The Globalization Myth, With Shannon K. O’Neil

Jim Lindsay:
Welcome to The President's Inbox, a CFR podcast about the foreign policy challenges facing the United States. I'm Jim Lindsay, director of studies at the Council on Foreign Relations. This week's topic is the globalization myth. With me to discuss why globalization is less global and more regional is Shannon O'Neil. Shannon is the Vice President, deputy director of Studies in Nelson and David Rockefeller's, senior fellow for Latin America Studies at the Council on Foreign Relations. Shannon has written extensively on politics in Latin America with a particular focus on Mexico as well as on global trade and supply chains. Her newest book, which was released today, is The Globalization Myth: Why Regions Matter. Shannon, congratulations on the publication of The Globalization Myth and thank you for joining me on The President's Inbox.

Shannon O'Neil:
Thank you for having me. Always a pleasure.

Jim Lindsay:
Now Shannon, before we begin discussing globalization, regionalism, and the evolution of trade networks, I want to let listeners know how they can win a free copy of The Globalization Myth. To do so, all they have to do is go to cfr.org/giveaway. Let me repeat that, cfr.org/giveaway. There they can read the terms and conditions for the giveaway and register their entry. The registration for the giveaway will be open until November 2nd. After that, we will select 10 names at random to receive a free copy of The Globalization Myth. And for any listeners struggling to find a pen to jot down all this information, please note that we have provided a link to the giveaway in the show notes for The President's Inbox on cfr.org. With all of those logistics out of the way, Shannon, let's talk about globalization.

Shannon O'Neil:
Great.

Jim Lindsay:
Now, this is a term that's been bandied about for at least three decades. So much so that when President Donald Trump launched his trade war on China, we actually got a talk about de-globalization. Well, the title of your book is The Globalization Myth, so why?

Shannon O'Neil:
So as you say we have been talking about globalization for many years. And there is the sense out there, this conventional wisdom that it's this juggernaut that has changed the world's economies, and changed our politics, and ripped apart some of our communities and societies. And actually when you go and you look at the data over the last 40 years, we have seen much less globalization than I think we imagine or we assume. And so looking at trade flows and movement of money and people and ideas, actually what we've seen is there's only about two dozen countries around the world that have seen their economies transformed by trade, by internationalization. On the other side, we see almost 90 countries where trade as part of their economy, trade as a percentage of GDP has either stayed the same or actually fallen over the last 40 years. So there's a good number of countries that arguably have de-globalized already before President Trump brought up this idea. So globalization has not been as widespread or as penetrating as we tend to think here. It's been much more shallow.

Jim Lindsay:
So where does the United States fall between those two buckets of countries?

Shannon O'Neil:
So the United States traditionally has been one of the most closed economies in the world actually. In part because we have such a big country of so many people and we have so much technology and the like, we often produce things for ourselves. We have seen over the last 40 years an increase in trade, partly because it was such a low base. But we have not nearly seen the big increase as some of those globalization quote unquote "winners". Many of these are countries in Asia, they're China and Japan, Taiwan, South Korea, Mexico too has increased significantly. And also Eastern European countries are some of the biggest winners here in terms of transforming their economy, growing significantly. So the US is on the opening side but really because it started from such a small base of trade.

Jim Lindsay:
What about a country like China, hasn't globalization been the main driver behind China's impressive rise as an economy?

Shannon O'Neil:
So the other interesting thing is when you look at the data is that those countries that did internationalize, that did transform their economies and the others that were a bit slower on the mark, when they went abroad, when their companies or their money or their suppliers when they went abroad, they more often than not went closer to home than far away. They didn't really globalize, they more often than not regionalized. And especially the countries that became really manufacturing powerhouses and I would say China is the lead here on this, they regionalized in this whole process not globalized. So let's take China, China's rise opening up in the 1970s and '80s. A big part of it was foreign directive investment coming in, companies from the outside coming in. And we tend to think of US companies or European companies going there and they did. But a much bigger amount of the money, and the interest, and the companies, and the knowledge, and the technology that went into China to help it grow came from Asia.

