RealEcon Launch: Reimagining American Economic Leadership

Tuesday, April 2, 2024

Chair, Council of Economic Advisers

Canada’s Ambassador to the United States


President, Council on Foreign Relations

Columnist and Member of the Editorial Board, Financial Times

Introductory Remarks

Distinguished Fellow for Global Economic Policy and Director of the Greenberg Center for Geoeconomic Studies, Council on Foreign Relations; @MPGoodman88


With RealEcon, CFR is creating an initiative to study and debate the role of the United States in the international economy. The launch event of this multiyear, multifaceted initiative will explore what the challenges are for U.S. leadership, what is at stake for American interests, and what new approaches would be helpful to rebuild an affirmative consensus on American economic leadership.

Chair Jared Bernstein of the Council of Economic Advisers discusses the future of U.S. economic leadership as CFR launches its new RealEcon initiative.

GOODMAN: (Off mic)—and welcome to the Council on Foreign Relations. I’m Matthew Goodman, or Matt if you prefer. I am director of the Greenberg Center on Geoeconomic Studies here at CFR. And, as of two minutes ago, I’m also director of the RealEcon Initiative, which we’re rolling out today here at CFR. So I’m delighted to welcome those of you in the room and also the hundreds online who are watching us as we launch this new initiative on Reimagining American Economic Leadership. This initiative was the brainchild of CFR President Mike Froman, who shortly after joining CFR last summer said that he wanted to emphasize a number of crosscutting themes, of which this is the first we’re rolling out. You’ll hear more about the others possibly today, but certainly in the weeks and months ahead.  

Mike will have a chance to explain all this in his own words in a few minutes, but I think we would agree that there were two fundamental premises underlying this initiative. The first is that American economic leadership still matters. It matters for Americans. It matters for advancing U.S. interests. And, frankly, it matters for the rest of the world as well. But second premise is that a lot of things have changed in the world since the United States effectively set up and ran the international economic system after World War II. And American economic leadership is certainly going to look different over the years and decades ahead. So I think of RealEcon as a platform for conversation about what the challenges are to American leadership, whether and how it still matters, and what kind of new approaches to U.S. international economic policy would best serve U.S. interests and, again, those of the rest of the world.  

You’ll hear more about the background to the initiative and the short video that we’re going to show you in a few minutes. And also, obviously, from Mike. But let me just highlight three things we’re going to be doing under RealEcon, two of which are new, one of which builds on the already great work of CFR’s Greenberg Center. First, we’re doing a listening tour. If we’re going to move forward toward a more durable consensus about American economic leadership, we’re going to have to start by listening to what Americans and others think about the subject.  

So my colleague Allison Smith and I traveled to Florida last month and met with a wide array of people—local officials, business leaders, students, journalists, and others—to hear their views on trade and investment, on foreign assistance, and on other international economic issues. We’re going to Wisconsin later this month and are aiming to get around as much of the country as we can over the next year, and beyond. We’re also planning listening tours around the world in both advanced and developing countries, since outside views on American economic leadership are also critical to rebuilding consensus. We’re getting a head start on this global listening tour today by having Ambassador Hillman with us here. I hope to get us some Canadian tough love. (Laughter.)  

So the second thing we’re doing is a series of short essays we’re calling Trade-Offs. You can see all this on our new website which was just launched this morning. As Mike will explain further, international economic policy, like life, is full of trade-offs. And we thought that that would be a good organizing theme for this—one of the sort of written products that we’re going to be doing under the initiative. And, third, we’ll be deepening and expanding the already great work that CFR fellows in the Greenberg Center, but also beyond, do on international economics. Focusing initially on three key policy areas—trade and investment, development, and economic security. Which is this growing part of international economic policy that basically deals with risks to national security whether caused by technology, leakage to adversaries, climate change, pandemics—economic things that have an impact on national security.  

So with that, let me briefly explain the run of show for this morning. In a minute, we’ll play the short introductory video. Then Mike Froman will come up to the podium to give his take on RealEcon before introducing our keynote speaker, Jared Bernstein. Mike and Jared will have a brief conversation up here on stage. Hopefully have time for one or two questions from the online or in-person audience. And then for the final segment of today’s event, Mike will be joined on stage by Ambassador Kirsten Hillman and Gillian Tett of the Financial Times, who will moderate a discussion with Mike and Ambassador Hillman. And, again, Gillian will take questions from the in-person and online audience. So please start thinking about your questions. We’ll end at 11:15. And for those here in person who stay afterward, there will be coffee outside in the foyer.  

Let me just end on a personal note by saying that I feel I was kind of put on this Earth to work on this project. And that’s a complicated point, which I can—(laughter)—those of you who know me understand why I said that. And I’m grateful to Mike for giving me this opportunity, and also to my CFR colleagues for their help to date and also going forward. But as you’ll hear Mike say in the video, this is a huge undertaking. It’s not going to be done quickly. This is going to be a multiyear, multidimensional project. And we can’t do it alone. CFR and my team cannot do this alone. We’re going to need partners like all of you in this room and online. So we very much want you to provide input. And I’m going to now—at risk to getting a lot of solicited input and also unsolicited—I’m going to give you the email address that you can write to to give us input, which is [email protected]. So please do. Seriously, we do want input and offers of suggestions of how to take this thing forward.  

So with that, I look forward to working with you on this exciting project. And please let’s roll the videotape.  

(A video presentation begins.) 

FROMAN: Eighty years ago, emerging from the devastation of the Great Depression and World War II, the United States led the creation of a new international economic order. Europe and Japan were rebuilt. The global economy was remade with the intent of securing peace through shared prosperity. Billions of people were lifted out of poverty. Innovation and technological advances flourished worldwide. But in the past few decades, the seams of that system have begun to fray. At home, we witnessed the rapid disruption of certain industries and the impact that had on select communities. We saw rising income inequality— 

CHANTING: We are the 99 percent! 

FROMAN: —and weakening confidence in the promise of the American dream. And we heard growing skepticism about both the theory and practice of global trade and investment.  

MR.     : It’s not been a good week for the WTO, accused by critics of supporting corporate greed.  

FROMAN: More recently, the issues of economic security have risen to the top of the agenda with new challenges posed by an economic, political, and military rivalry between China and the United States. Around the world new challenges loom, from the specter of pandemics to the relentless march of climate change. All of which threatened to reverse the progress we’ve seen in reducing the ranks of those living in abject poverty.  

And many of the policies and institutions that were established eighty years ago seem in desperate need of rethinking and reform. What we need is a rigorous look at the strengths and limitations of that system, a fact-based analysis of the current challenges, and the generation of new approaches for the path ahead. And we need to ensure that these issues are addressed not just in the conference rooms of Washington or New York, but with input from and in collaboration with people representing a broad range of perspectives from across the country, and around the world. Because no U.S. international economic policy can be sustained without the strong and enduring support of the American people.  

Today, the Council on Foreign Relations is launching RealEcon, reimagining American economic leadership with that goal in mind. We begin by focusing on the following issues: Trade and investment. How do we benefit from economic integration while ensuring that those benefits are broadly and fairly shared? Development. How do we ensure that we make continuous progress on alleviating poverty, improving human development opportunities, and addressing emerging challenges including climate change? Economic Security. How do we protect our national security and position the United States to successfully compete with China and deal with other risks, including through the pursuit of industrial policy?  

In all of these areas, we’ll ask, why it matters? What’s at stake for the American people? And what are the trade-offs involved in pursuing alternative options? Reimagining American economic leadership for the next eighty years, the remainder of the twenty-first century, is no easy or quick task. It will require ongoing engagement with and contributions from a wide range of partners. We hope you’ll join us on this journey. 

(Video presentation ends.)  (Applause.) 

FROMAN: What a good-looking guy that was, Mike Froman. Thank you. Thank you all for being here. We’ve got a full room here in Washington, plus about 350 people online, which is—which is terrific. And thank you also, Matt. Matt’s been the driving force behind this initiative since joining the Council about six months ago or so. Worked with him for years at the NSC and in his various other incarnations. And we’re very lucky to have him here at CFR.  

The video laid out much of what the initiative is all about. I thought I’d take a couple minutes this morning to give some of the broader rationale behind the initiative before introducing our keynote speaker. We are collectively witnessing a remarkable period in world history. Eighty years ago, as the video said, the U.S. led an effort to create an international system built on democracy, liberalism, and market-based economics, accompanied by the advent of technology which spurred on globalization. Now, all elements of that system are being questioned. Democracy is at risk from the rise of autocracies. Liberalism is under siege with the rise of authoritarianism. And market-based economics and globalization are subject to scrutiny and criticism.  

And all of this reflects a challenge to U.S. leadership, or at least how that leadership has been exercised over the last eighty years. Today, we’re talking about economic leadership, Reimagining American Economic Leadership. But there’s an assumption in that title that American leadership matters to the world and to Americans. And we should pressure test that assumption. There are those who argue that the U.S. doesn’t need to lead, doesn’t need to engage. In fact, they argue that doing so runs the risk of embroiling us in other countries’ problems, and at the expense of the interests of the American people.  

