Shannon K. O’Neil, vice president, deputy director of studies, and Nelson and David Rockefeller senior fellow for Latin America studies at CFR, discusses the role of strategic regional partnerships in shaping economic competitiveness. This webinar is moderated by Carla Anne Robbins, senior fellow at CFR and former deputy editorial page editor at the New York Times.
ROBBINS: Welcome to the Council on Foreign Relations Local Journalists Webinar. I’m Carla Anne Robbins, a longtime journalist. Now I’m a senior fellow here at the Council. I’m also faculty director of the Master of International Affairs Program at Baruch College’s Marxe School in New York.
CFR is an independent nonpartisan membership organization, a think tank, publisher, and educational institution focusing on U.S. foreign policy. CFR is also the publisher of Foreign Affairs magazine. As always, CFR takes no institutional positions on matters of policy.
This webinar is part of CFR’s Local Journalists Initiative created to help you draw connections between the local issues you cover and national and international dynamics. Our programming puts you in touch with CFR resources and expertise on international issues and provides a forum for sharing best practices.
So I want to thank you all for joining today’s discussions. We know you’re incredibly busy, really close to deadline all the time. This webinar, as Will said, is on the record and a video and transcript will be posted on our website at CFR.org/localjournalists.
We’re really pleased to have Dr. Shannon O’Neil with us today. We’ve shared her bio so I’m just going to give you a few of very considerable highlights of her experience. Shannon is vice president, deputy director of studies. I suppose you’re my boss, aren’t you? And Nelson & David Rockefeller senior fellow for Latin American studies at the Council on Foreign Relations. She’s an expert on Latin America, on global trade, U.S.-Mexico relations, democracy, and immigrations.
Dr. O’Neill is the author of Two Nations Indivisible: Mexico, the United States, and the Road Ahead, and her newest book published last fall is The Globalization Myth: Why Regions Matter.
So, Shannon, thank you so much for being with us. I have a few questions to get us started, and like a lot of you are experts on this webinar we’re going to open it up to the group for questions, and as Will said, you know, you can raise—do the raised hand icon when the Q&A starts but if you have questions while we’re having this discussion don’t hold back. Just put them also—you know, just post them right there in the Q&A part and it will also help us shape our conversation.
So, Shannon, you know, we heard a lot in the last two presidential campaigns about the damage global trade has done to American workers and, specifically, you know, how much damage NAFTA did, and once COVID hit, you know, we also heard even from trade enthusiasts, you know, saying that we got too dependent on global supply chains and we started hearing a lot about this word reshoring.
So can we start with something of a level set? You know, we tend to blame trade for a host of changes and ills over the last decades. How dependent is the U.S. economy on trade? And we also hear a lot about trade creating winners and losers. Which part of the country have been the big winners and which ones the big losers?
O’NEIL: Well, thanks, Carla, and thank you all for coming. It’s great to be here, and those are all really big questions so let me take pieces of it and then we can keep coming back to this because that is sort of the—at the heart of all of this is what does trade do for us as a nation but also various communities and the like.
And so, you know, the short answer is we blame trade for a lot of things and much of the dislocation and the changing of jobs and the movement of jobs is not about trade. It’s much more about technology. It’s about other—economic competitiveness. It’s a lot of other kinds of things. So that’s one part.
The other thing with trade is that all trade is not created equal. So some kinds of trade is actually better for U.S.-based companies and U.S.-based workers than other kinds of trade and here I would distinguish actually between trade with nations that are far away from our—you know, from the United States and some that are closer by and the reason for this is basically one of the other things you just brought up, which is supply chains and international supply chains.
And you know, one of the hallmarks—we’ve gone through the world—you know, stepping back for a minute, the world has gone through over the centuries lots of rounds of globalization. This isn’t the first rodeo. The first time that we’re talking about globalization, right, we had the Silk Road and we had, you know, industrial revolution and all these different times.
But, really, the hallmark of these last forty-plus years of, quote/ unquote, “globalization” is the creation of international supply chains. So the goods that are moving around the world more often than not are not finished goods, right? They’re not the computer. They’re not the table. They’re not the refrigerator. They’re not the iPhone. They are the pieces and parts and components that go into those and every other kind of goods.
So intermediate goods is what economists call them. That represents seventy-five plus percent of trade today and that is these supply chains and what we have found is that when production happens nearby to you, you’re much more likely to be linked into that supply chain.
So, for instance, so kind of getting to your NAFTA question, when a factory moves to Mexico it is much more likely to buy from suppliers in the United States than anywhere else in the world and we see that in the trade data.
So, for instance, a good that is coming in from Mexico to the United States so Mexican exports to the United States, on average forty percent of that good was made in the United States. That is U.S. value added, that the U.S. workers that are making some kind of part or component or providing a service that goes into the making of that car or that refrigerator or whatever the product is that’s coming in.
When a good comes in from China less than five percent of that product was made in the United States because they don’t turn to the United States for suppliers. They turn to other Asian nations. If you took China and you looked at how much was—you know, that input was from Japan or South Korea or Taiwan or Vietnam it would be a pretty high number. You would see that connection.
So one of the things that we have found, and this is back to sort of what’s good for U.S. communities and the like, is that when trade is nearby it actually supports and even creates jobs and when trade is further away or comes from places further away it’s less likely to.
It sometimes does and there’s ways that it is important but it’s much less likely to, and so in that, you know, NAFTA was actually something quite good for the United States because we see—in the decade after NAFTA was signed and then came into force you see manufacturing jobs grow in the United States, Mexico, and Canada.
You see as they integrated their trade more, and you saw integration, you saw trade between the three countries go up from about forty percent of all trade to forty-seven (percent), forty-eightpercent. So almost one out of every $2 was moving between the country.
During that kind of first decade of NAFTA you actually saw, really, a blossoming of manufacturing in the United States as well as the other nations. Now, China comes in the WTO in 2001 and that integration fades and over that next decade, the 2000s, you saw trade within NAFTA countries go down to forty percent again.
