Meeting

C. Peter McColough Series on International Economics with Katherine Tai

Monday, February 12, 2024
Denis Balibouse/REUTERS
Speaker

U.S. Trade Representative, Office of the U.S. Trade Representative

Presider

President, Council on Foreign Relations; Former U.S. Trade Representative (2013-17)

Ambassador Katherine Tai discusses the role of trade policy in the global economy, current U.S. trade strategy, and priorities for the WTO Ministerial Conference.

The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

FROMAN: Well, good morning, everybody. Or, I’m sorry, good afternoon, everybody. (Laughter.) Thank you for joining us. We’ve got about—I’m told about a hundred people here, and about 250 people on Zoom. We’re delighted to welcome Ambassador Katherine Tai. Did you make it all the way down the street from USTR to here, OK? (Laughter.)

TAI: The entire the entire half-block? Yes. We made it safely, yes. Yes, it’s quite a commute.

FROMAN: Yeah, that’s great. Yeah. (Laughter.) Glad you could find the building. We’re going to talk about a lot of issues, including, very importantly, an upcoming ministerial—the WTO ministerial MC13. But before we get there I wanted to cover a couple other matters. Very importantly, the U.S. trade representative I think probably travels only somewhat less than the secretary of state, but does not have a plane.

TAI: Exactly. (Laughter.)

FROMAN: So my question for you is, which is better? Global Services on United or Concierge Key on American? (Laughter.)

TAI: Oh. Oh, you’re going to—you’re opening up can of worms. You know, what? It is an honor to serve, and a real privilege. (Laughter.)

FROMAN: And oftentimes to serve in economy class, which is a particular honor. (Laughter.) Well, I feel your pain. (Laughter.) So it’s great that you do that.

Let’s start with worker-centric trade policy. Back in the old days, there was a notion that since the U.S. market is relatively open—we don’t have that much protection here, average applied tariff is about 3 ½ percent—that if we were able to reduce barriers to other countries disproportionately we could export more made by U.S. workers, and that export related jobs paid more than non-export related jobs, and that we could use access to our market as a way of getting other countries to reform their labor practices and raise their standards, which would create a more level playing field. That theory is sort of out of vogue at the moment. But, tell me, can you envisage what an agreement that is worker-centric looks like that reduces barriers or increases trade?

TAI: Sure. Well, I don’t know about “out of vogue.” I wouldn’t quite put it that way. But I know what you mean. I think that that was the thrust of our trade policies for a long time, and we’re trying to do something new. But I think it’s less about style and what’s in vogue and out of vogue. I think it’s more about looking at the data. Everything comes back to the data. As you look at the U.S. economy, and you think about that frame of, you know, export-led trade policies, today—I know the numbers have been updated just very, very recently—but approximately speaking the percentage of exports to GDP is around 10 percent—maybe 11 or 12 percent. So it’s not very high. Some of our—some of our trading partners have very, very high export as a proportion of GDP, right? I think trade—exports and imports—as part of GDP is 25 percent, somewhere below a quarter of our GDP. So you just have to put that into context.

But I think you also have to think about the fact of the balance of exports and imports. And we are—we are the consumer—consuming engine for the world. So we think that in terms of our approach to trade policy now, it is really to think about—as every negotiator does—where your power is and where your leverage lies in negotiations. Let me bring it to your question about worker-centrism, because I think you’re absolutely right. We’ve traditionally thought of, you know, those trade negotiations and market opening negotiations being the lever for trying to persuade our trading partners to adopt standards on labor practices, environmental practices, as well. And that was the fundamental deal, if you will, was that we would, in a way, pay for these higher standards, using our market access. Which, by the way, you’re totally right. We are a very open economy. So, you know, that leverage is what it is.

I think that today, if I’m going to boil it down to what we’re trying to do, it’s to take the president’s economic focus, which is to build out and reinvigorate the American middle class, and then to extend that out into the trade policy conversation to say: This is what we’re trying to do. We’re trying to create and maintain jobs, and good jobs, at home. Because that middle class is really important to our democracy. That middle class is important to the vigor in our economy and the opportunity that we can continue to create for Americans. And have a conversation with our trading partners. And it turns out that that’s what everybody’s trying to do. Everybody is trying to create jobs at home. Everybody is trying to promote opportunity.

And so then the question becomes not what do I have to pay you to do X, Y, or Z, but how can we put the forces of our cooperation together? What does the deal look like where we are building our middle classes together? And I think that the worker pieces then come in, along with the environment pieces, as something that I shouldn’t have to pay you to do, but as something that you should want to do—as I’m doing them as well—to grow that middle class, to create the opportunity for our workers to advocate for themselves, to build out a stronger workforce, a more vocal one, to strengthen our democracies. And it’s really a very new vision for where we might be able to take globalization.

FROMAN: So when you look back over the last three-plus years, can you point to examples where that has happened?