This is not a new argument. Isolationism can trace its roots back to the founding of the republic, George Washington’s farewell address and his warning about entangling alliances. It was prevalent during the period between World War I and World War II. And raised its head again after the Second World War. Indeed, it’s perhaps the driving force behind the creation of the Council on Foreign Relations 103 years ago. And yet, time and again it’s become clear to the American public that despite being protected by two oceans the interests of the United States cannot be separated from those of the rest of the world. And that has never been more true than it is today.  

Just take one random issue, trade. Interestingly, support for trade today is robust and bipartisan. Seventy-four percent of Americans say it’s good for the economy. Eighty percent say it’s good for everyday consumers and their standard of living. Sixty-three percent even say trade is good for creating U.S. jobs. And that’s up from 38 percent twenty years ago. But you wouldn’t know that from the politics of trade. Indeed, what the politics of trade has demonstrated is that whatever the broad economic merits of trade are, the reality and perception of the acute costs of dislocation and wage competition are much more politically salient.  

Trade and Investment is just one pillar of this—of this initiative. As Matt said, development and economic security, including industrial policy, are the others. And we have some very interesting and difficult questions ahead of us. How do we harvest the benefits of trade and investment while ensuring that those benefits are broadly and fairly distributed? How do we address the distributional consequences of trade and investment and ensure that society has the tools necessary to thrive in a rapidly changing economy, whether that change is driven by trade or, more likely and urgently, technology?  

How do we most effectively address the challenges faced by developing countries which, left unaddressed, will most certainly become challenges for developed countries—whether it be through climate change, forced migration, or other transnational challenges? How do we deal with the challenge of competing economically, politically, militarily with China, and ensure that we retain the necessary dynamism and innovation to succeed in that competition? What role should the state play in that effort in terms of promoting industries, restricting exports, and screening investment?  

The potential answers to these questions all pose trade-offs. My successor as USTR, Ambassador Lighthizer, published a book last year entitled, No Trade is Free. I think a better title might have been, “No Trade Policy is Free.” We dislike being so dependent on China for so many products, but we also hate a high cost of living and inflation. Both are politically unpopular. Yet, the actions taken to reduce our dependency on China are likely to raise prices for the goods bought by consumers and for the inputs bought by manufacturers. There’s a trade-off to be made. Arguments can be made on both sides of the question, but we shouldn’t pretend that one or another approach is free.  

Similarly, there’s a convergence—as we see the convergence of national security and economics, it’s clear that efficiency, low-cost production, and competition is not the only value to be sought from the organization of supply chains. There is redundancy, resilience, security. All are legitimate objectives to pursue. Indeed, laudable objectives from a risk management point of view. But again, all come at a cost. There are trade-offs to be made. And we should have that discussion and help policymakers and the public weigh the costs and benefits of the various approaches.  

To be successful, as Matt said, this initiative needs input from a diverse range of voices from around the country and from different political and economic perspectives. And it’s important to ground this discussion in a fact-based analysis, not polemics. Debate and disagreement, non-partisanship, and nuance—these will all be virtues as we reimagine American economic leadership for the rest of the century. And that brings us to our program today. We’re delighted to have this morning Jared Bernstein, chair of the President’s Council of Economic Advisers. You are all familiar with his background—a labor economist who worked in the Clinton, Obama, and Biden administrations, a fellow at multiple think tanks, though not yet the Council on Foreign Relations, and an accomplished jazz musician and double bassist.  

I’ve had the privilege of knowing Jared for many years and working with him for many of those years. But I think it’s fair to say that we’ve not always agreed. Indeed, when I published an article on the progressive case for trade, Jared felt the need to publish a rebuttal. And that’s a good thing, although I’m not sure I felt that way at the time. (Laughter.) While disagreeing, Jared has never been disagreeable. Indeed, I was grateful when he made the following notation in his article. And I quote, “full disclosure, I’ve worked with Mike Froman over the years and I know him to be an honest, knowledgeable person.” (Laughter.) Thank you, Jared. I hope you feel that way at the end of the program this morning.  

To be this success—to be successful, this initiative will require honest, knowledgeable dialogue. And those are the sentiments that are very much behind RealEcon. To encourage open, frank, sometimes contentious but always constructive, dialogue. The challenge we face right now demands no less. And with that, I’d like to invite Jared to the podium for some opening remarks. (Applause.) 

BERNSTEIN: Thank you. Thanks very much for that. I don’t remember that back and forth. (Laughter.) But I’m going to go back and read it. I, first of all, would like to associate myself with Mike’s introductory comments. I thought they were spot on, and it sounds like RealEcon is exactly what we need right now. So I personally would have called it Inflation Adjusted Econ—(laughter)—but the people—I like—I like where you landed. Again, thanks to CFR for inviting me to speak. 

I was asked to share a few thoughts on how we in the Biden administration think about international economic leadership. But first, let me say that CFR has done some of the most thoughtful work in this space. I think one of the most valuable and consistent attributes of your work, as I read it—and I have done so for decades—is that no matter how deep you go into the policy weeds, questions around international leadership pervade the work. So I’m pleased to be in your company to plumb this issue at this especially sensitive time in political economics, a time when starkly different approaches to both domestic and international leadership are on offer.  

An administration’s leadership agenda stems directly from the values and vision of the president. It’s been my great privilege to work on economic policy with President Biden for many years. And his values and visions are shaped by the view that if you’re helping to bake the economic pie, you deserve a fair slice. That leads us to a worker-centered agenda that’s deeply embedded in our domestic policy and carries through to our international work as well. To be clear from the outset, building a strong, resilient, inclusive economy that grows from the middle out and the bottom up cannot occur in a global vacuum. The president’s project to reestablish the U.S. as a global partner to our many friends in pursuit of our joint geopolitical goals began day one and is ongoing.  

When it comes to international trade, we’ve been explicit about ways in which our trade policy differs from those of previous administrations—a point which I’ll unpack in a moment—but any ideas that we favor autarky or devalue the importance of robust trade flows are unfounded. So what is a worker-centered agenda, both in the domestic and the international space? Domestically, it elevates the importance of worker empowerment or bargaining power, which in policies terms translates into full employment as a central macroeconomic goal, supporting unions and ensuring workers from all walks of life have the opportunities—including educational and training opportunities—to achieve their economic potential.  

As I stressed in a talk last week at the Peterson Institute, in one of his first economic speeches the president stressed the importance of getting the job market back to full employment, mentioning the phrase five times, in an early speech. I haven’t checked, but my guess is that you have to go back decades to find another president with that emphasis, one that is so fundamental to our inclusive growth agenda. And as anyone who tracks the numbers knows, this isn’t just rhetoric. Not only has the unemployment rate been below 4 percent for over two years, amidst historically strong job creation, but we’ve seen inflation come down two-thirds from its peak over the same period.  

To be clear, our work on lower prices is far from done. We have an aggressive cost-cutting agenda that I’m happy to discuss. But prominent economists assured us that we couldn’t achieve this much disinflation without giving up numerous points of unemployment and growth. But a worker-centered policy implies that we don’t lower inflation on the backs of working people. Instead, we’ve helped to both unsnarl and build out the economy’s supply side. I say we’ve helped, because it’s obviously a joint project much with the work done by the private sector. CEA analysis of the—of the last nearly two years of disinflation found that supply side improvement, supply chains, labor supply was the crucial ingredient to bringing down price pressures while maintaining above-trend growth and full employment labor markets.  

When it comes to another key ingredient of worker-centered growth this president doesn’t just talk the talk on unions, he walks the walk. And unlike any of his predecessors, he does so on the picket line. But of particular interest to this audience is how do we map our workers centered agenda on to international trade? Let me give you a few examples. Americans are not just consumers. They’re also workers. And our communities are centered around and identified with productive work. In this regard, a community that gets hollowed out due to competition with low-wage, low-price exporters—think of the China shock—is a huge lasting body blow to our body politic.  

And the old economist adage that quote, “don’t worry, people can just relocate to places with more economic activity” is now being seen for the insult that it is. That’s one reason for our elevation of place-based policies and our intention to make sure that the domestic industries we’re helping to stand up are geographically dispersed. Our trade deals and trade framework should embody worker-centered values and thereby promote international labor rights. Consider, for example, the USMCA’s rapid response labor mechanism. Since 2021, the United States has invoked the mechanism eighteen times to seek Mexico’s review at numerous different workplaces. As a result, the United States has achieved improved outcomes for thousands of Mexican workers, millions of dollars have been paid to them, more workers are represented by independent unions, there have been more free and fair union elections, and unions have successfully negotiated for higher wages and improved policies at facilities.  

Along with worker-centered trade, there are key areas where we must work with our international friends to achieve more resilient supply chains and mount a joint force attack on climate change—comments that were consistent with some of Mike’s opening statements. The pandemic taught anyone who was paying attention of the—taught anyone who was paying attention to the need to achieve far better supply chain resilience, a goal that requires both domestic investment and global cooperation. Given the risks posed by China in this regard, the ongoing reallocation of trade flows away from China and more towards Mexico and Vietnam, for example, has been welcomed, though, of course, we must be mindful of China’s increased production in those countries.  