So you lost those ties together. You lost those supply chains that would have, you know, supported suppliers and jobs in the three countries with each other and these are the years of the China shock where everything’s—finished goods were coming in from China and they were accessing supply chains all over Asia, which meant the U.S. was not really part of it except as the final consumer.
And that was, you know, what some economists called the China shock, right, the loss of anywhere between 1 (million) and 2 million jobs in the United States because we were no longer part of that manufacturing process.
So basic line is, you know, trade isn’t really the bottom of all of our woes here in terms of dislocations and things in terms of jobs and, two, is that some kinds of trades have actually been much better for workers and it’s counterintuitive to the narrative that’s out there.
ROBBINS: So I didn’t—I mean, I actually read about this and occasionally teach this, although having me teach anything about economics is a little bit like driving without a license. (Laughter.) But there’s a lot of talk about winners and losers.
I did not know this about the difference between NAFTA and I—certainly, if you look at the charts, you know, you can see the big trade shocks with China. But I didn’t realize that it was so regionally focused and I do want to get onto this notion with your book in regionalization.
But before that, there’s also different regional impacts inside the United States and can we talk a little bit about winners and losers? Because, certainly, there have been even great benefits of trading with China.
I mean, we wouldn’t be able to go into Target and get all those great cheap goods that look a hell of a lot better than, I think, we saw before the trade with—and, you know, lowering of prices, and there’s been great advantages for American consumers of that sort of trade.
So has there been different impacts that we felt in different parts of the country of globalization of trade itself? When we talk about winners and losers are they more focused on different classes, of different sort of jobs?
O’NEIL: So there are a lot of differences. So one is you sort of bring up consumers, so consumers in general have benefited from lower prices. You know, it used to be—you know, now we go and everybody has fast fashion because you can buy a shirt for $10, and that wasn’t the case before, right? Things would cost much more money. Same with all kinds of goods, furniture. Same with all the technology that we use. I mean, it’s amazing. Quality has gone up and prices have gone down across the whole board.
You know, I mean, just an example, you know, cars pretty much cost the same thing they did twenty, twenty-five years ago and they weren’t, you know, moving computers, which they are today in terms of the number of semiconductors and the technology that’s in there. But the prices haven’t gone up even though the quality and sort of the sophistication of cars hasn’t changed, or has changed while the price has not changed.
So there’s a benefit across consumers and consumers—lower end consumers tend to benefit more just because they use more of their disposable income for the basic goods, right, the clothes and the food and the transportation and the products than wealthier people who don’t use it. They use more services often but they also don’t use as much of their money for those kinds of things. So you see a lower income bias in the benefits of trade on one side.
The other difference I would just say, too, and that sometimes I think you get lost in some of the U.S. debates is that there’s a benefit, too, to companies both that use imported parts and that export.
So what we also find in the United States is that jobs that are tied to exports pay better than jobs that are tied just to the domestic economy, and the Commerce Department has done a number of studies but somewhere between eighteen (percent) and twenty percent—they pay eighteen (percent) to twenty percent more.
So, you know, these are the good jobs. Jobs that are tied to exports are, you know, better paid and more stable often than those that are not. So there’s a benefit, too, to being tied to trade. If you’re looking to have a job in that sector you’re much more likely to—or you may do better than not.
One other thing that sometimes is hidden in all of this is, you know, the United States is a big place and sometimes when factories close and—or jobs move away it’s not to China. It’s not to Mexico. It’s to Alabama and Tennessee and Mississippi and other places like that. And so, for instance, to give you an idea, if you look at employment in the auto sector in the early 1990s right before NAFTA it was about a million people. If you look at it today it’s about a million people.
But those jobs are not in the same places that they were in the 1980s or early 1990s. And so, you know, for politicians, who stole your jobs if you’re an autoworker in Michigan? Probably Alabama, right, or North Carolina. Probably not—
ROBBINS: Right-to-work state states, states without unions.
O’NEIL: Right-to-work states, yeah. So there’s a movement and that’s another—that’s a different issue. That’s not—that’s not the Council on Foreign Relations and not a foreign policy issue. But it’s not China or Mexico, frankly, right? It is the movement within the United States of various places. And so it’s right to work.
It’s also that as cars went from being, you know, machines to becoming much more high tech types of entities or types of products is that you needed a different factory floor. So you had to—you could take the sunk costs you already had in a factory that was older and had different technology or maybe just start all over new and that’s often what people do, right? So you don’t use the old factory because it’s no longer equipped. You need a whole new building and so where do you build it? You find it in some other place.
So I think some of the winners and losers in the communities is there’s the geographic changes have happened. Some of its been within the United States so moving to different states. The other side here, and this is—it’s a challenge for the United States.
But the world—as we have kind of dealt with some of our economic issues or as we sort of move along, you know, the world is changing, too, and you look back at the 1960s or early ’70s and, you know, that was a time when the United States was really preeminent in manufacturing and other types of production in some ways because the rest of the world was still flat out from World War II.
You know, all of Europe’s industrial, you know, sector had been destroyed. Japan’s had as well, and so we really didn’t have global competition. Those countries could, you know, just feed themselves or just provide enough for themselves. They weren’t exporting to the world because they were just getting back on their feet and so we had sort of these days where we were the only ones who really had a base. And then you get to the ’70s, ’80s, and then into the end of the twentieth century and they came back and the way they came back was building regional supply chains and the United States still going it alone, not sort of creating, you know, partners and not crossing borders. They just weren’t able or we weren’t—many of our companies were not able to create sort of high-quality low-cost goods to compete with these.
And so, you know, as we think about our policies and we think about how to bring our communities back or how to, you know, take advantage of what’s going on there, you know, is trade good or bad for U.S.-based workers, part of it is that the rest of the world has kind of jumped forward and they’re playing a team sport right? Manufacturing has become a team sport. It’s not—you know, it’s not playing by yourself. You know, it is a team sport and so you’re competing against that whole team.
