The Future of U.S. Trade

Thursday, February 20, 2020
Kevin Lamarque/Reuters

Senior Fellow for Trade and International Political Economy, Council on Foreign Relations; @J_A_Hillman 

Chairman and Chief Executive Officer, Hills & Company, International Consultants; Former United States Trade Representative; Chairman Emeritus, Council on Foreign Relations

Fred P. Hochberg

Author, Trade Is Not a Four-Letter Word; Principal, Heyday; Former Chairman and President, Export-Import Bank of the United States (2009-2017)

Roger C. Altman

Founder and Senior Chairman, Evercore

Speakers discuss U.S. trade, including the recent USMCA deal, trade disputes with China, and possible trade conflicts with Europe.

ALTMAN: Good afternoon, everybody. Welcome to the Council and to this discussion on “The Future of U.S. Trade.”

I’m Roger Altman. We have a(n) exceedingly capable panel. You have their biographical information with you. I’m not going to read it but I’ll simply point out that Carla Hills has led as distinguished a career in public service as anybody—one could find or meet.

Fred Hochberg just published a new book. I commend it to all of you. I read it. It’s called Trade is Not a Four-Letter Word and Fred also served—(laughter)—this is not a book party, though. (Laughter.) And Fred served, of course, for eight years as the leader of Ex-Im and before that as acting director of SBA.

And Jennifer Hillman was here at the Council. Our own—our own Jennifer, among other things, is a prolific author—I read a great deal of Jennifer’s writings preparing for this—and came to the Council from Georgetown Law School. And she has an extraordinarily—extraordinary body of experience, as you can see from the biographical information: WTO, USTR, and so forth.

I would remind everybody that the discussion tonight is on the record. I think you’ve already heard that, but just to reiterate that. And the format will be that I will pose questions to our panelists for the first twenty-five minutes or so and then, following that, I will open the floor to all of you to ask questions. So please prepare your questions.

So let me begin, and I’m going to begin with Carla Hills. Carla, I looked up a few estimates on projected 2020 global trade growth, and most of them center around 2 ¾ percent this year versus about a 2 ½ percent underlying global GDP growth rate.

So I have a multi-part question. The first part is we hear a great deal about rising protectionism around the world and less-than-optimal trade policies beyond that, and so the first question is put that growth figure in—trade growth figure in perspective. Is it that the fears of protectionism throttling trade are overrated or is it that that’s actually a relatively weak figure, or how would you—how do you think of it?

HILLS: Trade is, generally, the motor of our economic growth and so it’s regularly been twice the size of our GDP. Trade pulls. It’s the horse that pulls the cart, and so you ought not to be enthusiastic about the estimates and we don’t know what they will be in reality.

And I think also the tariffs have been noted to have costs that are quite high. You know, various economic analysis shows just the tariffs on our—on China have cost us about three hundred billion (dollars) through—they’re expecting through this year. So I’m not a big fan of tariffs and I do think that they have a cost that is unfortunate.

ALTMAN: OK. The second half of my question is there are some tremendous headwinds around the world—obviously, the tariff-focused policy here in the United States, Brexit, and a whole series of other headwinds. Just talk for a moment about the degree to which underlying market forces—technology, globalization itself, the continued development of emerging markets—remain strong enough to offset all those headwinds.

Because my own reaction to the 2.7 (percent) figure was I thought it would be lower. And do we live in a world where however bad the policies may be, however revanchist, fortunately, markets are stronger than that? Would you agree with that statement or would you not agree with it?

HILLS: I think that we can have a lot of faith in the market. But we also ought to have a lot of realism that the uncertainty created by a lack of clear policy has a cost which takes down our growth—that the tariffs are part of that uncertainty and not only do we levy the tariffs but we get retaliation in response. And it’s not only the tariff war that is ongoing but protectionism, according to the World Trade Organization, is at a sky-high rate.

So that what we tried to do at Bretton Woods was to go to globalization and have countries abide by rules and bring their tariffs down so that we could have a competitive economy. What we receded in doing is to close the markets and bring tariffs up, and so we’re not leading by example.

We have some good news. I think the emerging economy, certainly, in Africa and in South Asia, are growing. That’s a plus. But wouldn’t it be wonderful if the United States had raised the flag and led and creating rules that governed trade that would enable maximum growth and prosperity? Because trade isn’t only economic growth. It is also security and creates bonds that we can’t manage well without.

HOCHBERG: I think, Roger, also we have—there’s more—in China and other developed countries there’s—somewhat supply chains are also in their national borders. That’s a factor. It’s harder to measure digital trade flows. That’s another factor. Oil prices are down—that’s another—in terms of just volume—dollar—you know, nominal value. In a small way, there are four hundred 737 Max jets sitting on a tarmac in Washington state that aren’t leaving the country.

So, you know, there are a lot of other factors as well, and I was thinking air traffic used to grow at one and a half times global GDP and it’s now at, like, 1.4 (percent), 1.3 (percent). So that’s also slightly off. That may be because people can use Skype. People teleconference in FaceTime and so forth. So, you know, it may be harder at the moment to really discern what—how worrisome or what—what’s really driving those trends.