It came from Japan, Taiwan, South Korea and other countries nearby. And today as you look at Chinese exports, the powerhouse going out into the world and hitting consumer markets, much of that is actually an Asian product rather than necessarily a Chinese product. So let me take the iPhone, iPhone comes out of China, it comes here to the United States. But that iPhone will have silicon wafers that were cut in Japan. It will have those wafers go to South Korea or Taiwan where billions of transistors are put on them to make the semiconductor. It will have sensors and cameras that come from Japan and parts of it from Malaysia. Other parts will come in from Vietnam and other places. Many parts will be made in China as well. And all of it will be put together and then it will go out to the global consumer. So China's story and its rise is actually one of regionalization as much if not more than globalization.

Jim Lindsay:
Well, what about we talk about other products like t-shirts. I often hear it said that the t-shirts designed maybe in New York or in Los Angeles. It uses cotton grown in Egypt. It's dyed with dyes manufactured in India. It's sewn by people in Bangladesh. It's then marketed and distributed by a company based in Singapore. That sounds pretty global, is that not common?

Shannon O'Neil:
So those examples definitely exist and there's a great book that was written maybe 10, 15 years ago called T-Shirt in a Global Economy that lays out that path. And there's other companies we can turn to like Boeing, which sources from 58 different countries. So there are truly global companies. But alongside that there are thousands if not tens of thousands of companies that really just went regional. And let me tell you a story about fashion because that is the quintessential, is it global and did it all go to Asia?

Jim Lindsay:
Well, and we know that I'm a fashion maven.

Shannon O'Neil:
Yeah. Jim is a natty dresser. You can't see it on the podcast but he is. And one of the other big regions that has arisen in this regionalization and as a manufacturing hub is Europe. And we tend to think of especially in fashion and apparel that this is the most cutthroat of industries. It's the race to the bottom. You find the cheapest producers and that's where this industry goes. And you know, that example of the t-shirt in the global economy is that one. But the example in Europe, one of actually the biggest fast fashion brand is a company called Zara, makes trendy wear for women and some for men. It is a Spanish company originally. And Zara is not only the biggest in terms of revenue, it sells half a trillion dollars worth of clothes every year. It's also the highest margin of the fast fashion brand. So it beats out H&M and Gap and all these other ones.
And Zara's secret to being the biggest and the most profitable is it makes the vast majority of its clothes in Europe. It is a European company that produces in Europe and sells globally. It has some production in Asia, but less than 15 percent of what it makes in Asia. And the rest it does in Spain, Portugal, the rest of Europe, Romania, Hungary, and other countries. The way it does this is a mix of automation and flexible ways of making things. It does smaller batches so it doesn't make quite as many t-shirts in one place. And it gets things to market faster because it's not waiting on a boat across the Pacific for four to six weeks. And so it doesn't have to discount as often as other companies do. So one of the powers or the strengths of regionalization I would say, is you don't have to go to the lowest cost consumer. You don't have to go to this race to the bottom.
Zara has found a way to make things in Europe that are profitable at higher wages with worker protections, and all the kinds of things that we think about in the European system.

Jim Lindsay:
So let me draw you out on that, Shannon. And I have to confess that I have never been in Zara. I think I've walked by one in the mall.

Shannon O'Neil:
But your daughter might have been.

Jim Lindsay:
Oh, I'm sure my daughter has been, maybe even my sons have been. I don't know. But as we sort of think about this, why does it matter that trends of the last 30, 40 years have been more regional than global? What's the policy consequence? What's the impact for people's daily lives when we sort of understand that nature of the trend?

Shannon O'Neil:
So this is important, the regionalization is important because when companies have gone abroad, they've been able to make things higher quality, more affordable prices. So they become more globally competitive because of economies of scale, because of specialization, because of differentials and wages and the like. They have been able to be more globally competitive and compete for the world's consumers. The other reason that regionalization is important is that the places that have regionalized get a leg up over the places that have not regionalized. So Europe has regionalized, Asia has regionalized, North America has regionalized but to a lesser extent than Asia or Europe. And all three of these big regions have regionalized much more than the rest of the world.

So in part it helps explain some of those countries and economies that have been caught in the slow lane, Latin America, Africa, the Middle East in places. But it also when we look back to the United States, it helps explain some of the challenges that we have here in the United States. And as we think forward, we want worker centered trade policies and the like, how does one do this? Well, I would argue that regionalization is actually the way to get there, to have a worker centered trade policy rather than what many people default to here in the United States, which is more protectionism.