And so as we, you know, think about how do we bring back—you know, I grew up in Akron, Ohio, and I talk about Akron, Ohio, in the book and the challenges of sort of losing the industrial base there and losing the tire industry, which was a huge industry, and part of the reason Akron lost the tire industry was it was competing against Japanese companies, French companies, German companies, but they all had regional bases.
You know, Japan was producing all across Asia so their tires and their cars were just cheaper and more efficient. Europe had co-created the European community so they were—you know, French and German, you know, car companies and tire companies could sell all across the European Union so they had bigger markets and more economies of scale so they could just make it better than Akron did and cheaper than Akron did, and that was part of their challenge. It wasn’t they were a victim of globalization so much as it was the challenge of limited regionalization, and you saw the last tire come out of Akron in 1982, a decade before NAFTA was even around.
So I think as we think about how do we bring vibrancy back to states and cities and local communities we need to realize that we’re competing against very sophisticated international supply chains and we need to find some of those for ourselves and for our communities to tie our cities into those connections so that we can produce things that are very high quality but also affordable and we can appeal to global consumers. Not just Americans but, you know, the 7.6 billion people that live in other countries around the world.
ROBBINS: So in the Akron—I mean, it is fascinating if you think about it but NAFTA was supposed to deal with that and—but it just came too late for Akron, and then if I’m following your argument then China came and took away some of the benefits of NAFTA.
Now, you know, where do we find our—where do we find our cohort?
O’NEIL: So let me—can I—can I—
ROBBINS: Yeah. So sorry. Yes.
O’NEIL: Yeah. Let me just add on to that and here—so that’s the story of Akron. Let me tell you the story of Columbus, Indiana. So Columbus, Indiana, is a four-hour drive from Akron. It is the home of Cummins Engines. So another industrial town and a city about the same size, and Cummins, too, was—you know, did very well in the post-war period.
It, too, hit really hard times in the 1970s and ’80s competing against the Japanese engine makers, the European ones, you know, Germans and the like. But they struggled through the ’80s. They made it through the ‘80s and then they were saved by NAFTA, I would say. And so Cummins Engines they were losing contracts to the Japanese for Ford, for GM, and they really looked like they were on the ropes.
When NAFTA happened they were able to move some of the labor-intensive work to Mexico so they were able to lower their price and gain back those contracts that they had lost in the United States.
They also had the Mexican market open to them, which they had never had access to, and they are now the number-one provider of engines to trucks in Mexico. Those are all made in a plant in upstate New York so it created jobs here in the United States selling into the Mexican market, which they now didn’t have to pay tariffs for which they had had to before NAFTA. And now Cummins is back on its feet and it’s, you know, a tens of billions of dollars company in revenue and is really another global player and it was, I would argue, precisely NAFTA that allowed them to survive and, really, to thrive.
So sorry I interrupted you, but there’s the—
ROBBINS: No. No. No. No. That’s a great story. But can we talk—and I do want to ask you the question about the regional cohort but before we do this so if I’m a reporter and I want to see the impact of trade in my city or my—you know, my state, everyone’s really used to these stories about, you know, factories with the chain on the—you know, closing them down.
But when you were saying before the cars that come across the border are forty percent, you know, from Mexico, still forty percent U.S., it’s very hard to see because you don’t have a label that says this part is made in the U.S. and this part is made in Mexico and this part is made in Canada.
I mean, how do I do a story that shows what—you know, what’s made in the U.S., what’s the benefit of trade? How do I track down businesses that actually, you know, benefit from trade in my community?
O’NEIL: Yeah. I mean, so each community is going to be different. Some of your communities will have—you know, cars is the most integrated, really, or vehicles are the most integrated of the supply chain. So you can find—you know, whether it’s a supplier that you have in your—you know, in your city or whether it’s an assembly plant or the like you can sort of find the different aspects.
But, you know, I would bet you if you went to any big employer and big maker of things, manufacturer that happens to be in your community, that lots of them—those who are very actually successful would have international ties. So they would either be a supplier like a Cummins Engines. You know, Cummins sells engines down to Mexico. It sells them all over the world, to Canada, to places all over the world. So that’s one—it’s very obvious there, right, that they’re one of the most international.
But, you know, some are much smaller suppliers and so, you know, I was—when I was working on my first book I spent some time in sort of the Bahía region of Mexico interviewing various people down there and, you know, one day I walked into somebody who was making sunroofs and there were these guys from Michigan and they had come down because they make the steel in Whitehall, Michigan. They make the steel that’s the particular kind of steel that can go into sunroofs and is strong enough but also flexible enough to make that sort of shape.
And so they were down there and bringing down a shipment but also training the people how to work there and, you know, they told me that, you know, they had one factory in Michigan and now they’re opening a second one because they had so much business from Mexico. And so, you know, this is a small town, you know, as we were talking about, you know, them riding snowmobiles in the winter right outside the factory. You know, this is not a big city.
But I think if you start looking around many of the factories, especially if it’s an industrial manufacturing factory, whether it’s parts—whether it’s the beginning/end, you know, the parts and the—and the pieces that go in or whether it’s the end whether it’s assembly, where they’re thriving is because they’ve hooked into the supply chain.
So if you go and, you know, talk to those who work in those factories or run those factories and ask them where the different—you know, where they land on this sort of network I bet you’ll find some surprising answers and interesting ones.
ROBBINS: So your book talks about, you know, and you spoke in the beginning about the advantages of regionalization and how we were being outcompeted by Europe and Asian countries that had larger regional trade blocs. If we wanted to be more regional—and I can’t imagine the change in American politics to do that but we can always hope—what’s our natural cohort?
Where’s—what’s our region? We’ve already—we’re already dealing with, you know, Canada and Mexico. You know, what benefit did we get for dealing with, you know, El Salvador? That’s not a big economy. So what’s our region?
O’NEIL: So I’d say one it is deepening the ties and the commerce that we have with Canada and Mexico. So it’s not necessarily adding countries but it’s deepening the mix and, you know, I—the book looks at the last sort of fifty years and the history of supply chains and the creation of these three big regions, and just to give you sort of pieces of data, between—you know, as we look at globalization over the last twenty-five years there have only been about two dozen countries that really participated, that really globalized, where you saw trade as part of their economy—their GDP—double or more. And in contrast there are dozens more—there are eighty-nine countries, to be precise, where trade as part of the economy didn’t change. It stagnated or it even declined.