TAI: Yes. Yes. So, first of all, what I want to say is, when we look at how we’ve done I know that a lot of folks in here—we have—we have at least three USTRs in this room. I see Ambassador Carla Hills in the—in the audience. And lots of—lots of our trade policy, USTR, our sister agency alums in the room. I think that traditionally we’ve kept our scorecard by, you know, how many trade agreements you finished and how many you’ve gotten across the finish line. And we should definitely still be keeping track of that. I think, from my perspective, in terms of these past three years, what I also want to reflect is the enormity of this change in approach that we are trying to harness, and to try to bring our partners on board with.

And in that sense then, let’s look at where our progress lies. Our progress lies very much in how the conversation has fundamentally shifted. That the conversation now is very much focused on supply chain resilience, on equity, and how not to leave those within our economies behind further, how not to leave those developing countries behind further. Especially in this era where we’ve less—where we’ve left the worst of the pandemic behind us. And I think that if you’re tracking those changes in conversation, we’ve come a very, very long way. We’re opening up this next phase of trade policy approaches to be no longer our persuading people that you’ve got to change—because all the evidence is around us that things are changing. And success lies in embracing the fact that we should change.

The next set of questions that we are now approaching are what should that change look like? And I’ll just do a little bit of advance work here to say that I think that that is actually a key aspect going into MC13 for people to focus on, which is that MC13 is the first real reform ministerial conference. And the question that is squarely before all of the members of the WTO—and it is a very, very big family—is what are you looking for? What kinds of reforms and improvements are you looking for, for the WTO and the multilateral trading system? And I think that’s deeply exciting. And that is a marker of the amount of progress that we have made.

FROMAN: Well, let’s talk about that then. WTO used to be known for either broad multilateral or broad plurilateral negotiations, monitoring countries’ trade policies, being a forum where you could come and talk about each other’s trade policies, and then, thirdly, dispute settlement. All of those have broken down over the last ten years or so, in different ways, right? There’s no big Doha Round. That’s dead. The monitoring system, we’re reporting more on other countries’ subsidies than there’s reporting on their own subsidies, at times. And the dispute settlement system has ground to a halt—by actions taken by multiple administrations over time.

What do you see the value of the WTO now going forward? And how does this reform agenda that we’re pursuing at MC13, the upcoming ministerial, how will that position the WTO going forward?

TAI: Certainly. So I know that those of us in trade, we’re hard on ourselves and we’re hard on each other. We’re a hard charging bunch, right? That’s what makes—that’s what makes being USTR and trade negotiators really fun, is the angst—

FROMAN: I don’t think anybody thinks we’re really fun. (Laughter.)

TAI: I think you’re fun. I hope that—you know, amongst ourselves, I think that there’s a certain type of trade fun. (Laughter.) But I guess what I would say is this, to your question. Which is, going into MC13—I appreciate, you’ve articulated sort of the three branches of the WTO as an institution. We tend to really kind of be handwringers around, is the WTO still relevant? Has it broken down? Is the multilateral trading system on the ropes? If you can lift yourself out of this angstyness of, you know, trade negotiators and our compatriots, and you look at the WTO amongst its sister institutions—the Bretton Woods institutions. And you go—you look at—you look at the World Bank, and the IMF, and the IFC, and then you also look at the U.N. These are all institutions—and this is sort of the WTO then, you know, standing as the current incarnation of what had been the GATT in the post-World War Two system.

All of these institutions are grappling with the fact that they are showing signs of age. That they were born at a time of a world order that has done a lot, has done—has been quite successful. But that today, in 2023, it is a fundamentally different world that we live in than we were in in, say, 1945-1948, right? And so the question for all of us is one of adaptation, of modernization, and of reform. How do we reflect in these institutions the kinds of relationships that we have with each other and the kind of economy and world that we live in right now? And I think if you look at it that way—I’m not deeply in the world of U.N. or the World Bank. We’re all adjacent. But my reflection would be that there is a—there is a very serious reform consciousness—consciousness of the need for reform in each of these institutions.

But that if you look at the WTO, this is the one institution where reform is squarely on the agenda and where we are grappling with the questions of reform extremely robustly. We’re having very honest and difficult conversations. And I think, by that measure, the reinforcement is how important the WTO is and how we’re actually ahead of the sister institutions in the multilateral and the international framework in terms of grappling with this need for being updated.

One more—one more item I wanted to make sure to emphasize, in terms of the value of the WTO. As I’m preparing for MC13 one of the things that I am actually legitimately, truly looking forward to is having the opportunity at MC13, in the WTO context, to see so many of my counterparts. That is a huge part of the value of the WTO, which is it is the place where 164, and soon to be 166, economies all continue to show up and all continue to maintain relationships with each other. And at this time of increasing geopolitical tensions, that is extremely valuable.

FROMAN: So, I tend to agree with you that trade—the fun trade people, like ourselves, tend to spend too much time on the WTO as an institution and not so much on what’s the political consensus behind what countries want out of the global trading system, and then how to manifest it in the WTO. But from your perspective, what are those elements of reform? It’s good that the WTO is taking on reform. What should those elements of reform be for the WTO?