The fight against climate change is a particularly important area of global competition. And our administration has a suite of bilateral agreements or frameworks to promote climate goals between the United States and partner countries. The U.S.-Japan Critical Minerals Agreement enables the countries to develop and strengthen critical mineral supply chains using best practices in labor and environmental standards. The Australia-United States Climate Critical Minerals and Clean Energy Transformation Compact is designed to coordinate on several issues vital to clean energy and critical minerals supply chains. And the Mineral Security Partnership with thirteen countries targets financial and diplomatic support for projects along the mineral supply chain. 

In closing these brief comments, let me stress one last area where global economic leadership is so important to this president and to this nation. Like it or not, we now face the task of defending democracy against the growing threat of authoritarianism. While the geopolitical threat engendered by this conflict has long played out, often in terrible and violent ways, let me stay in my economics lane and say a few words about why preserving democratic rights, values, and institutions is so important to just and fair economic outcomes. There’s a deep and compelling literature documenting the negative relationship between, on the one hand, rising threats to civil liberties, rule of law, fair elections, and peaceful transfers of power and, on the other, economic outcomes.  

First, democracies tend to have political institutions that credibly commit to act as promised and enable stronger enforcement of basic ownership rights that enhance innovation and risk taking. Because of the checks and balances on the government’s ability to expropriate private gains, our institutions are growth enhancing because they make it safer to invest. Another critically important institution at great risk in authoritarian regimes is an independent central bank. History is replete with examples of economies brought to their knees because the independence of the central bank was violated to pump up near-term growth, with no regard for longer-term damages.  

Finally, democratic governance yields pro-growth social outcomes. Relative to authoritarian regimes, democracies are more likely to invest in human capital, with positive long-term effects on productivity and upward mobility. And where there is more electoral accountability, societies are more likely to have economic policies that benefit a broad cross section of regions and industrial sectors. Such policies improve broad-based growth outcomes over those wherein policies are more likely to favor a small subset of industries with ties to the regime.  

With that brief overview of what economic leadership means to our administration, I look forward to our discussion. Thank you. (Applause.) 

FROMAN: Well, thank you, Jared. 

BERNSTEIN: Thank you.  

FROMAN: Really appreciate you coming here, and notwithstanding all of our disagreements in the past. (Laughter.) Let me start—the CEA is the center of economic thinking for any administration. So let me—let me start with the macro picture. As you said, if you look back over the last couple years, it’s really been a remarkable period. Inflation came down by two-thirds, unemployment was less than 4 percent, job creation was strong, growth was strong. Is the Phillips curve dead? Did economists get it wrong? Is there something else going on in the economy that has been generally accounted for that’s creating this? Is this a new normal, so to speak? Or how do you explain what’s happened over the last year? Besides, of course, foresightful policies by the Biden administration. 

BERNSTEIN: Yes. Right. Very important addendum there. Yeah. So this could take up all of our time and more but I’ll try to be brief, because this is the thing that I think all macroeconomists think about kind of all the time these days. First of all, I do think pandemic and post-pandemic economics are unique and somewhat sui generis—a global pandemic. But secondly, I wouldn’t say that the Phillips curve is dead. I would say that the simple linear Phillips curve is pretty comatose. And that the nonlinear Phillips curve, meaning what happens in the relationship between unemployment or economic activity and inflation, looks pretty different when economies are bumping up against full capacity.  

So what happened in the pandemic was you had strong demand, both because people had boosted their savings considerably from not interacting with in-person services, or going on vacation, going to restaurants, along with fiscal and monetary support, colliding. I mean, head on with global supply constraints. At a period when consumer preferences were shifting directly to that part of the supply chain that was most constrained. And that led to a real nonlinearity in the Phillips curve, which is both bad and good. The bad part, you know, is inflation goes up very quickly. The good part is you can slide down the curve with what we call a low sacrifice ratio. That is, without giving up much in terms of demand destruction. And that’s what we’ve seen.  

And one reason why people say maybe the last mile of getting inflation for where it is to the Fed’s target is the hardest is because you’re moving from the—from the—you know, the vertical part of the curve where the sacrifice ratio is very low to the flatter part where it’s higher. That’s a—that’s something that people, you know, I think reasonably put forth. 

FROMAN: So that suggests it really was a transitional or temporary set of events that led to this. 

BERNSTEIN: You could even say transitory, but I assume you avoided that word. (Laughter.) 

FROMAN: Maybe I—(inaudible)—team transitory. But not some significant change in productivity that’s not being captured by normal economic theory? 

BERNSTEIN: No. I mean, if anything, productivity does seem to maybe have accelerated. But I’m one of those people who needs to see a bunch of years of that before I believe it. 

FROMAN: Let’s talk about industrial policy if we can. It’s one of the areas of particular policy innovation by the administration. State intervention in the economy has had sort of mixed results around the world in the past. The focus of the Biden administration has been quite targeted—CHIPS Act, IRA, based on national security, based on market failures, even the export controls and foreign investment restrictions, again, quite targeted so far. And so far, again, the CHIPS Act in particular, seems to be crowding in a lot of private investment as well. So early days, but generally successful at least as of now.  

How do you think about—what are the parameters of industrial policy going forward? It’s focused on a few specific sectors now. Are there likely to be more and more sectors? Or where does one draw the line between? What should be the province of state intervention and what should remain the province of purely the private sector? 

BERNSTEIN: I think the most important couple of words in your question, and that point to the answer, is “market failures.” There are areas where markets have failed to sufficiently invest. Obviously, clean energy is the default that I think most people would recognize. But, as you stated in your comments, and I amplified in my own, non-resilient supply chains represent another. And, you know, the fact that we used to produce 40 percent of the world’s chips and now we’re down to around 10 (percent), in an area that looks of crucial importance both for national and economic security is a motivator for CHIPS. I think geopolitical conflict, that both of us alluded to, particularly with China, in the international trade space also suggest reasons for an international policy that I think looks much, you know, like our own. So the question is, you know, when I—when I was at the—I was at the Economic Policy Institute for years. That’s probably where I was writing— 

FROMAN: Another think tank. 

BERNSTEIN: Yeah, probably were I was writing articles, you know, suggesting that, as knowledgeable and honest as you were, there was room for improvement. (Laughter.) But— 

FROMAN: No doubt. 

BERNSTEIN: Which applies to all of us. But one of the things I used to define EPI is sort of seeing more market failures than other people, seeing market failures around more corners. And I think that that’s part of your question. The answer your question is—or, another way to reframe your question is: Do you think your administration is going to see more market failures than you’ve seen thus far? And I don’t know the answer to that, but it’s not obvious to me. And I think that the places we’ve hit are the most obvious ones. They kind of jump out at you if you have our framework, which I tried to describe. So I wouldn’t think there’d necessarily be a bunch of expansions.  

I think the more interesting—I mean, I think another dimension of that question is: To what extent does this have to be ongoing? I mean, to what extent does industrial policy essentially plant seeds that then allow it to dial back? And we have a—you know, dial back its public investment, because you kind of handed the baton to the private sector? We have a great chapter in the New Economic Report of the President, which just came out a week ago—so I’m flacking our book. But, you know, it is free online so it’s not like we make a profit. Anyway, they’re all great chapters, but one that speaks to this is on this very point in the—in the climate change space. And it analyzes what it takes for these types of investments to plant the seed such that the baton gets handed off to the private sector. And it’s an interesting model, and one that I think you might want to look at. 

FROMAN: But the argument you just made—we heard it about PPE during the beginning of the pandemic. We were so dependent on China for all of our PPE. We need to reshore it. You could use pharmaceuticals and the compounds that go into our drugs, we’re highly dependent. Obviously, critical minerals is another. I mean, if supply chain dependency is a market failure, then isn’t much of our existing trading system up for reshoring and industrial policy? 

BERNSTEIN: Well, that’s what I meant when I said we still very much appreciate the value of robust trade flows. I do think there is a dividing line between—I mean, this, I guess, gets to what Jake Sullivan called a high wall, small yard—something to that effect. If you’re asking me exactly where that line falls, that’s a tough question that I don’t know that anyone has the answer to. Certainly, you know, apparel is on one side of the line and, you know, advanced chips are on the other side. But that—I don’t know how far that gets you. What I will—you know, the way I think of it—and this doesn’t necessarily clarify it but it is, I think, consistent with something you said earlier in your comments—is that we’re happy to have other countries, including China, export disinflation. We don’t want them to export deindustrialization. And, you know, exactly figuring out where that line goes is a dynamic project. But I think, you know, I feel pretty comfortable with where we’ve landed thus far. 

FROMAN: In 2019, you published an article in a well-respected magazine called Foreign Affairs where you called Trump’s trade war, “clearly hurting tradable sectors of the U.S. economy, especially manufacturing,” quote, from tariffs on imported inputs and PRC retaliation, that producers were suffering because of costly and complicated supply chain shifts away from China, that the trade war might induce a self-inflicted recession. You flagged, basically, the trade-offs of protectionism, including for manufacturing not just—not just for consumers. What happened? We’ve seen continuity in policy. Have the facts changed, the situation changed, or have we just changed our minds? 