So there’s a good number of countries that deglobalized from 1980 to today. So partly, we haven’t seen all that much globalization. I think that’s one just sort of baseline. And the other baseline is that when companies did go abroad, and they did—you know, we’ve seen trade go from 2 trillion (dollars) to $32 trillion from the 1980s to today—but when they did they didn’t go so far away. They tended to go closer by or they didn’t go to the other side of the world usually. We have examples, of course, that some did. You know, Boeing did and other big—you know, big brand names. But most companies didn’t do that right? It’s the Whitehall steelmakers. You know, they just went to Mexico. They didn’t go any further than that.
And so when you combine these two, what you’ve gotten is three big regions—a European one, an Asian one, and a North American one. And between these three, ninety percent of all trade happens in the world. And the dozens and dozens of other countries that are in South America and Africa and the Middle East and South Asia all together—that includes India, for instance, you know, huge countries—Brazil, huge countries, in terms of population—all together, they only produce ten percent of global trade. So they’re really left out of this movement that we talk about as sort of this all-encompassing thing and so I think that baseline is important for thinking about how we view this.
And then the other thing is that different places regionalize in different ways and just, you know, Europe was very top down. Lots of treaties that combined the economies and created a free trade agreement and got rid of regulations and created one currency, the euro, created one passport, you know, that sort of thing. They created courts and parliaments and all sorts of regional bodies.
But Asia didn’t do any of that and they’re as integrated almost as Europe right? It was just CEOs and it was governments helping them building infrastructure. But it was companies that went out and outsourced and, you know, starting in the early ’60s Japanese companies started outsourcing to South Korea and Taiwan and then later when they got wealthier South Korea and Taiwanese companies started outsourcing to Vietnam and to China.
And so this path and the integration—the deep integration you see in Asia is really led by companies, and when you get to North America there are some industries that have done that. We’ve seen—you know, we have NAFTA but it’s not as comprehensive as Europe and I—as you mentioned, with the politics I can’t imagine us getting all that much more comprehensive right? We’re not going to have one currency. We’re not going to have one central bank and things like that.
But you could imagine more industries that have so far taking advantage of it. And so, you know, we have autos. We have some aerospace. We have processed foods. But many of the industries that did not regionalize are many of those that have faded. So that’s apparel. That’s shoemaking. That’s furniture. That’s a lot of electronics that all decamped for Asia.
You could imagine that if you could bring some of those back and you create a regional supply chain you would see more of that business in all three of the countries, which would be beneficial for workers in all three places.
ROBBINS: So when people talk about reshoring—because we saw the vulnerability not just for semiconductors during the pandemic but things like PPE, just the snarls in global supply chains. When we talk about reshoring, A, do you think that that’s actually going to happen? And B, it would seem to me that that would make more sense to do it regionally than just inside the borders of the U.S. Is reshoring something that’s coming on and—other than for semiconductors or do you see this as something that makes sense and something that’s going to happen?
O’NEIL: So I think some of the forces in—sort of economic forces that are happening today open up more space for reshoring and in part it is that the cost structure for businesses are changing. You know, you see with automation, with AI, with sensors and algorithms and all of this that for many industries labor just doesn’t matter as much as a percent of costs and particularly low-cost labor is not as important because it’s different kinds of workers that are manning machines.
And I was back—right before COVID I was on a panel with the head of Caterpillar at the time and, you know, he was telling me that whatever their plant is, wherever in the world is it is exactly the same, that, you know, they don’t change it because some place has lower cost labor than others. It’s the exact same and, really, their biggest cost is logistics.
So, you know, that was—that’s sort of a front runner kind of a company and one that has heavy machinery so logistics is really expensive versus other things that are lighter. But it tells you a little bit about the movement of things around the world and I do think right now we are in a space of very fluid supply chains and it’s because of automation. It’s because of demographic changes. Places that used to be cheap labor are not cheap so more. It’s because of geopolitics and, you know, divides between China and the United States. But it is also because of—so there’s space here for reshoring, in some sense.
The challenge is here when you bring things all back to one place is twofold. One is if it’s all in one geographic location, as we found with COVID, it is pretty vulnerable and it’s not just vulnerable to COVID. It’s vulnerable to other things and we’ve had examples of this in the United States.
So in 2018 Hurricane Maria hit Puerto Rico and shut off the lights for a good number of months. So it took a long time to get it back up and running, and three months later you couldn’t find saline fluid bags in hospitals in the United States. You couldn’t find scalpels.
I mean, this is a place of lots of medical equipment and it—you know, eighty (percent), ninety percent of what the U.S. had been purchasing came from that one island. Part of the United States but it was gone. And so you don’t want to be geographically vulnerable. If the real reason is resilience you don’t want to be just in one place. So that’s part of it.
The other part is—and you bring up semiconductors—but if the U.S. government is not going to subsidize indefinitely a business, which maybe we will with semiconductors but it’s hard pressed to think of more industries than just a couple or more products, then you have to be commercially viable and you have to compete against others who are making that product and to do that it’s very hard to do in one place and particularly to do just the United States.
So that’s where—so the power of an international supply chain happens is you can divide up—you can have the economies of scale from lots of markets or across markets but you also have the benefits of specialization that you can get when you have one plant that produces just a particular node along a supply chain and they get very good at it and very efficient at it, and then you’re able to make something that’s better and cheaper.
It’s very hard to do that in one country. China doesn’t do that in one country. None of the things that we think about coming out of China are all made solely in China. They bring in parts from all over Asia primarily and that’s part of why they’ve been so successful in conquering global markets, and I think that is a lesson the United States can learn, too. If you want to be successful conquering global markets you need to tie yourselves to others that allow you to make those products that can compete.
ROBBINS: And but the countries to which we would be tying ourselves are mainly still Canada and Mexico or are there other countries in the hemisphere?
