In this call, Jennifer Hillman, senior fellow for trade and international political economy at CFR, discusses how international trade policies are affecting communities within the United States during the COVID-19 pandemic. Carla Anne Robbins, adjunct senior fellow at CFR and former deputy editorial page editor at the New York Times, acts as host.
Adjunct Senior Fellow, Council on Foreign Relations; Faculty Director, Master of International Affairs Program and Clinical Professor of National Security Studies, Marxe School of Public and International Affairs, Baruch College
FASKIANOS: Good afternoon and welcome to the Council on Foreign Relations Local Journalists Conference Call Series. I am Irina Faskianos, vice president of the National Program and Outreach here at CFR.
As you know, CFR is an independent and nonpartisan organization and think tank focusing on U.S. foreign policy. This call is part of CFR’s Local Journalists Initiative, created to help you connect the local issues covering your communities to global dynamics. Our program aims to put you in touch with CFR resources and expertise on international issues and provides a forum for sharing best practices. We know that as journalists, you have an important responsibility to keep the public informed about COVID-19 and its implications. And so we thank you for taking the time from your schedule to be with us.
As a reminder, today’s call is on the record. The audio and transcript will be posted our website after the fact, at CFR.org/localjournalists.
We’ve shared full bios for our host Carla Anne Robbins and speaker Jennifer Hillman, but I’m just going to give you a few highlights on their distinguished backgrounds.
Carla Anne Robbins is an adjunct senior fellow at the Council on Foreign Relations. She is faculty director of the Master of International Affairs Program and clinical professor of national security studies at Baruch College’s Marxe School of Public and International Affairs. And she was deputy editorial page editor at the New York Times, and chief diplomatic correspondent at the Wall Street Journal.
Jennifer Hillman is senior fellow for trade and international political economy at CFR. She specializes in U.S. trade policy, the law and politics of the World Trade Organization, international organizations, and Brexit. She has also had a distinguished career in public service, having served as a member of the WTO appellate body, commissioner at the U.S. International Trade Commission, and general counsel at the office of the U.S. trade representative.
Welcome to you both, Carla and Jennifer. Thank you very much for being with us today. I’m going to turn it over now to Carla Anne Robbins to get us started on a conversation.
ROBBINS: Thanks, Irina. And thank you, Jennifer. And thanks to all the journalists on the call. And thank you all for the work that you’re doing under extraordinarily difficult circumstances, in terms of both personal security and what is an incredibly tough time in our businesses. Thank you guys for all the work that you’re doing. As readers, we really appreciate it.
So, Jennifer, let’s get started. So we have gone through three years of trade wars. And now we are seeing a trade war in something that—you know, that we didn’t really expect to see, and something that is so particularly fundamental. We’re seeing trade wars in the most basic goods that are needed to fight this pandemic and protect people. So can we start off talking about that, and goods needed to fight the pandemic. How much is the Trump administration doing this, and how much is everybody else doing it, this beggar-thy-neighbor in basic goods for fighting the pandemic?
HILLMAN: Right. Well, thank you very much. And I too would second all of the thoughts to thank all of the journalists on the line for everything that you’re doing to keep us all informed, because there’s no question everybody is so reliant on trying to get information.
So let me just step back and take a look at where we are, and why trade is such an important element of this fight against COVID. Part of it stems from the fact that we have a significant amount of two-way trade in medical good themselves. I mean, more than $2.2 trillion of trade crosses borders in all of these goods. So anything that affects trade in these areas is very significant. And particularly, I would say, significant for the United States, because we are the largest importer of medical products in the world. We import 19 percent of all the world’s imports, about $193 billion of these imports.
So it is important to think about what role trade plays, because we are very reliant on countries—like, our number-one source of goods is Ireland. Our number-two source is Germany. Our number three is Switzerland. Our number four is China. And our number five is Mexico. And I’ll say, part of the reason why it’s so significant is because China is such a large source of goods for the United States. And, again, when we talk about these goods what most people are including in that list are all of the things that you could imagine get included.
Again, things like medical equipment itself, medical supplies—meaning everything from alcohol, to swabs, to surgical drapes—to the actual medicines, the actual drugs themselves, to the personal protective products. So all of those make up this mix of $2 trillion worth of product that get traded. A number of other sources have also suggested that you should include, when you think about it, things like disinfectants and soap, as those are also sort of critical and part of the fight. So again, that’s why I think some of it is so important.
And then when we get to the tariff side, again, the issue for the United States has been that we were already in a trade war with China. So we had already put tariffs of 25 percent on a huge volume of Chinese imports, and another 15 percent tariff on a whole other swath of goods coming in from China. That 51 percent tariff was ultimately lowered to 7 ½ percent as part of this China phase one trade deal that was announced in January. But nonetheless, we kept very high tariffs on a very large number of products that we imported from China. Notwithstanding the fact that all of the pharmaceutical companies and all the medical supply companies warned the Trump administration that if you do this we could be in real trouble if we ever get into a need for these goods. And that’s exactly what’s happened.