Jim Lindsay:
Okay. So let's talk about regionalism as a concept, as you detail in The Globalization Myth. And I should say you're a wonderful writer, it's a very engaging book. But as you look at the issue of regionalization, one of the things that you emphasize is that regionalization in Europe has looked different than what it looks like in Asia, and different from what it looks like in the United States. It's not just a degree of regionalization but it's how it has come together. Sort of draw that out for us.

Shannon O'Neil:
We've seen different paths over these last 40 years. And if you look to Europe, Europe's was very top down and driven by diplomats. At the end of World War II, the heads of state were out there trying to figure out how to stop another world war and they turned to trade and economic connections to do so. So if you look at the last 40 years of Europe, there have been treaties of many major cities of Rome and Maastricht and Lisbon and many others. And these are treaties that took away tariffs, got rid of differences in regulations. They allowed the movement of people between different countries. They created one currency for many of these countries and they put into place courts and other institutions, banks. And they also brought together budgets so that Europe together spends hundreds of billions of dollars to create physical infrastructure, roads and rails and ports and the like, as well as digital infrastructure to tie these economies together.

And so all of that together it's been a top down process led by diplomats, heads of state to, through treaties, create a more regional economy. Asia has a very different path actually. Asia starts with companies. We see in the post-war, the Japanese companies as they're coming back into the world they quickly run short of labor. And so they start outsourcing to their at the time very poor neighbors, to South Korea, to Taiwan, Hong Kong, Singapore. They build factories and they send out technology and the like. Their government follows with overseas development assistance that helps build ports, that allow then the Japanese companies that have gone to say South Korea to export back to Japan. But as they outsource, you then see these countries climb the sort of sophistication scale in terms of technology, in terms of ability to do things. So Taiwan, South Korea, they grow and then they start outsourcing to Thailand, to Malaysia, Vietnam and to China.
So you see what you could almost call, "hand me down industrialization," where you start off and then you hand it down and the next country sort of climbs the scale. So governments were involved particularly in helping fund ports and infrastructure, but not through treaties, not through trade agreements, not until the end of the 20th century. And then I would say turn to North America and it's a little bit of the Goldilocks middle, but not in the good ways that we usually think about Goldilocks middles, which is that we have NAFTA, we have a commercial agreement. We have an investment agreement there, but we don't have the depth of connections and institutions and funding that we see in Europe and sort of the institutional backing, nor do we really have the depth of connection in terms of companies and conglomerates and backing of governments that we see in Asia.
So what you get in the United States and or in North America more broadly is yes, you see trade between the countries, about 40% of the trade goes between Mexico, Canada, and the United States. So each are the other's biggest trading partners, but it's not nearly the numbers and the extent and depth of intra-regional trade that you see in other places, which is 60% or more. So it falls behind there.

Jim Lindsay:
Okay, you mentioned the magic word NAFTA which upsets very many people. And indeed you begin your book by talking about your hometown of Akron, Ohio. There are a lot of people in Akron throughout Ohio, throughout much of the Midwest who would blame a lot of their woes on NAFTA and say, we don't want regionalization because regionalization means our jobs go out the door. There's the great sucking sound as Ross Perot put it memorably back in the early 1990s. Why are they wrong?

Shannon O'Neil:
So they're wrong for a few different reasons. They're wrong because for my hometown, for Akron, Ohio, those jobs left long before NAFTA. They left in the 1970s, in 1980s, NAFTA was a decade away. And I would argue against that narrative that you usually hear that NAFTA's the worst trade agreement ever, that part of the reason that those jobs left Akron and hundreds of towns like Akron, is not because of globalization but because of the limited regionalization of the United States. Like it or not, the United States was competing against other regions that were coming together and making things together. And they could do it higher quality and more affordable than the United States could do alone. And without partners the United States couldn't do that. They couldn't make things as high quality and as affordable. One way to think about this is global manufacturing has become a team sport, and you can't play it alone if you want to win on the playing field. And that's what we're trying to do if we don't have regional or other partners.

Jim Lindsay:
Well, let me ask you about the other two legs of the NAFTA stool. There's Canada and there's Mexico. Let's do Canada first, is Canada eager for this deeper integration or are they worried that they're basically going to be overrun by American products?