O’NEIL: Yeah. Those are the ones to start. The other, I would just say, with those two the benefits that they bring to us is—as well is the United States actually has very few free trade agreements, preferred access to various markets. We have sort of preferred access where we don’t pay tariffs or lower tariffs and the like to less than ten percent of the globe’s GDP. Mexico and Canada, in contrast, they have free trade agreements with sixety percent of the globe’s GDP.
So if a car is assembled in Mexico, it can be sent to Europe and sold without paying any tariffs. If that car was assembled in North Carolina, it would pay a ten percent tariff to go into the EU and basically make it unaffordable. You wouldn’t be able to compete in European markets.
So if Cummins Engines or other providers of engines can send those to Mexico, put them into cars assembled in Mexico, they have a chance at selling to Europe’s markets in a way that U.S.-based assembly plants do not. So that’s a benefit that they provide us.
Now, as we think about would we expand this beyond, you know, there are countries throughout the Western Hemisphere that could be partners. There are countries, you know, in Europe and others where you see complements and you see reasons to ally across this. So it doesn’t have to be just geographic or it can be further away.
But I do think that the sort of natural benefits of already having a base of manufacturing productivity and ties and a preferred access, which, you know, with Europe, we do not have at the moment, already having that base there makes them a pretty compelling place to start and start the expansion.
ROBBINS: So I want to throw this open to the group. And just as a reminder, you know, please click the raise hand icon on your screen to suggest you’d like to ask a question. When you’re called on, please accept the unmute prompt and state your name and affiliation. And you can also submit a written question via the Q&A feature.
You’re journalists. Come on, ask questions. Not that I don’t have lots of questions but waiting for those hands to go up here. Come on, guys. Questions, please. Lots of questions here.
Well, while we wait I will—I’ve got more questions here but I, certainly—I don’t want to do all the work here today.
You know, you see a lot of governors and, you know, states have their own trade offices and they—and you see governors going on what are either genuine trade trips or boondoggles. I can’t decide which they are.
I mean, if I’m a reporter and I see my governor going off on a trade promotion trip how do I assess whether or not it’s a success? Because it costs taxpayer money. They’re not traveling on their own dime.
O’NEIL: It does, and you see dozens and dozens of cities and states that have offices in—you know, in Shanghai or in Mexico City or in other parts of—you know, so they’re a permanent position or permanent place, you know, working to make sure that you see, you know, Texas or California or Los Angeles or pick your—you know, pick your state, pick your—pick your city.
You know, I guess in some ways there is proof in the pudding of, you know, over time do you see them bringing anybody. You know, do you see either, you know, foreign companies coming in and investing in the communities, investing within the—you know, the state or within the township that they’re representing. I think that’s one.
Do you see those local—you know, go interview. You know, usually on those trips they go off. You know, there’s lots of local CEOs or other businesses that go along on the trip and, you know, three months later, six months later, do they have any more customers. Did they—you know, were supply chains opened up there, right, or did they find a benefit and I think, you know—and if they didn’t why didn’t they. Was it just that the trip itself was a dumb idea or was it that it’s a lot harder to enter into the new markets?
What was the challenge there? Were they looking for—what were they looking for and what did they find or not find? But I think there’s a lot of, you know, experience and insight to be gained from those who go on those trips and really seeing it. Maybe the governor—they’re going to have a press release, right, if that’s what they’re doing.
But the businesses that went along I think there’s interesting insight to be gotten. One is what’s the opportunity but then also what are the challenges for U.S. companies that are trying to make this leap and become more international either in searching for customers—they’re suppliers and they’re trying to supply them—or they’re trying to find places to do parts of their work so that they can be more competitive in U.S. and other global markets depending on where they are within this whole process.
ROBBINS: Those are great stories there. We have a question from Rose White.
Rose, do you want to ask—and so you are from MLive in Michigan. Do you want to ask your question?
Q: Yeah. Hi.
So a comment, and I’m based in Michigan and we—Michigan kind of got a lot of mentions in this conversation and auto manufacturing is a big thing here, and something that we’re seeing now is with foreign investment there’s been a lot of anxiety from our readers and from people in the community about those investments and I was kind of curious what your perspective is on reporting some of those concerns and also trying to explain and report to our readers just kind of how some of these systems work in a non-nefarious way.
O’NEIL: Hmm. Interesting. Yeah.
So I think one is how do you tell the story of the more aggregate statistics of foreign direct investment that come in and so the aggregate there is, you know, when you see companies come in, one, they tend to pay better wages than those who are not tied to it. So if you have, you know, I don’t know, a Japanese company that comes in or, you know, Toyota sets up a plant or a European company or whatever it is they tend to pay better wages.
They also tend to last longer. Those that are coming in and bringing foreign direct investment the plant or the business is more likely to stay open and be open five years and ten years later. So this is, you know, bringing stability that brings in, you know, the job, the people who work there but also, you know, the tax base and the like.
They’re also often likely to buy from local suppliers and, you know, some of these, especially big corporations, 80-plus percent of what they buy will be from the local suppliers so there’s opportunities for American-owned companies to then service some of these. It depends on the industry and some kind of bring their own suppliers.
But a lot, really, will look for local sources so I think there’s opportunity to sort of highlight. But how do you translate all that? Those are, you know, wonky numbers. How do you translate that into what’s it going to look like for our community—what’s it going to benefit there.
And so I—you guys do amazing jobs and I love reading all the stories I read and then talking with the reporters who just have this great feel for your communities. But I do think it’s interesting, one, to—you know, is there a parallel city or place where an industry—a company like this one, maybe this one but maybe a company like this one in sort of the industry that has come in even if it’s four hundred miles away and what happened there.
You know, are there a couple phone calls you could make to sort of see what happened to a particular community? Did it really build the tax base or did it—you know, what were the tradeoffs—somebody who maybe did it three or four—five years before. I think that’s kind of interesting. That may be some insights for your community as that happens.
You know, another thing that I think is kind of interesting to highlight is, you know, the nature of foreign direct investment has really changed in the United States and, particularly, I would say, changed with the kind of rising tensions with China.