BERNSTEIN: Well, I think that the facts—I don’t know how much they’ve changed. I mean, I think the policy, though, has, you know, very much changed. We are now, as you know, actively spending both significant public and way more significant private dollars to stand up domestic industries in clean energy, in chips, and electric batteries, and battery production. And, you know, you can go back to Hamilton’s essay on manufacturers to understand the rationale for tariffs in that context.  

So I think, you know, I was testifying the other day on the Hill. And this—I was with Secretary Yellen and Director Young of OMB. And so this question didn’t come to me, but there were very sharp and pointed questions as to, wait a second, it looks like some of the resources in the IRA are going to foreign companies that are doing FDI over here. Which, you know, we very much applaud someone coming over here and building—one of our friends, I should say, building factories, you know, here. But that’s the political economic reality of the—of the moment we’re in. So I think we have to be flexible and adjust our policies to meet the industrial policy thrust that is very real now, and wasn’t at all in place when I wrote that article. 

FROMAN: Right. Last question, before I open it up to the floor here and online. You addressed worker-centric policies in your— 

BERNSTEIN: Centered. 

FROMAN: Excuse me, worker-centered policies in your—in your remarks. Seems, as we look back, there’s been a particular lack of domestic policy over the course of decades focused on ensuring that workers can thrive in a rapidly changing economy—whether it’s lifelong learning, transition assistance. We haven’t done it very well as a government. The link with the private sector has not always been perfect. If you had your magic wand, what domestic policies do you think you would promote? 

BERNSTEIN: I don’t need—I don’t need a magic wand because, you know, I’d argue that we’re doing that in real time. I mean, we can always improve. I’m not taking a victory lap. But I very much like the emphasis of the president’s agenda in this very space. So look at the geographical dispersion of where our investments have gone. It’s remarkable and it’s an under-told story, for any journalists in the room.  

FROMAN: There are a few.  

BERNSTEIN: The Treasury Department has a couple of good pieces on this. We have one coming out soon from CEA. One of the worst things you can do both at the micro and the macro level is let places get so hit by globalization and deindustrialization that not only do you build, you know, deep political resentment, which has been a driving force—and, in fact, historically is a huge driving force in in political shifts that are, I think, ongoing—but you hurt your economy, because you have a part of the country that’s not rowing in the same direction. It’s just, you know, not contributing to growth productivity.  

So President Biden continually says things that—they’re subtle, but other presidents never say them. They speak directly to your question. If you don’t have a college degree, you ought to be able to make a good living. Now, a lot of—a lot of politicians, presidents, you know, of both parties, would say: If you want to get ahead, get a college degree. Now, that’s not wrong. I mean, there’s a college premium. But that, you know, you know what share of the workforce is college educated? It’s about a third. So there’s no Bidenomics policy that leaves out two-thirds of the workforce.  

So when he says that, he means where you are, what conditions you’re facing, what your educational level is, we need to make sure that there are ample job opportunities there of good quality. And if the market fails to do that, we’re going to try to channel our investments in those areas. So I think generating real economic activity—it’s RealEcon—generating real economic activity in areas that have been hollowed out or left behind is a great answer that question. Now, I think, where we—where we need to continue to do more is in the education and training space. And that’s, you know, a good discussion. I won’t go there now, but I will put that out there as a flag.  

FROMAN: Great. Let me open it up to questions, first here in the room and then we’ll go online. 

Ambassador, Carla Hills, former co-chair of the Council on Foreign Relations. 

Q: Well, thank you for joining us. And I think your remarks were very well taken.  

I do have a concern. I applaud that more resources are being directed to educate our population. Many of our policies can be worker-centric. What I have a concern about is the lack of a trade policy. That is, we did not go back into the Trans-Pacific Partnership. And others are now molding the rules that will govern us. We have not gone back to upgrade the World Trade Organization. And that has stymied movement ahead. I have been told by members of the administration that—when I say, what is your trade policy? They say, worker-centric. But actually, free and open trade generate the resources to allocate to other endeavors—like training the labor force, where we have been deficient for the past four decades. So what do we do to get our trade leadership back so we can generate that additional GDP to accomplish the goals that President Biden has so properly set for our nation? 

BERNSTEIN: Well, thank you for the question, Ambassador. And thank you for your service.  

To some extent, you’re asking the big global question that I think I heard Mike say this RealEcon group is sort of set up to help solve. Which you might argue is some kind of combination of what you just said and a set of, what I would think of as, political economy realities that challenge that framework in in the current, again, political economy. So that there are positions that one could take that are consistent with earlier trade policy that would make it very hard for you to be—end up in a position where you’re able to implement anything. I’m sorry if I’m being overly nuanced, but I think you probably know what I mean.  

What I will say is that someone hearing your question—which is a completely legitimate question, don’t get me wrong—might think that the trade flows into and out of this country have been significantly diminished. But the data show otherwise. We continue—and I gave a talk at EPI of all places, where I made this point. I was saying, we’re trying to implement the changes and the worker-centered policies that I’ve talked about. We’re certainly trying to elevate the things that Jake Sullivan talked about, in economic and national security. We’re trying to be very cognizant of the role of China. We’re trying to be very cognizant of places that have been hollowed out and left behind.  

But when I said, you know, we still support robust trade flows and oppose autarky, I have the numbers to back that up. Trade flows are basically as robust as ever. Now, some of those are coming more from Mexico and Vietnam than they are from China. And one has to be mindful of, is China finding its way into that mix? And that’s a good—you know, that’s a good, good project. But I think that we can pursue the goals—the worker-centered goals that I said without sacrificing the benefits of trade. 

FROMAN: Thank you. Yes, right here in the center. There’s a microphone making its way to you. 

Q: You know, I don’t— 

FROMAN: Actually, if you could, because people online. There you go. Right to your right. There you go. Thank you. 

Q: Mike Mosettig, PBS Online NewsHour. 

Some of this has maybe been implicit in what you’ve said up to now, but I have not heard explicitly two words: Nippon Steel. Where does this fit into the matrix that you’ve laid out for us? 

BERNSTEIN: You know, I mean, I think one of the important things there is, if you read the president’s statement—which is unequivocal. So he—you know, there’s a couple of paragraphs that answer your question. He talked about the role of an iconic American steel company. He talked about the role of the unions. And, you know, listen to the steelworkers. We did. And you can evaluate whether their thoughts about this and what’s best for them are right or wrong, but the president was clear about the importance of American steel, and respectful of the views of the steel workers.  

FROMAN: Yes. Here we go. Right here. Henri. 

Q: Thank you. Henri Barkey from the Council and Lehigh University.  

Jake Sullivan in his Foreign Affairs piece did something which was very unusual. He started off with the importance of economic policy as the most important issue. I mean, we’ve never seen a national security adviser put so much emphasis on economic policy. My question to you is, how does the bureaucracy at the White House respond to this? Have you changed the way we do foreign policy, in the sense that you get more involved in foreign policy decision making? Is there a structure by which economic input is taken into account?  

BERNSTEIN: Yeah. I told Jake that if he keeps giving economic speeches I’m going to give a foreign policy speech. (Laughter.) Then he’s really going to wake up. I would say yes. I would say, simply put, yes. I mean, I think the ability to—you know, the wisdom of bifurcating foreign policy and economic—which has never been bifurcated. I mean, Mike’s worked in economic and foreign policy connections, as has the NSC, forever. So these are not—these are not separate tribes by a longshot. But I think that the political implications of pursuing what, you know, Lighthizer would call in his book, just, you know, traditional trade policy, you know, on both sides, has proved to be politically destabilizing.  

And so we need to implement the—you know, our belief is clear. We need to implement the kinds of intersections of good trade and good economic policy, which very much has a worker-centered base. I mean, I talked about union workers from Mexico in my speech. So worker-centered doesn’t just mean domestic when it comes to the international space. And I think Jake was clear about that too. So I think that the connection between economic outcomes in a country that’s gone through a China shock, and has had, you know, large and significant trade deficit since the mid-1970s, to not connect that economics to politics is—you know, would be political economy malpractice. So I’m glad that we’ve made that connection. 

FROMAN: Terrific. We’re going to have to move on. And Jared needs to get back to manage the political economy across the street. (Laughter.)  


FROMAN: But let me just thank Jared for joining us. He’s been both a terrific labor economist, economist generally, has contributed enormously to the field. But also really helped to shape good economic policymaking at the White House over his many years in service. Thank you for joining us this morning to help us launch RealEcon. And we look forward to working with you and your colleagues as we take this initiative forward.  

BERNSTEIN: Thank you. (Applause.) 

FROMAN: Stay seated and don’t pay any attention to what’s going on behind me as they move the chairs for our next part of the panel. (Laughter.) 


TETT: Good morning, everyone. My name’s Gillian Tett. I’m a columnist and member of the editorial board at the Financial Times. I’m also overseeing King’s College in Cambridge University for half the year. And I mention that because I am absolutely thrilled to be moderating this incredibly important conversation, not just because as a columnist I write a lot about the political economy, but because from my position at King’s in Cambridge I oversee also the Keynes archives. And Ambassador Froman said earlier that it’s worth looking back eighty years to when the world launched the Bretton Woods system, and essentially collaborated together for the global good.  

