US Trade Policy Panel

– Good afternoon, everyone My name is Kim Schoenholtz I’m delighted to welcome you to today’s panel discussion on U.S. trade policy Thank you all for making the effort to get here on such an awful day And I have to tell you, the effort that our panelists have made to get here is nothing short of extraordinary Now, we could tell you an hour and a half worth of stories of the travel just to get here today in time for this event We’ll go through that later The host of today’s program is the Center for Global Economy and Business, which serves the university through outreach to the broader community, including the academic, business, and policy worlds, as well as students and alums We’re especially pleased to have here students and faculty from all over NYU, as well as a number of alumni Thank you very much for joining us Today’s program will last about 70 minutes It will begin with presentations of five to 10 minutes by each of the panelists, followed by audience Q and A We’ll finish around 5:45 p.m Please note on the screen that you can submit questions to the panel using your smartphone by going to the website www.slido.com, S-L-I-D-O, and entering the code number 6666 in the box labeled Join Anonymous questions will not be accepted, so you must provide your full name You can also vote on the questions that others have submitted Your votes will help us judge the issues that are of greatest interest to you Let me now briefly introduce our distinguished panelists And I have to say, it’s very brief If I took the time to introduce them appropriately, we would conclude the session around seven o’clock tonight Carla Hills served as U.S. Trade Representative from 1989 to 1993 and as the principal advisor on international trade policy to President George H.W. Bush She negotiated the North American Free Trade Agreement and led the U.S. negotiations on the Uruguay round of the World Trade Organization Previously, she served as secretary of the Department of Housing and Urban Development, the third woman to hold a U.S. cabinet position Among her current activities, Ambassador Hills is chair and CEO of Hills & Company, which advises firms on cross-border business strategies and helps them manage obstacles to market access in many countries She serves on the international advisory board of JPMorgan Chase and is chair emeritus of the Council on Foreign Relations Carla graduated from Stanford University, attended St Hilda’s College at Oxford, and obtained her law degree from Yale Michael Froman served as U.S. Trade Representative from 2013 to 2017 under President Obama During this time, he concluded negotiations for the Trans-Pacific Partnership and led negotiations toward a Transatlantic Trade and Investment Partnership with the European Union From 2009 to 2013, he served at the White House as deputy national security advisor for international economic affairs, where he was responsible for coordinating policy on international trade and finance, energy, security, and climate change, and development and democracy issues Ambassador Froman currently is vice chairman and president for strategic growth at Mastercard He received a bachelor’s degree in public and international affairs from Princeton, a doctorate in international relations from Oxford, and a law degree from Harvard Please join me in welcoming our distinguished guests (audience applauding) Ambassador Hills will now make a few opening comments, followed by Ambassador Froman After that, we’ll begin the Q and A session – Thank you very much It’s a great pleasure to be here at New York University, get out of the snow, and see so many smiley faces And thank you for your very warm introduction And I don’t have to tell these scholars that these are turbulent times economically, politically, and technologically I would say that, today, globalization is under fire Many people use the term economic nationalism to describe America’s trade policies And that is a very sharp reversal from just a few years back For more than 70 years, whether under Democratic or Republican administrations, the United States has worked hard to open global markets,

believing that the free flow of goods, services, capital, and ideas was good for nations rich and poor Beginning in 1947, the United States joined a group of like-minded countries, 22 in number, to form the General Agreement on Tariffs and Trade In 1995, it joined again a group of like-minded nations to create the World Trade Organization and to upgrade the General Agreement on Tariffs and Trade And so let me just say a word about what I think we accomplished According to studies by the Peterson Institute for International Economics, our opening of markets globally from 1950 to today has added two trillion, trillion dollars, to our GDP And it has also benefited our allies and our economic relationship with our allies has build a bond so that we can collaborate in addressing all sorts of issues that we face in common from pandemics to international crime And importantly, the benefits of open markets are not limited to rich countries, but they very much benefit poor countries Professor William Cline of the Center for Global Development calculates that it, with a poor country, for every percentage increase in trade to its GDP, it decreases its poverty by a similar percentage And as a result, you can see the benefits as over the years we have, through open markets, lifted some 500 million people out of abject poverty And enlarging economic opportunities for poor countries is not only a humanitarian effort, I call it the best development tool that we can find, but it also creates tomorrow’s trading partners, rather like the Marshall Plan after World War II And expanding opportunities for poor countries also contributes to global security For when impoverished nations cannot enforce their laws or seal their borders, they become havens for international crime and terrorism So with all those benefits, what lies ahead? In spite of the benefits that result from opening our economic markets and creating relationships beyond our borders, trade has become a really tough sell Today our government’s focus is on trade deficits And it’s primary tool are trade tariffs And the administration has reached back several decades using old, rarely used trade laws, for example, the 1974 232 national security law In an effort to complain about China’s misdeeds, and there have been, they have used the national security law across the board, which have applied to Canada, our largest supplier of steel, Mexico, the European Union, South Korea, and Japan, all close allies of this country And this past Sunday, the president received a new report from the Department of Commerce regarding the national security implications of importing automobiles and other vehicles So the question is, how do we move forward? Trade questions have multiplied, including, will we reach a deal China? We’re in the course of negotiation Liu He is here this week Will Congress approve the United States-Mexico-Canada Agreement, the USMCA? You can remember that if you think of the YMCA And if it does, when? How will our current and prospective tariffs, what reaction will that get with the trade agreements that we want to negotiate with Japan, the European Union, and the U.K.? And will Congress limit the president’s authority to use national security as a justification