ALTMAN: OK. Let me turn—I’m going to start this part with you, Jennifer, if I may. Let me turn to U.S.-China trade, and I have a few questions here about this, because I think that’s the most—at least the most discussed aspect of trade. Whether it ought to be or not, another matter. But it is.

So my first question is about the phase one agreement that was just signed a month ago. Do you see any evidence that that agreement will lead to genuine structural reform within China, and by that I mean, for example, the treatment of intellectual property, the issue of mandated technology transfer, the role of the state-owned enterprises and related subsidies, and command and control nature of the Chinese economy?

HILLMAN: Well, I think, unfortunately, we see very little. If you think about this whole trade war with China, it really started with a concern over the overcapacity in China in steel, in aluminum, in chemicals, across the board. There was a perception that China was flooding not just the United States but the world with all of these extra products that were built on the backs of subsidies and state-owned enterprises. And, again, you had this 301 report come out complaining about technology transfer and intellectual property.

But then if you look at what was the very first item—the number-one item on the list that the United States presented to China for what it wanted to fix—it was reduce the bilateral deficit, meaning, you know, the number-one goal became buy more U.S. goods and then we will somehow be satisfied.

And I think it’s very clear that that’s what we see in this phase one agreement, that the lion’s share of what’s in that agreement is this agreement that China will buy $200 billion worth more of goods broken down into four different categories and what’s becoming very clear is how utterly unrealistic those goals are. Just completely unrealistic.

In the agricultural area they’re supposed to buy, you know, $34 billion worth of agriculture from the United States. The estimates that came out of the USDA today indicate that we’ll be lucky to hit fourteen billion (dollars). So, I mean, almost $20 billion less than what the goal was. Same thing in energy. I mean, just utterly unrealistic goals.

I mean, China would have to be importing, according to the numbers, 1 million barrels of crude oil a day, five hundred thousand barrels of refined product, one hundred tankers of LNG. There aren’t the facilities either in the United States or in China to engage in anywhere near that level of trade.

So the lion’s share of what came out of the agreement was this unrealistic idea of China buying all of this. What did not come out of it was anything on subsidies or state-owned enterprises or the degree to which the Communist Party is putting a member on every single board of every single corporation in China and expecting the rest of the board to always vote with the Communist Party member that’s on their board. None of those issues were addressed at all.

And to the extent that intellectual property and technology transfer were addressed, which they were, they were improvements on commitments that China made in 2001 when it joined the WTO. China promised that it would not condition import licensing or other things on technology transfer. China promised that it would live with a lot of intellectual property commitments, and it didn’t.

So the question now is in this new agreement, which does have more specific commitments, how enforceable are they. If China didn’t live with the other commitments, what is there in this agreement to expect that they’re now going to live with these more explicit commitments in this area, and I think that’s an open question. We just don’t know yet whether we will see, you know, movement in that direction.

ALTMAN: What would your guess be?

HILLMAN: I’m pretty dubious. You know, again, I think the problem with tech transfer is it’s very hard for companies. I mean, again, sitting at USTR, we would get companies coming in and saying—complaining to us that, you know, we’re being forced to turn over our technology, and we’d say, great, we’re ready to file a WTO case challenging it because China is breaking its commitment not to do that. And the immediate response would be, oh, don’t use my name. I don’t want to be anywhere affiliated with that case because China will retaliate against me immediately.

So whether we’ve solved the evidence problem there, again, in this agreement there is this notion that you can create, in essence, a rebuttable presumption that if you just put up a little bit of evidence about a violation that then the burden shifts over to China to prove that it didn’t do the technology transfer.

So maybe, maybe, there is enough in this agreement that we would see it be a little bit more enforced. But it is going to depend on companies being willing to come forward and complain, and so far they have been reluctant to do so.

ALTMAN: One more question, Jennifer, before I turn to Fred. Do you think there will be a phase two agreement, whether it’s under this administration or a subsequent administration, which gets more seriously into these structural reform issues?

HILLMAN: My own view is I don’t think there is enough leverage in the United States even if we put tariffs on everything to get China to make these kind of commitments. My own view has always been that by far a better way to do this is with our allies and in a rules-based system like the WTO because I do think if you could get a whole group of countries, many of whom absolutely share the Trump administration’s concern about China—I think the whole world agrees that China has not done what everybody expected when it joined the WTO—that China’s actions are a problem for the world. There is universal agreement on that.

And so the question is can we put together a large coalition that will collectively go after China. Or you’re, effectively, saying to China, if you want to be a member in good standing at the WTO, which I think China does, you have got to play by the rules of the WTO. And if the rules of the WTO need to be adjusted a bit in order to make sure that they cover China’s behavior, so be it.

But there has to be, to me, a larger group multilateral effort in order to get the kind of change that we’re talking about, and even then, I think the notion that you’re going to sort of weed out the Communist Party and the Communist Party’s influence over the economy, I don’t see much hope of it. Do I think you could discipline subsidies? Yes, you could discipline subsidies.

HILLS: I don’t think it’s necessary to weed out the Communist Party. I think it’s necessary to have China abide by the rules, as Jennifer has said. We do business with communist countries. Malaysia is a communist country. We get along fine with it. What we do not want is the subsidies that are given that create an uneven playing field and that free land, lack of taxes, subsidies are given to state-owned enterprises.

