weon'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.om i think it's aehensive confrontation. that's dangerous. >> narrafrr: tonight on tline - "trump's trade war". >> frontline is made possible by contributions to your pbs station from viewers like you. thank you. and by the corporation for public broadcasting. majosupport is provided by t john d. and catherine t. macarthur foundation, committed to building a more just, verdant and peaceful world. more information at macfound.org. the ford foundation: working with visionaes on the frontlines of social change worldwide. at fordfoundation.org. additional support is prided by the abrams foundation, committed to excellence in journalism. the park foundation, dedicated to heightening public awareness of critical issues. the john and helen glessner family trust. supporting tstworthy journalism that informs and

inspires. and by theli frontline jour fund, with major support from jon and jo ann hagler. d additional support fro the corey david sauer donor advised fund. >> wow, that's great. yay!>> air force one landing at the palm beach international airport. >> laura sullivan: in april 2017, president trump to mar-a-lago for the most important diplomatic meeting of his early presency. >> the key to r-a-lago is, once trump got there, as oftenna he does, he filly focused on the schedule.>> very large delegation of almost every relevant cabinet member... >> and said, "hey, why are we havinghese big meetings? i want to spend as much one-on-one time as possible." >> firstne president arrives, and then another. >> sullivan: within hours, president xi of china was on the ground, bringing together the leaders of the world's two largest economies. >> one of the things that

hesident trump believes-- believes in this totally-- is that personal relationships of great powers can make a difference >> the presidents face-to-face for the first time. (cameras clicking) >> thank you, everybody. thk you. >> there was a lot of time in the schedule with them literally one-on-one, being together and creating the relatiohip that the, the two big economies needed to have with each other. s>> sullivan: the leadersmed am connect. and so did the fies. >> watwanted to make you feel home. >> nihao. >> nihao. >> hello, how are you? >> that summit was important, because the two leadersd establisstrong 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

already, and so far, i have gotten nhing, absolutely nothing. but we have developed a friendship, i can see that.k >> come on, thyou, 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 was, maybe they can control the suation and they can work together to solve the problem gradually. >> thank you. an>> sullivan: but long-stding problems between the countries were reaching a crisis. and despite the promising start and all the optimism... >> i believe lots of very poteially bad problems will going away. xi sullivan: ...within a year, trump would turn oimposing billions of dollars in tariffs and leading the united states

into perilous confrontation. >> the fights were nasty that ma came out oa-lago. the most intense fights and debates in the wte house were about this issue tariffs, but tariffs as a proxy to the great economic war with e're engaged in. there's no middle ground. one side's going to win, and one side's going to lose. the stakes were high. ♪ ameras clicking) >> on the fron on the frontlinee rapidly escalating trade war, american companies are bracing for battle. >> sullivan: last falli headed to southwestern ohio. president trump had fired the firsshots in his trade war with tariffs on a wide array of imported chinese goods, from electronics to furnitureo 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 between the two laest economies in the world, tariffs are now hitting too close too home. >> sullivan: trump claimed the riffs would help america workers, boost u.s. businesses, and bring life back places like this, which for decades had been hurt by automation and, more recently, imports from china. >> president trump says he's keeping a campaign promise tobr g back steel-industry jobs. >> on the streets of middletown, the signs of economic struggleer are evhere. ariffs onan: the imported steel were particularly ngwelcome news to struggli communities like middletown, where i met up with some steelworkers at a local coffee shop. >> there used to be a mall down here. we had three city parks and three city pools, and now there's none. va >> sul 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 0on the vine for the last years. >> sullivan: do you think it's going to help the town? do you think it's going to help? your homet >> sure. >> absolutel >> sullivan: what are you expecting to see? d everybody always talks about jobs and america, hear that all the time. we want to see that, that reality happen. ju you know, you can' depend on foreign countries for, for steel. we've got to make it in the unitedtates. >> we just want china to play by the rules. >> right. >> that's it, we dwa't, we don' a bailout. >> sullivan: so you're saying it's not that you want your industry ppped up? >> no, not at all. >> sullivan: you want your industry... >> a level playing field. >> sullivan: you want a level playing fiel >> that's all we want. >> sullivan: but using tariffs to levelhe playing field has a flip side. they've brought unwelcomees consequencor 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 america's biggest trading partner. ub>> sullivan: at industri and steel, damon gaynor is in