for imposing trade restrictions in the future? Well, I could go on and on, but you have questions So I’ll stop here and turn it over to Mike – Well, thank you very much And I have to say, when I became USTR, one of the nicest things about it was all the former USTRs came in to give advice And it was a truly bipartisan group And trade has been, over the 70 years that Carla just described, one of those rare areas where there’s been a great deal of bipartisan cooperation I remember, when I took the job as USTR, I went to see President Obama, and we talked about TPP and TTIP and all of the things we were gonna negotiate And at the end of it, he said, but I also want you to help rebuild the bipartisan consensus on trade And I went back to him at the end of the administration, and I said, well, Democrats hate trade Republicans hate trade We’ve got a consensus Maybe you should have been a little bit more specific about what consensus you were looking for – (laughs) Yeah, right – So at any rate I do wanna thank President Trump for making trade great again Hardly a day goes by that trade is not on the front page of the newspaper or leading the stories in the media And it hasn’t aways been that way And I think there were times, I’m sure Carla would share this, when we were trying to get reporters to write about benefits of NAFTA or trying to get the reporters to write about globalization And it was very hard to get reporters to do that Now you can’t really miss it any particular day And I mean that quite seriously Because I think what’s been missing for some time now has been a real robust debate and dialogue in the country around trade Trade has costs and benefits, we know that We know that on the whole it’s beneficial It’s beneficial for customers The trade agreements that Carla referred to have added about $14,000 per American family to their standard of living The fact that you can cloth your family, feed your family, get your back-to-school supplies for such a small percentage of your disposable income compared to the way it used to be is an indication of the impact of trade liberalization But it does have asymmetric costs The benefits are broadly shared The costs tend to be quite specific and acute And that leads to a very different kind of political debate And I think one positive element of what’s going on now is that there is a very robust debate around trade liberalization, around protectionism, around globalization We don’t know where it’s gonna come out in the long run, but at least we are having that debate Let me address a few of the issues that Carla mentioned We’ve got the USMCA, NAFTA 2.0, that is soon to be submitted to Congress And I think it’s fair to say that this isn’t the first administration that came in saying they wanted to renegotiate NAFTA We did the same We did it through TPP Mexico and Canada were part of TPP And trade policy has evolved since 1991, 1992 There have been changes, evolutions, interests in adding, for instance, labor standards and environmental standards to trade agreements Issues that weren’t around in 1992, like the digital economy, like data flows across borders, like e-commerce, now need to be dealt with in trade agreement So I wouldn’t necessarily object to the renegotiation of NAFTA per se I think the result is, I’d say, a mixed bag, some positive, some neutral, some negative We can talk about that in the questions But I think one of the interesting questions will be, where does it go? Where does it go from here? I think one of the ironies is, Carla was responsible for NAFTA, which is, according to the president, the worst trade agreement in history I was responsible for TPP, which was– – The second worst – Calamitous The rape of the United States, in the words of candidate Trump But it turns out, if you take NAFTA, the worst trade agreement in history, and you amend it by added 85% of TPP, the calamitous trade policy, you now get a beautiful trade agreement And that’s what the USMCA is It’s about 85% TPP on top of the old NAFTA There are some, of course, particular changes that this administration put its fingerprints on But if you add terrible and calamitous, you get beautiful That’s what we’re learning about our trade policy I think the political question going forward is, what does Speaker Pelosi do? Will Speaker Pelosi spend political capital to move a trade agreement, which will likely be opposed by the majority of her caucus, through Congress in order to give President Trump a win? Any one of those phrases in that sentence, I think, is an obstacle And together, I think it’s a significant obstacle But we’ll see, because I think the fear is, is that,

if she doesn’t move forward with USMCA, the president may follow through on his threat to pull out of NAFTA all together, and that would have an even more disruptive effect on both manufacturing and agriculture in the United States And so we’ll see how that plays out over the next few months With regard to China, I think many of the concerns that the administration is raising about China are real and legitimate They are concerns that many previous administrations worked on as well And certainly, by imposing tariffs on Chinese exports, the administration has got the attention of China’s leadership, who are very eager to reach some sort of agreement The question is, what kind of agreement will it be? And there are really two negotiations going on simultaneously One is what I would call the shopping list How many more soy beans will they buy of ours, LNG, maybe airplanes, maybe tractors? And that’s the negotiation China would like to have, because it’s more or less economically meaningless They buy more soy beans from us, they buy fewer from Brazil or Argentina If they buy LNG from us, they buy less from Cutter or from Trinidad And it’s really economically a wash The administration to date has said that won’t be enough, that what the Chinese, the Chinese told about a couple years ago now, as soon as Trump came in, they said, we understand how important it is for President Trump to have tweetable deliverables – Tweetable – That was a great phrase, you know, beautiful phrase, tweetable deliverables And they were perfectly prepared to give him tweetable deliverables like these purchases of soy beans or liquified natural gas The question is whether they’re willing to engage in the second track of negotiations, which is about fundamental changes to their industrial policy, IPR, protection of intellectual property rights, a real prohibition against forced technology transfer, reform of the state-owned enterprise sector, reform of subsidization policy And that’s a much harder negotiation to have with China, because from their perspective, their initial policy has been rather successful to date And when they’ve laid out their China 2025 objectives, they very much viewed this industrial policy as being key to that And that’s the question now that’s going on this week and next week in Washington, whether China will engage in a meaningful way in that regard There is a precedent here, which is that, in the last couple years of the Obama administration, we invested an enormous amount of effort in trying to negotiate a bilateral investment treaty with China And that bilateral investment treaty had all of those elements in it, IPR protection, prohibitions on forced technology transfer, reform of state-owned enterprises, reform of subsidies And the question is whether this administration will go back and try and at least use that as a foundation on which to move forward With regard to tariffs and to protectionism, including the national security actions that Carla referred to, I think here, it’s going to be very interesting to see how this plays out Because tariffs are quite easy to put in place and quite difficult to get rid of We have a 25% tariff on pick-up trucks in the United States because of the chicken war of 1963 with the European Union, when they refused to let our chicken into Europe, and so we imposed a 25% tariff on their minivans and their trucks And that is in place today The president has put tariffs under 232 on steel and aluminum Imagine the political challenge he will have right now of getting rid of tariffs on steel, given where the steel companies and the constituents are in that debate Whether or not he goes to the next step and put it on autos remains to be seen It’s a challenging argument to make, that the importation of Volkswagens are a threat to our national security But that is the case that they will have to lay out at the WTO if and when they take that action I think the bigger issue here is, what are the costs of protectionism? There are really three costs One are the direct costs, the fact that right now, steel and aluminum and the other products on which there are tariffs coming from China and elsewhere are more expensive It hurts customers, and perhaps even more importantly, it hurts manufacturers who use those products as inputs into what they manufacture And so you have factories in the United States closing down because the inputs that they relied on are now subject to tariffs So the direct costs are real, and they’re significant There’s the cost of retaliation, which is of course, whatever we do, the other companies are gonna do to us, which hurts our exports and makes it difficult, and agriculture in particular,