If you have a state-owned enterprise—Singapore has them. A host of governments have them. California has a state-owned enterprise. But we don’t use subsidies and give tax treatment. They have to abide by the commercial rules.

HOCHBERG: You know, also, I think so much of that China deal was predicated on solving a trade deficit that very few people outside of Donald Trump and Peter Navarro think is such a big problem. So if you say, my main goal is to get $200 billion sold, a lot of other issues fall to the side. So I think that’s—that was, fundamentally, a problem .

ALTMAN: Well, all right. Let me take that and enlarge it a little bit and direct this to you, please. And, Fred, of course, you had a very distinguished business career before you embarked on most of your public service career. Most people in the business community that I encounter have a schizophrenic view on the Trump administration’s policy toward China as follows.

At one level, they, fundamentally, don’t like tariffs. Think tariffs are ineffective, think consumers pay a hundred percent of the—of the tariffs and so forth. But at another level, they give President Trump credit for standing up to China and calling China out, so to speak, in a way that, they would argue, a series of recent presidents on both sides did not do.


ALTMAN: So what is your assessment there?

HOCHBERG: Well, when I wrote the book I went out to Iowa and interviewed a number of farmers and manufacturers there, and they really were hurting. But what was clear is if Donald Trump has a trade war and Donald Trump is imposing tariffs, he’s doing it for the right reason, in their mind. He’s a billionaire. He’s a businessman. He doesn’t care about human rights. He doesn’t care about religious freedom. He doesn’t care about the environment. And they felt, sort of inferred, if Barack Obama did this or some other president did this—they have all these other things they’re worried about.

But in their view, Donald Trump cares about one thing—my business and making money and making a profit. So if I have to suffer I’ll do it because I know he’s smart and he’s doing it for the right reasons.

By the way, which is another reason why he can’t let his tax returns out because that might show he’s not the wealthy billionaire that he says he is. So I think all of that had a lot to do with the support he’s getting, and these farmers are really suffering terribly in Iowa when I went out to see them a year ago.

And by the way, just to pick up on Carla’s point, you know, we have our own anxiety about the WTO, the World Trade Organization. You know, it’s not like something we embrace in a warm fuzzy way as a country. So it’s hard for us to say we should really rely on them when we have our own anxiety about being in the same room with them. (Laughter.)

ALTMAN: All right. Let me ask a question and any of you would like to respond to this please do, or all of you, and that is about Huawei, which, of course, is the object of much attention and much tension and so forth. I think there’s two worlds that address, in the United States, the Huawei issue. One, as Carla was talking about earlier before we came up here, the official world—government leaders, intelligence leaders, Defense Department, and so forth. And the other is the private sector.

What I find in the private sector among large and sophisticated technology companies is they agree with the official assessment, namely, that when you consider the unknown ownership of Huawei, when you consider the massive financing and subsidies that the People’s Republic has provided to Huawei, they agree that Huawei is, essentially, or could be used, I should say, as an arm of Chinese intelligence services, which conclusion, obviously, poses all kinds of complicated questions as to what we do about it. But what is your view? Huawei and the whole question.

HOCHBERG: Well, I think Huawei is wrapped up, and even I remember in Australia there was a lot of—there was concern about turning over the power system to Chinese manufacturing and Chinese equipment because do we really want to put our entire electrical grid under Chinese control.

I, certainly, saw, when I was at the Export-Import Bank, the kind of subsidies that Huawei both received and, in their exporting, the kind of financing that they would put on the table, just far outflanked anything we could do as the U.S. export bank or, frankly, other export banks around the world.

So they have a very strong stated interest, and I don’t believe—the lines between “private and public,” quote/unquote, in China are—

ALTMAN: Invisible.

HOCHBERG: —invisible or they’re so porous they don’t exist.

ALTMAN: Either—

HILLMAN: I mean, I also think we’re seeing a little bit of a debate here even within our own government where, on the one hand, you saw the Trump administration early on move against ZTE, the other large telecommunications company, which was unequivocally found to have been violating all of our sanctions by installing very sophisticated telecommunication systems. I’m not talking about selling cell phones. I’m talking about putting up an entire telecommunication system in North Korea and in Iran.

And we, arguably, went after ZTE and then let them off the hook. And, similarly, with Huawei, we sort of on the one hand are saying we’re going to sanction and then on the other hand we say but we’ll continue to allow U.S. companies to export—to export out the door to sell to Huawei but we’re maybe going to restrain the imports of Huawei product coming in, going around to the rest of the world saying, don’t you dare, U.K., let Huawei into your network and, yet, Boris Johnson decides to do that.

So we are, clearly, giving very mixed signals to the world and, again, to me where you see this really playing out is what’s happening with Huawei’s 5G and entrances, for example, in Africa where something like 70 percent of the market is Huawei product. Ditto in other parts of South Asia where they are really owning that market. And the concern, I think, for everybody is that we’re going to end up with two entirely separate worlds that don’t interface with each other, that don’t speak to each other, where we have an entirely Western system that doesn’t connect to and has no inoperability with the Chinese system, and you’re then going to put Europe and Japan in the extremely difficult position of having to choose, and neither of them will want to be in that position. And the longer we let this debate go on I think the harder it becomes to figure out how do you not end up in a totally bifurcated information communication system.