I think it’s also worth looking back 105 years to the writings of Keynes. The writings like the economic consequences of the peace, when the world went in a very different direction and embraced the trajectory of globalism and protectionism and economic punishment and retaliation against each other, with utterly disastrous consequences. If you want to know more about that, come to King’s and you can see all the archives and Keynes handwritten notes from Paris, where he despairs of the direction in which the world is going and the degree to which people have taken globalization and free market capitalism for granted. And we’re suddenly realizing what happens when you took that away.  

And I mention that because having just heard the very interesting discussion earlier, and what the CFR is doing—which is so important right now in terms of trying to have a conversation about the new trajectory—we have two ambassadors on the stage, both of whom have been fighting for global cooperation, trade, free market systems for a long time. But we are at a point where we have one candidate for the election later this year who is very openly calling for that to go into reverse. And even the White House today is embracing aspects of policymaking which are very different from what was around ten, fifteen years ago.  

So I’d like to start with you, Ambassador Froman, and ask you: Are you concerned with sliding back into protectionism and conflict in a way that we saw 105 years ago? 

FROMAN: Well, I am concerned. I’d take Jared Bernstein’s point from earlier that the politics have changed. And one needs to be cognizant of that and figure out a way forward that brings the politics along with you. I don’t think we have to take politics as a status quo object. But that’s one of the purposes of RealEcon is to engage with the American public more broadly around what a sensible policy going forward might be that addresses some of the weaknesses of prior attempts, but also maintains the strengths of globalization. So I am concerned.  

And I guess I’m concerned, and it’s implicit in the conversation we’ve been having about trade-offs, that were that we tend to have these conversations about protectionism or isolationism in isolation from considering what the costs and benefits are. And at least making those explicit. Because I think one can go in a number of different directions, but we should be cognizant, explicit about what are the costs of doing so, what are the benefits of doing so, and of alternative approaches, you know, as part of that policy process. That part, I think, I’m very concerned that our political dialogue doesn’t have a lot of room for that right now. And it’s something that we’re hoping to contribute to.  

TETT: Absolutely. Well, I’d say there’s, you know, not a lot of historical perspective on the current dialogue. And the are we in 1945 or are we in 1919 discussion I don’t think it’s been had at all in Washington recently. But, Ambassador Hillman, you have been in Washington now for six years, representing Canada. I sometimes joke that Canada is a herbivorous version of America, in that it looks outwardly quite similar but has cuddlier values, or likes to think it does. You’ve been here under two administrations. What does American leadership mean to you? And do you actually want it on the world stage right now? 

HILLMAN: Hmm. Thank you. (Laughter.) And I think this initiative is very important and very timely.  

So I think I’d like to start the answer to that question by saying that one of the—one of the questions that this initiative is asking itself is, you know, is there a deterioration in America and in American political leadership around the consensus around free trade and U.S. economic leadership in the world? And I think that it’s important to start from the premise—and some of this was discussed earlier—from the facts. And the facts are this: The United States trades more than any other country, with the exception of China. The United States is both the beneficiary and the giver of foreign direct investment in the world—the biggest—the biggest both input and output of foreign direct investment in the world. And so it’s Americans—their businesses, their innovators—that are providing global leadership in the international trade and economic space. They are. So America is a leader in the trade and economic space.  

The question is, at the political level do Americans and the people that they elect want to be at the forefront of constructing the rules and the systems around that economic activity that represents American values, right? And that is good for the United States, but it’s good for those of us who want to partner and be on this path with the United States. Hard to do trade-offs. That was discussed, you know, this morning a few times. It’s never easy. You can’t make rules exactly the way you want them if you’re trying to do it with partners in other countries. But it seems that if there ever was a time when there were overlapping challenges in the world-geopolitical, economic security, national security, domestic lack of resilience, the efforts to get back into a place of resilience after COVID, challenges with trying to find the West’s proper relation economically with China—now is the time. So now—so as the neighbor, friend, closest ally, I would—I would say, of the Americans, I can’t imagine a better time for it to happen. And I think it’s very important for the rest of the U.S.’s allies to see them take up that role. 


TETT: Yeah, Mike. 

FROMAN: —make a comment—two comments on that? One, I think, as Ambassador Hillman noted, one of the great strengths of the United States is in fact what’s going on outside of government, whether it’s the private sector, or our universities, our research and development, our risk capital, our capability of supporting entrepreneurs and innovation—which I think is the envy of the world. Those are incredible assets for the U.S. We’ve not yet figured out—and this, actually, I think is—could be very much part of this project—how do you take those assets and make them a tool of foreign policy, international economic policy, American leadership?  

The access to those kinds of programs that we have here in the United States is an incredible magnet for other countries. Perhaps even more so—and I know this is heretical coming from a former trade negotiator—but it may be even more important than tariff reductions in terms of access to our market, because our tariffs are actually quite low. And so as an incentive for other countries to work with us on a number of issues—including labor issues, environmental issues, and the like, supply chain issues—are there ways of really transforming those assets into a tool of foreign policy?  

Second thing I just wanted to add to what the ambassador said is, you know, we don’t operate in a vacuum. And to go to your question, Gillian, about am I worried, sometimes I feel the conversation about whether we engage, whether we lead or not, ignores the fact that other countries will fill the void if we’re not there. And, you know, there’s this very famous moment when President Xi and President Putin were together, I believe, in Beijing. And said, you know, we’re on the verge of a hundred-year change in the world, and we’re going to make the change. The two of us are going to really make the change.  

They’re not necessarily proposing an alternative model to the model that was established eighty years ago. But they are proposing to take actions to weaken, undermine, or pull apart that model. And if we’re not out there leading and engaging, others will fill that void in a way that doesn’t necessarily reflect American Western values.  

TETT: Well, “others” clearly is a euphemism for China at the moment. So I want to come back to that in a moment. But before I do though, as a Canadian, you know, you pointed out that America and Canada are very, very close, have been very close for many decades, if not joined at the hip. So in some ways, you are the ultimate friendshoring partner or friend. Has that shift towards a policy of embracing friendshoring in terms of, you know, how we imagined supply chains, benefited Canada? And to what degree do you think it’s clear what friendshoring actually means or not? Because since I split my time these days between half the year in the U.S., half a year in the U.K., in Europe things like the Inflation Reduction Act have really knocked people’s confidence that they know what friendshoring actually means and doesn’t mean. Do you think you know what friendshoring means? And if so, would you like to explain it to the group? (Laughter.) 

HILLMAN: I think at the highest level this is an effort of increasing resilience within our countries by delinking supply chains, with respect to strategic materials in particular—not everything, but strategic materials—that are necessary for our economic, national security, for our, you know, innovative economies. To your question—so and that is—I guess, I would say that that’s about where it stops. And I have views on that.  

There’s no question that Canada has benefited in the last several months, eighteen months or more, from the friendshoring agenda. The inward investment flow into Canada, we have all the critical minerals that are required for lithium-ion batteries, we have a fairly ambitious critical mineral mining program and agenda in Canada, we have a—you know, the second-highest education—post-secondary education rate in the world. And we are very keen to grow our population. So we’ve got—we’ve got sort of a certain dynamism that is attracting an awful lot of investment. A lot from the United States, but a lot from other allies in Europe, and Japan, and elsewhere. And so there’s no question that we are seeing the on-the-ground effects of this goal to reorient certain kinds of supply chains right now.  

But where I feel that this is limited is that it is—it is certain specific transactions that are happening, largely in the private sector, with a bit of government incentive and policy behind it sending signals out into the market. But there is no framework for the world. So to comment about Europe, there is no understanding among us—who are clearly friends—as to what a friend is, and why they’re a friend, and what the benefits of being a friend are, what the consequences of not being a friend are. And it sounds an awful lot like a trade agreement. Like it sounds a lot like making rules around who—when you—when you decide to enter into maybe not necessarily strictly a tariff reduction trade agreement, but some sort of an economic agreement, you choose who you want to be entering that agreement. You’re not forced to do it. Countries choose who they want to partner with.  

And they have certain common sets of objectives with the countries that they are choosing to partner with. And they understand that it’s going to have to be mutually beneficial, and that they are going to absolutely do their calculations on what they get out of it, but others are as well. And they have to be honest with themselves and their populations that there will be trade-offs, right? And that’s been discussed a bit today. And that political decisions may be difficult. But the long-term benefit of that is worth the challenges that are being faced as the mechanism is being constructed.  

And I think if there was ever a time for reimagining how we bring ourselves together for economic prosperity, resilience, forwarding certain kinds of values in the world, fighting climate change, you know, labor standards and rights, international human rights development I know is a part of this project as well—I mean, I think now is the moment to be trying to reimagine that. Because the mechanisms and the tools that we have aren’t working. Ambassador Froman mentioned, you know, tariffs are low, right? Tariffs are low for the most part. We are 99 percent tariff free with the United States. But that doesn’t mean that we don’t have improvements that can be made to the way in which our $1 trillion bilateral trade relationship could be better, more efficient, and better for both countries.  