because other countries know that our agricultural sector is very well-organized politically So they know that if you’re going to retaliate, the first thing you retaliate against is agriculture, because there’s nothing like a pig farmer in Washington to get the attention of members of Congress And so we’re finding that our agricultural producers, our farmers, our ranchers, are feeling the squeeze right now But I think it’s the third cost which is perhaps the most troubling And that is the cost of imitation, which is when other countries begin to feel like it’s okay to live up to your international obligations on a selective basis, that it sort of opens up a Pandora’s box in terms of what other countries may do at the expense of our interests We see that already in countries like India, which have begun to raise tariffs, because we’ve lost the moral high ground to discourage them from doing so But we also see it in other areas, whether it’s Russia getting out of the INF Treaty or Japan getting out of the whaling treaty When international obligations become something that’s sort of optional, then you’ve sort of opened a Pandora’s box as to what the international order looks like going forward And we’re not gonna really understand the costs of that for some time to come Last thing I would say is, this administration has made a signature policy out of American first Leaving aside its unfortunate historic references, every country and every president puts itself first There’s not a single president in history who would have thought that they put America second But it’s all a question of how you define national interests And for the last 70, 75 years, our interests have been defined by creating a rules-based system where the rules basically reflect our interests and our values, and we’re bringing other countries into a system that really plays to our strengths Now we’re entering a new world where we’ve determined that the rules-based system isn’t necessarily in our interest and where each country’s gonna define for itself how to pursue its self-interests, and that’s a really unknown area And with that, I think I’ll stop – That’s great First, let me invite everybody who’s standing back there, there are a lot of seats over here on this side So take this opportunity to come on down – I thought they were protesting or– (group chuckling) – And second, you may now, just a reminder, you can, this is now a chance to submit questions via Slido, S-L-I-D-O, dot com Join at event number 6666, and you can place votes for the questions And we’re gonna start with the questions, typically from the top So let me start by asking both of you, if you were negotiating today with China, what would be your goals for the United States in that negotiation? – Well, first of all, I would have talked to my allies who are complaining about the same things that we are complaining about with China, protection of intellectual property, percentage caps on inward investment Why is it that China can invest in Germany or in Wisconsin 100%, and if we go to China, we have a 39% or 49% cap, so it’s a joint venture? It’s particularly onerous in high-tech areas And we question that So there are a host of things that we complain about legitimately And had we approached China as a group, Europe, Japan, Canada, Mexico, and the United States, Korea, those are all like-minded countries, they’re all concerned about their trade, and said to China, these are the things that have to change, I think we would have had a positive outcome, particularly in the economy of today China’s economy is slowing It is funneling a great deal of its credit to state-owned enterprises that we call zombies It is starving the private enterprises that are creating the jobs, the growth, the productivity, and the intellectual property And so, were we to go to China and say, this has got to change, tell us on each area what you plan to do and in what time timeframe, and then negotiate that as we have in the past We gave Mexico five years to bring down its restrictions on corn, and then we watched it So we could have done that And if they refused or they were, they did not follow their promises,