And now the Trump administration has, I would say somewhat belatedly, as of, you know, sort of the end of March—middle and end of March—started announcing exemptions from the tariff. So they’ve started saying, OK, we will no longer collect these tariffs on certain of these—of these goods. And I’d just give you one little example. The maker of Purell, you know, the hand sanitizer—this is an Akron, Ohio-based company, GOJO Industries. They needed the parts that they use for the dispenser of that hand sanitizer, parts of that pump and the cap, were made in China. And they didn’t have another source for it, and couldn’t readily get another source for it, because a lot of these items have to go through a regulatory approval by the FDA if you change the source.
So they said, look, it’s going to make it so much more expensive for us to up the amount of Purell sanitizer that we’re getting out there. Could we please be exempted from the tariff? Initially the Trump administration said no. And then Senator Rob Portman and others really pushed back hard on the administration. And finally on the—on the 3rd of April the USTR reversed its position and went ahead and gave this tariff exemption to GOJO Industries.
ROBBINS: So to just give us a sense, how much is—you know, when President Trump said to 3M, thou shalt not sell these goods to anyone else, particularly the masks which everybody wants to have—I mean, how much of the shortages that we are seeing in fundamental goods that people need are the result of other countries—you know, other countries make them, and suddenly they’re not shipping them to us because they’re keeping them home? How much of them are—you know, that we basically sold our patrimony? That we let other people make things, and now we don’t have the supply chain. How much of it is a disruption—how much of it is the result of the trade war that existed beforehand? You know, can you just break it down for some of those other basic goods?
HILLMAN: Yeah, exactly. So, again, part of it is because these tariffs on China went in place, you know, a year—more than two years ago, there is no question that a significant part of the problem is that imports from China, of everything from CT scans, to oxygen monitors, to disposable masks, to thermometers, ultrasound systems, hand sanitizers, x-rays, all of those things subject to this 25 percent tariff. And then you have medical equipment, protective clothing, protective gloves, protective goggles, all subject to a 15 percent tariff. The bottom line was, a good portion of the reason why we are in such a difficult position is imports of those products went way down once those tariffs were imposed on China. So our traditional stockpiles, the amount that we had just in storage, by FEMA, by Veterans Affairs, by HHS, and by a lot of state and local hospitals, they decreased the amount of their imports and decreased their stockpiles because of the tariffs. So that’s one part of the problem.
The second part of the problem is exactly as you say, a number of countries have decided to impose export bans on their own production. And again, recently the United States has gotten in on this act as well, expressly with respect to 3M and some others. But a number of countries, and I would say it started to some degree in China, but it’s gone elsewhere around the world. The Europeans very directly getting involved in this idea of saying: Whatever we’re producing, we’re keeping it at home. Our citizens first. We’re not going to—we’re not going to allow exports.
Obviously this is a huge problem for the trading system. I mean, first of all, the rules of the trading system basically tell you you’re not supposed to do that. I mean, the rules of the WTO are very clear that you are not allowed to impose export bans—period. And the only exception is the one that everybody is relying on: If it is a critical foodstuff or other item in critical shortage. So everybody is saying, it’s a critical shortage for me and therefore I get to impose an export ban.
The problem is, as soon as you go down that road then nobody feels like they can rely on one another or can rely on their traditional sources of goods, and the hoarding just gets worse. Everybody starts to say, well, if you’re not going to trade with me then I better shut down my borders too. So we have seen a cascading of these—of these kinds of export bans. We now have got more than seventy-five countries that have imposed some form of an export ban on either these medical supplies or, where we’re now starting to see it in other parts of the world, is on food. Rice, grains, and other things are all now starting to be subject to these kind of export bans as a way of saying, you know, we’re going to protect our people first.
And yes, I mean, the one example that was very clear was with respect to 3M, where 3M was under long-term contracts exporting its N95 respirator masks to Canada and to Latin America. And at the same time, 3M is importing from its 3M facility in China a lot of masks that it’s making in China and had been selling in Asia. It’s diverted those to bring them into the United States. And so what happened when the United States originally put out a ban that there would be no exports of any of this range of protective equipment, it was directed at respirators, surgical masks, hospital gloves, et cetera.
But $1.1 billion in U.S. exports is all of a sudden banned from being exported. There was a lot of pushback. And ultimately the Trump administration created an exception to the rule, that said that if your company is one that already had a long-standing contract to export, and more than 80 percent of what you make is sold in the United States, then you can go ahead with that export. And that’s how 3M was allowed to go ahead and export to Canada and to Latin America, because they promised that more than 80 percent of what they made domestically would be sold in the United States, and they promised that they would bring in 166 million respirators from their facility in China.
ROBBINS: So, I mean, I had a family gathering, as everybody else did, by Zoom or something else. Zoom has now turned into the Facebook. It’s only old people who use Zoom. (Laughs.) Over the weekend. And you know, I had a couple of family members say: You know, why have we given our patrimony away to China? I mean, is the lesson that people are going to take away from this, not just in the United States but every place else, that we can only produce things in America? I mean, is this the end of a globalized trading system?