HILLS: I totally agree, and I think that we have reached out to our Western allies and they have turned their back on this. Of all that we have contacted, we only have three acceptances. So your party is not getting a standing ovation.

ALTMAN: Yeah. Well, one obvious problem is the paucity of other suppliers. So there is not at the moment a U.S. flag 5G infrastructure provider. You have Nokia, you have Ericsson, and not much else.

HILLS: Right.

ALTMAN: And that makes it hard for some companies, because those companies—Nokia and Ericsson—are not as strong as Huawei, broadly speaking. Makes it hard for some countries—Germany and Britain and so forth—to decline Huawei.

HOCHBERG: And what Jennifer was saying, I actually saw this firsthand. The amount of capital behind Huawei to buy that business in much of sub-Saharan Africa—I mean, it was enormous and hard to meet.

ALTMAN: OK. A couple more questions here. Let me ask a question about USMCA, and, Jennifer, I’m going to ask about you—this of you because you’ve written about it. Compared to NAFTA, tell us whether it’s just described as better or whether it’s really better or it’s actually not better at all—(laughter)—and talk for a moment about whether the labor reforms, the auto-related changes, really mean anything.

HILLMAN: Well, again, for me, when I step back from it and look at it, I think there’s sort of one analysis that’s sort of the economics and the substance of it and the other is the politics of it, and I do think they’re fairly different.

On the economics of it, I think everybody looking at it says that it’s at best a tiny marginal improvement over having done nothing. And others would indicate that it is actually a net negative because the rules of origin on autos are going to make it much harder for there to be integrated auto production, and autos is a huge amount of the trade between Canada, the United States, and Mexico—highly integrated industries, and it’s going to make it harder for them to continue to do business as such.

So on the auto side, a clear negative in terms of the amount of trade, and on the other provisions, the problem is you don’t get as much from them. The vast majority of the changes other than autos that are in the agreement are to, basically, pull in a lot of the modernizing principles out of the Trans-Pacific Partnership.

Really, you’re bringing in the agreement on digital trade and saying there’ll be no tariffs on the movement of digital products and you’re bringing in a lot of the standards in and around sort of the digital e-commerce economy and a number of the other provisions from the TPP are being brought into the USMCA.

So my view would be those are all good. The question is do they do much in terms of move the economic needle. Probably not, in terms of what they do. Then you go to the labor provisions and, again, here this is really quite groundbreaking in terms of where it is, and the question is what to make of it because this is the first time ever in a trade agreement there is the notion that—again, in the past, to the extent that trade agreements had provisions on labor they were about a government-to-government dispute. One government going to the other government and saying, hey, you are not abiding by the labor provisions. The labor provisions say that you will enforce your own domestic labor laws, your own standards, your own law, and you’re not doing it. And so I’m going to bring a dispute against you.

These provision(s) is USMCA now says that you can bring a complaint against an individual company, an individual plant of an individual company, and say at that particular plant you are not allowing collective bargaining. You are not engaging in basic rights for workers to collectively bargain and to form a union. And then the goods out of that particular plant, if that’s been found to be the case, cannot any longer cross the border.

So this is a totally different approach and, again, we’re going to have now labor inspectors coming in, Mexican plants being inspected, and Mexico can send them in to the United States and inspect our plants. So this is a very different world, and so how significant it is I think remains to be seen. I mean, I’ve heard rumors that there are lots of pending cases in the queue ready to be filed the moment this USMCA becomes operative. If that’s the case, again, I do think you’re going to see a real—you know, a real shift.

The political part is really interesting because this trade agreement was the first trade agreement since the Jordan agreement in 2001, a little tiny agreement, to have the support of the AFL-CIO. It was the first trade agreement to ever pass with this kind of huge bipartisan margin. Eighty-nine senators in support of it. You know, two hundred and whatever number. I mean, a very large, large—

HOCHBERG: Three forty-five in the House.

HILLMAN: Three hundred and forty—


HILLMAN: —five in the House. So, again, hugely bipartisan numbers. This is not something we’ve seen, and so I do think on the political side of it the question is, is this the new paradigm. I mean, is this the new way that you think about how are we ever going to get new trade agreements done is to include, again, a lot of pretty far out there environment and labor provisions as a way of building a political coalition to support trade agreements when, in the past we’ve had, you know, the thinnest, thinnest of margins that were supporting our trade agreements of the past.

ALTMAN: OK. I’m running out of time here. But let me pick right up on that and ask a question of Fred, which is this. You talk a lot in your book, I think, very skillfully about the politicization of trade and, in particular, in the early parts of the—in the early part of the book you talk about the politicization of NAFTA.

And I don’t know how many people saw it but a few months ago—I believe it was in the Wall Street Journal—Alan Blinder wrote quite a smart column, I thought, in which he said that, unfortunately, the politics of trade have completely changed and now it’s just about community impacts, job impacts, however circumscribed they may be.