Shannon O'Neil:
So Mexico and Canada have always had worries about the United States because the United States is such a big economy and also a big presence. It's a super power in the geopolitical stage. So it's always been a bit of a challenge, worries about sovereignty and the like, which we worry about here in the United States too if you listen to our debates. But I do think there is a recognition in Canada and Mexico of the importance of working together. And I would say actually at this point in 2022, the U.S. in many ways will benefit more from ties to Mexico and Canada than frankly they will to us. Yes, they have access to our market already but many of the things as we think about competing globally in our products and creating jobs here in the United States, greater ties to Mexico and Canada will help us as much if not more than them.

And let me talk a little bit about that. What is different about this phase of globalization over the last 40 or 50 years is the creation of supply chains. If you look at past globalization, there have been many rounds in the history of the world. Usually people send out finished goods to the world. They send out commodities, oil, or they send out finished goods, agricultural goods or later cars and planes and the like. What's different now is global supply chains have really grown over the last 40 years. And so 75 plus percent of what's sent out into the world, what's traded are what economists call intermediate goods. So things that go into final goods, not the final goods—

Jim Lindsay:
Basically like parts, ingredients.

Shannon O'Neil:
Parts, exactly ingredients that go into whatever that final product is going to be. The other thing that we have seen is this regionalization. And so in these global supply chains, they tend to at least in the making of things, the manufacturing, they tend to stick closer than perhaps the final consumer for our final goods. So 75% of this trade is going to be more often closer than not. And so for the United States, the benefit of a factory opening in Mexico is that Mexican factory is much more likely to buy from US suppliers than say suppliers in China. And we see this in the trade data. So when an import comes in from Mexico, on average 40% of that product was actually made in the United States. So those are US factories that are humming because Mexican assembly factories and the like are buying from the United States.

When a good comes in from China, only 4% was made in the United States. So basically nothing, because China's buying from Asian suppliers. They're buying from Taiwan and Japan and Thailand and the like. So when factories open in Mexico, much more likely they're going to buy from the United States. So US suppliers are going to get orders and when you combine the three economies, much more likely that you're going to be able to make products more affordable. And you're going to have access not just to Mexican and Canadian markets but to global markets, because Mexico and Canada have much better preferential access or free trade agreements with many more countries around the world. And so through their factories we can sell to the world at lower rates without tariffs.

Jim Lindsay:
Well, let me ask you about Mexico specifically, Shannon, because you know an awful lot about Mexico. You wrote a great book called Two Nations Indivisible. My sense is that with the current government in Mexico City under the leadership of President Lopez Obrador, he's skeptical about the value in the virtue of the regional model that you're offering. He in many ways mirrors many people who followed Donald Trump in seeing a great virtue and sort of doing it all yourself. How do you see Mexico going in all this?

Shannon O'Neil:
I do think this is a real challenge for Mexico, for the United States, for many countries around the world. And this is a moment for lots of reasons changing trends, whether it's automation that's making low cost wages, less important than they were in past, demographics that are changing where low cost wages are, geopolitics as leading to US China decoupling and all of that. Right now you are seeing a fluidity in global supply chains that you haven't seen for a generation. Companies and their boards are all talking about should I move to a different place, where should I move, for lots of reasons. And so it's a moment when you have great opportunity if you are a manufacturing country or you aspire to be a manufacturing country.

All of that said is this is a moment that should be in Mexico's moment and you have a government there that is, as you say, quite suspicious of this. It's a government that's not focused on manufacturing. It's not thinking about linking to the world. It's thinking about turning inside and is much more nationalistic in its economic approach. Even with all of that, you are seeing international companies look towards Mexico. And if you go to the border with Mexico right now, the industrial parks are full and companies are looking to connect to the United States and connect to North America because they see this promise. So I think this will be one challenge as the United States, how do we form our own policy, our trade policies and our economic policies? The other is, can we bring our neighbors along? And with Mexico, I do think there is somewhat of a challenge there. If we fail and if they decide not to do it, it will be to all of our detriment frankly, and to not just US companies but to the workers that they would employ.

Jim Lindsay:
Shannon, why do you think it is that the politics in Europe and the politics in Asia made it possible to pursue this regionalization, again understood, proceeded in a different way in Europe than it did in Asia. Whereas the politics here in North America, particularly in the United States and in Mexico, seemed to have made this very hard to do with great resistance? Even if you go back to the 1980s with the U.S.-Canada free trade agreement, that was enormously controversial in Canada.