And is this even reasonable? How does one go and explain to local leaders or to family members why it’s a good thing to sell to other people, particularly if you’re a country like the United States, which is less dependent on trade, or at least it looks like in the numbers? What is it, like 27-28 percent of our GDP comes from trade? I mean, how do you make the argument for why we should be even producing—you know, letting other countries produce things that are so critical to our survival?
HILLMAN: Well, again, at least speaking for me, I hope that’s not where we end up, because I do not think that the lesson that we should be learning is that you have to be self-sufficient in everything that is deemed critical to your economy, because as you’re seeing in this breakdown of the global supply chain, you know, it’s really hard to draw the line between what is a critical product, for which you say can only be made in the United States, versus needing to trade for it. And just to give you one, you know, clear example: General Motors is now in a partnership with Ventec, headquartered in Seattle, Washington, to make ventilators. They have—they have turned over their facilities in Kokomo, Indiana. And Ventec, their facilities in Bothell, Washington, in order to make these ventilators.
The problem that GM is now saying is they need more than seven hundred components to make that ventilator. Now, many of those are not necessarily components that you would imagine to be on anybody’s list of critical materials that we should only source in the United States. So GM, for example, has had to go back to USTR and say: OK, a significant number of those seven hundred components are ones that we need to source in China. And you now still have this 25 percent tariff on all these goods from China. Could we please get an exemption, just like the Purell exemption? Could we get an exemption from the tariff, because we need to import these components? So part of it is, it would be very difficult to try to draw that line between what are these critical materials that need to be sourced in the United States versus what else—you know, where else they’re made.
I think, secondly, you know, again, even concentrating all of your sense of we need to make everything in the United States, if it’s all made in one place. I mean, if it has all been made in New Rochelle, New York and New Rochelle shut down, you’re also going to be having a supply shortage. So it isn’t just about it being international. To me, what this is suggesting is actually going in the opposite direction, that we need a more resilient supply chain, which means we need to have multiple sources of supply rather than sole sources of supply, and we need to do a better job of creating stockpiles. I mean, again, part of the reason why we’re in such a world of hurt is because of our stockpiles were allowed to be depleted, again, in response to these tariffs.
So to me, the answer is no to say we have to make everything in the United States. First of all, it would take a good five to ten years to get us there. So it isn’t something that we can just all of a sudden decide in the middle of this pandemic that we’re only going to buy drugs that are made in the United States, we’re only going to buy ventilators made in the United States. To me, it is an issue of trying to make sure that we—that the trading system actually remains open, and that goods remain able to be—to flow across all of these borders, and that countries are not going to be doing export bans, and that we all agreed collectively not to do that and to keep the global supply chains running. And at the same time, we build in redundancy and resilience in our own global supply chains.
ROBBINS: Well, I want to turn it over to our group. But I did want to ask you a help us with reporting question. So if I wanted to report on this, and I wanted to see how this is having an impact on my local community, how do I go and track down the numbers of some of the stories that you were telling us? How do I find information on what’s being squeezed because of the tariffs versus what’s being squeezed because some other country is just basically, as we say delicately, screwing us?
HILLMAN: Right. So, again, to me, one of the really good sources of information about who’s putting on either tariffs or export bans—I mean, what countries are putting on bans on what products—there is a very good database at an institution coming out of Switzerland called the Global Trade Alert. So GlobalTradeAlert.org has this incredible list of every state intervention. Meaning, every tariff, every export ban, every restriction, every quota, every licensing requirement that you would need if you’re going to try to look it up. And it’s, again, done on a country-by-country basis.
Here in the United States, one of the interesting databases to look at for a more local story, to me, is who’s applied for these tariff exemptions, and have they gotten them? And that is, again, a readily available database at the United States Trade Representative’s office. So it’s at USTR.gov. And you’re looking for their overall list that gives you the entire index of everybody who’s applied to get one of these tariff exemptions. And then you can easily click on and look up what was the argument that the company made about why did they need to get a tariff exemption, and whether or not it’s been granted.
And they’re not done by state or city, but they’re done by the name of the company. So if you know a major manufacturer in your local area and you want to know whether they’re trying to bring in any input materials from China, and being subject to these tariffs, I mean, that’s another very good place to go to look for whether any of your local companies have been applying to try to get out from under the Chinese tariffs, because they think they need to bring in—bring in some of these products.
A couple of other ones that I would just mention, for what it’s worth, the World Trade Organization has now created a dedicated website to trade and COVID. So, again, that’s at www.WTO.org. And then they have a separate COVID website that lists all of these. And then last, but not least, there is a—there is an agency in Geneva. It’s a combination of the World Trade Organization and UNCTAD called the International Trade Centre—“centre” spelled in the European way, C-E-N-T-R-E. But nonetheless, it has a very good interactive database on import and export restrictions that’s updated daily, at www.MAcMap.org, so MAcMap.org. And it has a separate map, if you will, for import restrictions, and then a different map for export restrictions. And that’s another, to me, good one to look at.