But that gets all the focus and, therefore, we’re not going to get back to a time where there was serious grassroots support for trade liberalization. And my question is do you agree with that pessimistic take or do you think some version of what Jennifer just said, although I don’t know if we could—how far we could go with that around the world, Jennifer, but what’s your assessment?

HOCHBERG: Well, I think when I looked at the USMCA—in my book I refer to it’s like an iPhone 7 versus iPhone 6. It’s certainly better but it’s not groundbreaking in that way. Though I think the labor provisions make a difference and I think that is the new—that’s going to be a new floor. It’s not even going to be a ceiling. It’s going to be a new floor in order to get a trade deal passed, and it may make trade deals very difficult to do and we may go through a period with not very many.

And I think something Carla and I—we talked about, it’s all going to depend, ultimately, on leadership from the White House, whether if we’re ever going to really move forward on all the trade deals, going forward. And I—you know, I’m somewhat skeptical, though, the fact that USMCA has such an overwhelming vote and we’ve got people like Rosa DeLauro and Sherrod Brown on board.

But part of that I really do think is Donald Trump is such a protectionist that Sherrod Brown or Rosa DeLauro or other members are not going to be able to be even more protectionist than Donald Trump. In some ways, he provided cover and an umbrella for them to say, well, listen. I mean, now, they would not say the same thing about George W. Bush, George H. W. Bush, Bill Clinton, or Barack Obama. They certainly can’t. They’re not going to be able to out protect—be out-protectionist over Trump.

HILLS: You have to agree that it is much more managed trade than open trade. We’ve always thought of trade agreements as creating opportunity and opening markets that would be beneficial.

The USMCA is definitely managed trade and it will be a burden for the auto industry. They will have to pay more. They will, therefore, export less and the prognosis is they will have to lay off people because they won’t have as many resources as much earnings. But time will tell.

HOCHBERG: Well, they’ll just pay the tariff.


HOCHBERG: They can also pay the tariff and not deal with the—some of the rules of origin.

HILLS: They can pay the WTO tariff if the WTO still exists. We’ll ask Jennifer. And there are problems because we have a pipeline that is so integrated.


HILLS: And, of course, it hasn’t been approved in Canada, so who knows. There are a lot of uncertainties. One of the big plusses of the USMCA was removing, hopefully, the uncertainty and it did—it anticipated doing just that much. But we’ll see, because it has a lot of potholes in the road ahead.

ALTMAN: All right. One short final question from me before we open the floor.



ALTMAN: —if you—imagine we have a new administration, whenever that is, and imagine you are the czar or the architect of trade policy, reporting to the president, and imagine that your favorite president, whoever that was because you served under more than one, was somehow magically back in the Oval Office. How would you reset—how would you reframe U.S. trade policy?

HILLS: Overall trade policy?

ALTMAN: Well, yeah, from an American point of view. Yes.

HILLS: Definitely should go back to the Bretton Woods days and find ministers of like-mindedness to see if we can’t work together to return to open trade, in my view. The benefits are overwhelming. Not only economically. I mean, there are studies that show that we’re $2 trillion richer as a country as a result of our opening of markets and the global institutions that we created.

But we are more secure by having our allies work with us, and even poor countries. You know, Bill Cline, an economist at the Peterson Institute, says that for every percentage increase in trade that a poor country has it decreases its poverty.

Well, that’s the best most focused form of humanitarian aid that you can possibly give. But it has another benefit. These countries become our customers of tomorrow, sort of like the result of the Marshall Plan, and they also provide a security bond, because if you can’t enforce your laws and you’re in dire poverty, you become a haven for international crime.

So I think any administration that’s thinking it through is going to want to have rules of the road that we enforce, and we have been negligent about in the past of enforcing those rules, that increase the opportunities for globalization and cut off protectionism.

ALTMAN: Thank you.

OK. Just one simple reminder. Please wait for the microphone to come to you and speak directly into it. Please keep your questions succinct. No speechifying if we could avoid it. And may I call on you, please, in the back?

Q: Hi. I’m Robyn Meredith with BNY Mellon.

For Ambassador Hills, could you talk about the impact on supply chains in the near term for the coronavirus but in the medium and longer term from the reset of U.S.-China policy the tariff wars and the uncertainty that we have been seeing?

HOCHBERG: The question is the impact on supply chains with both the coronavirus and the trade wars. Did I get that right?

HILLS: I think that the virus has had a tremendous adverse effect upon the global economy, not only on China, which is the largest exporting nation and largest trade nation, but on the rest of the world. The uncertainty of not being able to do business in Asia and the fact that the numbers are going up and that airlines have ceased working their flights, that companies have closed down.

I happen to know that the New York University Shanghai facility is closed. Those students are not going to school. The faculty is not there. So it is having a tremendously adverse effect, not only on China, not only on Asia, but, I think, globally because of the uncertainty.

HILLMAN: I could only add there’s been a number of studies coming out recently that would indicate that in terms of the effect here in the United States as well as in the European Union the tariffs have had a huge effect because the vast majority of the tariffs on China right now are on input materials that are being used within the United States in order to produce something, the significant portion of which used to be exported.

So not only is it having a difficult effect on those companies, but it’s actually significantly suppressed U.S. exports of manufactured goods. And my sense is as a result of this China phase one deal none of those tariffs were eliminated. Some of them were moved from 15 percent down to 7 ½ (percent) but they nonetheless remain in place.

