The Uncertain Future of U.S. Trade Policy
What to Do About... Series: The Uncertain Future of U.S. Trade Policy
Bernard L. Schwartz Senior Fellow, Council on Foreign Relations; Author, Failure to Adjust: How Americans Got Left Behind in the Global Economy
Senior International Partner, WilmerHale; Former U.S. Trade Representative
Former U.S. Representative from Massachusetts, U.S. House of Representatives; Former Chairman, U.S. House Committee on Financial Services
Chief Executive Officer and President, JPMorgan Chase Institute
Experts discuss the economic and political challenges facing U.S. trade policy, how to proceed in the current political climate, and policy options for the future direction of U.S. trade.
The What to Do About... series highlights a specific issue and features experts who will put forward competing analyses and policy prescriptions in a mock high-level U.S. government meeting. This series is made possible through the generous support of Home Box Office.
FARRELL: Good afternoon. Thank you so much for joining us. I’m Diana Farrell. I’m the president and CEO of the JPMorgan Chase Institute, and I was formerly head of the McKinsey Global Institute and deputy director of the National Economic Council. So we’re turning to a topic that is very near and dear to my heart, and I’m just delighted with the panel that we have here today.
So let me welcome you to today’s Council on Foreign Relations What to Do… Series. The title of the meeting is “The Uncertain Future of U.S. Trade Policy.” And what this series tries to do is to highlight specific issues and features—experts who will put forward competing analyses and policy prescriptions in a(n) interesting discussion. On behalf of the CFR, I’d also like to thank Richard Plepler and HBO for the generous support of the series.
If you go back 15 or 20 years ago, I think it would be fair to say that there was an embedded assumption in most of the world that trade was an essential component of the economic order, that there was generally a direction we were moving with trade, and the question was how quickly and exactly in what shape, and that the U.S. would be at the center of that, would lead that. And that was generally understood to be true and probably subscribed to by most people. We have a wonderful panel today to ask whether that is still true, and if not in what ways has that changed.
I’d like to do the following. I’m going to ask Charlene Barshefsky—who needs no introduction, but many of you know she was the U.S. trade representative from 1997 to 2001 and now is a senior international partner at WilmerHale, where she leads on international trade issues—to open up with a little bit of the stage of trade. Then turn to the second part of my proposition, to Representative Frank—who of course served as a representative from 1981 to 2013, also chairman of the U.S. House Financial—House Committee on Financial Services, where I got to work with him on Dodd-Frank issues, and of course bears his name on the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010—to talk a little bit about the U.S. role in this, and precisely how the politics of this have evolved and changed. And then turn to Edward, who is—Edward Alden—who you all know here is a senior fellow at CFR and has recently written a book, the “Failure to Adjust: How Americans Got Left Behind in the Global Economy”—to bring us up to speed on where the situation is today, particularly in light of the new administration. So that’s our plan. We’ll turn to some of the specifics and then open it up for questions.
So let me turn it over to you, Charlene. Give us a high-level overview of kind of the previous world order, if you like, on trade, and maybe some of the issues that are emerging now.
BARSHEFSKY: Sure. My pleasure. And it’s a pleasure, let me just say, to be here.
So what has always animated trade policy, at least in modern times, has been the realization that Roosevelt had during the war, followed by Truman, that the pressure of the period between World War I and World War II, the Balkanization of trade among other things—European preference schemes, Smoot-Hawley tariffs, the pressures of slow growth globally further diminished by a drastic downturn in trade among nations, that these and other factors helped to precipitate a climate that led to World War II, certainly exacerbated the Great Depression. And coming out of war, Roosevelt and then Truman said, look, we need to, first of all, get the world back on a growth path; and, second, peace is fragile and we need an adjunct to peace to strengthen what was a very fragile peace. And between the period following the war—1945 to 1950, ’52, in that range—all of the institutions with which we are now familiar were created. So the GATT, which was the forerunner of the WTO; the IMF; the World Bank; NATO; Universal Declaration of Human Rights and so on, all of these institutions were created to, in effect, reintegrate a world that had been essentially wrecked and to promote increases in living standards by reintegrating the global economies that had existed prior to World War I.
And that animating principle, prosperity and peace helped by trade, is what has been followed by every U.S. president—to differing degree, different emphasis, but by and large to take a U.S. economy that was already open postwar—essentially open, except for high tariffs—bring those tariffs down, open global trade, bring other barriers down around the world. And there’s no question that aggregate GDP growth in the U.S. and around the world has benefited enormously from this kind of program.
What’s happened now is that this consensus is called into sharp question. And if you look at the Trump administration sort of notional agenda, concerns about the erosion of U.S. sovereignty and whether the United States should be part of multilateral trade pacts; concerns about the U.S. having been cheated, other countries not as open as ours; concerns about whether the U.S. has sufficient leverage and should impose leverage by way of unilateral tariffs again to get countries to do more than they are doing now; and a general view that trade is zero-sum—if you won, I lost, but we can’t both win at the same time. And the question will be whether this emerging view leads to actual substantial policy change and a rollback, or whether what you will actually see is a variation on the themes most president(s) follow, which is to further open foreign markets, to try and get greater reciprocity, and to ensure on the U.S. domestic side that our workers are better-positioned to adjust.
So the central part of that story was the U.S. role, and what it did for most of its history, and what it may not be doing. Could you speak to that, Representative?
FRANK: Two points. First—and I agree with much of the history, although I think the argument that—I mean, Smoot-Hawley can carry a lot of the blame. I wouldn’t give it too much blame for World War II. By the way, if you want to Google a wonderful Ogden Nash poem about Senator Smoot and his role in trying to ban pornography, that’s just—(laughter)—“Senator Smoot (Republican, Ut.)”
But—(laughter)—I do think that, in general, the view was, coming out of World War II, not simply that the world had to be held together, but that America was both uniquely positioned and morally obligated, and it was in our self-interest to take the lead role. And the biggest change now that’s coming—and it’s Donald Trump at its most virulent, but it’s more generally supported—is that America has been asked to do too much.
And in particular, look, I think part of the problem we have now—I know it’s—Piketty and others talk about the glorious 30 years, the “trente glorieuses,” after World War II. The problem was, when America came out of World War II, we had a dominance in the world that let us make everything and sell it anywhere, and people became used to that. And, in fact—and I think this is a large part of our political problem today—what was, in fact, quite exceptional, the extent to which America had this enormous economic advantage, was taken by people as the norm. And as that began to erode in the ’70s with OPEC and with Asia, people have been blaming the government for not maintaining what was, in fact, the product of our being the only country that emerged from World War II fiscally enhanced and economically better off.
What that leads to is two things. First, this notion that America is overspending for other people—that there’s not enough going on, and that’s a continuing thing—although I am struck, because I tend to agree with Donald Trump that we should be asking other countries to do more. I have to say the one thing that I think makes that certain that it won’t happen is his proposed defense budget increase because they’re not stupid. They’re sitting there saying, oh yeah, he said we should do more, but he’s doing it anyway so we don’t have to. And what’s he going to do about it?