TAI: Great. So how can the WTO reflect the fact that the member economies today look different from the member economies just when the WTO was formed, in ’94, ’95, right? So there are more members, which means that there’s more diversity, more complexity in the—in the negotiations and the interactions that have to happen. And then, even amongst the members, you have seen evolutions of their—of their existences, right? So Brexit has happened. And so that’s one example. The European Union has expanded out. I want to say—I’ll have to factcheck this—that at the beginning of the WTO it was the EC fifteen, that eventually it went up to twenty-eight, and then is now twenty-seven, right?

So you see those manifestations of evolution and change. Also very much on our minds, and very, very relevant to dynamics at the WTO, China. In 2001—or, in 1995, China wasn’t even a member of the WTO. China joins in 2001. And if you look at just the economic indicators of China in 2001 versus China in 2024, you see how immensely China has grown and changed, and how different all of our relationships with China have become. And then also India. India, over the course of these thirty years now, is also an example of tremendous growth and change. And we need a WTO that reflects all of these changes.

I think that what I might do is just say, you know, the fact that we have scoped the reform conversation to include all three of the primary functions of the WTO is really, really important, because it is about the WTO as a whole adapting and reflecting the needs of the modern world economy, the aspirations and challenges of all of the countries in the developing world. Who, by the way, they are not monolithic. There is so much diversity and nuance within the developing world. I’d say if you just look at the dispute settlement piece, one of the primary questions that we are asking in the WTO reform negotiations and conversations is how can we have a dispute settlement system that is more true to what it should be doing, and what it should have been doing all along, which is helping WTO members resolve disputes.

Because disputes are going to happen all the time, no matter what. But over time, the dispute settlement system became a giant litigation forum. And that’s really the only form of dispute settlement that has really happened at the WTO. And yet, when you look at the dispute settlement understanding, in addition to the arbitration pieces there’s also good offices, conciliation, mediation. There are all these other avenues that nobody has ever used. And if you look at the litigation piece, over time it’s become very, very costly, very, very time intensive. And it’s all on the WTO website. If you look at who uses the dispute settlement system, it’s not the membership. It’s a very small subset of the membership. And so the majority of the WTO doesn’t even use the dispute settlement system. And that says, to me, that the dispute settlement system isn’t helping members do what it should be doing.

So, you know, this reform conversation, I think, is one where we have to pay particular attention to how do we maintain a constructive approach across 166 member economies. It is really important for us to be able to improve the WTO and to make it more useful to its members.

FROMAN: Well, there’s a lot more we can get into there. Maybe we will in the questions. But I wanted to move on to another thing that has changed a lot in the last same period of time we were just talking about. And that is the nature of technology and the nature of our economy. And that brings you to digital issues, data issues, and things of that sort. For a long time, the U.S. had a position around free flow of data across borders, not taxing digital products across borders. There’s been a recent change in that, both at the WTO and in APEC. How much of this is concern that something might happen in the trade field that would constrain either the ability of Congress to legislate privacy or any trust concerns regarding our large digital platforms—or the antitrust authorities themselves, the Department of Justice, the FTC—from taking the actions that they want to take with regard to competitiveness? And what does it mean—so, given the fact that the U.S. economy is probably—certainly the leader in all things digital, what does it mean for us to move away from defending these principles that have been so core to what we’ve tried to do before?

TAI: This is a great question. I really love it. And, you know, I just want to acknowledge the fact that you have always been a really generous source of advice and guidance to me from when I worked for you, when you were USTR, over time. And we had a conversation during the transition in your previous job where you raised for me the importance of these digital trade issues. And it’s obvious. This economy that we live in—and I know I’m looking at myself on a screen right here where, you know, I’m being transmitted out to lots of people over the digital infrastructure. Our entire lives, certainly our economy, have become a digital one, right? So what does that mean for trade? If the challenge for us in this time period in our collective history is to ensure that we are responsive and we’re reflective of reality, what does that mean for what we have called digital trade?

And so I’ll just take this opportunity to tell a little bit of a story that I hope and think that will be relatable for so many people in the room and online. When we started on these digital provisions in our trade practice, I think that the first FTA that had a chapter that dealt with—started dealing with these issues was Singapore. And we’re about to celebrate twenty years of the Singapore FTA this year. So early 2000s that we’re negotiating this. It’s called the e-commerce chapter. And it’s the e-commerce chapter in in several iterations of FTAs going forward, right? And I think that that makes sense if you think about what the digital economy looked like in the early 2000s. It really was about e-commerce. I mean, Amazon was still a startup. It was still, you know, in early—in early stages where Amazon, I think, was still mostly selling books in the late ’90s and early 2000s.

So when we thought about that that way, and thought, you know, how does that intersect with trade and the types of things that we negotiate, I think that we, rightly—appropriately at the time—thought about e-commerce digital trade provisions as largely facilitative provisions. The flow of data was there, and we wanted to safeguard the flow of data to facilitate traditional trade transactions, the movement of goods across borders, the analogy to services we used also in digital. But we thought about it in fairly traditional terms, as a trade facilitation modality. That makes perfect sense.