the business of buying and reselling steel. >> wbuy from a bunch of stee mills. our main bread and butter is distributing steel tubing. >> sullivan: trump's tariffs on imported steel-- essential a 25% tax-- ended up raisi the price of american steel, too. and that sent gaynor's costs skyrocketing. so how did you handle that? did you guys eat that, or didom the cus eat it? >> see, thatpart. we just have to pass it along to the customer, our customer hasto pass it along to their customer, and so on, down the chain. >> sullivan: do you think that there'll be a point, though,nd where the, theonsumer will just say, "i, i can't afford this, this is too exe"? >> yeah, i, i think there's always that risk, and that's the thing with tariffs is, are you ngnd of artificially messi 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 to pay. 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 hit hard by the tariffs,ially when china retaliated with tariffs of its own. >> so all these tanks around here produce various metal carboxylates. >> sullivan: c.e.o. tom shepherd sells products to china, and he so imports raw materials from china. >> our sales to china have gone down, and our raw materials from china have increased in cost. >> sullivan: how big of a problem ishat for you? >> several million dollars of, of profit lost, in a year. >> sullivan: okay. yeah, you're getting it from all sides, then.ea >> 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 been talking about for years, as r back as the late 1980s, when he first tested the possibility of becoming president. >> our guest, the famed developer donald trump of new

york... >> sullivan: back then, trump's target was japan and its trade practices. >> the fact is that you don't have free trade. we think of it as free tra, 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.gr this is t country. >> he believed from the beginning that there's really thing worse than being laughed at. >> 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 the united states and taking advantage of the united states pi stealing the jobs, by d product here. >> we let japan come in and dump everything rig markets and everything. it's not free trade. l you ever go to japan right now and try to selmething, forget about it, oprah, just forget about it, it's almost impossible. >> sullivan: after japan's economy crated, trump shifted his ire to a rising economic power, china. >> ty are ripping us like we've never been ripped before. if you look at japan, if you look at china, where we lose 00 billion a year with china...

>> he's been saying the same thing for 30 years. donald trump has a very binary view of life and certainly of the world. and, and so to confront china, whsh he perceives as americ most important and dangerous rival, and to be able to use blunt instruments against them, and to come out and at least be able to y that you are a winner and they are a loser, there's, it's hard to imagine anything more apaling to the core of his personality. >> please welcome the next president of the united states, mr. donald j. trump. (people applauding and cheering) >> sullivan: by 2016, trump'sha messagfinally found an audience. and his focus on tde and china had found its moment. >> 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 of years, i was set to be unimpressed. i was actually very impressed. now, hdidn't know a dn't know af details.

he kw almost npolicy. but what i found most extraordinary was, when we got to the secti on china, which 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. r, and you've got to remem lot of this he was just reciting everything he'd heard from lou dobbs. >> we're talking about a trade deficit of $315 billion last ar with the chinese. >> 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 china. >> because we can't continue to allow china to rape our country, and that's what they're doing. it's the greatest tht in the history of the world. >> he talked in this kind of vernacular that, that kind of hit people in the, in the gut, and particularly when he talked about trade and jobs and jobsve shiftingeas. >> sullivan: what was his message to these people on trade?e" "china's to bl >> 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 ssage helped propel trump to the presidency. and once there, he assembled hii team of rs on trade. to oversee economic policy, he brought in the fmer president of goldman sachs, gary cohn. >> the job i had in the white house was to convene everyone who basically had an onion on an economic topic,nd try and come up with a recommendation or two, or present to the presidene completely dically opposed opinions and allow the president to make a decion. >> in the roosevelt room, we would have a trade meeting every tuesday, and then we wld take some version of that into the oval in a smaller group. if you take all the other nastiness on the things like the paris accord and tpp, all this other stuff, roll it u and put it to the factor of ten, they don't compare to these weekly sty trade meetings. ♪ >> sullivan: from the start, the weekly trade meetings surfaced deep divisions ang trump's