ROBBINS: Oh, that’s great. Thank you so much. And we will—I mean, this will be posted, but I think maybe we can also just send out an email, if you don’t mind doing that, Jennifer. We’ll get those—we can get those links from you.
HILLMAN: Yes, absolutely. Absolutely.
ROBBINS: And we’ll send them out to everybody. Because UNCTAD, I know how to spell that, but that’s because I’m weird and arcane. So let’s turn it over—
HILLMAN: Right, sorry.
ROBBINS: No, absolutely. (Laughs.) We’re both weird and arcane.
So if we can turn it over, Operator, to the first question, that would be great. Do we have a question for Jennifer?
OPERATOR: (Gives queuing instructions.)
We’re currently holding to allow everyone an opportunity to signal for questions. We do have a first question.
ROBBINS: Great. Go for it.
Q: Good afternoon. My name is Kayla Jay (sp) from Word Radio.
I wanted to know, what was the global trade center website again?
HILLMAN: Sure. It’s called GlobalTradeAlert, all one word. So G-L-O-B-A-L T-R-A-D-E A-L-E-RT.org, all one word.
Q: Thank you.
ROBBINS: So while we’re waiting for more questions, I have another question.
So the World Trade Organization has warned that global trade in goods—and we could get into the difference between goods and services if we want—could fall by up to a third as a result of the pandemic, which is the worst drop since the 2008 financial crisis, when global trade dropped by about 12 ½ percent. So what’s that mean for the United States, you know, and for the U.S. economy overall? You know, we are—we are dependent on trade somewhat.
Oh, I see we have another question. Let’s go to the other question, and then I’ll ask mine because I can’t hog it. Operator, go to the next question.
OPERATOR: Our next question comes from Lydia DePillis, ProPublica.
Q: Hi, Jennifer. Thanks for doing this. This is Lydia from ProPublica.
So you mentioned that tariffs have led to companies having lower stocks of medical gear in the U.S. And I’m trying to get companies to talk about this, and have heard a lot of, no, we just, you know, bought as much as we usually did, it was just more expensive, or we got it from somewhere else. Do you have more examples or heard more about concretely—
HILLMAN: Yeah, I mean—
HILLMAN: Yeah. Because there’s no question the import—when I say they have less that comes from two places. But mostly, it’s coming from looking at how much did we import? And there’s no question that we imported less, and significantly less, of some of these goods, you know, from China, and we did not make up for the lack of imports from China by more imports from by the rest of the world. And again, there’s a fairly handy-dandy study of this exactly that was done by a gentleman named Chad Bown at the Peterson Institute of International Economics. So that’s PIIE.com.
But just to give you as an example, it’s showing one of the things that we need to check out people’s status is CT scans. And again, there was a 64 percent reduction in the volume of imports from China. And it was made up for by a 40 percent increase in imports from the rest of the world. But that still left us at a fairly big net negative. Similarly patient monitors, and pulse oximeters, you know, to measures the amount of oxygen in your blood—which, again, is critical in this COVID fight where that’s what everybody is struggling for is how much oxygen is left in your blood—those monitors, again, a 39 percent reduction for what we bought from China, and only a small offset by an increase in the imports from elsewhere.
And, again, I could go down all of them, but the bottom line is where I’m seeing that data is from this PIIE report and from general import data that is trying to look at how much less we imported from China versus how much more we might have brought in from Europe or elsewhere. And what it’s showing you is that the net result is a significant decline in the total amount of imports of these goods. And they are not necessarily goods that are readily made up for by domestic production. So there is clearly a gap.
And I think that is also—there’s also been data out there—and, again, this is where I’m not sure I could tell you exactly the source, on the level of stockpiles that was held by FEMA, by the VA, and by HHS in some of these products. There is a database out there that showed it. I’m not going to put my hands on it right this minute. I can try to get that back to you. But that also showed, again, a decline in inventory leading up to—up to the January period.
Q: Yeah, I am familiar with the PIIE work. And I just—you know, it’s just hard to get companies to say that tariffs were a reason why they imported less, even if it’s visible in the data. So I didn’t know if you had heard about anything anecdotally on that front. So just something I’ve been looking for for a while now.
HILLMAN: Ah, you’re wanting people to say: I would have imported more, but for the Chinese tariffs. Yeah, you know, again, to some degree I think you do see that—again, the problem is, in the submissions that were made to USTR where people were asking for exclusions, that’s where you see companies making this argument of I need to be excluded from this tariff because I don’t have any other source for it, and the 25 percent tariff makes it prohibitive. Or, at least, you know, it adds 25 percent to my costs. And I--you know, I’m a small hospital or I’m a whoever, I can’t afford to pay 25 percent more for all of these goods. So please exempt me. So there is where you will see specific companies making a specific argument about why they should be excluded from the tariffs.
Q: Well, that’s—so they would be making the argument to USTR that they wouldn’t—they wouldn’t want to cross the Trump administration in print, but happy to say it to USTR. Got it.