So you’re really seeing no Chinese investment in United States and so, you know, there is a—I don’t know if you all saw there’s a documentary that the Obamas had funded that was, I think, on HBO or Netflix. I can’t remember. It’s called American Factory—if you’ve seen that and, you know, there was a kind of down and out Ohio factory that had closed and a Chinese glass company came in and bought it. And so, yes, it created jobs but nobody really liked working with the Chinese because they had very different ways of doing it and management they brought in was all Chinese and so it was—it’s kind of an odd fit right?
And I think those stories are worth telling too, right, is that it might bring jobs. It might bring tax base. It might, you know, fill the restaurants or provide, you know—but I think the question is how do they come in, and I think different types of companies come in different ways. Some tend to come a little heavier with their own people and personnel and others less.
I mean, my impression—and this is not just from the United States but looking around the world—is that, you know, when Chinese companies come in they tend to keep the top layer management Chinese. Even in other countries they tend to—it’s a way of, you know, surplus labor sending it out or surplus materials like cement or steel or the things sort of getting out in the world for their own economy.
But other nations, I don’t think, are like that. So and not to—I don’t want to—I’m not trying to pick on the Chinese but I think there’s sort of different complexions to the kinds of companies that are going in, and diving in a little bit to that, I think, could also be interesting. And as—just as I was saying, on the China side, it’s very hard for or much harder for Chinese companies to come now into the United States because of CFIUS, which is, you know, a U.S. body that looks at national security issues and doesn’t let foreign entities buy particular assets and that’s expanded a lot when it comes to China, like things in manufacturing that before never would have been. You know, courts and airports and things were often there but now you see anything connected to technology and electronics is also in that space, particularly for companies from China.
So you’re seeing a change in complexion there, too. But I think it would be interesting and, I mean, I personally would love to see a story about—and I know this will be kind of a long lead one so I don’t know how much time you have or, you know, resources. But what’s the difference between, say, when a GM plant comes in or a Toyota plant comes in? Is there really any difference? Is one better than the other?
I mean, it’d be kind of interesting if foreign direct investment comes in, right, so—or it doesn’t have to be autos but some other plant—some company comes in that’s foreign supported does it have a different complexion than, say, when you see an investment from a U.S.-based company with U.S.-based owners.
ROBBINS: Great. Rose, anything else?
Q: No. That was helpful. Thank you.
ROBBINS: Great. So we have in the Q&A a question from Joel Donofrio from Yakima. Joel, do you want to ask your question or should I read it for you?
(No audible response.)
I’ll read it. So Joel Donofrio from Yakima says, how can U.S. trade officials work to lower tariffs with countries such as China and India? These tariffs have hit exports of agricultural products such as apples and cherries hard in the past five to six years.
O’NEIL: Yeah. That’s a great question and the short answer is we could actually negotiate trade agreements, which we’re not doing, right? (Laughs.) So that’s the short answer and back to, you know, when I said we really have very few free trade agreements around the world and most of them are actually in the Western Hemisphere. They’re with countries in the Western Hemisphere.
We have also ones with Israel, with South Korea, with Singapore but we don’t have agreements with China. We don’t have agreements with India. We don’t have agreements with the EU. We don’t have agreements with huge blocs of—very limited agreements with Japan. And so if we want access and lower tariffs, particularly for our agricultural products but all kinds of products, then we need to negotiate agreements.
The other thing that has happened, I would say, for the United States and the challenge for us is over the last five years the rest of the world has been negotiating agreements. So you have the TPP, which the U.S. was leading, which is now the CPTPP. So the Comprehensive and Progressive Trans-Pacific Partnership, which is, you know, twelve-plus countries lining the Pacific both in the Western Hemisphere and the Pacific.
You have the EU who has negotiated agreements with Canada, with MERCOSUR, the sort of South American countries. You have Africa has negotiated a continental free trade agreement that’s come into place. You have—twelve, thirteen countries in Asia have negotiated RCEP, the Regional Comprehensive Economic Partnership, which is a free trade area with South Asia as well as China and South Korea and Japan.
So you have all of these different agreements of which the United States is not part of any of them, and as they come into force our products are relatively more expensive. So we did not sign on to the TPP and that has come into force so what that means, for instance, is that Canadian and Mexican exports of beef to Japan or Australia or the other participants face no tariffs but U.S. beef exports have a 10 (percent) to 12 percent tariff so are no longer competitive in those markets.
So I think part of our challenge is how do we—you know, how do we do this. We need to be part of these agreements. We need to think about getting back into TPP of which agriculture would have been one of the biggest beneficiaries, and we need to start thinking about—in the types of trade negotiations we’re doing thinking about market access for ourselves as well as—which also means some reciprocity of letting others come in to our—but—into our country.
But I think that is missing over these last two to three years and, to me, actually that is what a worker-centered trade policy would look like is opening up markets and making it—making our products more competitive in them.
ROBBINS: It used to be that the Republican Party was the party of trade and the Democratic Party was the party of unions and anti-trade. Now we don’t have a party that’s a party of trade.
Do you see any politicians who are taking up the point of trade or anybody who’s at least making an argument that makes sense to you for this or are we in such a deep hole that you can’t imagine anybody digging out of it?
O’NEIL: You know, we—I do not see them yet or I see very few voices doing it yet. But I think there are reasons where we may start to see a shift. One is just what Joel was saying there is that lots of agricultural—particularly agricultural sectors have been hit very hard by the lack of access and there are a lot of states that have strong voices in the U.S. Congress that are agricultural states.
So, you know, one could imagine that some of those politicians might start to think that this is what their constituents need and so I think there’s a political arbitrage to be done there that’s possible. And then, more broadly, we see with, you know, Gallup polls and other polls that a strong majority of Americans think trade is an opportunity and not a threat. So there is a latent base there to be mobilized if you found someone to take that on.
Now, we know that there are—you know, Gallup polls and other polls there are a number of issues where a strong majority of Americans believe one thing and the—you know, that isn’t the way our politics is going or the way that they’re discussed in Congress. So it’s not as if it’s an easy translation and, you know, there’s a gap there.
