Capital Markets

In this April 23, 2021 interview with Bloomberg’s Davis Westin, Keith Krach, former Under Secretary of State, discusses the importance of securing US tech supply chains, and the model for successfully defeating China Inc. created by his Clean Network initiative.

Transcript:
David Westin: One thing that the Biden and Trump administrations have pretty much agreed on is the need to ensure the security of our supply chains when it comes to tech, something we saw play out in that battle over 5G. The man at the center of that struggle was Keith Krach as President Trump’s Under Secretary of State, Mr. Krach is a tech entrepreneur who earlier served as chairman and CEO of DocuSign and founded quite a few companies in his own right. Thank you so much for being with us today, Mr. Krach. Give us your sense about what we can do. You have this proposal that you have with Stan McChrystal, the retired general, about how we really can protect the United States when it comes to tech.

Keith Krach: Well, thanks so much for having me on. David, you know, the biggest thing is about creating an alliance of democracies, companies and civil society that operate by a set of democratic principles. And this was really the key in terms of defeating China Inc. in the 5G area. And it was really the first time we’ve ever been able to defeat him with a government led initiative. But I think it really created a model for all areas of economic collaboration in all areas of technology, and that includes things like semiconductors, cloud computing, autonomous vehicles. That’s really the key.

David Westin: So I wonder, Keith I learned about politics once you can’t beat somebody with nobody. And one of the problems that struck me in 5G is we didn’t have a lot of alternatives where were manufacturing ourselves. Is this more, this clean network that you’re putting together, is it more than just keeping the Chinese out or protecting us against the Communist Party in China and also actually developing our own alternatives in technology?

Keith Krach: It’s really a good question. The point was to neutralize Huawei to lift the pricing umbrella because they were subsidizing it. So the big companies, the Silicon Valley startups, they weren’t coming in because it’s like, how am I going to make a profit? Well, now, with the success of the clean network, you see Cisco, Microsoft, Dell, a lot of the startups coming into the market to make it a lot more competitive. So it really achieved that objective.

David Westin: So you certainly worked on this when you were in the government. As you look at the Biden administration, are they pursuing this and are they taking it further from where you left it?

Keith Krach: Well, the good news is, is this is right along President Biden and Secretary Blinken’s strategy. They talk about alliance of democracies, democratic values. Matter of fact, Secretary Blinken talked about that, hey, if we put our allies together, we could represent 50 percent of the world’s GDP, the clean network on the clean network, we got 60 countries representing over sixty six percent of the world’s GDP and a number of leading companies. So it’s right aligned with that. And I see them continuing this mission because it’s really a winning formula and it leverages also the innovation and resources of the private sector.

David Westin: So Keith, while I have you here, I want to ask you about this capital gains issue. If you raise the capital gains tax, you may discourage the creation of capital. What’s your experience as somebody who started companies?

Keith Krach: Well, you know, I think from my perspective or from a business or the average person, nobody likes things like war and taxes. But I think one of the big issues, I think one of the biggest issues we’re facing in the capital markets is the average American investor is financing the Chinese military machine, their surveillance state and the genocide that’s going on in Xinjiang. And you can see in the emerging index funds, they’ve really loaded up on these Chinese stocks. And these are companies that don’t have to obey Sarbanes-Oxley or GAP. And I think that is a big issue for your viewers. And I think the public is beginning to wake up to that and they’re beginning to ask their brokers and their financial managers.

David Westin: Should the government step in and close the capital markets in those regards?

Keith Krach: At the State Department, we listed twelve hundred Chinese companies and their subsidiaries that are participating in military and civil fusion. And now these companies have to be divested and they’re sprinkled not only in the index funds, but those index funds are sprinkled into products like from BlackRock. They have four hundred thirty-one ETFs and mutual funds with these in it. And, you know, if you look at companies like Baidu, Alibaba, Tencent, these are some of the most important companies to the Chinese Communist Party’s military machine.