And so all of those companies are still, you know, paying these tariffs and having their overall competitiveness being declined and are—and overall U.S. exports have been dampened as a result to the point where it is statistically significant. I mean, you can actually see it in the data.

HOCHBERG: I would also say the goal of the trade war and the tariffs was to create enough uncertainty in some magical way that people will now put their supply chains in the U.S. I don’t think that’s going to happen. But it has stalled some business investment and that is one thing that is not really growing. So I think that is a longer-term impact as business—because if you’re sitting in the boardroom and say we’re going to open—we’re going to expand our facility in Shanghai right now, that would be really hard to get much of an agreement on that.

ALTMAN: Please.

Q: Thank you. Tara Hariharan, NWI.

I’d like to ask the panel about how trade is going to be affected by the currency manipulation and competitive devaluation issues. We recently heard that Commerce Department may take on what the Treasury has been doing in terms of trying to determine whether other countries are manipulating their currencies. Would this in some way affect the currency chapters that are currently in the USMCA or in phase one? Thank you.

HILLMAN: Well, I’ll only comment on the very specific question. So what the Trump administration has done recently is to say that when you impose a countervailing duty, so this is the duty that is imposed if an item is imported into the United States that’s received a subsidy, you are allowed under our countervailing duty laws to impose a tariff on all future goods to offset the amount of the subsidy.

So the question is what’s the amount of the subsidy. And in the past, you could never count currency manipulation as contributing to the amount of the subsidy. And so what they’ve done is now say now you can. I think it’s really too early to tell how much effect this will be, partly you don’t know whether there’s going to all of a sudden be a flood more countervailing duty cases filed than have ever been filed in the past.

There’s still a whole process. You have to file the case. You have to show that the imports have come in, that the imports were in fact subsidized, that your domestic industry has really been injured because of the subsidized imports. So my sense is I don’t think that in and of itself is going to have a very particularly large effect.

Stepping back from it, the real problem in the past with currency manipulation has always been that in order to actually bring some kind of a trade action you have to show that the other government manipulated its currency in order to gain an unfair trade advantage.

So that means you, as a government, have to accuse another government of engaging in bad behavior, bad faith behavior, manipulating your currency in order to, again, obtain an unfair trade advantage. And, historically, no government has been willing to do that. Nobody really wants to accuse each other of that kind of bad faith behavior.

So to the extent that this countervailing duty issue takes out that notion of the intent—in other words, it doesn’t matter why you manipulated your currency, you can still bring a countervailing duty case against it—there may be more teeth to it. But I think it’s way too early to tell.

HILLS: I agree. I agree. The big aim was China and nobody is accusing China these days of manipulating its currency.

ALTMAN: Yes, because its intervention is to keep its currency up, not to push its currency down.

Yes, sir?

Q: My question concerns the relationship between trade and the stagnation of wage income in the United States since the early ’70s. When the Reciprocal Trade Agreements Act was passed in ’35, the idea was reciprocal trade reductions. The foreigner reduced his trade barriers. We reduced ours. And then the successive trade agreements were always sold on the idea that our exports came from highly productive industries whereas the imports came from less productive ones. Higher-paid industries would benefit and it wouldn’t hurt the lower-paid industries. But there’s a wide perception that the United States working force has been greatly harmed by globalization, meaning a great deal of the flooding of imports into the United States. What would you say about that?

HOCHBERG: Well, I’ll throw one idea out. Listen, I actually take the view, having worked on this book, I think that the auto industry was saved by globalization. I think that, if you think about what cars were like, we had a Buick Skylark that when you turned it off it just kept going a little bit longer—(laughter)—and they leaked and they were—and the doors didn’t match up so well.

And with globalization, with Japanese cars coming into this country, now as they’re 90 percent of the market the, quote/unquote, “Big Three” have 50 percent, but the cars they run over a hundred thousand miles. They’re safer. They’re much more globally competitive, and were it not for globalization and trade I think we would have—we would have lost that whole auto industry.

So I actually take the view we saved—globalization actually saved those jobs.

HILLS: I couldn’t agree more, and it’s not just in the auto industry. With 5 percent of the world’s population producing more than 15 percent of its output, hey, we need to find some markets to sell that stuff.

HILLMAN: But I would add, just if you think about sort of more generally what has trade done in terms of either wages or labor or other things, you know, at some level, when a trade agreement opens a new door in a new market, who walks through that door? It’s the person that has know-how and that has capital.

And so at some level, trade agreements are privileging, if you will, those that are already privileged, and they’re not, I don’t think, actively pushing down those that are not. But they’re widening the gap. And so then the question is kind of what happens in domestic policy, if you will, to offset the fact that this gap is being widened.

And here I do think the United States is really an outlier. I mean, if you look across the globe at what do most countries spend, for example, on just sort of long-term support for workers—worker training, portable health care, portable pensions—you know, sort of what do other countries around the globe spend in this broad category of worker support. Most of the OECD countries in Europe would be spending somewhere between 2 ½ and 3 ½ percent of their GDP on that kind of long-term worker support. The United States, 0.27 percent.

