Team Catena Akshay Malhotra PhD
Financial Economics BS Economics & CS Bill Benesi MS Management BS Strategic Studies Katie Meyer BS International Relations Theo Strauss BS Progress Studies 30 Interviews China’s cryptocurrency ban presents the U.S. with an opportunity to strongly influence blockchain development, attract technical talent, and leverage digital asset technology. We plan to identify opportunities for innovation and mechanisms to capitalize on this space. Where we started The CCP’s economic coercion makes countries such as Australia dependent on China's economy and vulnerable to the party’s will. To eliminate China's leverage, the U.S. must analyze which key Australian industries are most threatened and determine viable alternative trading partners. Where we are now

Initially, it seemed that China’s
cryptocurrency efforts were a threat to American economic influence The CCP’s work on a central bank digital currency seemed like it could disrupt: 1. The U.S. dollar’s status as the world’s reserve currency. 2. American influence in the global financial system. 3. Our allies’ economic independence. BLOOMBERG “China’s Digital Currency Could Challenge Bitcoin And Even The Dollar” FORBES “China Will Use Its Digital Currency To Compete With The USD” “China Wants To Weaponize Its Currency. A Digital Version Could Help.” CNN WSJ “China Rolls Out Pilot Test of Digital Currency.”

However, early interviews showed that
crypto innovation was not as urgent an issue from a competitive perspective 1. The CCP hindered its domestic crypto innovation with a ban on all non-sanctioned crypto in China 2. Many nations have started researching and launching their own digital currencies 3. The legal and regulatory frameworks in the U.S. for encouraging crypto innovation do not exist yet and will not be solidified for some time Experts expressed that sensible laws governing crypto in the U.S. are needed before the government can take advantage of the technology. KEY LEARNING

Experts alerted us to China’s
use of coercive diplomacy that exposes our allies to major political and economic risk The CCP’s unique style of economic coercion through arbitrarily imposed measures without an official acknowledgement of the link between their interests and the actions gives China high leverage and our allies a major source of risk. “A more direct and relevant problem in the space of Chinese economic tools may be economic coercion & coercive diplomacy.” KEY QUOTE – KEITH HENNESSEY, STANFORD

Australia is an ideal case
study of Chinese coercive diplomacy... 1. Recent target of Chinese coercion campaign 2. Second hottest region in terms of Chinese targets for economic coercion 3. Key American ally in China’s neighborhood 4. English-speaking country 5. Middle power: not too big, not too small How can the U.S. help Australia in responding to and eventually deterring China’s coercive tactics?

Pivotal Interview: Dr. Derek Scissors,
Senior Fellow at AEI “They could, but they don’t.” Is it because China doesn’t want to seriously hurt Australia, or because China needs the iron ore? “The safe case: 90% - 90%. The danger case: 90 - 5%.” Can we turn 90% - 5% into 90% - 50%? We were asking the wrong question. It wasn’t which political triggers but which industries were in danger. KEY LEARNING

A solution: an index of
which Australian industries are most threatened by economic coercion by China By using Australia as a case study, we can develop a playbook to better anticipate and counter Cinese economic aggression: 1. Identify asymmetries within key industries on both sides of the Australia-China trade relationship 2. Determine dependence measures for each key industry 3. Identify alternative trading partners and diversification plans for each key industry

Trade Volume (Billions, USD) Threat
Index Value Finding: Australian exports are not as vulnerable as assumed

Trade Volume (Billions, USD) Threat
Index Value Finding: Australian imports, however, are very vulnerable

Trade Volume (Billions, USD) Broadcasting
Equipment: U.S. & Vietnam Refined Petroleum: South Korea & Singapore Threat Index Value What are alternative trading partners for vulnerable imports?

KEY QUOTE – TARUN CHHABRA,
NATIONAL SECURITY COUNCIL Feedback on the Threat Index and Diversification Playbook was positive “A playbook to counter Chinese economic coercion is desperately needed and welcome.” “Having a playbook from the past instances of coercive measures used by China on both nations and private industries [would be useful] to understand how to best counter each instance.” KEY QUOTE – MATT TURPIN, HOOVER INSTITUTION KEY QUOTE – CONDOLEEZZA RICE, HOOVER INSTITUTION “Telecommunications [broadcasting] equipment is the most important item of import from China to Australia.” Secretary Rice’s intuition validated our threat index.

“The efficacy of their economic
policies would make a bell-shaped curve if you plot it, and we’re on the way down right now.” But some experts were not convinced about the problem or the solution “How do you diversify? Are you going to tell companies not to take a 100 million dollar Chinese contract? Easy for strategic analysts to say you should sell it to someone else, but you can’t direct a private business not to sell something to China.” KEY QUOTE – DAVID BREWSTER, AUSTRALIAN STRATEGIC POLICY INSTITUTE KEY QUOTE – THOMAS FINGAR, FREEMAN SPOGLI INSTITUTE

What are potential next steps?
1. There is a bipartisan bill that proposes a joint interagency taskforce to understand and counter Chinese economic coercion. Our solution can nest into the proposed taskforce. 2. Analysis of our solution relied on interviews with experts with mostly positive feedback. 3. A logical next step would be to analyze other potentially more exposed countries to construct threat analyses and prepare diversification solutions, potentially even automating the entire process.