But the other is in the—in the trade area. And let me just start with my point of agreement with Charlene, but my very strong disagreement with Charlene and others on this. This is—there is not a debate among sensible people, including some of the most anti-trade people in the Congress, Democrats I’ve worked with, myself if I look at my voting record; of course trade improves the aggregate GDP. But nobody eats the aggregate GDP. And what trade has done is, at the same time that it has increased the aggregate GDP, increasingly it has exacerbated inequality. And I know people say, well, trade isn’t the major reason for inequality; it has to do with a lot of other things in the economy. True. All the more reason why you don’t want something that pushes that forward. And I think there is now an economic consensus that I read—and Trump doesn’t talk about it because I think it’s too deep in the woods—but it was China’s accession to the WTO that appears to have had the most significant job-depressing impact, and what it’s done is, as I said, it’s increased overall wealth but it has exacerbated the problems in America.
There was a way to deal with that, and it would be—and of course, John Kennedy, when he did it and they began Trade Adjustment Assistance, tried to deal with that. But that was never going to be enough. And the problem has been—and I think—I talk now about my criticism of my—two Democratic presidents I supported, Clinton and Obama—they had the view that we should increase trade—both had active pro-trade agendas—and that we should also adopt a set of domestic policy measures that would diminish the impact—the inequality impact on Americans. Their mistake was to think you could do that in two separate steps. So they were able to get Republican support for the expansion of trade and get nothing for dealing with it. And my argument has been since the Clinton administration that, yes, there should be a trade-expansion agenda, but it should be in one big bill, or at least you do it—you do it in reverse order, that you first adopt things—and this should not—it’s not debatable that trade increases overall GDP, but it’s not debatable that it exacerbates inequality, that the people who are already doing well in the economy do better, they sell stuff, others lose their jobs. So that’s been my criticism.
Unfortunately, I think—and it’s my one criticism, again—there’s an unreality to it, I have to say, the notion that you can go forward with any more trade today. When President Obama—and I—obviously Trump won on that, put an end to it—but we would have seen a very interesting thing if Hillary Clinton had won and there was an effort by President Obama to have TPP approved in the lame-duck session. Those who did not think there was enough anger in America over international economic policy should have seen what would have happened then. And, frankly, the unreality of the president and other pro-trade people—because I know there are plenty who wanted to say, OK, when the election’s over, OK, they get—they can have their way now; let them—let them go through the motions.
FARRELL: So I’d like to turn to Ed, but just one quick question: Is the U.S. role in this order over?
FRANK: It is over until—and I’ll just finish what I was going to. There’s one quick sentence. The notion that you could have put TPP through after the election was crazy, and it would have been so destructive of any semblance of social order.
But beyond that, the answer is it is over until there is some kind of way to address the domestic issues. Now, here’s the problem. Had Hillary Clinton won, there would have been an alliance of people who are pro-trade and wanted to address this. The problem I think you have now is that Donald Trump is very articulate about the negative effects that he sees of trade, but will not be pushing things to alleviate it. So I think, yeah, you are in a deadlock because the natural allies—many of the natural allies of that trade role will be put off by their inability to do anything to alleviate the problem, and I think you’re going to see no progress and probably some retreat.
FARRELL: So, Edward, you—we’ve now heard that the old world order of assumed trade, assumed U.S. role is quickly challenged. You’ve been following the debates very recently and the current administration. Bring us up to speed. What do you see? If not that previous model, what do we have—what’s in store for us here?
ALDEN: Well, I mean, I don’t think we have a new model yet. I think this session is aptly titled, “The Uncertain Future of U.S. Trade Policy.” (Laughter.)
So I do think one thing we know for sure. I think the story of the last 70 years or so that Charlene was telling was about a steady but uneven movement towards greater trade liberalization. I think for the moment that is over. I think the question with this administration is how rapidly and in what ways do we move back.
I mean, Donald Trump is clearly quite openly an economic nationalist; I would—I would really say a protectionist. I think if you look at what he said about, you know, we were going to have to use American steel for all the new pipelines, I mean, I think he quite clearly believes in the use of trade import restrictions to try to develop the American economy. We have not had a president who believed that since Herbert Hoover, so we’re in a very different era.
The question is, what form is that going to take? Well, we know he did on day one pull out of the Trans-Pacific Partnership. And while I accept the political concerns about TPP that Congressman Frank mentions, I think if you’re looking at the real challenge to the global trading system, which is coming from China, I think the loss of the TPP was unfortunate. I think TPP was potentially an important set of incentives to try to change Chinese trading behaviors that are very concerning to the United States. But that’s water under the bridge; that’s gone. And the question is, what goes forward?
Well, I think we are going to see some kind of a renegotiation of NAFTA. It probably needs updating, but the Trump administration could ask for things that I think neither Mexico nor Canada could do, so we’ll have to see how that plays out. We know that the trade enforcement piece is going to be a big part. If we look at this paper that the U.S. Trade Representative’s Office put out last week, very much focused on cracking down on trade cheating of all sorts, stepped up use of anti-dumping and countervailing duty cases. So I think we’re going to see enforcement very much the focus.
And then, finally, the administration has said it does not favor these big multilateral quagmire deals. The theory is that somehow the United States loses in these big agreements—whether it be the WTO involving most of the world or the TPP involving a dozen countries with 40 percent of the economy, that we lose because our negotiating leverage as the world’s largest market gets diluted in these multi-stakeholder kinds of negotiations. Therefore, he’s saying, going forward we just want to do bilateral agreements. Well, that’s certainly the least-efficient way to liberalize trade. There also aren’t a whole lot of kind of logical partners on the horizon. He’s talking about the U.K. after Brexit. That’s two years plus down the road. Maybe Japan, though the Japanese I think are going to be very reluctant to do a one-on-one negotiation with the United States.
So I really would look less about how we move forward than the question of in what ways we move backward and with what consequences.
FARRELL: So let’s start with something that you’ve all alluded to. At the World Economic Forum in Davos in January, I think it was quite a shock to many of us to see that the flag holder on trade was the president of China. So let’s turn to China for a minute and talk about attacks about whether it is or is not a currency manipulator, whether there would ever be a bilateral agreement. Is China going to be the next international trade leader, and what does that forebode for another order? I’m going to start with you, Charlene, because you spent a lot of time worrying about China in the past and today.
BARSHEFSKY: Yeah, I do.
So, first of all, the notion that Xi Jinping is the great free-trade reformer is laughable. If you look at the Chinese economy today, there is no basis on which to argue that the economy has continued its opening and reform process. That process has been moribund, certainly for the last five years and probably for the last eight or nine, effectively. And instead of further opening and reform, the economy has moved in China in a rather different direction, and that is the re-imposition of state ownership, state control, creation of champion companies, the upping of subsidy levels to create new sectors of the economy, and substantial discrimination against U.S. and foreign companies.