HILLMAN: Correct. And also, in fairness, there were hearings that were held, you know, a year a half ago, again, particularly in August, over whether to impose a tariff at all. And at that hearing, a lot of particularly the medical, medicine, medical device, pharmaceutical, and medical equipment importers or manufacturers did come into that hearing and warn the Trump administration: Don’t put these tariffs on these medical supplies, because it will harm our readiness should there be any kind of, you know, significant, you know, pandemic or medical—you know, any kind of significant increase in flu or other diseases. We can’t afford it if we don’t have sufficient stockpiles and don’t put these tariffs on. So the companies are on record appearing at those hearings. You know, again and—
Q: Yeah. And it’s so strange. Like, I talked to the Health Industry Distributors Association, which was one of the primary groups saying they don’t do this, we’ll have to import less. And then they told me, no, we didn’t import less, right? So, like, there are the warnings in the public record, but nobody else is saying, like, yes, concretely, we took this action because of the tariffs.
HILLMAN: But one that I’ve seen that was clearly on the record was Medline in Northfield, Illinois. You know, where they were saying, OK, we were granted some exclusions on some products, but not on surgical drapes, and biohazard bags, et cetera. And that these tariffs have cost us, I think it was $100 million. But I don’t want to say for sure. But I know they’re one of the companies that’s clearly been on the record saying that—and there was a petition filed in January by a whole group of them to say, you know, we really have to get rid of these tariffs on all these medical products.
ROBBINS: So reporters in different communities, this is the sort of question that they simply may have been criticized for not being on top of what they need, this is certainly a question that one could go and ask. I mean, how much did you have to—were you overbudget, and you just couldn’t make these decisions because suddenly you found from one year to the next that things were going to be—you were thinking about replacing X machine, it’s suddenly going to cost you a hell of a lot more money. So, well, thank you for that. That’s great. And great question.
I think we have several more on the line, Operator?
OPERATOR: Yes, ma’am.
(Gives queuing instructions.)
Our next question comes from Debbie Kathline (ph), Kathline (ph) Inc.
Hello, Debbie. Your line is live. If your phone is on mute, please unmute it.
Q: Great. Thank you. Sorry. I was on mute.
This is Debbie Kaplan from Supply Chain Dive.
And I have two questions. The first question is you’re talking about tariffs getting waived for certain applications. And I wondered if there was—if you’ve heard anything about any talk on the federal level about making a much larger blanket waiver of tariffs or getting rid of them altogether. That’s the first part. And the second part was you talked about the stockpile going down because of the tariffs. And I wondered if you’re speaking about the federal stockpiles or if you’re speaking about individual stockpiles for specific health care organizations.
HILLMAN: So let me take the first one first. There was a huge press at one point to say, you know, could we just get rid of all of these tariffs on China, rather than making everybody go through this cumbersome process of trying to prove that their goods should particularly be exempted, that they’re somehow connected to the fight for COVID? Like I mentioned, I mean, GM started coming in and saying: You know, OK, even though it’s a screw, or a bolt, or, you know, some other part that they need to make these ventilators, you know, filters, whatever it is, they’ve had to make the case that they’re importing them in order to go into ventilators because otherwise those goods would not be necessarily eligible.
And there was a big push to say, particularly when the government is trying to, you know, again give out money to small and medium-sized enterprises that are hurting—I mean, what’s the point of, on the one hand, cutting a check to all of these small businesses and on the other hand telling them they owe millions of dollars in tariffs to the U.S. government for their imports? So there was a big push to say one of the ways that you can cut taxes and cut expenses and help a lot of these companies stay in business, is to get rid of all of these tariffs, because they are simply a tax that this companies have to pay.
And the Trump administration, at the end of the day, said no. No. They would not do a blanket removal. SO what they did do is grant exclusions in a series of executive orders issued in March, March 10, March 16, and March 17. They issued over two hundred exclusions from the tariffs, with more than a hundred of these items are the ones that were needed for medical devices and to fight COVID. So they granted a lot more exclusions than they’ve ever done before, but they did not grant a sort of blanket, across the board, get rid of all of them, even though there was a very strong push to do that.
In terms of the stockpiles, again, I think this is one of the huge problems, is that there’s not very much transparency around exactly what’s in the stockpile and how is it being doled out. And you’re seeing very recently a real problem for a lot of state and local hospitals and medical providers that FEMA, the Federal Emergency Management Agency, that is charge of sort of overseeing the stockpiles, is now starting to seize import shipments.
So we’re seeing individual hospitals or, again, states that have gone out and searched the world and found the goods that they needed, whatever it was, and then put them on a plane going on, only to have them arrive and be sized by FEMA, who says, no, we the federal government need these. And we have a better eye on where they’re more needed than you do. And therefore, we’re effectively going to take away, you know, your import and put them into the federal stockpile. So I do think this whole issue of what is the level of the FEMA stockpile, and where it is, and how it’s being distributed is one of those things that’s really hard to get a lot of—a lot of visibility on.
Q: Thank you.
ROBBINS: Operator, next question.
OPERATOR: Our next question comes from Carolyn Adolph, KUOW Public Radio Seattle.