So I think it’s a moment of creativity, right? We shouldn’t be hampered by a rules-based system that is very goods-oriented—its subsidies, and its tariffs, and it’s—right? We need to kind of think beyond that. And I think I—and I think we can. And I think it would be an amazing contribution for all of us—for our American friends to, you know, come in and work with us to really kind of rethink this. 

TETT: Well, as anyone who’s ever been to high school knows, the concept of a friend can be quite fickle. (Laughter.) And quite hard to define. And we’re certainly looking at one of the presidential candidates who has indicated that his definition of being friendly is even more fickle than a teenager. So I’m curious, Ambassador Froman, do you think that one way the CFR could usefully help right now is to set out a definition of who exactly is a friend? Who is in the posse, and who’s not? 

FROMAN: Interesting challenge. Yeah, look, potentially, I think—I think there’s something there. Look, I think the idea of—let’s just take supply chains over any number of products. The idea of having resilience, redundancy is inherently not a bad idea. I mean, any—the first rule of risk management is diversification. You never want to put all your eggs in one basket. You never want to be totally dependent on one factory or one market for all your supplies of something. And I think, frankly, the private sector probably got a little complacent over the decades because it was so efficient to produce in China that they weren’t thinking necessarily through all of the potential supply chain interruptions that could happen, and the fragilities that could—that could be there.  

So this kind of look at, OK, if you don’t want to be overly dependent, where can we be—where can we have reliable partners? Shannon O’Neil is here, has written a great book about regional trade and regionalization. And, you know, that’s sort of closer to nearshoring. But there’s—a lot of our friends are nearby. So it’s friendshoring and nearshoring. I think, being open minded to looking at where are—how can you ensure that you do have resilience and redundancy in your supply chains? Reliability—and that reliability goes somewhat to what’s the nature of the relationship and the nature of the friendship, so to speak? I think that could be an important part of what this is going forward. 

HILLMAN: And if I could add, I think you can build in today’s challenges, right? We can’t have economic security without climate security. We can’t. The disruptions that are happening globally are very expensive and challenging for doing business. That can be built into what it is that brings us together as a group of countries—values in spaces other than traditional goods and services sales. 

TETT: Right. But then let’s take a very specific example. And I’m curious what you would make of this. Mike spoke a lot about trade-offs which, frankly, I deeply applaud the fact you’re trying to put that center stage in the discussion. Because that is not something which has been articulated very clearly recently. But if you look at trade-offs right now, and you look at the climate issues, and you look at national security—take a look at solar panels. We have a wonderful story today in the Financial Times about the fact that China has dumped so many solar panels on the markets in Europe that they’re now so cheap that they’re being used for garden fencing. Because it costs—true story—it costs more to install them. It’s very expensive to install them on roofs. So there are redundant solar panels flooding Europe, knocking out all the European producers. And they are honestly being used for garden fencing.  

What would you do if you had a magic wand today, Ambassador Froman? If you were suddenly president instead, what would you do for the trade-offs there? Would you say, this is fantastic. We can have really cheap, cut-price green energy everywhere, and maybe cut-price cheap garden fencing too, but at the risk of destroying any chance of America having its own supply chain around solar panels? Or would you go down the alternative route and say, let’s slap on 60 percent tariffs immediately, and make sure we keep those darn solar panels out? 

FROMAN: Yeah. Look, I think it’s a great question. And we can—you know, one runs the risk of sort of doing salami slicing here between sectors. My personal view is that, as Jared said, climate change is an area where there’s a market failure. And there’s a market failure in part because there’s such an urgency to it. This is not something we can wait twenty, thirty, forty years for the market to develop. And by that time, we’ve reached a tipping point. If you believe that, then you may be willing to do extraordinary things to address climate change. One extraordinary thing is the IRA, invest in clean energy, invest in battery technology, prime the pump, get it going faster than it might otherwise go, in order to bring those things to market at scale. And another might be letting in cheap solar panels because we don’t have an industry very much anymore in the United States, and they’ve become commoditized.  

So I would personally make a distinction between solar panels, which are largely commoditized, and advanced battery technology, which is not yet commoditized and may be very relevant to a whole series of new industries going forward. Maybe more strategic, so to speak, than the solar panels. However, if I were a European fence manufacturer—(laughter)—I can see—I can see them making an argument about how we need to keep out the solar panels, even though they are commoditized. And that’s exactly the kind of conversation that becomes very difficult in the political economy that Jared was referring to, and that we need to kind of make those trade-offs explicit. So my personal view is you let them in because of the urgency of climate change and because they’re commodities. In very much the same way that you’ve decided to subsidize advanced technology in clean energy and in battery technology. 

TETT: Right. I should just say, by the way, this is not a theoretical question for me, because King’s College recently put solar panels on the roof of its 600-year-old chapel. And I discovered in the source of looking—in the course of looking into where the solar panels come from just how hard it is to buy a solar panel that does not come from China right now.  

What would Canada do in this situation? Would you let in cheap solar panels in China? Or would you impose tariffs? And what would Canada do if America puts down 60 percent tariffs against Chinese solar panels or, heaven forbid, against Canadian products? 

HILLMAN: Well, we do manufacture quite a few solar panels in Canada. So we do try—have tried to have some local manufacturing in that space. It is not easy. And it is not easy, precisely for the reasons that Ambassador Froman says about the commoditization of it. I am also very attracted to the point that this is an urgent situation. And I think that we do need to find ways to move our economies along as quickly as possible to be dealing with the threats of climate change. And, you know, I understand that the IRA is a very unpopular—when it came out—unpopular with many of our European colleagues. And it was—it was a policy that Canada had to adapt to as well.  

But overall, you know, we applaud the enormous infusion of interest, and equity, and activity that it is brought, because I think that it is—while maybe in the immediate and short term after having been adopted caused some disruption and perhaps folks who felt that there were opportunities that that were no longer available to them, perhaps—but I think that that is a short lived fact. And I think that what the president and his administration did in jumpstarting this field of activity in the United States is a benefit clearly for Canada, but I think for the world. I really do. And I think that it is challenging to—you know, it is challenging politically and locally with businesses that feel that they cannot compete, or governments that may feel that don’t have that kind of money to throw at the problem. But in the end, for this larger problem that we are all facing, I do think it was important leadership. 

FROMAN: I’m much less diplomatic than Ambassador Hillman, not surprisingly. And I think that the concerns raised about the IRA are really misplaced. I mean, for decades Europe has been, I’ll use the word, lecturing the U.S. about being more ambitious on climate change. The reality is, the U.S. innovates, Europe regulates. And we can’t regulate like Europe does. That’s their superpower. Our superpower is innovation. And when there was finally the political will to invest significant amounts of resources in addressing climate change, the Europeans sort of threw up their arms and said, hey, we didn’t mean that ambitious. And— 

TETT: Well, I think they meant doing it as friends.  

FROMAN: Well, you know, this is this—again, Europe had been given an opportunity and rejected the idea of doing a free trade agreement with the United States, unlike Canada and Mexico. And so it was written for a way that they defined friends in that—in that bill as countries that had free trade agreements. So I’d just say you can’t have it all ways. You can’t say: We don’t want a free trade agreement. We want you to be ambitious. But if you’re ambitious in a way that actually forces us to do action on our side, then we’re uncomfortable. The reality is, with the urgency of climate change, if you buy into that, then you’ve got to take extraordinary action. And this was an extraordinary action. And to the ambassador’s point, I think it’s spurred on other extraordinary actions in Europe and around the world. 

TETT: Right. Right. Well, I’m going to be going to the questions from the audience in just a moment. So do start thinking of your questions. I’m conscious that we have a packed room here and we have over 300 members watching online.  

But before I do, I want to ask you one quick question, Ambassador Hillman. You said recently that you had been talking to the Trump transition team in preparation for all the possible outcomes in November. If we do have a Trump administration next, do you think that Canada will be able to work collaboratively with them as friends to formulate economic leadership together? And how would Canada respond if, say, it suddenly faced, what, 10 percent tariffs? 

HILLMAN: So, to your—to your first question, I do think that we will be able to work collaboratively with a Trump administration if there is a second Trump administration. And I say that from experience. It wasn’t all—it wasn’t, you know, easy renegotiating the NAFTA with the Trump administration. It was—it was unorthodox in a lot of ways, for someone like me who has done this kind of work virtually my whole career. But ultimately, we were seeking the same goals as we had had as three nations all along, which is: Let us find ways to privilege this relationship of these three countries over those who are not in this pact, as a way of kind of giving the countries compensation, if you will, for some difficult choices that we had to make in further opening our countries to each other, or agreeing on common sets of standards, or trying to incentivize, you know, certain sectors.  

As I say, it wasn’t—it wasn’t simple. The application of 232 tariffs on steel and aluminum was particularly unorthodox. And I think that we learned a lot actually together with them around the enormous integration of our two countries, and Mexico as well. So Canada-U.S.-Mexico trade is at historic levels now, today—last year, of all time. Historic all-time levels. Canada-U.S. trade is up at about $3.2 billion a day of goods and services trade. So that represents literally millions of people—in speaking just for Canada and the United States—in our two countries doing business together, buying and selling from each other, doing joint—you know, providing services to each other every single day. That power of the relationship in and of itself is what will get us through any, you know, misalignment, maybe, in the tariffs. It just will. It happened last time. It will happen again. Doesn’t mean it’ll be easy.  