And the administration is going to have to deal with this, but I think in a rational way. And I think there are strong ways of dealing with it.
One does have to do with enforcement. I think it’s very telling that in 2016, 27 countries brought 119 trade actions against China. Gives you an indication of the level of global frustration with China’s internal market. I think, second—so you will see, I think, enhanced enforcement on the U.S. side, which I think is appropriate, including potentially the use of executive orders; and notions of reciprocity, especially on investment, where the playing field is entirely uneven and where WTO rules are silent, so there’s no undergirding in that area at all.
But I think also the U.S. has to go back to the table with China and negotiate agreements that have systemic reach in China to alter the dynamic in the Chinese economy as the WTO did many, many years ago in its early phases. And that has to do with the issue of cyber and digital trade, which is absolutely critical; has to do with investment, as I said; has to do with a variety of other areas where pushing that reform and opening agenda becomes very, very important.
And last, the U.S. has to rethink the way it engages China to begin with. We have these very fancy dialogues. There’s now like 90 of them. And I characterize these dialogues with China as the way China manages the U.S., not the way the U.S. actually produces a result on the ground for companies and for exporters to China. And so those dialogues have to be radically stripped down, radically rethought, and entirely results-oriented, or there’s simply no point.
FARRELL: So, Congressman, I want to turn to you because the politics on China are very complicated. You have, on the one hand, the importance to U.S. companies of accessing the China market and also producing in the China market, and you have the sort of large surplus that has been given to U.S. consumers as a result of very low prices coming from China. Many of those are poorly understood and politicized in all kinds of ways. So what must happen with China? What cannot happen with China? How do you see China in this uncertain waters going forward?
FRANK: Well, first, I do want to say one thing. Charlene mentioned investment, and I should have said this because good news tends to get sort of overlooked.
In the increasingly anti-trade atmosphere, that has not extended to foreign investment, and I will take some credit. The Democratic Congress in both Houses have basically been pretty open to foreign investment. And, in fact, historic—when the Dubai Ports thing blew up and there was a lot of fear on the part of potential foreign investors, that’s when we created the CFIUS, the Committee on Foreign Investment in the U.S., the purpose being to have a place where people could go and be told it’s OK. And I think that’s worked pretty well; that, in fact, there has been much less. But I think that also makes my point that it’s fear of job loss that is what’s involved, and clearly people investing here, that’s job-enhancing, it’s not—it’s not job loss.
The other issue is now, with regard to China, though, there is a—again, a one-sided focus on some of the benefits. Everything I read says—including The Economist, which is certainly a very pro-trade organization from its inception—now acknowledges that the accession of China to the WTO had a measurable negative effect on employment in the United States, and particularly on exacerbating the shift in who gets what. And nobody wants to address that on the pro-trade side.
But, yeah, this was supposed to be—and I also say there’s a lot of skepticism, which I share—that China’s interest in the economics is going to lead them to do the kind of things that open up, because I think there is much more focus, certainly with Xi and a lot of the others, on keeping China closed from the political standpoint. And there was this notion years ago it was going to be the internet, that capitalism was going to be the thing that brought democracy and openness to China, and it hasn’t happened, and I’m very skeptical, and I don’t think anybody wants to make any trade for it.
So I think you’re going to—and now the final thing is there’s going to be—there’s increasing geopolitical concern about China. So I think the chances of any kind of relaxation or opening with China are kind of small, and it’s partly because the view is that China has not reciprocated, that they have on the whole pocketed the gains, and what it’s meant is some job loss and inequality in America with very little gain for the average American.
BARSHEFSKY: Could I just—
BARSHEFSKY: So China’s our second-largest export market in the world, point one.
Point two, China is the second-largest importer in the world, one in every $12. We’re one in every $8, but of course we’re far wealthier and, as you know, Americans will buy anything they’ve already bought. (Laughter.) Multiple times. And so let’s recall, as well, the U.S. has a very substantial trade surplus in services with respect to China.
So there is a large relationship there. The question is how to make that relationship work better than it does, how to—how to encourage China back on a reform and opening path which has stopped, how to rectify what is a substantial imbalance on the investment side for sure with respect to they can buy it here but we can’t buy it there—there’s no reason for that—but as well as on goods-and-services trade in general. But the notion of, as the administration sometimes talks, blowing up the relationship, I think—in my mind makes no sense. We’re talking about a fifth of the world’s population, the center of Asia; a strategic competitor, to be sure. It’s one of the reasons the TPP denouement was unfortunate, because you can’t have a strong China policy without a strong Asia policy, and that I think eluded the administration.
FRANK: Can I?
BARSHEFSKY: But my only point is not that there aren’t substantial problems, including the issue of job loss, but that we do have to bear in mind there are many positive aspects to the relationship one would not also want to lose.
FRANK: Charlene, that’s a strawman. Nobody’s talking about blowing it up. They’re there and they’re not going away. It’s interesting that they are such a large importer because they’re also a very, very large country with a very large economy. It would be shocking if that wasn’t the case. But let me just ask you, do you agree with this analysis that the accession to the WTO had a negative effect on jobs in America?
BARSHEFSKY: May I? Because I don’t want to—
FARRELL: Please, do, and then I’m going to take it back.
BARSHEFSKY: OK. I have a very—
FARRELL: But very quickly. We couldn’t let that question dangle.
BARSHEFSKY: I have a—I have a quick answer.
So when we did China’s accession, because we were concerned about potential surges of imports, we inserted a China-only provision which lasted 12 years, that only recently expired, to allow the president to unilaterally stop imports in any given sector or sectors coming in if those imports were disruptive to the U.S. That provision was in force for 12 years. It was used seven times—seven in 12 years. Two of the cases were dismissed for being frivolous. Four matters George W. Bush refused to provide the relief. And one Barack Obama—
FRANK: Charlene, is there answer—is there answer to my question in there?
BARSHEFSKY: Yes. Hang on.
FARRELL: We’re not going to—we’re not going to leave it there. I’m going to ask you, Charlene—
BARSHEFSKY: And Barack Obama did provide relief. My point is this: there was concern there would be job loss. There was a specific mechanism to deal with it.
FRANK: Did it work?
BARSHEFSKY: It wasn’t used.
FRANK: So there was job loss.
FARRELL: So hold on. Let’s—
FRANK: There was job loss. You agree.
FARRELL: Congressman, I’m going to ask—I’m going to bring this back.
FRANK: Well, that’s what I was asking. Do you agree with those studies?
FARRELL: I think what you’ve demonstrated beautifully is just how complicated this issue with China is. So I’m going to turn to Edward—
FRANK: Don’t tell Donald Trump. He’s working about health care. Don’t—(laughter)—
FRANK: Don’t make his life more miserable. (Laughter.)
FARRELL: But as you mentioned, Edward, in response to sort of Charlene’s discussion of how frustrated many people are with China, TPP was a counterbalance to China. We no longer have that. What are possible venues, even if we don’t know what those are, to counterbalance China? Is a bilateral trade deal with China remotely possible? Take us there.