advisers over how to deal with rising economic tensions with china. the two camps came to be knownli as the glos and the nationalists. on the one se, the globalists included former wall street executives like gary cohn and steve mnuchin. t other side, the nationalists included bannon, along with robt lighthizer and peter navarro, a hawkish economist whose film "death by china" caught trump's attention. >> one of e most urgent problems facing america, its increasingly destructive trade relationship with a rapidly rising china. >>ullivan: the two camps disagreed sharply over whether aggressive measures like tariffs would help or hurt the american econom >> we had a mindset that great power, you know, it wasn't just your military. you had to be a great economic power. and a greapower had to be built upon, had to be built upon a great manufacturing basee to "makeca great again," you've got to bring manufacturing back to thetr

co >> sullivan: some of the people that are very pro-tariff right now make an argument that the united states has lost itsg manufacturse, 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 i undersnd where they're saying there. the flip side is, factory output, or what we produce in the united states, has actually gone up.ng there's this talled 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.li >> sn: the split between globalists and nationalists was about more than just industrial policy. it reflected a fundamental difference over how best to confront china and what each saw ashe endgame. >> the nationalists said, "this is a great hegemonic, you know, great-power struggle."

it's definitely two sythat couldn't be more radically different, right, and, and onehe of two are going to win. we need not just a trade deal, we need fundamental structural changes in their economy. >> sullivan: some of your former colleaes have sat exactly 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 globali, as a market practitioner, i think that wen ve a globalized world that works well. the question is, "can we both be compmentary to each other?" i think the answer is yes. >> these arguments would get quite personal. we would get through the facts qukly, because the two sid are just never going to agree what the facts are. then it would get, then it would get personal. >> from time to time, there were people that tried to use un-footnoted, undocumented facts. it's my job to get rid of the uncumented, 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 in the oval office that kad to... we kind of... the first couple of days general kelly was there, we had to exiand 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 while these two parties are on different sides ofhis? >> he has a default position. his defaulposition is, you know, "build the wall." his default position is, "enge, engage china in the economic war." you know, "get tariffs," but he's going to let u fight it out.on >> president dd trump arrived in china for his first official visit there. le>> sullivan: with the ba between the two camps playing out, trump headed to beijing in november 2017. it was a royal welcoming... (band playing march) ...filled with pomp and ceremony, and the two leaders seemed ready to work together. (band continues playing) their negotiators agreed on aor planhina to buy billions

of dollars in u.s. products, like beef and natul gas. ♪ but behind the celebrations, trump's nationalists had devised a different plan. >> we had a couple of tricks up our sleeves. navarro and i start to dust off the, the secret weap we had, to call a national-security emergency, kind of what we're doing on the border now. (people applauding) to use the national-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 be a lot bigger again. >> sullivan: executives from thm steel and alumndustries

were hastily gathered in washington. >> they were all called to the white house, had the 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 the reaction? >> the reaction was surprise. >> it will be 25% for steel.en it will beercent for aluminum. >> this moment was a seminal moment in trade policy, because it's the most aggressive use of this kind of trade law approach ever. this is done under the theory of national security. >> and we need it. we nd it even for defense. if you think, i mean, we need it for defense. we need great steelmaker >> steel was important to our national security broadly. military, criticalin astructure, and the economy as a whole. and that had never been done bere. >> thank you very much, everybody, thank you. m thank you veh. >> sullivan: the sweeping steelr tariffs alsoprised america's closest allies.