Shannon O'Neil:
I think part of it is... At least for the United States is we tend to look back with nostalgia at the 1950s and '60s for many reasons. We do it culturally sometimes but we also do it economically. And that was a particular moment in the global economy when the two areas that are now our biggest competitors were destroyed by war. Japan had been totally destroyed and Europe too was barely able to get the lights back on and was trying to rebuild. So there were no other competitors and the US economy was really standing on its own in terms of its strength and growth and its ability to serve the rest of the world. Now, looking back at this history as I've done for this book is you see part of regionalization is the story of them rebuilding themselves and coming back and finding advanced manufacturing themselves.

And so you hit the 1980s and we have real competitors out there after we got a little bit complacent with our industries in terms of thinking we were the only ones there. And so this last 40 years is really, I think in some ways the US and its neighbors by extension trying to find their place in a world that's much more competitive than it was for 20, 30 years. And as I've looked at this and talked with various companies along the way and others is the US can handle the competition. We have so many natural resources, we have a great sense of technology, and intellect, and different kinds of financing, and skills, and productivity. Now, there's a lot that we can do. But we do need to change our mindset that this is a global industry and that regionalization is a way to strengthen ourselves. It allows us as the US and our companies to have much better access to the eight billion consumers that are out there, not just the consumers that are in the United States.

Jim Lindsay:
Now Shannon, when you talk about regionalization and sort of having regions come together and basically deepen their integration, how different or similar is it to the recent talk I've been hearing about near-shoring, friend-shoring, ally-shoring? Are those all buzzwords that describe the same thing or are there important differences among them?

Shannon O'Neil:
There's a lot to be said that's quite similar. And as I listen to this talk and as many countries including the United States start to think about what they would call critical supply chains, areas that they think national security depends on having access to semiconductors, or critical minerals, or electric vehicle batteries, or other kinds of technologies, some of this has actually already happened or we already have the groundwork for it. You see that in Asia, already you see those countries working together on these various areas and you see many of those nations pushing for deeper ties. Just in the last few years you've seen them sign various free trade agreements to deepen regionalization. One is the RCEP, so the Regional Economic Comprehensive Partnership which is 15 countries around Asia, including China and Japan and many others. That will increase regionalization because of the way it's written and also in these high tech sectors. You see Europe doing something similar.

But this idea of near-shoring, friend-shoring, part of it is going to be geography. The near-shoring is obviously geography. The friend-shoring what we see sometimes obviously we know around the world that neighbors can be bitter enemies, and we see that right now in Russia and Ukraine among other places. But there are places in particular, I would say in the Western hemisphere where actually those coincide, the friend-shoring and the near-shoring. So we have in the western hemisphere the vast majority of countries are democracies. In fact, they're the most number of people living under democracy than anywhere else in the world in the Western hemisphere. Many of the values are the same. For the United States at least we already have 10 free trade agreements with those in the western hemisphere. So we have far more access to markets in the western hemisphere than anywhere else in the world in terms of the free trade agreements we have.
So I do think if the U.S. government gets serious about near-shoring, ally-shoring, particular supply chains deciding that they need to be located in places and with countries that we feel are friendly to our interest and not hostile, that the easiest place and the best place to look is to start here in the western hemisphere.

Jim Lindsay:
But it seems to me, Shannon, that at least on some strategic issues that there is a push for what we might call cross bloc cooperation, particularly between North America or the United States and Europe. I'm thinking particularly when it gets to the question of semiconductors and high tech things such as that, where I think both European governments and the US government are greatly concerned about what it means if China comes to dominate their production. That if they were to get a lead it might be a gap that we can't close. And recently the Biden administration imposed some new regulations that really limit Chinese access to that high technology. And I also note that not too long ago, Chyristia Freeland who was a deputy prime minister of Canada, came down to Washington and gave a speech at the Brookings Institution in which she extolled the notion of building trading blocs that are basically sort of premised on shared values. Do you think that's something that's sustainable because typically when you talk to business people, what they're talking about is making investments based on return on investment, not in terms of shared values and the like?