ALDEN: Can I—I’m going to do that, but I’m going to take—(laughter)—my prerogative as having been an observer of the events that our two speakers were in the middle of with respect to China, and I would really argue from having watched this from outside as a reporter that there were kind of three things that should have happened that didn’t happen in the process of bringing China in.
One, we way oversold the case. And I’m critical of you and your colleagues here, and that wasn’t just China WTO. It was NAFTA as well. And you can go back from my book. I went through the record. You can find a statement from the then-president of the U.S.-China Business Council saying, well, because China’s trade barriers are high and ours are low, this is going to help eliminate the $30 billion trade deficit we’ve got with China. Well, trade deficit today is 365 billion (dollars). Really, really underestimated the investment magnet that China would become once it had guaranteed access to the U.S. market. So I think there were mistakes made in overselling.
Secondly, I absolutely agree with Charlene that the mechanisms that she and others put in place to deal with import surges were not used. And there were other laws that were not used. We can debate over whether China’s manipulating its currency now. I think it is, actually, to keep the currency stronger. In the middle of the 2000s, it was to deliberately weaken it to gain export advantage. You and your colleagues in the Congress, in the ’88 Trade Act, said that when countries are manipulating their currency they’re supposed to be identified by the administration, there’s supposed to be intensive negotiations, and sanctions if necessary if it can’t be resolved. Bush administration never triggered those. So I think politically that was a disaster as well.
And then I think, finally—you know, we can talk about this more—there were just never the adjustment mechanisms put in place to help the workforce in the United States respond to that.
FRANK: Why not?
ALDEN: I think it’s your point exactly. I think if you look at the Venn diagram, the point that you made earlier, I think the Venn diagrams were the Democrats were pro-trade and pro-social safety net adjustment programs, the Republicans were pro-trade and anti-adjustment and safety net programs, and that was the little Venn diagram where they crossed, was going forward on trade.
FRANK: Could I just say one thing? I agree—and I’m glad to hear, you know, you acknowledging that it did hurt us. But I think it’s a little interesting for pro-trade people to say, well, we put these mechanisms in and they weren’t used, because my recollection is it was many of the people who were for TPP who were reluctant to use the mechanisms, who were reluctant. And that is, why did Obama and Clinton—well, not Clinton because—
BARSHEFSKY: It was—
FRANK: Why did Obama and Bush refuse to use them? Was there any pressure from the pro-trade people not to use them? Was there any criticism that you were being too protectionist by doing the anti-surge stuff? My recollection is that there was.
FARRELL: All right.
BARSHEFSKY: Well, no. Obama did use it.
FARRELL: (Inaudible)—prerogative to start the history lesson and stop the history lesson—
ALDEN: Yeah, so you want to move forward.
FARRELL: —and to come back to the question. And help us now. This is all-important, and there are plenty of blame to go around. I think you’ve all made some good points. But we now find ourselves in a completely different space, not around, you know, the mechanisms of TPP. What are the possible venues forward, knowing that we don’t know? But what are some possibilities for China and the U.S.?
ALDEN: Well, so here’s my concern. I think if you look at the situation with China now, with the whole litany of problems that Ambassador Barshefsky has talked about, we need those to change in order for China to continue to be a productive member of the global economy. And there are kind of two ways you get countries to change—and you know this—carrots and sticks. TPP was a carrot, by and large. It was—it was creating an investment bloc that was going to be very attractive to companies. I think over time it was going to—you were going to see more of these global supply chains move inside the TPP region. It was going to put a lot of pressure on China to either join the TPP—TPP was supposed to be an open agreement—or to conform its trading practices more. That’s out the window now.
So what is the other alternative? I think the other alternative is a much more stick approach. And I think if you look at the early things this administration has been saying, they see the U.S.-Japan trade relationship from the 1980s and early 1990s as the model: we’re going to threaten to whack China unless it agrees to do things on the trade front that we want to do. And that was in various ways actually fairly successful against Japan. We got some real concessions out of them by threatening to whack them.
FARRELL: Will it be as successful with China?
ALDEN: I think it’s going to be a lot harder with China. I think—
ALDEN: Because China’s a bigger, stronger country that has shown much less willingness than the Japanese to knuckle under to U.S. trade pressure. The Japanese had alliance reasons to want to stay in a strong relationship with the United States. I think the potential with China is far more confrontational.
I’m not opposed to a stronger enforcement approach. I think it’s needed. But you’ve got to have something on the enticement side, and I don’t see what that’s going to be with this new administration.
FRANK: Let me say two things. First—and I appreciate what you say, but you acknowledge that people oversold the WTO. Many of the people who oversold that are the ones who are the major advocates for TPP, and they are not totally disassociated in people’s minds. There is a sense that—
FARRELL: Congressman, we agree that TPP’s dead. (Laughter.) So now I’m asking you, what happens now with China? So—
FRANK: But, no, this is relevant. I know people—the fact is this: the overselling of this is still part of the problem and it’s still part of the—part of the atmosphere.
The other thing I would say is this—and this is—I think there is much less likely to happen with China, more pessimism. And I—you leave out a—one difference between China and Japan, and that is the political one. There is a Chinese political domestic incentive not to open up. That was not the case in Japan. You were talking about democracy to democracy. The fact is that some of the resistance in China is based on the fear of what happens to the stability of the regime if some of this happens.
But I would say, yeah, I don’t know where you go. Obviously, the president at least seemed to have thought that he could trade Taiwan for that. (Laughter.) That was pretty silly. But so I don’t—
FARRELL: OK. We could talk about China for the rest of this panel, but I’m sorry to say I have many other things I want to come to.
Another one of our critical partners, Mexico. Mexico has been a strong friend and ally for a long time. It’s gotten quite a beating in the last year or so. And the question is to what happens with NAFTA. Is the wall part of the NAFTA discussion or not? Is the funding of the wall part of the wall and the discussions? I’m going to start with you, Ed, since you’re very current on this now. And just tell us a little bit about, is this all rhetoric or is something going to happen here? What do you think are the likely possibilities?
ALDEN: Well, I mean, I don’t think it’s all rhetoric in the sense that President Trump has been so vocally committed to the renegotiation of NAFTA. I think they’ve got to do something.
Wilbur Ross, who’s just been confirmed as the commerce secretary, has said he’s going to trigger notification to Congress. There’s sort of a 90-day notification period required before starting renegotiation. I think that’s going to happen.
But we’re moving towards this and we don’t actually yet know what the Trump administration’s going to ask for. And I must admit I have had a hard time. I’ve had a lot reporters call saying, you know, what do you think the administration’s going to ask for? And my answer is I don’t honestly know, because what do they say they want? They want more manufacturing investment, more factory jobs in the United States. I don’t understand how you renegotiate NAFTA to produce that outcome. NAFTA is a continental agreement that privileges investment in the North American continent. It’s very hard to tweak the agreement in ways to favor investment in the United States over investment in Mexico. I do expect a tightening of the rules of origin, which are these rules that are used to say, if you want the zero-tariff preference under NAFTA, you have to make a certain percentage of the content of the item within North America. Automobiles is the best-understood; the rough threshold 62 ½ percent. So I could see that going up. But that doesn’t say that you build an auto plant in the United States rather than in Mexico.