But if you fast forward to where we are today, in 2024, one of the things that you realize is that the flow of data, the decisions around where data needs to be stored, how it needs to be handled, has—on much, much different dimensions because over this period of time, in fact, in the digital economy the data is no longer just about facilitating traditional types of transactions. The data has become the commodity in and of itself. The data is now what has value. And the ability to accumulate that data and for vast amounts of data then to be combined with computing power to create things like generative AI and large language models, it starts to give you a sense, just as a normal trade negotiator, that there are much, much bigger equities at stake in what we might be doing in our trade negotiations.

It’s not just about facilitating trade. Is actually appreciating that the questions that are called around how we regulate data and how we regulate the companies that accumulate, harvest, and trade in this data is something that we need to resolve and advance before we can thoughtfully and responsibly engage in trade negotiations to figure out what the limits are in terms of what we should be doing, and what the goals are for what we should be doing with our trading partners. And I think, you know, one other data point for all of you is on the digital side—I will just admit, I come out of a very traditional trade background, trade in goods. I cut my teeth at USTR back when you were USTR, litigating a case on export restraints on raw materials, right? Those are the critical minerals, the things that come out of the ground. This digital conversation is one where I am learning alongside everybody else, and alongside all of our policymakers as well.

As we peel back the onion in thinking about data, data is something that you are generating, I’m generating. When I have my Fitbit on, I am generating data 24/7. That’s data that I have created that somebody else possesses, and someone else is monetizing and trading and manipulating, right? If you look at—through the reality of data brokers, the people who grab this data that’s all out there and then sells it, including moving it across borders, I think what you will learn is sort of hair raising in terms of what underlies the digital economy and our digital existences, and just thinking about what the rules should be for how that data is handled, who has rights to that data, and then the international components around trade and prosperity but also trade and national security.

FROMAN: The other thing I’d say to that is I think the issue of data has gone way beyond trade in goods for some time. Services, among other things, have been largely dependent on data. Now manufacturing also dependent on data. Three million lines of code in a car, things of that sort. And so how do you make sure you deal with the legitimate concerns that you just raised about national security, the selling of data, personal data in particular, without actually diminishing the capacity of U.S. companies and their workers to be competitive in an increasingly digital economy?

TAI: So this gives me an opportunity to talk about what we did to the WTO, which I think, you know, created a lot of furor and fireworks. For all of you who have been involved in trade negotiations and WTO negotiations, you know that it is traditionally a text-based exercise. And that, you know, everybody goes in flexing their muscles. And so you’re always going in and dialing your text to kind of the extreme, knowing that what comes out through the negotiations is going to be somewhere in the middle depending on where it’s going to land, if it can land. With that said, what we did in, I think it was October of last year, was go to these three to four provisions—one on data flows, one on data localization storage, and one on source code—and say: The United States is—and this is trade language, right? This is WTO lingo. We are withdrawing our attributions.

So in that text, where after every provision you have in parentheses all of the countries or WTO economies that have said this is—this is what—you know, this is where we’re putting our chips. We took that—we took the U.S. out of the parentheses in those three provisions. And what we said at the time was, it is so that we can reconsider our positions on these three very important issues and that we can come back with better-considered, better-informed, and better related to current domestic and international debates positions, right? So in terms of what we’ve done, we’ve not actually taken anything away from anyone. This world is still operating the way it has always. We are always looking out for the equities of the American economy, our stakeholders, our companies, and also our workers, and our small businesses, our entrepreneurs, our farmers, our ranchers, et cetera. But it is actually a very deliberate action that we have taken to allow for deliberative engagement on those issues that will reflect better where we are.

I will say this, if you look around the world at some of our closest trading partners you begin to appreciate how our systems are different. And that that means that we have different superpowers that we bring to our engagements around the world. If you look at the Europeans, I think that, despite being a very complex institution, that the European superpower, one of them, is regulation. That they are able to seize the attention of the rest of the world through their ability to coalesce twenty-seven member states around regulations and extraterritorial regulatory reach. If you look at our system, it is—you could call it a superpower. Our superpower is not regulating.

And in the area of technology especially, where technology is creating this digital existence, it is an area where we know that we have to take steps forward, and whether it’s through the competition enforcement, whether it’s through legislating on privacy, on the responsibility of stakeholders in the world of technology, how technology interacts with our democratic institutions, that it is actually really, really important for us to be connected as USTR to the rest of the conversation within the administration, in Congress, and beyond, to ensure that what we’re doing at the WTO, one, makes sense. Two, is consistent and coherent with everything else that we’re doing. And, three, ultimately is constructive to bringing about a world that respects freedoms, that—yes, that promotes economic vitality, but also isn’t blind to the implications of what we’re doing on all these other aspects of the interaction of government and the economy.

FROMAN: OK, one last question, then open it up to everybody here and online.