Questions?

Appendix A1 – Interviewees Keith Hennessey
John Cogan Aubrey Strobel David Lawant Julianne Brands David Sacks David Becker Carl Thayer Morgan O’Brien Ketian Zhang Larry Diamond Martjin Rasser Thomas Fingar Gloria Xiong Vivek Viswanathan

Appendix A2 – Interviewees Glenn Tiffert
Matt Turpin Derek Scissors Patrick Johnson Matthew Goodman Jean Oi Alex McCauley Amy Zegart Andrew Chubb David Brewster Condoleezza Rice

Iron Ore 66.40% 16.30% 4.23%
2.22% 1.55% 90.70% Petroleum Gas 24.70% 16.30% 15.90% 5.38% 4.35% 66.63% Gold 23.10% 19.80% 19.50% 14.80% 12.00% 89.20% Coal Briquettes 49.40% 16.30% 15.80% 11.40% 3.42% 96.32% 18% 16% 14% 12% 10% 70% Diversification Index Iron Ore 0.234 0.000 0.010 0.010 0.007 2.605 Petroleum Gas 0.004 0.000 0.000 0.004 0.003 0.124 Gold 0.003 0.001 0.003 0.001 0.000 0.083 Coal Briquettes 0.099 0.000 0.000 0.000 0.004 1.033 Dependence Index Iron Ore 9.486 Petroleum Gas 3.529 Gold 3.300 Coal Briquettes 7.057 Appendix B1 – Australia’s Exports to China (China’s Perspective)

Iron Ore 81.70% 7.69% 6.43%
2.04% 0.71% 98.57% Petroleum Gas 43.00% 34.70% 9.79% 5.41% 2.26% 95.16% Gold 37.70% 32.90% 13.10% 5.27% 4.39% 93.36% Coal Briquettes 24.60% 23.50% 18.20% 9.88% 6.91% 83.09% 18% 16% 14% 12% 10% 70% Diversification Index Iron Ore 0.406 0.007 0.006 0.010 0.009 4.370 Petroleum Gas 0.063 0.035 0.002 0.004 0.006 1.096 Gold 0.039 0.029 0.000 0.005 0.003 0.751 Coal Briquettes 0.004 0.006 0.002 0.000 0.001 0.131 Dependence Index Iron Ore 11.671 Petroleum Gas 4.957 Gold 5.386 Coal Briquettes 2.600 Threat Index (0-15) Iron Ore 5.22 Petroleum Gas 6.43 Gold 7.09 Coal Briquettes 0.54 Note: Non-linear scale, 5 is average, not much threat, above 6 should be considered a reasonable threat and above 8 is not good. Appendix B2 – Australia’s Exports to China (Australia’s Perspective)

Broadcasting Equipment 24.30% 18.10% 5.59%
4.24% 3.56% 55.79% Computers 29.50% 9.48% 7.39% 7.17% 6.18% 59.72% Refined Petroleum 22.70% 18.40% 9.34% 6.74% 4.33% 61.51% Semiconductor Devices 23.00% 7.00% 6.30% 5.67% 5.24% 47.21% 18% 16% 14% 12% 10% 70% Diversification Index Broadcasting Equipment 0.004 0.000 0.007 0.006 0.004 0.217 Computers 0.013 0.004 0.004 0.002 0.001 0.256 Refined Petroleum 0.002 0.001 0.002 0.003 0.003 0.109 Semiconductor Devices 0.003 0.008 0.006 0.004 0.002 0.228 Dependence Index Broadcasting Equipment 0.000 Computers 0.000 Refined Petroleum 0.619 Semiconductor Devices 0.000 Appendix B3 – Australia’s Imports from China (China’s Perspective)

Appendix B4 – Australia’s Imports from
China (Australia’s Perspective) Broadcasting Equipment 60.30% 14.30% 9.64% 2.88% 2.30% 89.42% Computers 70.70% 7.41% 7.11% 3.85% 1.86% 90.93% Refined Petroleum 27.60% 18.20% 17.80% 13.90% 7.54% 85.04% Semiconductor Devices 86.20% 4.69% 1.80% 1.37% 1.02% 95.08% 18% 16% 14% 12% 10% 70% Diversification Index Broadcasting Equipment 0.179 0.000 0.002 0.008 0.006 1.954 Computers 0.278 0.007 0.005 0.007 0.007 3.031 Refined Petroleum 0.009 0.000 0.001 0.000 0.001 0.121 Semiconductor Devices 0.465 0.013 0.015 0.011 0.008 5.122 Dependence Index Broadcasting Equipment 8.614 Computers 1.059 Refined Petroleum 3.943 Semiconductor Devices 0.257 Threat Index (0-15) Broadcasting Equipment 13.61 Computers 6.06 Refined Petroleum 8.32 Semiconductor Devices 5.26 Note: Non-linear scale, 5 is average, not much threat, above 6 should be considered a reasonable threat and above 8 is not good.