So I am still somewhat at a loss of understanding how they’re going to try to use the NAFTA negotiation to achieve that end. That’s where you get back to the talk of tariffs of some sort to try to actually make it more expensive to sell stuff from Mexico into the U.S.
FARRELL: And so you’re talking a little bit about the content of what might be negotiated. If I may turn to Charlene a little bit, talk about the process by which a NAFTA gets renegotiated. I mean, at some point—sometimes when we hear the administration talk, they talk as though it’s a unilateral discussion as opposed to a two-way discussion. You shared a fully anecdote with us at lunch about kind of what might be asked for on the other side. What is the actual mechanism by which this could take place, from your experience?
BARSHEFSKY: None of this is clear to me. I agree with what Ted said completely.
The biggest loser to radical change in NAFTA would be the auto industry. And if we’re talking about preserving and supporting American manufacturing jobs, as the bailout of GM and Chrysler showed, we’re talking about the U.S. auto industry. And the U.S. auto industry, along with Canada and Mexico, have formed a North American, essentially, integrated supply chain. It’s not clear to me how it is of assistance to U.S. manufacturing to try and unwind that chain, and what the result of an unwinding would be, and why we would presume the unwinding would favor the United States in any event.
With respect to the process of NAFTA, you know, negotiations are two-way. It’s been said by many that what Mexico would like to see—as remarkable as what I’m about to say is—is the freer movement of personnel across the border. (Laughter.) Well, we know what the reaction to that will be. So the question will be, is the U.S. going to look at this bilaterally—U.S.-Canada, U.S.-Mexico? Does it not acknowledge there is a continental agreement here, and that the three countries essentially intertwine? At some point does it arrive at that conclusion and do something three way? This shows the limits of the notion of bilateral agreements when trade flows and capital flows are so tightly interwound in any event. So how this comes into being is not entirely clear to me. It is clear something has to be done here, whether it’s some range of tweaks or whether it is a very radical walking away. But it’s clear something has to be done.
FARRELL: I’d be remiss if I didn’t ask you, Congressman, how the wall fits into this. Is this a completely different story? In the context of more Mexicans actually leaving the U.S. to go to Mexico than the other way around it’s an interesting—
FRANK: No, I think, in fact, it puts—that immigration is more important to Trump politically than NAFTA. And that first of all I would say, with regard to NAFTA, I don’t see much happening. I don’t think he needs to have much happen. And in some ways, he may not want to have much happen. Clearly, some people have—I mean, there was exaggeration on both sides about NAFTA—exaggeration about how much good it was going to do, exaggeration about how much harm it has done. And I think Trump’s problem is, if we were able to get the changes he wants in NAFTA and three years later nothing has gotten better as a result of it that’s in any way noticeable or measurable, that’s a problem. I think he’s perfectly happy to keep denouncing NAFTA and beating it up, and beating up the people who were for it.
And the other thing is—and, again, as with China—we tend sometimes to think only about American politics. Just as I think Chinese domestic politics have a problem with opening there, Mexican politics have gotten pretty toxic. So the likelihood that any Mexican government could in fact do anything has gotten less and less. And you’ve got an election coming up. And if Obrador is the president—I don’t know, when’s the Mexican election? But you have Obrador getting close to being elected. So then you have Trump negotiating with Trump—(laughter)—one Trump speaking English, one Trump speaking Spanish. And I don’t—once you have mutual denunciation, to the political benefit of each, and nothing happening.
As far as the wall is concerned, it is unclear to me what happens. I think the problem with the wall is Texas. What you have are Texas Republicans who are now saying: You can’t build this wall in my district. So this is—
FARRELL: It’s my property.
FRANK: Oh, yeah, you have a big eminent domain problem for the Republicans. This has—you know, this has been a major right-wing concern. But also, you have the Texas border, the Texas economy. I mean, people remember, George W. Bush was the most pro-immigration president towards Mexico in a long time, because he knew what it meant. So I think—I don’t know what they’re going to do about the wall. He’s going to be pressing for it. The notion of appropriating money for it—the day they start appropriating money for the wall, that repudiates the notion that the Mexicans were going to pay for it. But I do think that the major activity you’re going to see is anti-immigration stuff, and that that’s going to be what he does, and that real action—you’re just going to have harder rhetoric on both—on NAFTA.
ALDEN: And I’d just add one footnote here. You know, the main result so far of Trump’s pressure on Mexico has been to drive down the value of the peso relative to the U.S. dollar, which is going to increase the trade deficit with Mexico, and to make Mexico a relatively more attractive place to invest to export into the United States. These guys seem to have trouble thinking about complicated cause and effect. (Laughter.)
FRANK: Well, but no. Don’t always assume that he’s—there’s a political thing here. And he can blame people. In fact, if that happens, he’ll still blame them more.
The other issue, though, is whether the Mexicans follow through on saying to the Central Americans, here’s your way through. They have a serious potential there to cause a problem. And also, serious issues about enforcement of drugs. I don’t mind that, because I think the whole drug war has been nonsense and we’d be better off it all went away. But the likelihood that the Mexicans complicate the border by not being our border patrol for the Central Americans becomes an issue as well.
FARRELL: I am watching the time, and I have at least three other things I’d like to ask you about, but it’s been my turn first. It’s now your turn. So I’d like to turn to the audience. Please wait for the microphone. It will come to you. And introduce yourselves. And I’ll try to moderate questions for the next half-hour or so. And then I’d just like to just leave a minute for everyone to give some final thoughts to wrap it up at the end.
So first question. I have plenty, so if no one has questions, I’ll—(laughs). Please, there’s a mic right here.
Q: Stephen Blank.
McKinsey, among others, have been writing about the impact of advanced manufacturing, other great technological changes, on trade, suggesting that we may see a dramatic decline in international trade, changing nature of supply chains, as the new world of manufacturing 4.0 comes into existence. True? And the effect on the United States?
FARRELL: Who wants to take that?
ALDEN: I mean, you know, I’m—maybe you should take it, because with the McKinsey background. But, yeah. I mean, I think if you look at the development of 3-D printing and some of the other advanced manufacturing technologies, I think the issue of locating in order to advantage of low labor costs is getting less and less and less important. So I actually think that trade may be a less-pressing issue going forward than it has been in the past. That doesn’t mean, however, that some of the underlying issues have changed. I mean, if we look at the trade piece of the Trump revolution, it took place in the Rust Belt states, manufacturing dependent, that were the hardest hit by trade competition, particularly with China, and where a lot of people landed on their backs. And we know that from the research that the congressman is citing.