On your point on the 10 percent tariff, under the revised—the USMCA, which we in Canada call CUSMA, we are 90—over 99 percent tariff free with the United States. And that was—that was negotiated under that last administration. So our position is absolutely we have just negotiated this agreement. We have gotten ourselves to a virtual tariff-free trade between our two countries. Those are the rules that govern that relationship. That’s our position, right? And I think that it’s a very compelling position. (Laughter.) 

TETT: Well, maybe we can reconvene this conversation in a year’s time and see how—see how they look then. But anyway— 

HILLMAN: But, I mean, so the point is, 10 percent, it’s not a one-way street, right? With that level of trade and integration, it’s not a one-way street. So it’s 10 percent incoming tariff for U.S. imports will elicit a response from Canada and Mexico. And there we are, back to where we were six years ago, or—actually, much longer than that. So I just think—I think—I think these are not conversations to have in the abstract. These are conversations to have with a future administration around what their objectives are, and what the actual consequences are of some proposed ideas on the bottom line for our three countries. 

TETT: Right. Right. It seems a good moment to read a little bit of the Keynes from 1919 that I was mentioning. Which is he wrote back then, “In a regime of free trade and free economic intercourse, it would be of little consequence of iron lay on one side of the political frontier and labor, coal, and blast furnaces on the other. But as it is, men have devised ways to impoverish themselves and one another, and prefer collective animosities to individual happiness.” (Laughter.) You can put chips and softwood lumber— 

HILLMAN: Cheerful. 

FROMAN: Very optimistic there. 

TETT: —in place of—(laughter)—well, that’s simply a lesson of what not to do from history. As I say, 1945 is the upbeat version that you have cited. 1919 is the alternative version.  

But anyway, on that not-so-upbeat note, let’s have some questions from the audience. Now, for any members who want to ask questions it will be courteous but not compulsory to briefly identify yourself. And please keep the question or comment short so we can bring as many voices into the conversation as possible, because we do have many very experienced voices here amongst the members today.  

Question there in the front. We’ll take one and then two. 

Q: Thank you. Congratulations to the Council and to Matt for this important initiative. My name is Barbara Matthews. Among other things, I’m the former first Treasury attaché to the European Union.  

And so I will be asking about Europe. I want to follow up on Gillian’s initial question and probe a little bit farther, because, Ambassador Froman, you’re absolutely right, where there is a void others will lead. And they’re not always our foes. They can be our friends. And for the first time, I would argue, in eighty years, Europe is ready, willing, and eager to lead—compliments of the second invasion of Ukraine. And I would be grateful for some conversation about what you see interdependence—economic interdependence, economic leadership looking like, in a universe where for the first time the United States isn’t the only leader capable of having a global impact for the good. 

TETT: In other words, what do we do when America may not only be if not top dog, then the only wannabe top dog?  

FROMAN: Look, I’ve talked about this a little bit before. But, you know, the—it’s hard to be nostalgic for the Cold War, but it was, you know, good and simple. It was us and them, and everyone knew where they stood. It was bipolar. That lasted for forty years. We then had a thirty-year period, for lack of a better term, of American hegemony. You know, end of history. It’s all about free market liberalism, democracy. That’s over. The world we’re living in now is not multipolar. It’s not as though there are three or four groups of countries that do everything together. It’s polyamorous—(laughter)—in that countries—and I’ll use India as an example. India loves the United States for our technology, our civil nuclear cooperation, our investment. They love Iran for its oil. They love Russia for munitions. They love and they hate China depending on the issue or what time of day it is. It’s a much more complex world.  

And I think that goes for Europe. It goes for what some people call the middle countries, or the middle—that is, Canada, Costa Rica, Singapore, others. It’s not us and them. It’s going to be coalitions of the willing around various subjects, whether it’s supply chains, or critical minerals, or NATO, and variety of others. It’s going to be a much more complicated world going forward, whether the U.S. seeks to lead or not, because even if—even as the U.S. seeks to lead, it’s not going to be able to rely on too many countries that are always with it on every issue. It’s going to have to be much more nuanced in its diplomacy to create these coalitions around important issues that it that it cares about and wants to advance the agenda of.  

I sort of welcome—whether it’s Europe, or the middle countries, or others—generating ideas and trying to exercise leadership. At the end of the day, it usually comes down to them needing the U.S. to deliver on it, ultimately. At least that’s been historically the case. Could be different going forward. Europe and regulation being the one exception where I think they’ve acted unilaterally. They’ve taken action in areas, because they can. They’re well-structured to do that at the commission level. And as a result, they’ve had some success in establishing global norms by virtue of the size of their market and their capacity, again, to act unilaterally.  

I think beyond that, though—whether it’s Ukraine, whether it’s climate change, whether it’s international developments, whether it’s dealing with pandemics, whether it’s reforming the global trading system—ultimately, the U.S. needs to be at the table, if not leading it. Otherwise, it’s very difficult to see how anything positive happens. 

TETT: Well, I look forward the CFR report as part of the RealEcon series entitled, “Defining Friendship in a Polyamorous Era.” (Laughter.) 

FROMAN: There you go. 

TETT: It sounds very Gen Z. Anyway. (Laughter.) I think we have a question from one of the members online. Is that correct? 

OPERATOR: We will take our next question from Alan Wolff. 

Q: Hello. Much appreciate both the initiative and the conversation this morning of Mike and Kirsten. I’m Alan Wolff, Peterson Institute for International Economics fellow.  

My question is, what’s the potential place for multilateralism in this world that you’re describing where we’re reimagining us the U.S. role? I’d say also, the Canadian role. The WTO is marching in place, not moving forward at present. But that’s not new. How does the United States and how does Canada play an active role on the global stage for the world economy for trade? 

TETT: And, of course, Alan was himself very involved with the WTO for many years. So I guess what he’s really asking, in a polite way, is does the WTO have a future? 

HILLMAN: I think I’ll answer Alan’s question first. (Laughter.) I think that the WTO is essential as an organization where we can all hear from each other on the effects of international trade and economic policy. And just—if you’ll permit me—I will give you a very personal anecdote. When I was a fairly young trade representative—trade officer in our government, I went to—I was—I was a lawyer first, and then I went to a negotiating session a little later on in my career for the first time in Geneva at the WTO. And I was incredibly confident in my views on the topic that we were going to be debating at this meeting, and that they were right, and that they were sound, and from a social and economic perspective that they were absolutely the right thing to do.  

And sitting in that room with a hundred and, I think, twenty-five nations, discussing the exact same topic, I had an experience that I will never forget. Which was, more than half of the people in that room saw that issue from such a different perspective than I did, that their realities in their countries were so fundamentally different than ours. And it was an incredibly important learning experience for anybody who cares about not just their own country but, you know, all of our fellow citizens, and people across the world, and their wellbeing. And that—there is nowhere in the economic space that can do that like the WTO. And for that reason alone, for us to be able to talk to each other, to listen to each other, hopefully to try and grow some common understanding, it’s very important.  

Under the—I think the fact that it is being undermined through its lack of—or, there’s lack of confidence because of its inability to negotiate very many new rules of consequence and to settle disputes, is—should not be understated. And I think the institution itself, and as it operates, is not necessarily fit for what we need to be doing today. And I will—look, I spend less time thinking about the WTO today than I have in a very long time. So I’m not going to propose solutions to that. I guess I would just say, it is—I think it’s vitally important. And I think we need, as countries, to bring some flexibility to that body. If it’s not working as it is constructed right now for its two purposes, which is rulemaking and information sharing and enforcement of the rules, then something has to—has to be modified. And there I do think that there is a leadership issue, as well. I think those of us—and I would put Canada in this—in this category, absolutely—for whom that institution is vitally important, it’s up to us to try and maintain the political support to make those changes. 

TETT: Ambassador Froman, as someone who was previously involved in fighting the fight for trade agreements, would you agree? 

FROMAN: Well, look, I—first of all, I welcome Alan’s question. And as Ambassador Hillman said, he knows more about the WTO than virtually anybody. 

I would say we run the risk of being overly focused on institutions and not on the underlying political consensus behind them. And whether it’s the WTO or the U.N. or the World Bank or the IMF here across the street, these institutions are only as strong as the consensus of its members. And what we are lacking right now, it’s not going to fix the WTO with this or that change; what we’re lacking right now, in my view, is a real dialogue among political leaders as to what they want out of the global trading system and what role the WTO should play in it—what the rules of the road should be for the trading system. And it’s very much in flux. And whether that comes from the G-20 or it comes from other groups of countries getting together and having a real conversation about the political consensus underlying global trade, that, to me, is a necessary precursor to having any real change and reform of our international institutions. 

TETT: Absolutely. I must say, when we were chatting backstage I remembered a moment a few years ago when I interviewed you onstage in Aspen and I asked you, when you were in your role trying to forge trade agreements, about the TPP, and asked the audience if anyone else other than you thought the TPP was a good idea and America should join and it had a future. And one hand went up immediately in the front row, who was your wife—(laughter)—and almost no one else put their hand up, which showed me, firstly, that it’s great to have a very loyal spouse—(laughter)— 

FROMAN: It’s the secret—secret of a happy marriage right there. 