there is Article XXII in the GATT that says a nation that is injured by non-market activities of another can take action, the group action, and nullify and impair the benefits of the transgressor China could not afford to give up trade with 90% of the global traders and the global economy So if we had had a strategy, I agree with Mike, the objectives that we wanted to achieve were not wrong, but the strategy is something that was missing – Mike, do you wanna add to that? – Well, just to build on it, I completely agree that building an international coalition to put pressure on China is really the best way to go And again, I have to give the Trump administration credit There’s more of a consensus now, nationally and globally, around China than there has been for some time It wasn’t that long ago that David Cameron and the UK were sort of running around selling nuclear plans to China and things of that sort Now Europe is unified with the US, saying there are these serious issues that we have to address And I think we could have– – Come on to the right side Excuse me – We could have very much built a national coalition of support And we’ve found that China’s responsive to international pressure, particularly when it’s not just the advanced, industrialized countries that are putting pressure on, but when they’re hearing from other emerging markets or developing countries When they hear from Brazil or Indonesia or India about their trade practices, they’re particularly sensitive, because they view themselves as a leader of the developing world block And so building that kind of international coalition is very important, but it takes diplomacy It takes a lot of hard effort These things are not easy It takes time, and it’s a step-by-step process I think the other parts of a coherent China policy are to use all the tools we have available, including the WTO We brought 16 cases against China during the Obama administration We won every case that was brought to conclusion China modified its behavior Sometimes it took longer than we would have liked, and it was imperfect But you use every tool at your disposal to try and address these issues And then, again, I think holding out the carrot of a negotiation around issues like structural reform, as we did in the bilateral investment treaty, could potentially incentivize that For the bilateral investment treaty negotiations, to Carla’s point, the reason why those caps on equity, that we could only hold 49% of a financial services for it, the reason why that’s so important is because, when they force you into a joint venture, that’s the lever on which the partner can extract technology from you If you can have 100% your own company in China, then you may decide to transfer technology, or you may not That’s a commercial decision That should be up to the company When you’re forced into a joint venture, it may not say in law that you’re required to transfer your technology, but in practice, we’ve seen over and over again that those joint venture requirements lead to technology transfer that would not otherwise be done on a commercial basis, and that’s why it’s so pernicious And so the best way of getting rid of forced technology transfer is to get rid of the equity caps, to get rid of the joint venture requirements, to open up vast sections of China’s economy to foreign competition And that, I think, again, is part of what any real negotiation should be about – The next question is also about U.S.-China trade It appears that the U.S stock market does well when there’s news that is supportive of U.S.-China trade How do you think that will affect the administration and the electorate? – I think the stock market going up is positive thing in the eyes of the administration But we have a lot of work to do with respect to the electorate Most people that are walking down the street, Green Street or 44th Street, don’t have an idea of why we should care about trade They’ve heard in two presidential campaigns, trade is bad, it takes your jobs We are getting the wrong side of trade And so you’ve got a lot of misinformation out there Clearly, in the 2016 election, that was preeminent in President Trump’s statement In the 2008, we had two respective senators running

against trade for the presidency And people remember that And they don’t know why they should think otherwise The other thing I think that the electric worries about is, I think, as Mike said, the benefits of trade are diffused All of you benefit But a few who are over here do not benefit And if there’s greater competition in making T-shirts, you may be laid off If the corporation is incompetent, you will be laid off And if the technology moves ahead, and so as with automobiles, I used to go on the floor of an auto company and it looked like New York Fifth Avenue at Christmastime, people all over the floor Today you go on, there are two or three people in long white smocks, buffers on their shoes, telling you to walk within certain lines and not kick up any dust And it’s a very different place The output manufacturing is up But the use of workers is down And we have a social obligation, in my view, to take those workers and train them for the seven million jobs that are open in our country begging for people We should have a stipend that moves the person who is laid off for whatever reason, not just trade but for, actually, the analysis shows that about eight to 10% could be foreign competition 90% is from technology, overwhelmingly technology And so if we could give those people who have been laid off because of technology a stipend to move them from point A to point B, a stipend for their support while they get the 20 to 25 weeks of training that they need, and then have a private partnership, the companies that have those seven million jobs would hire them, it would actually pay for itself Because it would be an investment in the future They would be making more money in the trained jobs and paying it back in taxes We don’t have a good social program to deal with this issue And that, I think, is something we have to come to grips with – Mike? – Yeah I just wanna violently agree with– – Violently? – Violently with Carla on this Somewhat to my surprise, maybe, if you look back at 2016, and you think about the anger that was evident in that election, that was at when there’d been 15 1/12 million new jobs created over seven years of growth, when wages had begun to increase by 2 1/2% a year for a couple of years Imagine the anger when AI, robotics, automation fully kick in, and whatever estimate you believe, from McKinsey’s 47% to something closer to 10 or 11%, it’s going to be much more significant than anything we saw over the course of the last, over the last couple of decades And yet, we don’t have a real domestic policy You don’t get to vote on technology Nobody puts that on the ballot You don’t really get to vote on globalization Globalization is a fact of life It’s frankly a product of technology, the containerization of shipping, the spread of broadband You get to vote on trade And so trade becomes a scapegoat for quite legitimate concerns about job loss, about wage suppression, about the changing nature of work And yet, we don’t really have a domestic policy response And whether it’s Democrats or Republicans, there’s been a remarkable lack of energy behind coming up with a real domestic response along the lines that Carla said and to prepare us for whatever the impact of future technological development’s likely to be in the near future – So you started to answer this, so let’s just continue with the theme – I didn’t answer your question, but I answered the one I wanted to answer – No, so, which issues regarding trade would you say are the most important for the 2020 presidential candidates to address? – Well, I think the social issues that we have mentioned here would be important They’re talking now in Congress about enhancing trade adjustment assistance But the years in past show that that hasn’t worked very well Because you have to show a connection between your job loss and trade That’s almost impossible in the majority of cases, and so very few takers So we need to deal with this issue