Well, you know, what’s coming next? Driverless technologies. There are 2 ½ million truck drivers in this country who within the next decade, 15 years, are going to be out of work. There are going to be other job-displacing technologies coming on board. And so I think the challenge of dealing with the inequality and disruptive-producing mechanisms of change, be it driven by trade or technology, I think those are going to remain at least as big going forward.
FRANK: Two points. And if—firstly, and I’m not suggesting that you said this, but to some extent there has been this feeling that trade is a good thing in itself because it promotes harmony and good fellowship over and above its economic situation. I think that’s been greatly oversold. I think the geopolitical impact of trade has been oversold, and that was part of the problem, I think, with the overselling of TPP. But I—my point is that if trade diminishes as a natural result of economic factors, so? I mean, that’s what it should do. Trade is a means, not an end. And if we have less trade because it doesn’t make as much economic sense, fine, we’ll do something else.
BARSHEFSKY: Yeah, could I just add, I disagree on the geopolitical issues, especially in Asia where trade is considered geostrategic for the countries that are there, not merely because of economics. But put that aside—
FRANK: There are no examples of that.
BARSHEFSKY: Put that aside.
FARRELL: Thank you so much, because I want to get to more questions.
BARSHEFSKY: What I would say is, we already see trade diminishing around the world, in part because investment flows globally are off by about 20 percent and investment drives trade, but also for other reasons, including these high trade numbers because of the advent of supply chains. As those were being pulled back and as that has been absorbed, we see some diminution, and for many other reasons. But if you look just at robotics, U.S. robotic deployment is about 60 percent that of Japan’s. So you have not only the issue of 3-D printing, which will affect trade flows—not to mention manufacturing jobs, if I can go in my basement and just print my shoes. But also, as we catch up, for example, with Japan on robotics—whose robotic deployment is now accelerating—we’re going to see some fairly significant changes with respect to manufacturing in the United States.
Some argue we will simply create new jobs to take into account robotics and other changes in technologies, and so we shouldn’t be too despairing. But I think there will be a disruptive cliff until those new jobs come into being and those new sectors come into being. And the United States needs to think ahead not three years but 10—five and 10, and figure out what we’re going to do with the people who are out of work because of technological change. And we don’t have programs in place that do it. And we need them.
FARRELL: Great. I’m going to move on, as interesting as this is. We have another question here.
Q: I’m Allen Hyman, Columbia Presbyterian.
This is a question for you, Madam Ambassador. In 1999, in November, Americans woke up to find out that there was something wrong with our trade policy. WTO was having its special meeting. And for many Americans, for the first time they heard the word “anti-globalization.” And 50,000 Americans who were protested—protesting became rioters. Hundreds and hundreds were arrested. My question is twofold. One, were you surprised? And, two, what lessons did you learn from that?
BARSHEFSKY: Point one, I was not surprised, because there had been for over a year beforehand substantial warnings that that would occur. The surprise, I think, was that it turned violent in the way it did, which was by a small faction of folks, not even clearly related to those who were concerned about trade, as sometimes happens in these situations. Lessons learned I think in general goes back to something that Barney said, which is the United States has never had in place adjustment programs that took into account the people who lose jobs, whether because of trade or technology, reskill them, train them, and so on. And the United States has never looked to other countries that have successful programs in this regard—Germany, Singapore, a number of other countries, the Danes—that have some common components to programs of that nature.
For example, wage insurance. In the United States, Americans live so much on the margin you lose your job, you lose your house. Wage insurance, health care, and training for jobs that currently exist on public-private partnerships, whether through apprenticeship programs or other means, so that you’re not saying to people, go back to school and read “Moby Dick”—much as I love “Moby Dick”—but in fact, go to this location, you will be trained for that specific job. The United States doesn’t look to the countries that had these successful programs. And, as was said, this is absolutely critical if a forward trade agenda is to be—is to be reinvigorated.
And my only thought there with respect to Republicans, who have long opposed trade adjustment assistance or adjustment assistance generally is this: If the Republican Party is still a party that at least on balance promotes trade, in part because of its strong corporate connections, then it must be the party that begins to move, with Democrats, on a meaningful adjustment agenda.
FRANK: Well, must, schmust. (Laughter.) I mean, they ain’t gonna, and that’s the problem. Until—but you make a good point—some of the people who want trade make them do that. And that means people in the corporate world who would like to see trade should tell the Republicans that they should change. So far, they haven’t done that and the Republicans have been able to do both.
The other thing I would say, though, is this on—in this regard. It’s interesting, because one of the dangers I think—I mean, what I said before. Trump may not want to make real changes. To the extent that he was able to get real changes in trade, and they don’t substantially increase employment and don’t resolve the problems, then what are they going to blame? I mean, blaming trade—over-blaming trade, as clearly has been happening, is a way not to have to do all these other things. So if you hold out that trade restriction protection is the magic wand, unfortunately that reinforces the notion that you have to do these other things.
FARRELL: We had a question in the back. Yes?
Q: Hi. Shu Yan (ph) from the Xinhua News Agency, Chinese correspondent based in New York.
Two questions. One, what are the prospects for the growth of the world economy, against the backdrop of the rising protectionism and the populism in Western Europe and U.S.? Two, what about momentum for the globalization? Will it die down and end of the day because of, you know, the stronger sentiments—anti-globalization sentiments in U.S. and Europe? Thank you.
FARRELL: Do you want to start that, Ted?
ALDEN: I mean, you know, the markets are clearly thinking that prospects are pretty good. So I—you know, I mean, we’ll have to—we’ll have to see how it plays out. I do think the smart money would bet that there is going to be some shrinking of globalization. We had Jeff Immelt of General Electric at CFR a few months back. And even before Donald Trump’s election, he was saying that his company, more than it already has, is looking more to local production, to localization, to trying to be able to make things closer to final markets, both because the technology is moving in that direction and also as a hedge against potential protectionism. So I think that that’s probably a pretty smart bet.
I mean, as Ambassador Barshefsky was saying, we have seen this slowdown in global trade growth, now going back almost a decade, basically, to the—to the start of the financial crisis. I don’t see anything on the horizon that’s likely to turn that around dramatically. None of that has to be catastrophic. I think it could become catastrophic—I will try that again. It could become catastrophic if we get 1930’s-style trade wars. And I don’t think that’s impossible. I’m not predicting that, but I think we’re in an environment where that is more possible than it has ever been in our lifetimes. So that’s what keeps me up at night.
FRANK: I’m reminded of Alan Greenspan’s measure—I forget when he instituted it—of weighing—estimated the weight of goods that are traded—(laughter)—literally, and how much lighter the total has been of traded goods over a long period.
FARRELL: (Laughs.) We had a question right over here. Yes, please. Two questions.
Q: David Nachman from the AG’s office of New York.
This is a question for the congressman. You spoke about the Republican Party position. For an aspiring Democratic Party candidate, at either the congressional or the national level, is trade a dead letter? Is the taint of the years of being pro-trade and not sufficiently attentive to adjustment now made it untenable for a viable Democratic candidate to be pro-trade in any meaningful sense?