Q: Hello. I’m calling from a place that is actually highly dependent on trade. We do everything from planes to commodities, such as apples and cherries. I’m interested in, on the food end, is there any way that you can foresee that COVID-19 and the protectionism that you’ve been describing could actually come to roost in American exports of fruits, and vegetables, and other agricultural products?
HILLMAN: You know, it’s really hard to say whether it would come to roost in terms of export bans, because you clearly are seeing the rise of bans in other places in the world, where you’re seeing, you know, again, throughout Asia, Russia, Ukraine, Eastern Europe even to some degree, but clearly heavily in the Asian countries you’re already seeing bans on rice, and grains, and oils, and other things are being banned from being exported. And you’re also, I would say, seeing in some of the U.S. agriculture producers in the United States a push to consider banning imports into the United States.
So in other words, you’re seeing, I think, some pressure in Florida and other—and the dairy sector, and other places where there is not enough demand for U.S. product, where there is this push to say: Why don’t we stop importing anything from, you know, no Mexican tomatoes, or avocados, or oranges, or other things because we, producers, farmers in the United States don’t have enough demand for their product. And you see this really strongly in diary, where there is—you know, obviously farmers are dumping milk, and everything else. So I think you would see it more on the banning of imports than you would see it on U.S. banning of exports. And so at least I don’t see that coming, that we would ban our own exports.
Q: OK. And just—you mentioned Ventec, the producer of ventilators, and the trouble that it’s having. So you named three websites. If I were to try to adopt a workflow to use those three websites to establish things, if I know the company name where do I start? Is it with Global Trade Alert?
HILLMAN: I would start with the USTR website and the list of who’s petitioned for relief from the China tariffs, because in that particular case—again, they’re trying to marry up with GM in order to make these ventilators. And, again, as I said, you know, at least from what I can read from both GM and Ventec, they need to import components from China in order to make these ventilators. And a lot of those components are subject to these special tariffs. So I think GM has now joined, you know, an effort—and it may show up as a joint request from GM and Ventec to get out from under these tariffs. So that would be in—at USTR.gov. And it’s in their comments list of pending exclusion requests. So you’re looking for exclusions from the 301 tariffs.
So, again, it’s a very specific listing of everybody that’s applied. And, again, these are—these are recent applications. So, again, March 20 USTR opened up this new portal to say, you know, if you now need an exclusion that you didn’t think you needed before, please, you know, submit a request. But the comments have to identify what the product is, how it’s needed to combat the COVID-19 pandemic, is it used directly to treat patients, or is it—how is used to limit the spread of the device—the virus—I’m sorry—and how is it used in the production of necessary medical care products?
So I think you would probably see that request. At least, I’ve read that this is what GM has done. The only thing I don’t know is whether Ventec’s name will be on that actual application itself. But those comments are publicly filed, you can click on the listing and the website and see those exact comments for what is GM asking from an exclusion from. And I imagine that it’s a joint request with Ventec.
Q: Thank you.
OPERATOR: (Gives queuing instructions.)
ROBBINS: So do I get to go back and ask my question while we wait?
ROBBINS: OK, great. So when we’re talking about, you know, a major contraction in world trade, you know, how much does that hit the U.S. economy? And where should we expect to see the effects in our communities? I mean, is it going to be in major job losses? Or is it going to be in other goods on our shelves? I mean, this is—we’re talking about—a 30 percent contraction in global trade sounds to me like, you know, worldwide depression levels of contraction of global trade.
HILLMAN: Yeah. It is. There is no question that these are just really unheard of in terms of how large of a decline in global trade. Both the WTO and then the OECD and the IMF are all predicting, you know, significant, significant declines. And two things—two or three things, I would say. One is, the last time we went through this, which was in the wake of the 2008—2007-2008 financial crisis, we went through a contraction that ended up being in the 12 percent range—11-12 percent range reduction in global trade. So, again, that was the biggest significant hit to global trade since the Great Depression.
However, a couple of things that are really important to distinguish and to contrast. But clearly what drove that decline in 2007-2008 was a total falloff in demand. So all of a sudden you just didn’t have anybody having the kind of money to spend to purchase any of the kind of, you know, major goods that they would need. And in essence, the demand just completely fell off the cliff once we went into the financial crisis that we were. As a result, the big impact then was on trade in goods, was a fairly modest impact on trade in services. This depression now that we’re looking at I think is going to have a very big impact on services as well as a big impact on trade.
ROBBINS: And by services, do you mean by—services, do you mean by—
HILLMAN: I mean everything from—so we trade in services a lot of different ways. But services includes everything like tourism, like restaurants serving tourists, like travel companies, like airlines. But it also includes shipping lines and all of the logistics around shipping. It includes, again, anytime—again, it includes the download of software somewhere else. It includes a whole range of things. But we are clearly going to see services be hugely impacted, either around tourism, travel, shipping. And, again, the movement of goods and people across borders, and then the ability for, again, tourists to spend money in another location. You’re clearly going to see, I think, a decline in the number of foreign students that are studying around the world. That’s going to be another big decline in trade in services.