The second thing that we need to do is get the facts out Why is trade important? It’s important economically, hugely, but it’s also important strategically Our leadership, we’ve been able to lead on issues for 70 years, helping to create the institutions that have maintained our peace and prosperity, not just the economics but the IMF, the World Bank, NATO These institutions have made a difference in all of our lives And I worry that unless we educate along these lines, it has been threatened that we will tear up the World Trade Organization Well, having rules governing the economic activities of the people that make up the world community is as important as having laws in New York to take care of the conduct of people in the vicinity So this is something that we really want to keep We want to keep those global institutions But as an electoral issue, if you walk out of this university and talk to the first 100 people that you meet, do you care about the WTO? I worry that the majority would either say, what is it, or actually, they don’t know how to decide cases Yeah, we oughta get out of it And I could go through the whole long list of things from institutions to trade agreements, which are, in a way, an institution And you take away those rules of law, you take away stability and opportunity – My guess is that, because President Trump, I think, has so successfully staked out a position of being very strong on China, protectionist, defending America’s interests first and the like, that it’s gonna be very hard for Democrats to out-populist him from the other side and that there’ll probably be as little discussion of trade per se as they can possibly get away with But I think there will be a debate about U.S. leadership and the role of the U.S. in the world Because I think even those who may be sympathetic to the president’s views on trade feel like we’re losing a lot of opportunity in the way that we’re going about executing on that policy I mean, I personally believe that in pulling out of TPP on his third day in office, it was probably the most significant strategic blunder in recent American history and that American historians will look back and say, this was moment when the U.S. gave up on Asia and left it to China to write the rules of the road for the most important region in the world I think, on the other side, well, people will be arguing, the U.S. needs to be engaged, needs to be showing leadership, need to put our values and our interests first in terms of creating that rules-based system that Carla referred to and making sure that institutions are strong And I think that’s a good debate to have – So a slightly smaller problem, how should the U.S. manage its relationship with the U.K., trade relationship, in the aftermath of Brexit? – We’re talking about negotiating a trade agreement with the U.K We can’t really do that until they have an agreement with Europe And we can talk to them generally And I suspect we are to some degree, but we’ll have to see what the terms of the Brexit are England’s going to suffer if, when it pulls out Corporations of which I’m aware that have invested in England and thinking not so much of pulling out, although some are, are thinking that any expansion will be in Paris or Frankfurt When you think back over the history of the Great Britain, it’s going to be a real challenge going forward And you wonder what’s going to happen on March 29th Because there are hard positions on both sides with a political overlay that is not going to be easy to handle – You know, I think the U.K.’s in a tough position – I do, too – Because on one hand, it wants to have its own trade policy, but it wants to stay close to the continent, where most of its trade takes place And it’s gonna have to figure out,

if it wants a trade agreement with us, then it’s gonna have to differentiate itself from the rest of the European Union If it wants to throw in its lot with the European Union, then it’s not gonna be able to have an independent trade policy I used to, frankly, joke with my European EU counterparts about the U.K. joining TPP just as a way of needling them that if they didn’t move ahead with TTIP faster, the U.K. would have free trade before they did Now that’s U.K policy, to join TPP And it turns out they have an island halfway between New Zealand and Peru There’s a little rock called the Pitcairn Island, where the descendants of the HMS Bounty live, four families, 50 people, and it’s a British island So they are a Pacific country, and they want to be part of the Trans-Pacific Partnership And there’s a debate going on among the TPP countries about whether they should let them in – Okay Earlier today, you described the USMCA, YMCA, I won’t forget that, as a mix of a calamitous policy on top of a terrible policy – That’s not our description That’s just the president’s description (group laughing) – So how would you compare USMCA to NAFTA? And what do you think Congress will do with it? – Well, those are two big questions The MCA has some positive features As Mike has mentioned, it has borrowed those positive features dealing with digital commerce and protection of intellectual property, upgrading it to deal with the new technologies and a host of other things to upgrade And it desperately needed an upgrade If an agreement is 25 years old and technology changes, we need to deal with that So that is the plus I think one of the minuses that I see is the rules of origin for automobiles We raised the rule that requires autos to have North American content from 62 1/2% to 75% That’s pretty high But then we went on to say that 45% of that 75% has to be workers who make $16 or more per hour And 90% of our exporters are small and medium-sized businesses They make a part They buy a widget from here and something from there And they will just look at that and say, I can’t deal with that 40% has to be, and I know I hire Joe and a Jim and, but it’s just too complicated And what I think they’ll say is, let’s forget it Well, the tariff on autos and auto parts in the United States is 2 1/2% I’d rather pay the 2 1/2% than to have to deal with this red tape And what I worry about is that the administration, this administration, would say, well, that’s why I have 25% tariffs that I’m going to put on autos so that that is the club to hit you if you try to circumvent my rules So that, I think, is a detriment I think it’s going to be very hard for smaller businesses that provide the majority of jobs in our country And we don’t need to do that I would not have the, I think it was better that we have, we’re gonna review it in six years, and if nobody complains or pulls out of it or so forth, then it’s a 16-year But I would have rather just had it be an agreement with no pull-out clause Because a government may pull out of an agreement, as we have noted, regardless of the clauses that are in it So there are some pluses, and there are some minuses And I think, politically, it’s gonna have a really rough sell Speaker Pelosi has not said where she stands on this agreement And many of the Democrats have said they want stronger labor provisions, greater enforcement on the environmental provisions And some Republicans have complained about the intellectual property on biologics And so you have a list of things that people have complaints about But it’s impossible, I think,