FRANK: We’re close to that. And I regret that, because I said I think trade has been over-blamed. But I think it is possible to say, if we first put in place all these programs, then trade can be a good thing. And you can talk about specific areas where trade is helpful. And there is obviously a pro-consumer aspect to it. But I think you first have to—you know, and I go back again, and Charlene made the point I want to emphasize. And I blame maybe some of the people in this room. Those who have been calling for a trade agenda, but then want to bust unions and oppose the minimum wage and not expand health care, that’s not going to—you’re entitled to say what you say, but you can’t have both. And I do think that for—a Democrat how has to emphasize the extent to which trade has been a—which we need adjustments.
The other thing is though, and I do take some credit for this and feel good, we have been able to beat off a kind of a populist negative anti-foreign investment. And we’ve been able to kind of prove that that’s worth doing. Even with China. I mean, it’s been a more mixed bag. And I would probably talk about that and say, hey, people can—we benefitted from this. But the first thing to do is to show that—well, to talk the walk. You have to say that you would not support any trade agreement until we did these other things. And at that point, then you could support some trade.
FARRELL: Ted, why don’t you come in quickly? And there was a question right next to the gentleman who just spoke after Ted speaks.
ALDEN: I was just going to add quickly. One thing I think is very interesting politically, and one of the things I argue for in my book, is for a much bigger role for state and local governments—you talk about foreign investment, Congressman. If you look at state and local governments around the country, Republican or Democrat, what are they spending most of their time doing? They’re fighting for foreign investment and they’re fighting to expand exports. So there is a kind of very, I think, grassroots pro-trade lobby in this country from the folks who are doing economic development on the ground. I think we need to tap into that.
FRANK: Yeah, Ted, but with one exception—well, not exception, but one caveat. There has to be in place national policies that protect the quality of life, because otherwise that becomes a race to the bottom. That becomes an argument for cutting back on things because a quick—the UAW and Volkswagen had a deal in Tennessee, in Chattanooga. And Volkswagen said, you know, we work with unions all the time in Germany. We’re for the union. And the Tennessee Republicans, led by Bob Corker, former mayor of Chattanooga said if you—if the union—if the employees vote for a union, we will not give you the money we promised for your expansion. And people asked the Tennessee Republicans: Why do you care if Volkswagen says OK? And the answer was, because if they get a union, they will push up wages. And if wages go up at the Volkswagen plant because of the union, they will go up all over Tennessee and we will not be able to attract workers. So I agree with that, but it has to be within that protected framework.
FARRELL: Could we turn to our—
BARSHEFSKY: Could I make a point that—
ALDEN: Could—(laughs)—it’s a good topic.
BARSHEFSKY: Just a little comment. I would never take on the congressman with respect to political advice. But the one thing that I would say is that exports are critical to U.S. economic growth. And they support 11.6 million jobs in the U.S. And there are 350,000 small businesses in every state of the union that export abroad. You can’t have half a trade, right? So we also have to find a way to talk about the importance of trade with respect to our export performance, and the fact that there are positive aspects, obviously, to imports, including consumer choice and so on. I agree, the neglect of the adjustment programs—which has been absolutely intentional—has to stop. And you will prejudice any agenda going forward without addressing those issues. But let’s also not forget exports and what that suggests when we talk about two-way trade.
FRANK: That played out in the Ex-Im Bank issue.
FARRELL: I am going to use my prerogative now to turn to another audience question. Thank you.
Q: Jim Silkenat.
There are now a number of proposals to change both how and when imports and exports are taxed. Could you talk a bit about what the implications of those changes might be?
FARRELL: I’m glad you asked that, because that was on my list, the border tax. First of all, what—I had asked Charlene at lunch—is a border tax even compliant under GATT? And what might be the versions of it that would make their way through?
BARSHEFSKY: Well, so, you know, all we have is an outline. It’s a little bit unclear what we’re dealing with. (Laughs.) But there is a historic difference in international trade. It’s gone back to post-war. Differences between indirect taxes and direct taxes. We have a direct tax system, income tax, versus indirect, which is on goods. And there are certain things you can do with respect to indirect taxes that are internationally compliant, and certain things that you cannot do with respect to direct taxes.
To the extent the U.S. border tax adjustment looks more and more like a VAT, like a value-added tax, it would be WTO-compliant. To the extent, instead, it is designed to discriminate against imports coming into the U.S. as against domestically made good here, it would not be WTO-compliant, unless it were couched or demonstrated in such a way that this discrimination is only superficial and would actually be overcome. So I think it’s a very complicated situation. Even the current head of the WTO said, given this rough outline, he himself was not entirely sure if it would be compliant or not compliant. The only urging would be that there not be affirmative discrimination against imports coming into the U.S.
FRANK: Politically, you run into this basic problem, and that is its purpose is partly to imports. It’s partly to finance tax cuts elsewhere, for many of us in this room. And here’s the problem, basic political—I’m sure Dave Dinkins can do it in detail—(laughter)—the people who are going to get the benefit are very vague on that and unconvinced. And the people who see themselves getting hurt are very vocal. So you already have this mobilization of the retailers and of others.
And I think given the fact that in the current political atmosphere they’re likely to get virtually no Democratic votes or anything, the likelihood that you will get enough Republican votes, given the controversy over the border tax, I think it’s very small. It is driven, to Charlene’s—it is driven to some extent by VAT-envy. But I think the objection of the retailers is going to be just overpowering. And then we’ll get a—my prediction is, instead you’re going to see one of the great conversions in modern intellectual history, in which large numbers of Republicans discover that deficits are really not so bad. (Laughter.)
FARRELL: Do we have another question from the audience? Yes, back there, please.
Q: Hi. My name is Tim. I’m working for Wirtschaftswoche. That’s the leading German business weekly.
I was wondering if you can share a few thoughts about the Trump administration in general. And we’ve had talked about—a lot about Donald Trump. Do you see any progressive voices in the administration or on Capitol Hill, anyone who could stood up to Donald Trump and say, well, maybe that’s not such a smart idea? Can you share a few thoughts about Peter Navarro or about Robert Lighthizer and, yeah, the whole Trump team?
FARRELL: Ted, I’m going to direct this one to you. And particularly if you could comment as part of that on this emerging new structure of trade, which is so different than previous administrations have had?
ALDEN: Yeah. I mean, this, again, underscores the uncertainty. I think there are—there are some—and you worked inside this, so you may have some observations you want to add too. But Trump has created this new entity called the National Trade Council, which is supposed to somehow coordinate trade policy out of the White House, headed by Peter Navarro, a California academic. It’s odd, because the U.S. Trade Representative’s Office, which has historically been at the center of U.S. trade policy, is also in effect an office of the president. So it was an odd additional creation. You have at the same time the National Economic Council, which was created by President Clinton, supposedly to do that kind of coordinating.