TETT: Exactly. And, secondly, that that was the beginning of people beginning to recognize just how significantly the climate was changing around trade on the world stage, on a more serious note. 

But we have time for a few more questions. Any more questions from within the room before we go to—we have a question at the front, and then back there. So question in the front. I think you definitely deserve a question for sitting in the very front row. 

Q: Thank you very much. Vanita Datta, USAID. 

So, Ambassadors, what do we do about—what lessons are we learning about the rise of democratic backsliding? And how are we going to incorporate it in the friendshoring construct, as well as a RealEcon project? Thanks. 

TETT: Which ambassador would you like to direct that to? Or they can both—(laughs)— 

Q: (Off mic.) 

TETT: Well, I think since Canada’s not so much democratically backsliding right now, maybe we can start with you. (Laughter.) 

HILLMAN: OK. So I think that the—I think that in—I don’t know if it’s in the concept of friendshoring, but perhaps it is. I think that making sure that we are offering as countries a(n) alternative to other countries—China, in particular—that might be interested in going into a country that is looking for capital, and offering up that capital, and then having sort of a coercive—a power to coerce activities within that particular nation or an effect on their political environment, I think that focusing in on that, and understanding where that’s happening, and how we can offer an alternative in those situations is very important. 

I do think that that is an area where we are working quite well as a group of nations, I’ll be honest. We have Partners of the Blue Pacific in the Pacific. There is IPEF, which Canada is not a part of but I believe that that’s an important signal that is being sent in that region. We’re trying to do that in the Americas with—the Biden administration is leading an initiative in the Americas that is also designed to say we are—all problems cannot be solved, political and economic, but we actually want to talk about what’s going on in your countries, and where your biggest challenges are, and how we can partner together, and how we can maybe get our private sectors, you know, integrated into your opportunities and challenges that your country’s facing. So I do actually feel that that is an area where we have a fair bit of cohesion, and I would say between Canada and the United States, in certain regions of the world that we are—we are trying to work on together. 

So I think that’s important. And as it fits into a formal trade agenda or a friendshoring agenda, yes, I mean, eventually and absolutely I think that that’s important. But I do think there’s probably a few steps even before that. 

TETT: Ambassador Froman, do you have any thoughts on that? 

FROMAN: Well, the only thought I would add is I think there is very much a global battle going on between democracy and autocracy, and I think the best thing that democracies can do in that battle is to demonstrate that they can deliver—that they can deliver domestically for their people, that they can be functional and get things done, you know, their legislative processes; and that they can deliver internationally through their cooperation with other—with other countries. 

You know, it’s easy for people to sort of write the obituaries of democracies, but you know, I think, if we look back over the last several years, we’ve seen autocracies have made some really terrible mistakes because they are autocracies—because they lack pluralism, and a feedback loop, and a free press, and the ability to really hold leaders to account. And so whether it was how China handled the pandemic or Russia’s catastrophic decision to invade Ukraine, I think both are examples of where autocracies run aground and what the limitations are of autocratic rule. And on the other side of the coin, it’s up to us, the democracies, to demonstrate that we can do better—that we can be functional, that we can make progress on the outstanding difficult issues that we face. And that brings us right here to home, of ensuring that our own processes, our own political mechanisms are working well. 

TETT: Right. 

We have, I think, one last question there, I think, the lady—yes, just there. Yes. 

Q: OK. Hi. Molly Elgin-Cossart. I’m with Propel. We’re a software tech startup. Thank you all for the timely discussion. 

So one thing that struck me in the conversation today—I think this is often true—is we focus on things like solar panels, Nippon, things that are a bit reactive, a bit on the defense. And so I’d love to hear how this initiative is thinking a bit more about the proactive or about how we are looking at building the economy—the strong, sustainable economy of the future, a few things you’re excited about, Ambassador Froman. And then, also, I’d love to hear, Ambassador Hillman, a couple things Canada is excited about. 

TETT: Thank you. And it’s great to have your contribution because, of course, as you said earlier, the private sector, ironically, in many ways is more committed to global leadership right now than aspects of the public sector in America. So it’s great to have that intervention. Ambassador Froman, do you want to comment on that? 

FROMAN: Well, I’d make a couple comments. 

One is if we take the economy as a whole, as has been noted, sometimes we overly focus on goods. Goods are important—manufactured goods are important; agriculture, very important—but we are increasingly a services-related economy. And focusing in on what does it take to succeed in a knowledge-based services economy I think is also an important part of the agenda. 

That goes to the digital economy and the various issues around the rules of a digital economy going forward, which may well define our success in being competitive going forward. Those rules are—our position on those issues, as we’ve seen, are now being hotly debated here. I think it’s important that we focus on that debate and get the input from the private sector as to what’s really important in terms of setting the rules of the road for the digital economy, so that we can succeed and our workers here in those sectors can succeed as well. 

One thing I’ve noted—just to build on Gillian’s point—you know, there are some U.S. companies, and particularly large ones who are global in nature, and when they are making big investment decisions about where to build a datacenter or where to build out infrastructure, they go in and effectively negotiate trade agreements with the governments of other countries. And they get agreements on protection of data, and data flows, and the free flow of data flows, and how encryption is going to be dealt with. All the same issues that, you know, we tend to negotiate in trade agreements they’re having to do as a condition of their investment. And it's interesting that even as governments pull back from pursuing that agenda, the private sector—that very much lives or dies on those rules, whether we’re defining them or somebody else is defining them—they’re making sure that they’re negotiating those with governments as a condition of their investment. 

So I think we can, again, partner with the private sector, learn how to do it, and ensure that we’re taking all the various interests into account. I think there are a lot of legitimate concerns that have been raised. But really focusing on the most important issues to our economy, including the rules of the digital economy going forward. 

TETT: Ambassador Hillman. 

HILLMAN: So in terms of the economy of the future and what Canada in particular is most excited about, I would say we’re actually quite excited about being a country that sees itself from having a value proposition from the very beginning of a supply chain—so we’re a huge mining country, right, and we are a deeply devoted—we’re deeply devoted as a government to fighting climate change, and we have a prime minister who will stand up and say I want to be the most ambitious climate change fighter on the planet, that is my objective, but I am also the leader of a very proud mining country, and those two things can be compatible, and this is how. And so we are—we are quite eager to try and construct a business economy, innovation economy that reconciles the complexities of the transition that we are in, both from an energy and environmental perspective but also new technologies and the innovation around that. 

And very concretely, we have, as I was—I was saying earlier, a very strong agenda to ensure that postsecondary education—not necessarily college, right, but postsecondary education—is widely available to Canadians. And with South Korea, we’re sort of neck and neck all the time as to—as to who is more successful in that regard. We have a very aggressive skills-based immigration policy. We’re trying to increase our population by about 1.5 percent a year, if we can. So we have sort of a whole objective of making the country vibrant, diverse, and have something to offer for Canadians regardless of whether they want to work in the industries that we are traditionally known for—which is, you know, hewers of wood—or in AI and advanced technologies, and everything in between. 

That is—and also, to Ambassador Froman’s point, our economy’s also driven by services, largely. And not only that; about 80 percent of our GDP is driven by small and medium-sized businesses. And so making sure that we’re having opportunities available for people in order to innovate in all the possible ways, whether it’s a microbusiness or a—or a small business, is also an objective. I think there’s a lot of energy and dynamism, to be honest. 

And on that, and to end on a positive note, I do think that it is a moment of bringing the hope and dynamism and opportunities to the table that we can seize as a country and as a group of countries with similar goals and objectives, and have that vision of leading in—not only economically, but in fighting all of the other challenges that we’re facing. And we’ll try and bring that vision forward in a unifying and more positive way. It’s not easy to do because there’s a lot of other tones out there that are less positive. 

But you know what? I think it could be done, right? I really do. I think—I think that projects like this are very important for that. But I think each and every one—each and every government committing to working internationally in the most mutually beneficial and positive way is also essential. Hard to do, but I think it’s very essential. 

TETT: All right. Well, thank you. 

Well, it’s been a fascinating discussion. And you know, I personally take away three key points. 

Firstly, that 2024 is indeed an incredibly important juncture moment, not just because of the elections that are happening around the world—including the critical one here in November—but also because there’s a growing recognition that the system that’s been in place for the last fifty years is, if not broken, the in radical need of change. 

Secondly, it seemed that there is still a strong desire for U.S. leadership for whatever system emerges next. 

But thirdly, the question of how that is actually formulated, what nature it takes, both domestically and on the world stage in terms of economic policymaking is very unclear. We don’t know yet whether we are living in a rerun of 1945, which is the very comforting historical parallel you invoke; or 1919, which is a lot darker. 

But either way, what we do know is that there’s going to be a lot for RealEcon to try and thresh out. I very much look forward to you setting out some solutions, polyamorous or not. (Laughter.) And in the meantime, I’ll just say when it comes to actually laying out some practical solutions and guidance, we’ll all be reading it very carefully, and good luck. (Laughter.) Thank you. (Applause.) 


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