to go back and say, I want to reopen it So what I worry that the president will do is to say, if you don’t take my wonderful agreement that has gotten rid of the worst agreement that has ever been negotiated, I’m going to pull out of the NAFTA So you have either nothing or the MCA And I wouldn’t be at all surprised if we do that But there’s another factor here in terms of timing I don’t think we’re gonna get a vote on this until at least the second half of this year And that’s because the shutdown of 35 days delayed the International Trade Commission report that must be given to the Congress on the economic effects of the agreement And the Congress has legislative days into which to consider it, and we’re approaching the summer So again, you get another delay Canada and Mexico have said they won’t vote on it until we do it They’re not going to be stood up And so I think we’ve got a rough political road ahead Again, the remedy, in my view, is an education We have to get the word out Why do we care about having a trade agreement with our northern and southern neighbors? Well, Canada’s our largest export destination Mexico is our second-largest export destination Together, they’re a third of our global exports And they are also, have been in the past, very good neighbors We share intelligence with them to enhance our security We work together in a number of areas And if we wanna put up a wall and a buffer against our northern and southern neighbors, we will be much less well-off, in my view – Mike? – So I think one of the interesting things about the USMCA is what it means in terms of the administration’s vision of global economy and the role of international investment Every administration wants to drive more economic activity to the United States Every administration wants to increase manufacturing here and increase exports But most administrations have had the view that, if enter into free trade agreements, we create good rules, because we’re such a strong economy, we’ve got great rule of law, we have a very entrepreneurial spirit, we have great universities, there’ll be activity here, and then we will open exports to other countries Other countries have bigger barriers than we do This administration has sent a somewhat different message, which is, we don’t really want American firms investing abroad And we wanna create uncertainty So whether it’s the sunset provision that Carla referred to, where this may go away in six years, or whether it’s the investment protections that have been part of every trade agreement and bilateral investment agreement for 50 years, that were taken out of NAFTA for the USMCA, that help investors abroad have recourse to neutral international arbitration so they don’t have to rely on going to a domestic court in Mexico to sue the Mexican government if the Mexican government expropriates their property, those are out now And so I think their strategy has been, let’s make it harder for American firms to invest abroad, and that will help drive more activity in the United States That’s a coherent view It may not be the right view, but it is a coherent view What’s interesting is that if you look at, go back to your China question, a lot of what we’re talking, too, about in our China negotiations is how to make it easier to do business in China And so they’re sending mixed messages as to whether we want American firms to feel insecure abroad, and therefore relocate to the United States, or whether we wanna change the rues in places like China to make it easier for American firms to operate there And I think our trading partners are somewhat confused about what our particular perspective is – Both of you have spent a significant portion of your careers trying to educate people about the benefits of trade, so– – Very successfully, obviously (group laughing) – So I was about to ask, which mechanisms do you think have been most effective? And I’d add to that, what role do universities have to play in that education process? – Well, universities are hugely important And I think starting at the local level is enormously important, too I’m big believer that if you can persuade mayors, councils in various areas, and the local corporations, rotary clubs, that they have a much better voice than any of us have in Washington

And they make a difference You know, when they do these polls and people are ignorant and do not know why trade is a benefit to their nation or whether it is a benefit to them, it helps to get the word out And we don’t have courses in lots of places that deal with trade in a holistic way so that you are literally educated about what is at stake We may make mistakes about not carrying through on some of the things that we should do, but there, it’s even though more important to have the education so that the generation to come says, look, I recall, and I believe, and this is the way I would recommend it being done But we have kept trade kind of in a capsule in Washington, and I think that’s a big, big mistake – Yeah, the only thing I’d add to that is, it’s not an entirely bleak picture when it comes to public opinion Unfortunately, there’s a difference in intensity, but you now have the vast majority of Americans thinking that international trade is good – For the nation? – For the nation For years, they’ve understood that it’s good as a customer But now a majority believes that it’s good in terms of helping to support well-paying jobs in the United States And you’ve got some interesting dynamics I mean, the fastest-growing support for trade comes from young Democrats The fastest sinking support for trade comes from middle-aged male Republicans And if we looked at it, you saw that, I think, in 2016 sort of play out, at least the Republican, Trump’s base of support being quite anti-trade But there’s some hope in that Because young people are more likely to have a passport, believe that they’re gonna live abroad, work abroad, or have connection internationally than their parents and grandparents, and therefore, are more open to seeing international trade as an opportunity rather than as a threat You’ve also got some strange political dynamics President Trump has done something that neither President Obama nor maybe President Clinton could do And that is, 71% of Democrats now support NAFTA (Carla chuckles) That’s unprecedented Because he’s against it, they’re for it But we’ll have to see what the long-term perspective is as, again, people debate these issues and decide really where they stand on some of these global concerns – Only 71%, long way to go – [Carla And Michael] Yeah – I’ll take it – So how should we choose between multilateral and bilateral trade arrangements, especially when we’re dealing with large economies? – Well, I believe in both I am a multilateralist at heart But the question is, what is the path through the thicket? And I recall when we were negotiating the Uruguay round, which was the eighth round, and it was the round that created the World Trade Organization when it finally got finished It was started in ’86 and didn’t take effect until ’95 So it wasn’t an overnight deal And it collapsed in Brussels in 1990 And we thought it was going nowhere We began the negotiations of the North American Free Trade Agreement in June of ’91 We completed it 14 months later in August Bush, Sr. signed it in December of ’92 And President Clinton got it through the Congress in ’93 And it took effect in January, January 1, 1994 Within four months, all trade, all then 126 trade ministers, came back to the table, borrowed the provisions governing intellectual property, services, protection for investors, and a dispute settlement mechanism, which was what created the World Trade Organization So a bilateral or a trilateral trade agreement can be a model, a preeminent model, for multilateralism So I like both of them I hope that we spread the good word of good bilateral, trilateral, plurilateral agreements, and have rule of law governing our trade that cover all nations, now 164,