And those trade in services declines tend to have a longer shelf life, if you will, than declines on trade in goods. But with respect to goods, yes. And you’re going to see, you know, a huge impact, again, because so much of all trade is subject to global supply chains, where components for almost everything made in America are coming in from countries around the world. And to the extent that those countries are also having these kinds of lockdowns and stoppages of production, our companies, even once they start up again, they aren’t going to necessarily have all of the components at the ready for them to really gear up their production all over again.
So you’re going to see, you know, again, huge slowdowns and hiccups, if you will, in trying to bring production back online because every producer—typically these days living with just-in-time inventory, meaning they don’t have a large stockpile of any of the components that they need. And starting back up again requires that the whole world start back up again in a way that the supply chains can be all brought back on stream in relatively, you know, synchronous timing ways. And that is not easy to see how that all gets orchestrated. So, you know, I think—I think the drag on trade is going to have a significant drag on the U.S. economy, not just because of the portion of what we actually import or export, but because it affects all manufacturing because virtually every manufacturer imports at least some of their components.
ROBBINS: So we keep hearing—you know, separate from the, you know, run on toilet paper—(laughs)—we keep hearing that basically U.S. supply chains are good, you know, maybe there’s going to be a pork shortage because of the very tragic outbreak of COVID in certain plans. But basically the American supply chain—internal supply chains are very strong. With a 30 percent drop in global trade, and given globalized economies, could we see shortages of goods in the United States because of this?
HILLMAN: I think the answer is yes. And because I think you could see shortages of goods that require these imported components. Not even just imported. Again, so it’s not just about imported. But again, if the component that you needed—again, just look—just think about the pork plant that’s getting ready to close in Sioux City. Again, that means—so that effect—you know, the 550 farms that supply pork—supply pigs to that factory are impacted. And then everybody that relies on that—on that particular facility, again, is now not going to get their supply of pork.
So you—if you just—if it was the exact same facility but instead it was a manufacturer of a steel component or of nuts, screws, bolts, fasteners that go into something else, or it was a manufacturer of nails or—you know, any of the many, many components that go into every kind of good that we buy, yes. I mean, if that particular plant went down and there was not a readily available alternative, you could see shortages across the board. And again, the other part of it is the reason why is because of the huge strain right now, for example, on transport. Again, a huge amount of goods are shipped in the bellies of commercial aircraft.
So while we’re all sitting in our little seats above, down below us is a huge amount of freight, of goods that are being moved. And as a result of airline not flying at all anymore—or, virtually at all anymore—the rates for air freight, in other words to ship goods via air—which if it’s an emergency medical supply, or even if just a component that you need to have at your factory in two days, you typically put it on an airplane to get it in there in time. Well, those freight rates have now gone up. Air freight rates have gone up 60, 70, 80 percent across certain markets. And you’re now seeing goods being seated in, you know, everybody’s business-class seats. They’re just putting them down flat and filling them up, the internal seats of planes, with cargo, even though that’s very expensive. But it’s the only plane flying.
You also are seeing huge problems at the ports where, again, there’s just a lot of port workers are not available. So you have labor shortages. You have a lot of the ports saying, you know, we don’t want any of these ships to dock at our ports unless we’re convinced that there’s not going to be any COVID coming off. We’re not going to let any of the workers on the ships get off the boat. So there’s huge problems at the port. And then, last but not least, we’re having a huge problem where when COVID struck, an awful lot of containers were effectively stuck in China. Those big, twenty-foot containers that you see that are always stacked up on a big cargo ship, and then when it arrives in port that particular container gets right off a ship and goes directly onto the back of a truck to be hauled wherever it’s going.
Those containers are literally the—if you will—the arteries of the world trading system. And a lot of them are stuck in China. And we don’t have enough containers to export out of the United States, nor does Europe, nor does much of Latin America. So the whole shipping system is also sort kind of jammed up as a result of this. So that may be the other reason why both the downturn in trade is going to be so dramatic and is going to be so long-lived, is it’s going to take a while for the transport shipping system to get back on track as well.
ROBBINS: So if I were to go out into my local community and—since it’s not really obvious, you know, what’s a domestic company or an international company, or what goods a factory or a store sells are dependent on the global trading system rather than domestically produced—what—you know, where do I look? What sectors are most vulnerable to that level of a drop of global trade?
HILLMAN: Well, again, it’s hard to say because it really does depend on what they’re making. But again, obviously, you know, many, many companies—for example, a huge number of chemical products. Virtually 90 percent of the active pharmaceutical ingredients are not made in the United States. They’re imported. Vast numbers of chemicals that go into any—a huge variety of products that require a chemical input. Again, highly likely that those chemicals are not produced in the United States, and they’re going to be imported. Huge numbers of, you know, what they call raw materials, or rare earth. You know, every kind of—sort of small amounts of metals, or minerals, or deposits that are needed to make everything from steel to semiconductors, again, are not produced in the United States. They have to be imported.