But I do think there is a space and I think there are real political winds, especially in agricultural states, to begin to focus again on these free trade agreements. And perhaps it is that some of these agreements that have been signed over the last five years are just coming into force. So they’ve been signed but until they come into action you don’t realize that you’re going to be facing a relatively much more—it’s going to be much harder for you to get into those markets than it has been historically because all of a sudden all your competitors from other places or others that are within the group are going to be paying much lower tariffs or have fewer regulations or just have better access than you do. And so as that happens, we get beat out more in places that we used to sell a good amount I think, you know, maybe the politics around this changes.
ROBBINS: Yeah. That’s fascinating. So it’s a timing issue because, certainly, you’ve seen the turnaround in Britain. I mean, the Brits have seen the cost of Brexit, you know, hit them pretty fast and—things as simple as just being able to move across the channel and trucks backed up and all of that. So but that’s not surprising that that hit them because the barriers came down immediately, so we’re only—we’re only going to see this right now.
So I have a very sort of—a question that’s always fascinated me, which is—and I’m waiting for other people to ask questions here—you know, the Cubans—I really am completely fascinated by the Cubans, who have been making this pitch for quite a while, which is if only you could lift the embargo. Look at this fabulous market for American agricultural goods.
Well, first of all, you can sell food to Cuba but you can’t finance it. So that’s the restriction on the—on the—(inaudible). But there is actually a bipartisan legislation, not that it’s going to pass, on the Hill once again to lift the embargo because of the agricultural market.
I mean, Cuba’s a tiny market. I mean, if you—for any of you guys who are out there from agricultural states Cuba’s a tiny market. Would it make a difference for any agricultural exporter if we lifted the embargo? I, personally—from my own personal opinion and I was a longtime editorial writer. I’m allowed to have opinions. But I think we should lift the embargo. I think it’s dumb. But, nevertheless, would it make a difference to any agricultural state?
O’NEIL: Yeah. So Cuba is a population of 10 million people and they’re not particularly well-off people. Per capita the GDP of Dominican Republic is higher. (Laughs.) So I would go for the Dominican Republic if you’re trying to, you know, corner the market.
But, you know, there are—they are 10 million people. They’re very close by. You know, you could imagine, you know, cherries and apples and other things that were just on the list that it is—if the embargo was lifted perhaps there would be a market there, right, and in a place. But, right, this is not going to—this is not going to move the dial in terms of U.S. agricultural exports. I would focus your energies elsewhere. (Laughter.)
ROBBINS: Yeah. That’s what—I just wanted to—that was my reality test here. Thank you.
ROBBINS: So while we wait, could we talk about decoupling, which—from China and what that means and what the impact would be?
You were talking about how CFIUS, which is the group of different Cabinet members who come together to decide on what industries the Chinese can buy and can’t buy into and how it’s broadened and broadened and broadened.
The converse side is the pressure that the U.S. is putting on its allies to not buy from China that we’re putting on ourselves to not buy from China. What’s the impact of that on the U.S. economy and U.S. consumers? Is it all really just about strategic goods and things that have an impact on the military or is it broader?
O’NEIL: Yeah. So it’s interesting. So, you know, we hear a lot about decoupling and then the naysayers say, well, just look. The, you know, trade deficit or trade with China was the biggest it’s ever been last year so we’re not really decoupling.
But if you sort of dig below those top line numbers, which are hit by a couple things, one is, you know, the tail of COVID and we had, you know, a huge change in the kinds of things we demanded and everybody needed a new laptop and new electronics and that was really China who makes, you know, nine out of every ten computers and the like.
So some of it was an odd demand—sort of a shift in demand. Partly it was that and partly it was inflation. You know, if you sell the same amount of goods but the price goes up five (percent), ten percent, well, guess what? You’re going to get a record number of goods.
But when you start kind of looking below those numbers you actually see some, if not decoupling, some distance. So in those numbers overall you see volumes stagnant if not declining so, yeah, prices were up but sales are going down. You see, particularly in agriculture, you know, the cherries and the apples, you see challenges in terms of U.S. exports and you also see U.S. exports not keeping up with—U.S. exports to China not keeping up with exports happening to the rest of the world.
So as China was—during COVID was actually growing and, you know, you saw Europeans, you saw South Asians, you saw other countries their bump up in sales to China was much higher than U.S. bump up. So we lost market share, basically, and the same thing with some of the Chinese goods.
So, overall, you know, while the numbers look like record numbers and, oh, nothing is happening here, actually under the hood I think is quite worrisome as you’re seeing China especially diversify and diversify in agriculture where they’re finding other places to buy. So U.S., while absolute numbers don’t look so bad relative terms look much smaller. As the Chinese economy grows we’re not benefiting from that growth, I would say.
The other thing, and you sort of brought this up with CFIUS, is what we have seen is a huge decline in foreign direct investment, Chinese coming to the United States and U.S. companies going to China and so that’s really about the growth and trade three to five years from now right?
If you’re not investing in the new factory or not investing in setting up offices then you’re much more—you’re less likely to trade in the future. And so I think what we are seeing is just the start of a distancing or a de-integrating of the relationship, not the end, and I think we’ll start seeing more and more of that.
And then we have these hard breaks like you were saying with—you know, with semiconductors or with others where it’s just you can’t sell anything. You know, it’s not about tariffs. It’s not about the price. It’s just your export bans on those sorts of things.
The other real question let me just put out there for the relationship, which is sort of on pause but it’s sort of an ugly kind of, you know, cloud hanging over U.S.-Chinese trade for the future is a bipartisan law that was passed a year-plus ago came into force last summer and this is the Uighur Forced Labor Prevention Act.
Now, this is an act that says you can’t import goods into the United States that were made with forced labor from the Uighurs, which are primarily based in Xinjiang, a particular province of China. This is a little—we’ve always had bans on forced labor and there are various laws that, you know, you can stop goods at the border and Customs can stop them if you think there’s forced labor there.