So we’re simply not doing the kind of domestic support that we would need to allow our labor to remain competitive and to add to productivity all the time, because that’s really what you’re wanting is to see that your labor is becoming more productive, and that’s where, again, we really are not keeping up with the rest of the world.

HOCHBERG: Just to jump on what Jennifer said, trade, like any policy, creates winners and losers. We really did a terrible job as a country acknowledging that there were losers, that people really did—their lives were upended, their livelihood, their sense of purpose, their sense of self-esteem, and, not surprisingly, the states that got impacted are places like Michigan, Pennsylvania, Ohio, Wisconsin, which, somehow, we’d only talk about every four years. I don’t know why. But every four years we talk about those things. So I think that’s part of it.

ALTMAN: Yes, sir?

Q: Hi. Rudy Costanzo, JPMorgan.

If you think that trade might be also a reflection of global power and how the dynamics of global power are changing, looking forward into the not immediate future but into the distant future, do you see—what do you see more likely? To be still a unified global trade system or a regionally-based trade system or some other kind of trade system, and why? Thank you.

HILLMAN: Well, I think—I think the last, you know, three years—and it’s not just the Trump administration. It’s Brexit. It’s, you know, the disputes between India and Pakistan. It’s the mini trade war between Japan and Korea. I mean, I really do think you see sort of what the world looks—you’re beginning to see what the world looks like in the absence of a rules-based system. You know, again, and you—if you go to Geneva and listen to the talk, you know, again, there’s a lot of concern. I mean, the sort of basic question of what’s the point of having a multilateral rules-based system if the United States, the single largest trading country, is wholesale violating the rules by imposing unilateral tariffs on steel and aluminum in China, et cetera.

So there’s no question that the notion of are we better off with a rules-based system is under serious, serious question, serious, you know, sort of threat, and you add to it the fact that the United States has blocked the appointments to the WTO appellate body so we no longer have an umpire on the field, if you will. You know, we’ve taken that away.

I do think your question is getting to a really serious issue and I don’t know that anybody knows the answer. I think there is an awful lot of sense, at least my sense, is that we are beginning to see some signs that at least the United States’ approach, this kind of might makes right, you know, we’ll just impose tariffs if we don’t like what somebody is doing—you are beginning to see, I think, some pushback on that. I mean, you’re starting to recognize that, you know, again, even the president’s own, you know, chief economist today acknowledging that the tariffs have caused a downturn in investment. You are starting to see the negative side of the tariffs and the limits on what a bilateral might makes right kind of policy is.

The deal that we got with Japan, mini is the understatement. You know, a tiny little agreement. You know, a very small change in trade with Korea. We were maybe going to get another mini mini deal with India. It’s now looking more dubious whether we’ll get that. There was supposed to be maybe an agreement between the United States and the European Union by March 18th, which is, again, going to be the ultra mini deal.

So I think we’re seeing that if this is the road we’re going down we are going to be living in a world of really small deals that don’t address the big structural things that we need to address. Particularly, they don’t address digital. They almost do nothing on services. There’s no components on intellectual property in any of those agreements.

So a lot of the issues, particularly around digital and data flows, which is really where the game is all going to be is around digital and data, are not in any way going to be addressed in these little deals. So my own sense is we’re going to come back around to the fact that we have to have either multilateral or at least larger plurilateral agreements if we’re going to take on the really important issues that actually affect trade in the 21st century. So I’m going to be optimistic that we will get back there and the question is, you know, by what, you know, convoluted course it’s going to take to get there.

HILLS: And there’s real concern, I think, that if our global institutions crumble, and there have been attacks on not only the WTO but on NATO and on the U.N., that we put ourself at serious risk. Not economic risk but security risk. And so, yes, we may come around. But we may in the circle hit a very large bump.

It’s going to take leadership and I think has been pointed out that’s in short supply globally, that we see populism kind of crawl over the globe in a(n) unfortunate fashion. But it is going to take some nations that stand together like-minded to say, hey, we can’t have this happen. This destruction is going to wreck not only our economies but our security, our lives ahead. Let’s work on this. But it is going to take leadership.

HOCHBERG: I also think politically when we talk rules-based system I think to everyday voters that’s, like, who’s setting those rules. It’s not us so why should we have to follow them. So there’s a lot of anxiety in this country about things like the WTO, the U.N., the Paris Accord, the—all of that kind of stuff. It just—and we mirror it in our country. You know, farmers in Iowa don’t like to have to listen to what Washington says about the environment or water or power and so forth. So we can—we’re devolving to a more and more, like, why should anybody tell me what to do, and that’s bad in our own country and we’re exporting it to the rest of the world.

ALTMAN: Yes, sir?

Q: Do you have a story to tell about how a government which is, clearly, trying to destroy the system is going to do the things that you say we’ve got to do? Who’s the we, and how are we going to get the politics right?

HILLS: Trade assistance?

HOCHBERG: No. Is it—how are we going to find a government—who’s going to actually move the government in the direction of reinvigorating the WTO, reinvigorating these global agreements.