So again, any company that’s using chemicals, that’s using aluminum, that’s using steel, that’s using plastics—most of the plastic resins, most of the polyester staple fibers, et cetera, are imports. So any companies that are using any of those things in any of their components are going to be affected. Probably the single most component heavy product sold and made in America are cars, where the vast majority of the auto industry and light truck industry is heavily, heavily dependent on trade. So I don’t think there’s any chance that the auto companies can get up and running without access to the international markets. In the U.S., again, it’s heavily Canada and Mexico, but it’s still across the board a need to be importing components. So that would be one sector. If you have any auto or auto parts suppliers in your—in your local neighborhood, or, again, anybody that uses a lot of chemical, steel, or aluminum, they’re going to be very effected by this downturn in trade.
ROBBINS: And are we going to see—I mean, is this going to change our relationships with Mexico and Canada more broadly? Are we going to see a new era of trade wars? I mean, having just gotten past the USMCA, NAFTA 2.0 fighting. Is this—is everybody going to turn into a Trumpista on trade? Is everybody going to follow President Trump’s—
HILLMAN: I actually—I don’t know. I think it’s too early to tell because there is a part of me that says it may be that we’re going to step back from this and realize that we actually need more of a rules-based trading system, where you can’t just decide: I’m going to take the beggar-thy-neighbor approach, or someone else described it as sicken-thy-neighbor. I mean, we’re not going to do this. We’re going to keep global supply chains up and running, and that we will all be better off—the whole world will be better off—if we do that. And any sort of short-term advantage that the United States thinks it has by trying to say, you know, I’m keeping all of this for myself and I’ll only input what I want to, and otherwise I won’t, in the long run is not in the United States’ interest.
I think that is going to be the view. And again, the hope with—I mean, if I just look at the numbers and where do we get our top medical supplies from, I mean, the number five country on the list is Mexico. So even—and we import an awful lot of medical-related supplies from Canada as well. So at a bare minimum, I think with respect to Canada and Mexico, we’re actually going to go the other way. We’re going to see more integration, and more of our supply chains being so closely intertwined that we literally cannot engage in this cutting off of Canada or Mexico.
And I think you sort of saw that when President Trump originally said, you know, if I can’t get a deal with USMCA I’m going to withdraw from the NAFTA. And you really did see, even those that had originally been potentially opponents of the NAFTA, step back and say: No. You just cannot do that. We’re at the point where Canada, U.S., and Mexico are so intertwined across steel, across aluminum, across agriculture, across auto production, across so many sectors that we cannot afford to have a breakup, if you will, with Mexico and Canada. And at one point, the president threatened, for example, to put—to put export controls on everything coming in from Mexico because of concerns over immigration. And again, the pushback was just vehement that that would cause so much damage, that I think there is a growing recognition that at least with respect to Canada and Mexico it’s going to go the other way.
ROBBINS: So we are coming to the end. I was wondering, even people who are fierce believers in globalization, and also the public health experts who seem to not want to shut the entire world down, are saying that when we slowly begin to open the country that we’re probably going to have to keep the borders tightly constrained for quite a while. And can you keep the borders closed, or relatively closed, and revive trade?
HILLMAN: It’s harder, but I think the answer is yes. Again, because—again, you will never get trade back up to the level that it is without also the movement of persons. So movement of people has always been part of the whole trading system. And whether it’s, you know, guest workers coming in terms of supplying labor for agriculture markets, or whether it is executives that are going overseas to run a plant that’s starting up in another country, again, or whether it is that tourist that is providing the extra demand for hotels, and restaurants, and airline services, without that you clearly will never reach the level of trade that we have right now.
But can the vast majority, or at least certainly a clear majority, of trade come back without movement of persons? Yes, I think it can because, again, that’s focusing on trade in goods and on digital trade. And so both digital trade, e-commerce, you know, transactions that are occurring in the cloud, data is such a big part of trade that you will still see the movement of data even without the movement of people. And you clearly can and will have the movement of goods without the movement of people.
It’s just going to be harder, because I think you’re going to have the same restrictions where a ship comes into port and the sailors on the ship are not allowed to get off. And you’re going to have potential waiting periods where all the containers have to sit for three days just to make sure if there was any virus on the outside of the container that, presumably, after three days it dies. You know, you may—you may see slowdowns. But I think you will see an ability to come back to some significant degree.
ROBBINS: Well, that’s—I wanted to end on a somewhat more optimistic note. And so, Jennifer, thank you so much. This has been extraordinary. We will share with you those sources. And as Irina said, we will post the transcript of this. And, Irina, do you want to—do you want to finish us off?
FASKIANOS: That’s great. Thank you both, Carla and Jennifer. And just for following Carla and Jennifer on Twitter, Carla’s at @RobbinsCarla and you can find Jennifer at @J_A_Hillman. I encourage you to keep up with CFR on Twitter at @CFR_org. And please don’t hesitate to share your suggestions for future Local Journalist Conference Calls by sending us an email to [email protected]. And as Carla mentioned, we will be rounding up the resources that Jennifer referred to during this call and sharing it out with all of you.
ROBBINS: Thank you all very much. And please all be safe.
HILLMAN: Yes, thank you very much.