One thing that we’re increasingly doing here, at the Council, is focusing on tradeoffs. Sort of teeing up big policy issues and saying there are many different ways you can go, but each one has a tradeoff. And making those tradeoffs explicit. And trade is a great area to talk about tradeoffs. We hate being overly dependent on China for basic goods. We also hate inflation and higher cost of living. The actions taken to deal with the first one will likely exacerbate the second one. When you’re out traveling around the country—and I could—there are many others. We want to go to a green economy and deploy more solar panels here, but we don’t want to be overly dependent on imports from China. And so we impose tariffs on those and tariffs on other products coming from China. How do you talk about that tradeoff with communities around the country? And do you make explicit that, yes, you’re going to pay more at Walmart for this for that, but we’re going to become less dependent on China as a result?

TAI: So I think—I completely take your point about tradeoffs and making those explicit. And it’s great. And the thing that I really love is the USTR decision memo, that, you know, folks at USTR will prepare for the USTR. And, you know, it could be a number of decisions. And there will be kind of the pro/con discussion that’s inside of the memo. And so you’re you always have to be thinking about what the tradeoffs are, right? I think on your point around, let’s say, supply chain resilience, de-risking, diversification of trade, the clean transition also, I would say this. I think that, you know, we can break out a little bit of the tradeoff—kind of a little bit of that zero-sum dynamic if instead of just looking at this very moment, you make the conversation about the fact that in each of these areas what we’re dealing with is managing a transition.

That today, we know that we have critical dependencies and vulnerabilities that are actually bad from a national security and just a geopolitical standpoint. For every sector where we feel that we are, you know, critically vulnerable to another country and, say, China in particular, I think that it creates a sense of angst and insecurity that is destabilizing for the world economy and, frankly, for the world. And the flip side, there are things where—there are things where we hold the choke points, where—you know, where we flex that we’re willing to choke and we’re willing to press on those choke points, that it creates anxiety and nervousness in other parts of the world.

So where we are today in terms of resilience and diversification in our supply chains is not where we want to be. Where we are today in terms of the clean transition, in terms of, you know, future pro-climate economy and world is not where we know we need to be. So the question is, how do you get from here to there? I will say this with respect to supply chains, making changes now over the period of this transition is going to help to manage inflationary risks. So in each particular moment you might say, oh, well, you know, well, this means that, you know, this good might cost more today. But if you look at it from a more holistic, medium-term perspective, right, supply chain diversity and supply chain resilience is actually a management tool for inflation.

For as long as there are concentrated pockets for production and supply—and this is internationally, but this is also the logic behind taking on dominant players in our economy—for as long as you have that kind of dominance, you’re going to have in the hands of a certain players the ability to distort the market and to take advantage of that dominance by jacking up prices, right? Whether it’s shrinkflation, or greedflation, or in the international context economic coercion. It’s really a—if you think about the tradeoff as between today and tomorrow, it’s not zero-sum at all. And in fact, these changes are ones that we need to be able to manage, not being faced with the same risks over and over and over again.

FROMAN: All right. Well, let’s open it up. Yes. This woman right here. Yeah, here it comes.

Q: Thank you very much for that, Ambassador Tai.

FROMAN: Please identify yourself and—

Q: Sorry. Allie Renison. Slight self-interest here, because I just stepped down from being a policy advisor to your opposite number in the U.K., Kemi Badenoch, who’s the trade secretary of state and business.

I want to ask you a question about allies or, I guess, what you’d call traditional kind of allies with kind of similarly developed economies—whether it’s the U.K., Europe, or those further afield. What is the role with respect to U.S. trade policy with those countries, with those entities? Because obviously there’s been a lot of geostrategic prioritization of other regions, for various reasons that are understandable. But if you look at an agreement, like TTIP, which Ambassador Froman sort of was negotiating, I remember there was a big focus on that being kind of an agreement that was going to bring together a critical mass to kind of influence the way in which trade policy and, to some extent I suppose you could say, regulations were set. We’ve moved on from that a little bit. I’m just wondering where you see the role is for trade policy with those kinds of allies.

TAI: So your question is about the role for our partners. And I would say that those partners are—they’re still our partners and they’re still incredibly important. I think that, you know, when you talk about some evolution in our approach, I just want to be clear, the evolution in our approach is about what should be in those things, what should be in those agreements, what should be in the exercises and the cooperation that we undertake with our partners. This is not a walking away from those partners, at all. In fact, you’ll see how much time I spend in Brussels, how much time I’ve spent in Asia, and the Indo-Pacific over the course of the last three years. And you’ll see that the prioritization of our like-minded partners, our traditional partners if you will, is still very much there.

In fact, I think it was—in 2021 was the first year that the G-7 trade track was introduced. And it’s continued every year because we found it to be an important platform for those allies in particular, and being able to have the honest conversations around how are we going to adapt the way that we work through the challenges that we’re facing. I will say in this context, one of the topics that comes up in the G-7, in the G-20—but, I want to emphasize in the G-7 especially because G-7 is a small group of allies and partners. It is a very well-to-do group of economies and countries. That even in the G-7 you see a large part of the conversation that’s also reflected in G-20 and APEC and at the WTO. One around the question of how we engage with, how we partner with more successfully other partners that are in the developing world. Less advanced economies, and how we can advance more successful templates for trade and economic partnerships. And I think that that also is a really important part of what we’re trying to accomplish, including through reform at the WTO, which is what is a 2024 modern trade and globalization vision that breaks us even further out of past patterns and post-colonial patterns?