in the World Trade Organization – Yeah, I think, again, I completely agree This is a very boring panel, ’cause we’re always agreeing with each other But we took a page out of Carla’s playbook in thinking that, if you did TPP, that was on the road towards getting about 40% of the global economy You did TTIP with the EU There were countries that were gonna join both of them You’d have about 75% of the global economy abiding by some set of high-standard rules That would then spur on, hopefully at the multilateral level, it makes it easier to bring China, India, Brazil, some of the others into rules when 75% of the global economy is comfortable with them What’s changed, I think, since China’s excision to the WTO, and more generally is, as Carla said, you have 164 countries, it works on a veto system There are lots of potential spoilers around the table And it’s not just potential, they have spoiled They have stood up and broke the consensus and prevented negotiations from moving forward So it’s very hard to get a big round done now with the WTO because of China, India, Brazil, any number of other countries who are, Cuba, Bolivia, willing to stand up and prevent a consensus from being achieved, which is why these bilateral and plurilateral agreements are so important, to get a coalition of the willing, willing to sign up to high standards, and then try and inform the multilateral system – So referring to the multilateral system, the WTO has been under attack Are there reforms that you would advocate for the WTO, which, or if any? – Absolutely It is 25 years old as well as the NAFTA is 25 years old It needs to be upgraded There are many things that we have today that we didn’t have 25 years ago You didn’t cellphones and all your iPads You didn’t have those So our rules are deficient in terms of dealing with today’s economy And so we could take some of the rules out of TPP, as Mike as said, and upgraded the WTO, had rules to govern those sectors of the economy that are new to us, including some new services And I do think that, on the enforcement mechanisms, that we needed to upgrade those There is a provision that if you give a subsidy to a company in your country, that you must give notification of giving that subsidy Well, China has failed to do that, but it isn’t the only one Some over 30 countries have failed to give notification And there are a lot of things that China is doing that we object to, the subsidies going for commercial purposes to companies that are state-owned Now, China’s not going to change its government It’s going to maintain the Communist party That is its preeminent, number one objective, in my view But its number two objective is to have growth to maintain stability And I do think that we could persuade it to, that it would enhance growth were it to support the kind of reforms that it should do and others should do And the alternatives are that it would suffer greater in terms of outcomes So there are things that the WTO needs to do We already have two groups, the United States, Japan, and the European Union that are coming up focus more object the enforcement so far but are having a little bit more trouble agreeing internally among the trio And then Canada gathered 13, including the European Union, in Ottawa last fall and came up with a series of things that they’re really working on and trying to persuade the membership to move on And I think both of those efforts should be applauded – Just to be more specific, the current trade representative has been a prominent critic of the WTO and has even objected to naming or advancing judges to act on WTO cases to limit their role Is that bringing, are we seeing the end of the WTO in practice? – Well, I think there’s a risk of that I mean, the WTO does three things It negotiates trade agreements It monitors trade policy and subsidies And it does dispute settlement

Its negotiating function sort of ground to a halt with the Doha round And we were able to get a few agreements through, like the Trade Facilitation Agreement or some agricultural agreements But in terms of big rounds, it’s very hard for that to really precede As Carla said, its monitoring function has but hampered by the fact that other countries don’t necessarily live up to their commitments to inform the WTO of their subsidies or their other trade policy practices And we all used to say, well, at least we have dispute settlement At least that’s working well Now, it’s not perfect I think some of the reforms that the administration has put forward are legitimate in terms of making sure that these appellate body judges don’t make up new trade laws, make sure that they actually finish their cases in a reasonable period of time and don’t drag them on for years, even past their terms I think there’s some legitimate things there Now, we raised some of the same objections, but we didn’t stop the whole system from working And the concern is that, I think, as early as September, there will only be two members left of the appellate body, and you need three to constitute a panel So that’s not so great And hopefully they’ll find a way through on some of these reforms to begin to appoint new appellate body members who can live up to those rules – Okay Question about the relationship between trade policy and human rights issues Sometimes they’ve been connected, sometimes not Are there examples of successes or failures on that front, in that relationship? – Well, they’ve tried to put labor into the more recent trade agreements, TPP, MCA, and so forth You know, we have the International Labor Organization And if you read charter of the International Labor Organization and the World Trade Organization, there is commonality And the question in many people’s minds are, why can’t we energize the ILO? Why do we have to keep pulling, putting things in trade that ministers are going to object to, so we can’t get a consensus? The WTO only rules by consensus If you have a big group and you have one who just won’t go along, you got yourself a problem So if you keep adding environment, labor, social issues, some say, you know, that really creates a problem, and you weaken the trade Others say, no, no, no, you can’t have trade without having good labor standards And so we have debating that for probably a couple of decades But there are options like working with the ILO, making it more effective, having a dispute settlement mechanism is more effective than it is, or having the rules that we have that put in some of the agreements that we have, which are perfectly legitimate And you can do both – I’m a big fan of using our trade agreements and the leverage the trade agreements give us to push labor and environmental protections And I think, it doesn’t go as far as all human rights, to your question, but it goes to practices that create an unlevel playing field when it comes to trade If our companies are regulated in a certain way, and if our labor markets are structured in a certain way, and they’re competing with firms where there’s no minimum wage, there’s no right to organize, there’s no collective bargaining, or countries where there’s no environmental protection, in my view, that’s an unfair trade advantage and ought to be dealt with And that’s, I think, how our trade policy has evolved over the years The TPP agreement, I was ridiculed at one point, is 5,700 pages long But if you’re gonna read 12 pages, read the Vietnam labor action plan that’s in there It’s a rather remarkable document Because through TPP, Vietnam was willing to allow independent unions this is a communist country with one labor union, one official labor union The labor union actually goes back, it predates the Communist party It’s called a Fatherland function there They were willing to allow an independent unions who could organize, bargain, strike, collect dues, elect their own leaders, affiliate with whoever they wanted to affiliate internationally And it was a fascinating process to negotiate this Because at each step, they’d have to go back to the politburo This was not the trade minister who was making these decisions This was at the very highest levels of the Communist party to determine whether or not they were willing to take their labor market in that direction