But this one is much more stringent. It’s basically you’re proven guilty until innocent. So anything that comes out of that province you have to prove that it wasn’t made with forced labor, which is hard to do, particularly because the Chinese are banning companies from sharing information with Customs.
So you don’t know, and within that bill is it’s not just if it’s coming from Xinjiang, from that province. It’s if there’s any forced labor, and it’s very hard. It could be any factory in China could potentially have someone who is working against their will and if you have to prove that they’re not that’s sort of a high bar to climb.
And so far it hasn’t been broadly enforced because they’re just sort of getting the apparatus up and going but it is something that one could imagine with the—you know, the hostilities in the U.S.-China relation you could see it expand. And so I think it is—it’s sort of a, you know, a sword of Damocles sort of hanging over some of this trading relationship that could potentially fall at some point.
ROBBINS: So is trade an effective tool to get countries to change their behavior whether it’s—I mean, there’s no question that these are crimes against humanity that are being committed in Xinjiang. I mean, there’s just forced sterilization, people in concentration camps. I mean, there are just terrible things that are going on there.
So that’s one thing on human rights, but also the use of just things as basic as tariffs to get the Chinese to stop intellectual property theft or to open up their own markets. Do we have a history of using trade pressures successfully to get countries to change their behavior?
O’NEIL: You know, I think we have seen some successes in the past but often it’s when people opt into them. So you look at some of these trade agreements and people sign on. Some trade agreements are much more comprehensive than others.
So, for instance, just talking about NAFTA, NAFTA, signed in 1993, we just have a new version of it, the USMCA, and it has really significant labor provisions and environmental provisions and we have seen all three countries using those to go after, you know, allegations of, you know, abuse of unions and that sort of thing in successful ways. And so I do think when countries opt in to higher standards and free trade agreements and the like they tend to be pretty effective.
I mean, Europe has done that many times and many of the agreements they sign, too, have environmental, labor protections, and the like. And so I think there is a positive sign. So people who want to join the club and then—and benefit of having higher labor standards or transparency and accountability is you get access to quite profitable markets. So I think that’s one way to go.
We have at some times seen sanctions or penalties change some behavior in some places, you know, countries that, you know, we have cases of—for instance, you know, Bangladesh is a big apparel producer. Had sort of terrible labor conditions and a big fire that, you know, killed hundreds and hundreds of people, primarily women. And in the aftermath of that there were sanctions and some people, you know, didn’t want to produce in that country. But they really cleaned up their act. And I think—dare to say, you know, twenty years later it’s a much better industry to work in and much more transparent and safe and all those things because they want access to global markets. That’s a place of growth.
You know, would this change the Chinese behavior, which is wrapped up in geopolitics and a whole host of other things? I think I’m less optimistic that we see it because it’s not just about a commercial arrangement. It’s about the sort of broader arrangement. And, obviously, you know, the—I think—I mean, an extreme example we have, you know, Russia, who has been forced out of the financial system and all kinds of sanctions and isn’t changing their behavior at all, I would argue.
So there are places I think it’s easier if it’s an opt in because people are—it’s an incentive to have access to greater prosperity than the like. But it’s—it can be selectively successful but it’s not always.
ROBBINS: So we are coming to the end. I just wanted to ask for a little bit of advice on research. So where does one get trade data if you’re writing a story—if I want to understand where my state fits into global trade, where my state fits into regional, where it fits into the broader country’s trade?
O’NEIL: Yeah. So if you want global trade there’s a great database that the World Bank provides. It’s called W-I-T-S, World Indicators of Trade and Services, and you can go in there and you can plug in countries and timelines and you can get all kinds of cool graphs. It’s a super easy interface so I highly recommend checking that out.
If you want it on your state or, you know, particular areas the Commerce Department has some good stuff and the Bureau of Economic—BEA—Bureau of Economic Advisors, I guess, they have great trade data that you can go and find and they break it down by states and sometimes even by kind of county and others so you can find things there.
I mean, each state, I’m sure, has—you know, they do have economic bureaus and development bureaus and if you go to them and you’re writing a story I’m sure they’d be happy to share with you probably the most glowing version they can, but they—you know, they’d be happy to probably help you find the data that you need and particularly if they’re touting, you know, foreign direct investment or others coming in. I think that’s one interesting place.
And then I guess the other thing I might just keep an eye on is over these last two years the U.S. government has legislated and passed, you know, over $2 trillion worth of money that’s going to go into economic stimulus between the infrastructure bill, the CHIPS and Science Act, and the IRA—the Inflation Reduction Act—which is really about, you know, clean energy and clean technologies and we are going to see, you know, an ambitious—over these next two years but really over the next five-plus years we’re going to see that money going out to communities.
And so you can look on, you know, Treasury’s site for the IRA stuff, Commerce’s site for the CHIPS Act, different—and see which communities are getting it and which bids have made it. But I would be watching those stories and see how those, you know, projects, which are often brought together by communities more broadly, right—it’s the company but it’s also the local communities and development, you know, groups and the like—and kind of see where they go, you know, which ones work, which ones maybe haven’t worked, and I think there’s stories to be had within all of that that I would be checking out.
ROBBINS: That’s great. We will share these links when we send out to the group.
Shannon, this has really been fabulous. Thank you for sharing your expertise with us today, and thanks to all of you for joining us. We’ll send that link to the webinar recording and transcript and some of these links as well that Shannon mentioned.
As always, we encourage you to visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for the latest developments and analysis on international trends, how they’re affecting the United States and your communities. Please don’t hesitate to share suggestions for future webinars with us by sending an email to [email protected].
Thank you all again for joining us today. Shannon, it’s great seeing you and I apologize for the glare, I mean, really—(laughter)—as this has been going on. It was gray here and this has moved on over the course of it but I suppose I’m just in the state of grace, which is why I’m backlit here. (Laughter.)
But thank you all, everybody, and we’ll see you at a future webinar. But send us ideas. Anyway, have a great day, everybody.
O’NEIL: Thanks, all.
ROBBINS: Thank you so much. Bye.