FROMAN: All right. Next question. Jennifer Hillman, way back there in the back. Senior fellow here at the Council.

Q: Thank you very much. Jennifer Hillman from Georgetown Law School and the Council on Foreign Relations. Thank you very much, Ambassador Tai.

I’m kind of wanting to turn a little bit to the sort of political context of trade policy. And I’m thinking about a study that just came out by MIT economist David Autor, who was the author of the very famous China Shock paper about the damage that China’s imports did to the U.S. economy. And their recent study finds kind of four things. One is that the Trump tariffs on 301 and 232 did not do any good for the U.S. economy in the heartland. Secondly, did not bring back any jobs into the protected sector. Thirdly, that the retaliation tariffs from China actually did cause a significant negative harm, especially on the farmers.

And fourthly—and this is the one that I’m really wanting you to comment on—that what the tariffs did do is increase the political support for Trump and for the Republican Party. Now, the Biden administration has kept all of those tariffs in place. And so I’m just wondering, kind of where that leaves room for any maneuvering in terms of the political context in which we find ourselves, with respect to trade policy generally or these tariffs in specific.

TAI: Great. Well, so, Jennifer, I’m not surprised that you asked those questions. And I’m not surprised that the questions, and maybe even that study, have focused on the tariffs. Something that I just want to be really open about, I think that, you know, reducing trade policy and U.S. trade policy down to a conversation about tariffs is really—is really unfair and, I think, ultimately not conducive to a really robust appreciation for what trade policy is. In many ways, it’s a red herring. And you’re right, I think that there is something political about it. But I don’t think it’s a D versus R, R versus D politics. I think it’s a political red herring that is continually fostered by kind of the traditional trade approach versus the need to evolve into a new trade approach.

And so let me say a little bit more about that. What is really important to appreciate about tariffs is that they’re a tool. They’re a tool that can be used in constructive ways. They’re a tool, at least for us, in trade remedies. I know this is very much your background—dumping and countervail, safeguards. They are a playing field leveling tool. They are a tool for remedying unfair trade. I actually kind of like the way the Europeans describe these types of tools—dumping, countervail. They call them trade defense instruments. So, you know, within the—within the world of the WTO and what is blessed by WTO are trade remedies and trade defense and the use of tariffs to counterbalance unfair trade, like dumping and illegal subsidization.

What I also want to reflect is that trade policy and economic policy isn’t just tariffs. And this is something I want to distinguish on behalf of the Biden administration, because we are—we are focused on reinvigorating the American middle class and the American economy, ensuring that there is more opportunity in our—in our economy that we can address the increasing sense of economic insecurity that Americans, especially younger Americans, have been feeling over the past ten, twenty years, right? And that what we have done is to deploy a set of tools. You’re right that we have kept a lot of the tariffs, because we see strategic value in those tariffs in this exercise of building up the middle class and reinvigorating American manufacturing and the American economy. But we haven’t stopped there, right?

Trade and tariffs are not the only tool you will need to accomplish those goals. I want to highlight one of the pillars of the Biden economic approach, which is the investments. Starting with infrastructure, going to CHIPS and Science, and the Inflation Reduction Act, and the clean technology investments and incentives that President Biden has effectuated against many people’s expectations in just the past three years. And so from our perspective, it is—if the economy doesn’t, as it operates, make a distinction between all these different disciplines and silos that we’ve created in the way we approach it, then our approach needs to break down those silos.

And it needs to take the tariffs as a tool, the investments as another tool to help reinforce, policies that support and empower all workers, and to encourage our partners to be supporting and empowering their workers, and then also promoting economic vitality, opportunity through the enforcement of our competition laws. That when taken together you can see what we’re trying to accomplish. And when taken together, I would welcome anyone to do a study and look at all of these working in concert and how they have made changes to the U.S. economy. And I think at this point, President Biden has created close to a million new manufacturing jobs. You have to be looking at all these policy vectors as combined. But picking and choosing them I think really does trade policy, as part of the economic policy family, a significant injustice.

FROMAN: Let’s go to a comment or a question from our virtual audience.

OPERATOR: We’ll take our next question from Itai Grinberg.

Q: Hi, Ambassador Tai. This is Itai Grinberg with Georgetown Law. And my colleague—you just answered the question of my colleague, Jennifer. So thank you for that. I was also formerly the lead international tax official at Treasury in the first couple of years of this administration.

I thought you made insightful points about how data has value. And there are companies that are harvesting this data. And that we need to figure out how we’re going to regulate data accumulation as a result. But that same language, that exact language, is often used by some of our trading partners as a justification for tax-based rules that are limited in application to a very small list of companies. Companies that meet very high national and global revenue thresholds, for example. That ring-fencing approach ends up defining a small group of companies that are exclusively or almost exclusively U.S. headquartered. And I wonder what you would say about that? Do we continue to have a nondiscrimination concern? Could you say a little more about how you think that data value conversation should move forward multilaterally, bringing together the trade stuff and the tax stuff?