And then on top of that, you’ve got a new commerce secretary, whom the administration has been saying is going to play the leading role in the renegotiation of NAFTA. Again, historically trade negotiation was something the USTR did. So what that means is you’ve got a bunch of warring power centers in this administration. Where it seems to be roughly dividing up is those in the White House who are committed to a kind of tougher economic nationalist agenda—among them, Peter Navarro, who’s gone after Germany quite aggressively, and Steve Bannon the advisor to the president. I think Wilbur Ross and Bob Lighthizer, assuming that he gets confirmed at USTR—
FARRELL: And Gary Cohn, presumably.
ALDEN: And Gary Cohn, the head of the National Economic Council, will be somewhat moderating influences. But certainly the administration on the whole is just far more skeptical about the value of trade liberalization than any administration we have seen in our lifetime. So I think there are divisions on tactics. I think there are divisions on goals. But I think on the whole—again, there are no great champions of trade liberalization on the Trump team I see.
FRANK: There is one potential moderating vote, I agree with that, and that’s Rex Tillerson. But nobody seems to talk to him. (Laughter.) So, I mean, his impact—
ALDEN: His department is going to be cut by a third.
FRANK: His impact appears to be quite minimal on everything.
ALDEN: Yeah. I mean, we joke, but that’s actually a serious concern, because I do agree with Charlene that I think the geopolitical dimension of trade is very important. And I think State needs to have a voice there.
BARSHEFSKY: I think there may be other moderating voices as well. I think General Mattis is largely an internationalist in orientation. And I think Gary Cohn from Goldman Sachs is a more internationalist voice. Mnuchin at Treasury, maybe. Not clear, as Ted said, will they have a role in trade policy. But might there be some counterbalancing forces within the administration? I think the answer is yes, there might.
FARRELL: We had a question from John Lipsky.
Q: Thank you. John Lipsky. Johns Hopkins School of Advanced International Studies.
We’ve heard some—I think somewhat negative—thoughts about the WTO today and elsewhere. Two comments. One, it’s easy to forget that the 1990s, post the Chinese ascension, was a period of very strong growth in the U.S. economy, saw a 4 percent unemployment rate and strong productivity growth. So the context wasn’t quite as concerning and what the discussion here has presumed, perhaps.
Secondly, the abandonment by the U.S. of pursuit of the Doha development round within the WTO brought into question the U.S.’s approach toward the relevance and continued support for the WTO. And most recently, we’ve heard rumors about memos—policy memos floating about Washington that suggest that if the WTO dispute mechanism—dispute resolution mechanism ruled against the United States, that the U.S. would feel free to ignore such rulings. How seriously do you take the possibility that we would further undermine support for the WTO? And what would the implications be?
FRANK: Firstly, I don’t know where you heard general anti-WTO stuff. I cited one study that said the accession of China to the WTO had a negative job effect. That’s generally widely accepted. I didn’t hear any other anti-WTO stuff. So I think you’re a little hyper-sensitive to—you’re defending against someone who wasn’t there. (Laughter.) Beyond that, though, with regard to WTO—and I will say, I know Charlene said, well, there were mechanisms in that that could have been used, and they weren’t used. But they weren’t used in part because of the people who were pro-trade. I mean, this was not Obama doing that. He wasn’t being pressed to use them. But the other—and some of the people who were pushing for the use of these were denounced because they’d been against the accession in the first place.
But secondly, I don’t know, I think it’s a very real danger. I think it would suit Donald Trump—in fact, his numbers went down and weren’t going anywhere, I think if someone came in and said, here’s the deal, the WTO is telling us that India is right—to take the example given—and we got to let in many more Indians with the H-1Bs to help the people in Silicon Valley, who you’re pissed at, he would welcome the chance to say: Screw you, and if you try and make me I’ll just walk away. So I think there’s a very real danger that that would play right into what he would like to do.
FARRELL: Did you agree with—
BARSHEFSKY: Well, look, let me just say, U.S. made very clear when it entered in the WTO that U.S. law couldn’t be trumped by the WTO—it’s no—(laughter)—couldn’t be trumped by the TWO. And it’s because the WTO isn’t a treaty in the U.S., which would have had primacy. It’s an executive agreement. The difference—and so the U.S. has never had to comply. But it would have to be—
FRANK: There’d be compensation.
BARSHEFSKY: It would have to compensate, meaning it could be retaliated against. And that can be very, very serious, and very expensive. The difference here is the concern that the administration is elevating as a matter of policy the notion of noncompliance. If we, the litigant, don’t like the outcome, we’re not going to comply, which is a novel way of thinking about a rule of law country, if you can imagine that. (Laughter.) So this is the great concern, that now we’re talking about this notion as a matter of policy, as opposed to an extreme and rarely, rarely, rarely used right that the United States has.
FRANK: There may be an underestimate of the radical nature of the change here. It’s his whole political base. And it’s been more broadly supported. And I think, as I said, he might even be eager to do that and look for a chance—and you’re right, he’s not—he would be—we might be ordered to compensate the aggrieved, the litigant who won in a certain way. And he would refuse to do it, and it would be the most popular think he could do.
FARRELL: Ted, you were going to make a comment on this.
ALDEN: I’d just make one brief comment on John’s notion that the United States walked away from the Doha development round. I don’t exactly think that’s what happened. I was a reporter at the end of the Uruguay Round, spent many sleepless nights in hotels covering the end of those negotiations. That was basically a U.S.-European Union agreement. A little bit of input from the Japanese, occasionally the Canadians on an issue or two. Now to do a WTO agreement, you not only need those, you need China, you need India, you need Brazil, you need a whole bunch of other countries that are really reluctant to move forward on additional trade liberalization. They want to—they want a two-step deal, in which the advanced economies do a lot and they do very little. And that just hasn’t been a political bargain that the United States, nor Europe for that matter, was prepared to do under Doha.
And I think unfortunately for the future success of the WTO—which I agree with you, in think actually in most ways actually has been a great success—it is going to become less and less and less relevant with each passing year because we’ve got a set of rules that was written in the late ’80s and 1990s being enforced by WTO dispute courts. And the economy is changing rapidly. And so at some point it just becomes moribund because the negotiating process doesn’t move along with the dispute settlement process.
BARSHEFSKY: Well, it is why you see this proliferation of plurilateral agreements around the world. You know, there are 150 free trade agreements in Asia alone, and another 50-plus on the books. Why? Because the WTO is sitting there silent. The economy has moved forward drastically. And so much of the issues that are in the WTO are old issues, constantly regurgitated, but of very little economic import. And so you see countries, likeminded, moving along to try and reinvigorate trade among the group. And that’s why you see this—the kinds of movements that you see. That, and the fact that many countries look at trade agreements as alliance-building mechanisms.
FARRELL: The most important thing I have to do as moderator is to make sure you can all get back to your busy schedules, and that the panelists can. So, as much as I hate to cut this short, there’s still a number of questions we could talk about, I want to thank the panel for just an extraordinary conversation. (Applause.)
BARSHEFSKY: Thank you.
FARRELL: And thank you all for the good questions. Thanks very much. (Applause.)
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