CNBC Transcript: William Cohen, Chairman and CEO, The Cohen Group and former U.S. Secretary of Defense

Following is the transcript of a CNBC interview with Chairman and CEO, The Cohen Group and former U.S. Secretary of Defense, William Cohen, at the China Development Forum in Beijing. The interview was broadcast on CNBC's Street Signs on 26 March 2018.

All references must be sourced to a "CNBC Interview'.

Interviewed by CNBC's Martin Soong.

Martin Soong (MS): We have to start off on the tariffs right. The president has fired literally the first shot, return salvo from the Chinese – measured, modest, so far so good. But you know this is something that everybody is talking about here at the CDF and worried about and that is that this could spin out of control and become a full blown trade war. How concerned are you?

William Cohen: Well it could be a trade war. I think the president believes or says that trade wars are good and that we can win it.

MS: Do you believe that?

William Cohen: I don't. I don't know of any economist who really believes that. On the other hand it may be a tactical move on his part to say 'I'm going to impose these tariffs' in order to get the Chinese attention, because the system is a little out of balance, quite a bit out of balance as a matter of fact, in terms of what they have imposed, in terms of restrictions on our investments here, the whole issue of transfer of technology and so the president raises a good issue saying we have to level the playing field.

I don't think tariff is the way to do it, but maybe it sets an agenda forward to say 'OK how do we do it, what do we do to rectify or get the greater transparency, openness and market accessibility for our firms as you have to our country'.

Otherwise we're going to get into this reciprocity on an individual basis, and if that's the case you can see that each country will start to step up the barriers to it. So I think it was important that the president raised the issue and do so… but I think ultimately it's not a good way to proceed. And I think we'll find a better way to proceed.

MS: I think a lot of people share that hope as well. You know a lot of smart people including Marty Feldstein over at Harvard have this theory that they've been trying to make sense of this confusion, 232 steel tariffs and now you're talking tech war, what is going on here. And the theory is this, simply that the real end game is as you've suggested this all transfer technology thing, sensitive technology as well right, but there are no ways under existing norms to address that. Not even apparently at the WTO, not legally, they're not set up to do that specifically right. So therefore the only way to sort of get to them or get them to the table on tech transfer is, hit them on steel, which has been an issue for years now. Does that make sense to you? Do you think that's plausible?

William Cohen: It is a plausible analysis or rationale for how do we get to this issue of tech transfer or hacking, cyber hacking. I raised this issue three or four years ago here in China saying, you may recall that the United States there was a PLA was involved in hacking directly into the Pentagon and other major defense industries in the country. I had a conversation at that time with a high ranking official here saying look we've got to have some rules of the road. At some level we understand you can't control everything, but when you have an organized effort to hack into and attack our cyber bases, it can lead your countermeasure on our part, an offensive measure on our part, we don't want that to happen, so are there any rules of the road? It never materialized. We had Mr. Snowden surface at that time. So they said you're talking to us what about Mr. Snowden? So that put it off to the side. This may be a way to put it back on the agenda because it should apply to China, it should apply to Russia and it should apply to any other country saying, we don't want to have this escalate into a real cyber conflict because you can do as much damage as you could with a weapon of mass destruction, that would be a weapon of mass disruption when the consequence is equally grave.

MS: OK so you've talked to senior Chinese officials about this very issue. Not so long ago during the Obama administration, President Obama then actually raised the issue directly with Xi Jinping showed him hard evidence – look this is it, you can't walk away from this. Since then apparently this whole issue has died down and there's been fewer or less of these types of cyber attacks. From what you know, the people that you're still in touch with including in intelligence, does that jive? Has this thing died down or slowed down?

William Cohen: Well it seemed to have shifted somewhat to the Russians, namely the Russians targeting our election system, that's firing electronic bullets into the heart of the United States. And so the focus has really moved on to Russia rather than to China. Are there hackers in China that engage in this? In all probability. But we're talking about government sponsored hacking and cyber theft and so that ties into the issue of protection of intellectual property, that you cannot expect the American people to tax themselves to create invest billions of dollars into high technology and then have to transfer in order to do business. And so it's going to be a reciprocal basis there in terms of Chinese companies who want to come into the United States we're going to have to say, same basis as we come into your state. So I think the element of reciprocity is, if it's fair and can be a basis for reconciling our differences.

MS: Let's get to the bread and butter, war or defense if we could. And back in your day it was known as the Quadrennial Defense Review right. These days they call it the National Defense Strategy I think and the latest one that was out, sort of went back in time a little bit talking about great power rivalries et cetera, focusing on revisionist countries like Russia as well as China. Did that get you off guard? What do you think of that, this whole turn back in time almost?

William Cohen: I think in terms of China we have to recognize that China is a great power – economic power, it is becoming a military power. And so I don't have a problem saying that China is a competitor. We have competitors, our closest allies are competitors – the Brits, the French, the Germans and others. So being a competitor is fine with me. You can be a friendly competitor or you can be a much more combative competitor. What I would disagree with is labeling China an enemy. I don't believe that to be the case. China is a fierce competitor. They have a country of 1.3 billion people; they've got a leader who has unrestricted power as such for some time to come for as long as he wants, who has a vision of where he wants to take his country, it's going to have very little difference of opinion on how he gets there. So I see China as a major competitor to the United States.