HILLS: I think the private sector has to stand up. We need to hear a lot more from mayors and governors, from business leaders and from the Chamber to the Business Roundtable to speak out for what is right for this country and leadership of this country has made a difference globally. If we don’t raise the flag and say, follow me, and gather like-minded ministers to come along with us, to create something that is so attractive that they want to join—you know, when you think about trade, I recall that the Uruguay Round, which was the round that created the World Trade Organization, collapsed in Europe in 1990. We began the negotiations of the North American Free Trade Agreement in June of ’91. Came to a deal in August of ’92.

President Bush senior lost the election but signed the agreement in December of ’92 and President Clinton got it through Congress and it took effect on January 1, ’94. Within four months, then 123 trade ministers came back to the table and picked off the provisions dealing with intellectual property, with services, with cross-border sales, agriculture for Mexico, and a dispute settlement mechanism they call the World Trade Organization.

And if we could lead in that fashion, if we had stayed in to the Trans-Pacific Partnership, I can tell you that would have been a global model and others would have wanted to join because it was not only modernized and created the digital rules that we needed but it also had an upgrade of—and bringing in nations that hadn’t thought about opening their markets to the extent and Japan, fourth largest trading partner—it would have made a huge difference. OK. We missed that bus. But we’ve got to find another one and we have to lead.

HOCHBERG: I also don’t think the business community really has its heart in it, to be honest with you. My experience in Washington—because of what Roger thinks I’m not supposed to be the moderator, but I’ll ask—

ALTMAN: Go right ahead.

HOCHBERG: I felt, when I was in Washington, the business community wanted to talk about taxes and regulations, and let’s go over taxes and regulations again and let me make sure we—you know, we’re out of time; I don’t think we can talk about anything else. So the focus on taxes and regulation to the exclusion of all the other things we’re talking about has landed us where we are today.

HILLMAN: I also think you’re going to have to think about how do you change the narrative because there’s no question there’s sort of two narratives that have, clearly, grown out of the Trump administration and the question is, you know, where is the coalition to fight back on them. And, you know, sort of narrative one is just this basic notion that, you know, the road in front of your house is crumbling. The school isn’t as good as it used to be. Your wages haven’t increased. Blame foreign. Whether that’s a foreign good, whether that’s a foreign service, whether that’s a foreign person, whether that’s even, you know, a yen, a euro, a renminbi coming in in the form of foreign direct investment, blame foreign because that’s a lot easier to blame. It’s got a locus in Washington. You blame Washington or blame trade agreements for it because the reality is that an awful lot of that is caused by changes in technology.

You got nowhere to blame if you’re blaming technology and, you know, the argument of get rid of the computer or kick out the internet, obviously, no one thinks you can do that. (Laughter.) So that’s one narrative that you’re going to have to push back on in terms of how to think about it. And the other one is really this notion that we join the WTO and this binding rules-based system, exactly as Carla said, on the promise that it would not add any obligations to the United States beyond what was in the agreement. It would not take away any rights other than what we already agreed to and that the appellate body in the dispute settlement system has done exactly that. Therefore, all bets are off. Therefore, it’s OK for the United States to engage in all of this unilateral behavior. And, again, I think that’s the other narrative that’s going to have to be turned around by the business community and others standing up and saying, no, actually we are better off with a rules-based system; we really don’t think we win in this might-makes-right, law-of-the-jungle, let-chaos-reign system.

ALTMAN: Yes, the last question, sir.

Q: Ed Cox.

Carla’s comments about the development of NAFTA and the WTO it shows it’s a rocky road to develop this rules-based system, even in a world where we’re the sole remaining superpower in all senses of the word. Now we’re not. You have China out there, and the TPP was aimed at China in large part. They were excluded from it. How much is China responsible for interrupting our—the development of a true rules-based trade system?

HILLS: Well, clearly, China has broken the rules. I would argue that we have been less than a good leader in trying to lead by example. I mean, you can go back to—you have to expect a country that is growing is going to want to share leadership. You go back to the G-20 in 2009 and it was agreed that the percentages at the IMF and the World Bank should be increased for China to reflect their growth.

And 2015 came along and nineteen of the twenty had agreed that China should have an increase in their percentage participation. United States had not. What was the reaction in China? Well, if I can’t get into the World Bank and lead and have my voice heard around the table, why not Belt and Road? Why not the Asian Bank?

So I think you have to have a strategy of how you’re going to bring the parties together and you have to be fair and, as I say, I don’t think we’re going to get China to give up its communist rule. But they have reformers in China and there are those that understand that the growth is coming from the private sector. Why funnel your capital to a zombie state-owned enterprise when the private sector is crying out for capital?

And, in fact, Nick Lardy has written that book, you know, that—The State Strikes Back—showing that they have receded from supporting the private sector from where they were actually going from the Deng Xiaoping-Zhu Rongji days and leveled off and now they’re retiring. Whether they could be persuaded because of our example would be interesting, wouldn’t it? And particularly if it weren’t just our example but we joined hands with others and the combination of the U.S., Canada, South Korea, Japan, Mexico, representing more than half of the global GDP, would be pretty persuasive. So it isn’t that it can’t be done. The problem is will it be done.

ALTMAN: I’d like to thank our panelists—(applause)—and thank all of you for joining us tonight. Thank you.


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