it turns out, those tariffs hurt u.s. allies more than china. that's because allies li canada sell much more steel to the u.s. than china does. at the state department, the top china specialist quickly started getting complaints. what were some of the united states' allies saying? >> well, certainly the allies were very much taken aback thaty ere the target of the steel tariffs. they d't understand the focus on tariffs, they don't understand the focus on defici, they don't understand the rejection of the international trading, you know, norms and institutions. they don't understand the u.s.'s rejection of global rade, since this is the system that we basically set up. >> sullivan: trump had upend decades of u.s. trade policy, determined to start a fight he felt was his. >> in several meetings, even ing high-level meewith the president, some foreign leaders. you know, offered, they said, w "we want to heh china, we

want to do this together with you."to but he seemehink 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 don't make sense, you're personally disappointed, but ultimately, it's not your decision to make. >> sullivan: within a moh, cohn would leave the white house. the nationalists had won. re >>dent trump turning tough trade talk into action. >> new tariffs announced by the trp administration on $50 billion worth of chinese exports. >> china is now punching back with an equal amount of tariffs as american exports. >> president tmpust slapped tariffs on another $200 billion of chinese exports. >> igniting the biggt trade war in economic history. (train bell ringing) >> sullivan: this s the tariff fight that had first brought me to ohio.

it's what was dominating the headlines and the politics. but the view was much different 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 imrt expo, a week-long tra extravaganza that drew more than a million people. it had been eight months since trump's first tariffs, and i wanted thear what businesses at the expo had to say about the trade war. ♪ thousands of companies from all .aound the world were here... (man speaking onsystem) ...focused on selling their products in the growing chinese market. >> we have actually a, a very special italian wine. the cream of the top of the italian wines. li >> suln: u.s. companies have been doing business here for decades and seemed unfazed by the trade war. >> china is going to be number-one market from any

perspective, and... >> slivan: for g.e. or for everybody? >> for, for everybody. >> sullivan: with 1.4 billionna customer a market u.s. companies can't resist. >> we've been in the china market for 34 years.ov we hav 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 you really just have to rry about, because today i met myriads of chinese businesspeople... >> sullivan: okay. >> ...men and women, that look .ou in the eye, and they want to do business with y >> sullivan: they do. >> and you're going to find a way. >> sullivan: it s hard to gauge if trump's tariffs were having any impact here. as i traveled around the country... nihao. >> nao. >> sullivan: hello. some chinese businesses told me they'd been hurt a bit, and others not much at a when it came to the trade war, en the government was

downplaying it. one of china's top trade ci ofs agreed to talk to me. >> sullivan: why do you think the u.s. and china are in a trade dispute right now? >> i think we may have different perceptions. we think that the pacific ocean as, in president xi's words, "big enough to accommodate the two economies." we do not want to have a war, even a tde war, with any country in the world.we ano not have the secret strategy to replace the uniteds statese global superpower. ♪ >> sullivan: but u.s. companies have long complained about an economic strategy that china does use they say it gives chinese bugenesses an unfair advanta

the government plays a heavy hand in the market here, through massive subsidies and support. cecial economic zones, for example, have beated to spur industries the government believes are critical to china's success. i found one six hours south of shanghai, in the industrial port city of wenzhou. this economic strategy is called "the china model." el >> the china mod is a blend between national control and ownership of resources and economic activities dominated by private entrepreneurs. 90% of the new jobs are in the private sector, but all the land is still owned by the state. control of energy resources controlled by the state. control of the financial system, basically by the state.it so you come upthis socialism with chinese characteristics, or socialist market economy, which is what china calls itself.

>> sullivan: here in wenzhou, the government has prioritized high-tech development, providing support to companies like wmto motouild electric cars. in 16 months, wm built a massive manufacturing facility that will be able to produce 200,00electric cars a year.la (music pying in commercial) ge>> we focus on the intel smart car.r. >> sullivan: and this is them? these arthe cars? >> yes, this is actually the very early-stage car... >> sullin: freeman shen is the c.e.o. of wm motor. ♪ the china market for auto salesn the biggest in the world. it's also where american car compies make some of their biggest profits. but they're facing increasing compition from chinese companies, like wm. how does this represent sort of a changing china? >> oh, interesting. you knowwhen a country