MS: But not an enemy?

William Cohen: Not an enemy, no. And I think frankly we have to work together. This notion of having you know a zero sum game, it's OK to say America first, China says China first. Every country says they're first. But you can't have it a zero sum game so that if I win you lose and vice versa.

So what we have to do is find a way, the Chinese love to say win-win. So let's find a way in which we all want the best for our people. We have people who are hurting in the United States, China has people who are very poor in the inner parts of the country. So how does China raise them up to a level of economic sustenance and how do we make sure that we don't ignore the people who've been put out of work and bring them into this new century and with a way to survive.

So that takes negotiation, that takes understanding each other's interest, where those interests are compatible on a parallel line and where they conflict. And then when there is conflict, how do we deconflict. So that's basically what diplomacy is all about. But simply pounding our chests, or China pounding its chest, saying you know we're number one now we've been through this, the Chinese have studied the Thucydides's Trap – Graham Allison was just downstairs with me, who wrote the book on the Thucydides's Trap, and the studies have shown out of 16 cases of examining where you have an existing power the United States and a rising power, 12 ended in conflict. So can we learn from history? Here's how these wars took place and why they took place. Is there a way to avoid that? So we have to continue to do that.

MS: Let's talk about pretty clear enemies now – North Korea. A year ago here in Beijing at CDF you were warning that North Korea's probably the world's number one risk right now. Do you still believe that to be true? Is it even more true today?

William Cohen: I think it's still true today. I was pleased to see there was some kind of a breakthrough at least on the rhetorical side, where the president has agreed to meet with Kim Jong un and I frankly am skeptical about that.

MS: Skeptical that it will happen?

William Cohen: I'm skeptical number one, if it'll happen. But number two, what will happen when it happens. And yet I've said I'm open, I'm open to be persuaded this is real. In my own experience in dealing with the North Koreans, there's never been any discussion that they will denuclearize, get rid of their nuclear weapons. I don't believe that they're committed to doing that now. I think what they're saying is we're willing to sit down with this great power, the United States, and we'll talk about how we'd achieve this goal. We want to guarantee our security, we want to make sure that we don't in any way compromise our security, but we're willing to talk about it.

I have found they talked about it in the past but they've never complied with the agreements that they said they were going to comply with. So I'm skeptical that they would really get rid of all their nuclear weapons. Is it possible? It's possible. But I'm from Maine, I'm from Missouri and in Missouri the motto is show me and I'm saying show me that you're willing to do this. So we'll see. Again the president has done something that they have wanted for a long time. And that's to have the president of United States meet with him one on one.

MS: Indeed unprecedented. I mean that's the huge carrot for them right. Issue is though just a couple of days ago we had a very big stick coming in the Trump administration, John Bolton and we I think all remember where what his positions are like on North Korea a preemptive strike among other things. How concerned are you that somebody like Mr. Bolton, Ambassador Bolton is in the NSA chair now and how much of a mitigating factor do you think Jim Mattis could be who you're very familiar with?

William Cohen: I don't think anyone knows at this point. I think there's reason for concern in terms of Mr. Bolton, in terms of his positions because he is much more aggressive in terms of the use of force. The president himself has said he wants, not wants but he's prepared to rain fire and fury on North Korea. That means risking the potential of hundreds of thousands of lives in South Korea as well as those in North Korea. So I think we have to be careful with our language that the rhetoric doesn't get really ahead of the policy. And I think Jim Mattis, Secretary Mattis, whom I know very well, has been a force saying let's look for the diplomatic solution. Let's not talk about war here, war is the last thing we want to talk about. So let's focus on how do we resolve this diplomatically.

MS: Because he's a soldier.

William Cohen: He's a soldier, has been on the field. He carried the bodies, he's close with the families who have lost their sons and daughters and husbands and wives. So I mean there's a reason that the president likes to call them Mad Dog Mattis, I call him Braveheart Mattis and the reason he was called Mad Dog was because he was on the front lines, he wasn't in the rear of the tent and he was out in the front line with a soldier. So he knows about war and he's cautioned the use of military force. It's there when you need it. He said I'll be your best friend or your worst enemy. And we like to be best friends. So he's been a, I think, a restraining force within the talk, the rhetorical talk.

And again it's hard to separate out the president will make a statement then reverse, which the reversals are good, because it's almost consistent with the book that he wrote called 'The Art of the Deal' where he stakes out an extreme position and negotiates back from that toward the middle rather than starting in the middle going down. So it may be that's his way of achieving what he wants. And if so that's fine. The danger is when you're dealing with someone who is unknown and potentially as volatile as Kim Jong un and you're talking about the possibility of firing a preemptive strike, any moves that we make that might normally be seen as reasonable, might be seen as threatening and a prelude to a preemptive strike. And that in turn could set off his own action. So we have to be careful what we say and what we do.

END

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