TAI: Sure. Itai, it’s nice to hear your voice. And I love that you have identified yourself as a tax maven, because some of these issues where trade and tax come together I can push back on you and say: Why didn’t you make more progress to make my life—(laughter)—to make my life a little easier? You know, actually, I do feel that way. But I also like you very much, so I’m sort of just kidding. (Laughter.)

So, yes. Nondiscrimination is one of the—one of the pillars on which our multilateral trading system is based. And so that is something that we are always going to be looking at. The other piece of the puzzle though is when you look at—and so, you know, we’re talking about data and technology. When you look at the big tech players, they’re almost all, quote, “our companies,” right? And I think that there is—there is an important space that we need to leave for other countries and other partners to be regulating legitimately in the public interest, and not to be protecting their own market, when looking at the biggest companies in the world that happen to be American companies.

Sidenote, a question that I have been asking, and I think that my tax colleagues are important to answering this question, what is an American company? If you talk about being headquartered here in the U.S., are they all headquartered here, if we’re talking about the companies that I think we’re talking about? Because from a tax perspective—and, again, I’m not a tax person. I just work near tax people all my life and have been told that trade is less important than tax. But, you know, it’s still a thing. How many of our—how many of our big tech companies are actually, for tax purposes, headquartered in other places, and actually paying taxes there as opposed to paying taxes here? So if that’s the definition of an American company, I’ll have to ask you and others how many of these American companies are actually really American companies? And how does that inform the discrimination conversation?

But what I do really want to enforce is that we are looking at this issue of data and value. We have so many unanswered questions. And, you know, I’m going to—this is a little bit aside from the question you’ve asked, but I think I have a bit of a segue here. I’m often asked if what we did in terms of withdrawing attributions and reserving the space to come back to the WTO with updated U.S. positions in the WTO conversation is somehow some kind of a surrender to other approaches to the digital economy. In particular, it’s a surrender to the Chinese approach to digital regulation and control. This gives me an opportunity to say this: Which is, from everything that we know with respect to data flows and China, that the PRC’s approach is one that is really informed by control, especially by the government, and possession.

So that what we see in terms of how the worldwide digital economy works, we know that the PRC is going to be looking for a lot of room to restrict data flows, to have the government tell companies where data can flow, where it can reside, that it must be localized within their borders. And what we know is data flows into China. It doesn’t flow back out. And that all of that data eventually will either be in the possession of or be accessible to the state. And we know that when we look at that model, it really doesn’t reflect our values. And that that is not what we want. And I think that we have—we have actually a lot of consistency with many of our trading partners, that that’s not the system that we want.

On the flip side, when we take a look at ourselves and where we are right now, what I would observe is we have a system that has very little regulation. In fact, I have been told by my friends on the Hill, whichever part of the political spectrum they might sit on, that an American has no privacy rights to their data here in the United States. And that just doesn’t feel right. And that’s something that they are trying to do something about. But that in our system, all of the data that is created by all of us is captured and accessed by not the state but a small set of extremely powerful, extremely rich companies. And that suggests to me that we are way on the other side of the spectrum, where a lot of our closest partners are looking at us—and in fact even our own policymakers are looking at where we are—and saying: That isn’t the right balance, either.

That what we need to do is figure out, from a tax perspective but also more broadly from a regulatory perspective, what is the place? Where is the United States? What is our approach? And that’s not to say that trade doesn’t have a place in this conversation, but what I would suggest is that if we’re only leading this conversation using trade and trade negotiations, that is very much the tail wagging the dog. That there are much, much bigger issues for our policy decision making and debate to resolve and address first. And it’s not all about the trade rules. But, Itai, thank you for your—for your indulgence.

FROMAN: I know we all look forward to Congress legislating—(laughter)—anything, including privacy. (Laughter.) So hopefully, they’ll get their act together.

Why don’t we go here to the center?

Q: Thank you so much, Ambassador Tai. Kellie Meiman with McLarty Associates. Good to see you.

I know that trade goes far beyond tariffs, but I’m going to return to tariffs for one second. Because one of the elephants in the room are proposals in the context of our electoral campaign—but not even just here, globally—that would be not trade defense or trade remedies, but kind of a blanket unilateral increase of tariffs. And just given everything that you and Ambassador Froman were talking about with the—you know, the weaknesses of the global trading system, et cetera, what do you see as being—when that feels so attractive politically, right, to say, but with the inflationary impact not just on consumers but on our services sector, on our manufacturing, and, frankly, just the retaliation risk, as far as, you know, what other countries would do to U.S. exports, is so real. How do you think that this threat here and among our trading partners might be addressed? Thank you.