upgrading the whole industrial base, the best example would be a, a vehicle, the car industry. >> 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. >> sullivan: why, why s... >> because, you know, it's assembly of all kind of technology. it's equal software, mechanical, lighting.ot you'vecybersecurity's in there. >> sullivan: so you're saying that countries that can build a ca.. >> you've got all kind of industry very strong before you can build a strong car in thaty. coun >> sullivan: and if you can build a car, it means you are moving up the technology chain.y >> exaexactly. >> sullivan: you're coming up. >> the value chain, basically. >> sullivan: the value chain. >> is going 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.bo it's all bringing china up into the top tier of global economies, in terms of its

manufacturing 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 stuff. ♪ >> sedlivan: the state-sponsor china model is credited with transforming the country's economy.le china's midd class is now bigger than the entire united states. and its economy is growing twice as fast. this success has become a major sour of tension in the trade war. >> the question is, is america complaining about the way chinae haeconomy, 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 u.s. economy.

now we are only... >> sullivan: that would be difficult for peopit in the un states to accept. >> yeah, of course, i know, tthis is, this is difficu to, accept, 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. >> sullivan: do you think that americans should be worrie >> oh, yes, i think so. >> sullivan: yes, they should? >> you know, t 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 punch me on my fac and big brother were thinking, l u know, "this little brother someday probably w something to me." i think that the... it is... i think that really depends one, he intelligence of both countries' leader to make sure.o y is fine. but please, don't fight. ♪

(audiee applauding) >> 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 threatenings. even more tari >> as you know, we have $250 billion at 25% interest with china right now, and we could go $267 billion more. and china wants to talk very badly. and i said, "f early to talk." can't talk now, because they're not ready. because they've been ripping us for so many years.mp >> sullivan: t position was that it was time to hit back, and that prior administtions had been too soft on china. >> they have a surplus of $375 billion-- with a b-- with the united states, and is been that way for years and years and years. e china, i blame our leadership. they should have never let that happen. and i told that to president xi... >> sullivan: but while trump was blaming his predecessors, we

were hearing about other reasons why the proble with china had gone on so long. dozens of interviews we did in china and the u.s. pointed to aa unlikely obse-- american businesses themselves. >> they were worried about the operations they had in china, whher they would lose the profitability. >> sullivan: one of the biggest problems the u.s. has had with china over the years is what's come to be known as forced techn trer, where companies wanting to do business in chinar say theypressured to give up their technology. >> china started adopting what were calleindigenous innovation policies to make sure that their own companies, reate-owned or otherwise, going to be the ones who really were the leaders in the new economy. >> sullivan: so you're saying they didn't compete fair.d >> they enga predatory and protectionist policies.at they demanded any foreign companies seeking to come into their market hado do it through joint ventures with

their own firms. and in many cases, requiring that their technology be transferred to empower chineseme entities to beyou know, great world companies. >> sullivan: china wasn't supposed to be doing this under deles set by the world tra organization, which it had joined in 2001. and though china says it has no official policies forcing mpanies to hand over technology, u.s. trade officials started getting complaints aut the practice just years after china joined the wto. but the complaints came with a catch. >> companies would come in and complain. they'd have great information, but, "oh, by the way, you can't e any of this, but solve our problem." and so that s always a challenge. >> sullivan: why did that make it harder? >> it made it hard, because you couldn't really prove your case. >> sullivan: so you saw the u.s. buy,ness community not only "don't use my name," but they would say to your office and the administration, "we don't even

want you raising this issue too loudly." >> right, right, right. >> sullivan: "because if you rais too loudly..." >> "they're going to think it's us, and we will be hurt." >> sulliva much money at stake. >> they had a lot of money at stake. >> sullivan: how did that... sort of having your haed behind your back in a way, how did that affect, in the long run, the, the u.s. position against china? >> yeah, it probably emboldened china a bit, right?e because as md more problems came up, individual companies were very spooked and didn't want to, you know, visibly be associated with any strong action by the u.s. government. ♪ >> sullivan: by 2008, u.s. companies were facing re and more competition from chinese companies, and china was becoming an economic force. >> the chinese tonight reaching their hands out to the world in a really unprecedented way. >> sullivan: the china model was working, and ready for prime time. that opening ceremony, do you remember it?