That’s, I think, the potential the trade agreements have Now, of course, that didn’t move forward Because the U.S. was going to be the only country that really enforced that And I think it’s a great loss that we were not able to use TPP to help improve the lives of workers in Vietnam, which would have been good for them and the dignity of work, but also good for our workers who were competing with them on an unlevel playing field And I think that’s where, I think, trade can play a very important role I’d say one other thing about human rights And Senator Ben Cardin, a Democrat from Maryland, has been a strong proponent over the years of human rights and linking human rights to trade One of the issues we worked with him on was the whole issues of governance It didn’t deal with human rights directly, but it dealt with creating transparency in the way that governments acted and having governance requirements in trade agreements about transparency, about accountability, all of which help improve the system of rights as well, even if you’re getting at it initially through an economic lens – We’re gonna some back to China, since it’s big and right in the headlines So Made in China 2025, what should be, if any, the concerns of the United States with that program? – I think that the subsidies channeling money to Chinese companies, primarily state-owned but not entirely, is a concern You know, Germany had Germany 4.0, where it gave subsidies, but investors could participate in the program It wasn’t discriminatory And we’re at a stage in our development where technology is changing rapidly We are spending a lot of money to deal with these sorts of things It’s something that we really need to deal with But if China wants to stay within the World Trade Organization, there are two basic norms: nondiscrimination and national treatment And those are the two that underlie all the rules You’ve got to treat the investors, the traders, the people from out beyond your borders in a similar fashion than you treat your own and you can’t have favoritism at home And I do worry that that is a problem with China 2025 Nothing wrong with a country saying, I’m going to be a leader in space I’m going to be a leader in AI But it can’t be exclusionary or not discriminatory So I think that’s one of the big problems – I think it’s the combination As Carla said, there’s nothing wrong with countries having major aspirations But if you’re achieving those aspirations by, one, keeping your market closed and protecting your domestic industry, two, illegally subsidizing them, and three, creating a mechanism by which either IPR is infringed upon or technology is forcefully transferred, well, that’s just not fair And I think it’s really one of the fundamental challenges we face that I’m not aware of any real consensus about how to proceed It’s not the Thucydides Trap that Graham Allison writes about, about the rising China and existing U.S. power, is it inevitable that there’ll be a war? It’s more that, how do we accommodate a China that pursues a very different set of industrial policies into a global economic system that is based on a different set of rules? And if we cannot accommodate that, then are we going to find ourselves disengaging and seeing China go in one direction and the U.S. and Western Europe going in a different direction, whether it’s about creation of technology, the establishment of standards, and what will that mean, really, for the world? That’s really unprecedented We’ve been in this world where everything has become more and more integrated But it’s become more and more integrated based on the notion that we would all follow the same rules And we’re now facing a fundamental challenge, because China has a very different set of what’s appropriate for its national interests And it comes, to a certain degree, at the expense of the rest of the world And the rest of the world has not yet figured out how to either accommodate, adjust to, or as we’re now struggling with, prevent that from happening – Two more questions, one is also about China Which other countries besides the United States and China

are most affected by progress or the lack of it in U.S.-China trade negotiations? – Well, I think the global economy is affected entirely But in Asia, you know, they’re very nervous about the disruption between the United States and China They trade with both of us in a major fashion And so is Europe We are a globalized economy today And when you take the fuss between the two largest economies that make up the global economy, the ripple effect is felt in every region of the world, in my view And again, I think that we’re at a kind of a propitious point, where I do think that we had greater persuasion power with China, both acting as an aggregate, a group of like-minded nations, but also in their own interests Because if you look back to 1979 with Deng Xiaoping, you had gradual improvement in the economy up until about 2005, and then it leveled off, and then 2012, it has actually declined Nobody disagrees with those figures But its decline must stop, or there’s going to be, as some authors have suggested, some kind of a eruption in China And I think that if they were to permit the private sector, which is not revolting against the Communist party, and we have done business with communists, we’ve already talked about Vietnam, we have trade agreements with countries whose governments are not at all like ours, I think we could work out a plan that was a win-win instead of I win and you lose, or, what I worry about, we both lose – Go ahead – Yeah, I think it’s important to remember that China has been the dominant economy and power in the region for 13 of the last 15 centuries And so from China’s perspective, it’s simply regaining its historical role in the region if not the world And every country, including the U.S and certainly every country in Asia, needs to have a positive and constructive relationship with China I think the challenge we’re facing is, China has a very coherent regional strategy I mean, it’s got the One Belt, One Road initiative It’s got RCEP It’s got the Asian Infrastructure Investment Bank It’s building islands in the South China Sea It knows what it wants to do regionally And we don’t We had one, but we don’t have a coherent regional strategy We’ve created a void, we’ve created a vacuum And I think this would have happened, China’s rise, I think, would have happened anyway It was moving in that direction But I think it was the combination that China was ready to stand up, as they say, no more hide your strengths under a bushel, or whatever the Confucius phrase is In other words, it’s time for China to stand up, or China 2025 But the combination of us creating this void and China being ready to exert itself regionally, I think, has really created a very significant shift strategically in the region and the world And it’s something that we’re gonna have to, over time, deal with – Well, please join me in thanking our distinguished panelists for this excellent discussion – It was fun (audience applauding) – Super fun – We’re fun – As always – Yeah Nice to be with you – I just want you to know, once again, the struggle of getting here was not trivial And we owe them a great deal of thanks for just arriving in the nick of time (audience applauding) – We made it. (laughs) – Last note, please join us again on March 6th We’ll have former Treasury Secretary Robert Rubin come and join for a fireside chat– – I may come to that – On, we’ll address some of the same issues Thank you very much for coming out on this difficult night (audience clapping)