TAI: So I think you described it as an elephant in the room, but I think that it’s actually a particular person that you’re talking about, right? So I guess what I would say is this: Everybody, just take a breath. When tariffs come up, I don’t know, just really channel your trade nerd self and recognize that tariffs are a tool. That they can be—they can be emotional. And they can be hyper dramatic. And we’ve seen them used in that way in the past. But, whether it’s coming from us or from others in our national debate, take the time. Use your trade expertise. Interrogate what is being proposed. And ask: What would this action be done for? What is the objective? It’s a little bit like the flip side of, you know, trade liberalization for trade liberalization’s sake. Let’s ask, you know, what larger purposes liberalization might serve, and how we can use liberalization as a tool to accomplish those goals.

For me, you know, it’s—at this point in everything that we see in the world economy—in that conversation how does trade liberalization and, you know, other tools—how can they be harnessed to promote sustainability, resilience, and more inclusive economic outcomes? On the tariff side, I would say let’s take the same approach. Which is to say, tariffs shouldn’t be applied just for tariffs’ sake, right? But ask that secondary question, which is: What is the goal that you’re trying to accomplish with those tariffs? And whether or not you can—you can articulate a coherent, a strategic approach. And I think from my perspective, again, I’ll just bring it back to, the way that we have approached the issue of tariffs and trade policy has been to contextualize it around the overall goal of building out the middle class, reinvigorating America’s economy, and how we can work with our partners on a constructive vision for how we do all of this together.

FROMAN: I’m sorry, prerogative. Chad Bown at Peterson Institute has looked at our tariffs on China and divided them into strategic and nonstrategic. So areas where we want to reshore, create manufacturing here. Other areas that we’ve—there’s no great strategic value. How do—what is the answer to your own question? What is our strategic justification for keeping tariffs on nonstrategic sectors?

TAI: So I believe Chad is now at the State Department.

FROMAN: Oh! (Laughter.)

TAI: And so we should ask him—(laughter)—whether he still stands by where he drew his lines around strategic and nonstrategic, because I think that, you know, in concept, yes. You know, there are things that are more strategic, things that maybe we feel like are less strategic or not strategic. But, you know, I think that is actually a really, really important question. And it’s a hard one—what’s strategic and what isn’t? We clearly did not think that surgical masks—surgical, you know, medical-grade gloves and ventilators were that strategic. And so we let that go wherever it was going to go. And in the early days of the pandemic, boy, did that hurt us a lot. So, you know, one of the—one of the stories that came out of the pandemic was all of our—all of our textile manufacturers, you know, were told your industry is not that strategic. They’d been told it for a long time. And yet, we know that it is important. It’s politically important. And USTR has for a very long time had a textiles office and textiles negotiator.

It was that—it was that textiles industry, what we still have, that was able to repurpose their capabilities and to step up, and to actually start producing some of these things that we were really deficient in during the pandemic, and to save us. So I think that that’s actually a really powerful question that you’ve asked around where you draw the lines on strategic and nonstrategic. It’s not necessarily obvious. And I think the second question is, whose responsibility is it to draw those lines? And I think that that is actually an important part of what we need to do as a government, is to—is to figure out how we approach that question.

FROMAN: Last question, here.

Q: Kimberly Reed. Immediate past chairman of the Export-Import Bank of the United States.

Today is a really important day. I’m going to be joining you shortly at the White House to celebrate the 90th anniversary of the Export-Import Bank. And you serve as an ex officio member of the bank. When I left in 2021, we’d worked hard to reopen the agency. It essentially had been shut for four years because of Congress. And in 2019 was my confirmation, when we reopened it. When I left in 2021, we had about $40 billion on our book. Ex-Im can be lending at any one time $135 billion. That’s financing to the foreign buyers to help the world buy American. Right now, I’m not privy to internal information, but it looks like we’re still at about 40 billion (dollars). So we have the ability to be lending a lot more to help the world, and Ex-Im is falling behind other countries—like France, like China, Germany, et cetera. What else should we be doing to really say to the world: Buy us?

TAI: Well, I think this reinforces the overall goal that we have in terms of reinvigorating the American manufacturing economy. One additional item is, you know, if 95 percent of the world’s consumers live outside of our borders, and we want to sell to them, one is recognizing that we’re actually the world’s biggest importer. But, second of all, there’s a limit to what you can sell abroad. What’s limiting that is how much you make at home, right? So I think I’m very pleased to have a robust and functioning Ex-Im, a sibling in the family of administration agencies, another member of the team—of the economic team and the international economic team to be working with.

And I think that, you know, as we adapt our approach to new realities, to looking at sustainability both for the planet and for our people, resilience of supply chains and, you know, where things are produced, the diversification there, that Ex-Im is an incredibly important partner of ours. And I couldn’t be more pleased to be an ex officio member of the Ex-Im board, and to navigate all of these decisions and all these opportunities with an agency like Ex-Im.

FROMAN: Well, let me formally recognize, first, Ambassador Carla Hills, who’s here, who all subsequent USTRs look up to as a great role model. Also, she’s on the board of directors of the Council on Foreign Relations. (Laughter.) So she’s one of my many bosses. It’s great to have her here. And please join me in thanking Ambassador Tai. (Applause.)

(END)

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