>> i was there.t >> sullivan: wd 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 cou >> (cheering) >> they were beaming with pride. >> sullivan: what do you thisa the world >> the world saw a pretty incredible place. i think it blew the world aw. on, "holy cow." and all of a sudden, the do this incredible opening ceremony. (crowd 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 wasossible. you know, and there was still a lot of respect for the u.s. and the u.s. economic system, the u.s. financial system. and, you know, there was still a lot of respect for the big banks, and the idea th the u.s.... they understood how to run a financial mket. and then... the crash happens. (closing bell ringing) >> a meltdown on wall street,

the worst since 9/11. >> the worst financial crisis in modern times. >> three of the five biggestnt investanks are gone. >> you can see it in some of the policy circles and t, sort of the academic writings, the chinese think tanks, but i just w that with my friends w this idea of, like, "we thought you guys knew 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, as a, as a really key turning poinc thinkers saw the u.s., where the u.s. maybe was up here in terms of something to emulate in errtain ways, went down to or lower, because basically the emperor has no clothes. >> the attitude changed profoundly. 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 low-level officialwho would berate them.

it was, it was stark. but you got to rememr, for, for all these years, we had, you know, we had low-vol congressmen or businesspeople coming in and, and shaking their finger in chinese, saying, "you should have all the children you want, you should do this, you should do that." and these very capable chinese people 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, toey needed us, so they ha tolerate us. then all of a sudden, global financial crisis, anas payback time. it was, like, "you listen to us for while." (crowd applauding) >> sullivan: publicly, chinad woomise to open its markets more to u.s. business. >> the new chine leader is revealed. >> sullivan: but internally, it would double down on the china model. >> (speaking chinese) (translated): china needs to learn more about t world. the world also needs to learn more about china.li >> sn: and under xi jinping, it embraced an ambitious national plan, called "m china 2025," that put

even more focus on dominating key global industries. >> there is this belief that china is destined to rn to its former glori, and you can't restore your, your bled glory if you're not the leading country in all sorts of areas, be it military, be it technology, be it, be it manufacturing. ♪ >> sullivan: but early on, u.s. businesses discovered china wast ahead. >> in early january of 2010, i get a call from google, who hadd just annouhat they had been hacked. >> google traced the sabotage back to china. in the course of the investigation, they actuallyer realized that were many more companies that had been targeted. >> not only was google itself otrgeted by the cyber-spies, but so were at least 2r major corporations. >> sullivan: you thoug time, "this is something bigger." >> for the first time ever, we were facing a nation-state, an

intelligence service, that was breaking into companies, not governments, not militaries, but private-sector organization. >> in all more than 72s organizatire 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 room to brief obama's top national security officials. >> i briefed them on what we were seeing with both aurora, night dragon, shady rat. >> sullivan: what did they say e. my impression was none of this was a surpr and when i pressed them on why they were not taking stronger action against china, their response was, "it'smp cated." >> sullivan: "it's complicated." did they explain that? t >> wely were telling me straight out, "those same customers that are getting victimized by china, they are the same companies te coming in to tell us, 'don't do anything to harm the relationship with china.an weto continue doing business there.

we want to continue making money there. we need that mket.'" >> you know, the, the u.s.go rnment listens to companies, so if the companies are saying,' "chill," t chill. >> sullivan: how can businesses walk into unitedtates agencies and complain about being treated unfairly, if they're the ones that are preventing any action from being taken? t how y get to have it both ways? >> sometimes two things can be true at the same time. i mean, their incentives are to make money. if your business is in china xi jinping is more important to you than donald trump or barack obama. and it's, it's not that these are bad people who don't care about america, but their a incentiv to shareholders, not to the government of the united states. (band playing "hail to the 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 practices. but by 2015, american businesses and government officials pre increasingly alarmed. in negotiations wisident obama, xi pledged that china would not engage in economic cyber-hacking. >> i believe that we have made significant progress in enhancing understanding between our two nations. >> sullivan: obama also brokered a major trade agreement with allies, the trans-pacific partnership, or tpp. (crowd applauding) it was supposed to put pressure on cna to fix the growing economic problems between the two countries. but all of that would 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, with his own trade negotiations stymied, the conflict was widening.

the administration took a tough turn, confronting china aggressively. >> ...releasing a new report tonight detailing just how big the threat china poses. >> sullivan: it accused china of breaking the cyb agreement... >> chinese intel officers charged with hacking u.s. businesses... >> sullivan: ...and engaging in widespread technology eft. >> this latest indictment adds n the growing tension between the u.s. and chinae middle of this fierce trade war... >> now, through the made in china 2025 plan, the communist party has set its sights on controllin90% of the world's most advanced industries, including robotics, biotechnology, and artificl intelligence. >> really an extraordinary speech, attacking china on the domestic politics front, the trade front, and the military front. >> chinese secity agencies 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 the cookiear and taking whatever they want... >> and using that stolen technology, the chinese communist party is turning plowshares into swords. >> that speech was not a hawkish

speech, that speech was a declaration of economiand 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, you know, something really, really diaserent and something that really alarming for them. >> sullivan: why was it alarming for them?>> t was a very unnuanced, undiplomatic speech. it was kind of a bill of indictment. >> both china and the united states need to make an effort to make surthat the bilateral relations do not get out of control. >>rsur message to china's ru is this: this president will not back down.nc (audapplauds) >> that was the point of no return, and it's not being acknowledged enough. it was the most important speech of thenihole trump adration. ♪ >> slivan: early on, the foc 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 th 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 ahead, technological, of the 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 houseun anng a pivot. >> using existing law related to national emergencies to restrict chinese investment in sensitive technologies. >> sulliva on sand hill road, i met one of the most experienced high-tech bankers il they, who was troubled byat e was seeing. he told me about a flood of calls he started receiving from vechinese investors about years ago. he remembered one chinesert investor in ular. >> he'd been sent to invest in technology; could i help?

and i said, "well, what kind of technology?" and he, he hadifficulty answering the question. an and if i pushed him hard, clearly in the end, it would be artificial intelligence, semiconductors maybe things having to do with automotive. >> sullivan: the chinese government's top priorities. >> the chinese government's top priorities, right.nd and,hen i said, "well, how much do you have to invest?" t and he claimt he had access to a billion dollars. >> sullivan: a blion dollars? >> 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.h, >> ynd they told me that their only, their only mandate was to invest in semiconductors. >> sullivan: what did you think of that? >> i thought, "this is... i don't know if this is good." >> sulvan: i mean, you've been at the heart of silicon valley financing...

>> yeah.>> ullivan: for 35 years. >> yeah. >> sullivan: what do you think is happening here? >> i think china is doing its absolute best to make itlf self-sufficient, from a technologicapoint of view. they realize that in order to accomplish that, they either have got to start pedaling faster on their own, or they've got to buy a lot of technology. (talking softly in background) >> sullivan: tt one. thank you. at stanford university, i found investors and entrepreneurs grappling with china's high-tech ambitions. >> silicon valley is very much at the heart of the trade war. >> sullivan:hy do you say at? >> the u.s. needs to keep a technological advantage. silicon valley, it'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 community said, you know, "we're not in a trade war, we're in a techonic war." and i think that's what we probably are really worried

>> a lot of chinese technology companies invest heavily in 5gs... >> now there are areas where they're actually, you know, quite competitive, and some areas where they even seem to be maybe havi an, an edge. >> and you know what? chinese companies already working on 6gs. >> sullivan: despite their worries about china, people here also depend onhinese investments and were concerned that the trump administration would go too far. do you think the administration had good reason to clamp down on investments from china in silicon valley? >> think so, but there's a difference between, "yes, there's a problem," and the response bei measured, appropriate, and grounded. i think they, they may end up operating to our detriment broadly economically, but also,t without the abto collaborate, it's going to be very difficult for the u.s. to keep up. >> business used to be the ballast in the relationship, because american companies made money, american consumers got cheap goods,ept inflation down.

china got know-how, capital, et cetera. the business relationship is now the major conflict, 'cause we'rh oing 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 theict. ♪ >> ullivan: as i drove around the valley, i could see the challenge of this high-techli co. chinese businesses are visibly present, tightly connected to the economy. and few people i met hereum thought the tr administration's hard line on china would be good for anyone in the long run. >> the endme here is the decoupling of the american and chinese economies. >> which, by the wayis already underway, and it's going to contue. >> i think there are people who think that sealing ourselves off is, is ultimately the best solution. >> sullivan: to breachina and the united states' economies apart. >> yeah. but that seems so sa because 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,th becaus'll, they'll just innovate around you. why would you want to stop anybody from making progress? i, ion't see that. what i think our goal should be is to... >> sullivan: sompeople would say because they could become more powerful in the world marketplace than, an the united states. >> the better goal is for us to spend time on becoming more o powerfselves, i think. ♪ >> sullivan: that was a sentiment i'd been hearing throughout my reporting on thee trr. and back in ohio, 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 makingi the same in the face of seemingly unstoppable economic forces.me >> a largerican factory stopped production today... >> sullivan: earlier this year, the gm plant ilordstown stopped producing cars. (horn honking, crowd shouting) the latest hit to auto workers. >> this plant can'close. when it first opened, it was the largest plant under one roof in

the wod. >> (chanting) >> sullivan: with china p aggressivelyursuing next-generation technology, the talk in lordstown that day was how this plant could beto transformeeep the u.s. competitive. >> my personal hope is that general motors, which is investing billions of dollars in all-electric, emission-free, green cars, will decide to build them rht here. (car horn honking) >> we've got to fix our system to compete with china. we've got to internalize some oa this bla not spend all our time blaming it on china. they've outsmarted us, they'vee done sings that we don't agree with, they've done some things against the agreements theye made, but they're focused and moving ahead. >> china has a plan. th, got a ten-year, a 20-ye a 50-year plan. i mean, we really need to get serious about this i in terms of electric vehicles, in terms of, of new technology,n terms of manufacturing, and make sure that our government is supportive. at >> we didn't do hina's doing. we didn't look at, "where are

the industries of the future? where do... what kind of training do we need? what kind of people do we need? what kind of incentive do business need to do this?" this is where, actually, the chinese syem that we've always looked down on actually has an advantage now. ♪ >> sullivan: over the past several weeks in washington en sident trump has upping the pressure to get an agreement on at least some the long-standing issue >> we are rounding the turn. we'll see what happens. we have a ways to go, but not very far. >> what's still left to agree to, sir? >> we ve things, we have things. we're talking intellectual-property protection and theft, we're talking about certain tariffs... >> sullivan: despite challenges, he says a deal is possible. >> this is the granddaddy of them all, and we'll see if it s.pp it's got... >> sullivan: but whether a deal is made, trump's trade war has heightened 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 in the whitehouse th in, what do you want? >> i believe you need... youed ctually a change of the top leaders in the chinese communist party. >> sullivan: how on earth... >> i think the goal into china is quite simple, is to bring them... is to break the ck of this totalitarian mercantilist economic socie... >> sullivan: you're talking about regime change. >> well, first o, nobody in the white house is talking about that, okay? and e president would never even consider that. they're talking about a trade deal and some fundamental economic change. i'm saying, one of these two are going to... this, either, this, this mercantilist, totalitarian system that has a network effect, or the kind of, you know, liberal, democratic west. one of those two systems is going to be the system at the end of the day. s (making chinese) >> trade wars can get out of

control pretty fast. >> the arrest of a top executive >> this is really the united states ramping things up against huawei. na tensions in the south c sea escalate. >> taiwan has become a hot-button issue. ul>> our next major war cod be fought against china. >> this is my optimistic scenario, that we will have a managed tension. but we do have the, uh,ss imistic scenario. we do have a chance to see a so-called... i don't like the term, but the new cold war.i n't think like the one the u.s. had with the, with the ussr. but we will have another type ot cold wt nobody have ever experienced. but i think it's a comprehensive confrontation.ro that's dan. that's really dangerous, and if that happens, if that happs, it will last for quite a long ti. then that's a tragedy for everyone, i think.

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