Shannon O'Neil:
So I think there's two different levels to this and the answer to some of our challenges, whether they're national security challenges or commercial challenges and profit and loss is not necessarily all regionalization all of the time. And there are some issues, particularly national security, that need to be dealt with at a global level, and they're allies coming together and the like. You need more than just a few regions. Some of these areas are things like standard setting. We have standards in all kinds of industries, technologies that decide what kind of plug your iPhone will have or what kinds of protocols will be used. And those things really matter because they decide which companies actually have the royalties for that kind of technology, which kinds of factories are the ones that are going to work around the world, who has to change the way that they make things, which is very expensive.

So that is something that really needs to be set at the global level. And where you have seen significant competition between the U.S. and often Europe on one side and China and others in terms of those kinds of protocols, that I think is a global side of things. Where the regional side comes in and this is directly to your point about being commercially viable, because there are very few industries, very few areas of the global economy that governments are going to be able to subsidize indefinitely because of national security reasons. So if you come down to the commercial viability, there is where I do think regionalization often gives you an edge. So let's start with semiconductors. This is seen as the industry national security concern that you need to control. As you look today, most semiconductors are made in Asia. They're made in Asia in part because the biggest companies there, Taiwanese companies and South Korean companies have the technology or much of the technology for making them. They have the foundries, but it's also because the whole supply chain is in Asia.

Everything from the mining and refining of the critical materials which often happen in China, all the way to the precision cutting of the semiconductor wafers which often happens in Japan, to the making of them and the foundries in Taiwan, to the testing and packaging that happens which is almost all in China as well as a couple of other factories in Malaysia and the like. So we have such a quote unquote "vulnerability" in the U.S. and Europe, is because it has become a regional industry. And what we are trying to do is move that out or at least a critical mass out. Europe has their own CHIPS Act and the U.S. just signed their CHIPS Act. Now, if the U.S. really wants to make semiconductors resilient, they're going to have to make that whole chain all the way from the critical minerals, all the way to the testing and packaging.

And I would argue as they look to place all of those links along the production chain in different places, you will be more resilient if some of those, the packaging and testing ends up geographically closer than say all the way across the ocean in Europe. And Europe is thinking this way too. So yes, it is a global issue but there's also a regional element and particularly on the profit and loss side, that's how you make it commercially viable.

Jim Lindsay:
Let me ask you a technology question, Shannon, because I often read articles talking about the advent of 3D printing. This is going to revolutionize everything and indeed may make supply chains or supply networks go away because you'll just be able to buy a bunch of tubes, put it in a machine and you can manufacture stuff right here at home. What do you make of those arguments about 3D printing and related technologies? Are they really going to change everything?

Shannon O'Neil:
So there are some parts of industry that 3D printing is already changing. And I would say where it has been most effective are two areas. One is in testing. Before you had 3D printing that worked, often testing would happen in one place. And in fact China became just the pre-eminent area and particularly Shenzhen to be able to test high tech equipment. So you could send a prototype and they would test it and they'd get it back to you very quickly. 3D printing has allowed us to get away from that because you can do it on your own floor, you can do it in your own laboratory. So I think that is an area where it has actually made huge gains. The other area where you see 3D printing is with pieces and parts that aren't used very often, but that are quite intricate. And so there, you don't need to keep a huge inventory but every once in a while you need one and there it's really filled in.
But we haven't yet seen 3D printing really become commercially viable, where this microphone that I'm talking into right now would just be made with the 3D printer or others. It's still just not cheap enough frankly, for it to matter. I would say that automation and robots and the like, that is where I do think you're seeing a real transformation in industry and the price structure, the cost structure for companies is changing dramatically. Is more in that space than 3D printing. And there you are seeing a real shift where labor costs are just becoming a smaller and smaller segment of the operating costs of all kinds of industries there. I would say here though that Asia actually is utilizing many more robots, both in absolute terms but also in percentage terms than we are here in North America or in Europe is. So they already are moving forward away from low cost labor in many places to a much more automated way of making things.

Jim Lindsay:
Yeah. Well, think we're seeing this in the United States and industries people may not think of. I've read articles about recent advances in automated pizza making and the growth of grocery stores where you don't need cashiers, you walk in and walk out, and your accounts are automatically charged and that will probably have some very significant societal consequences. But I'm just curious, Shannon, where does your book, your analysis lead you at the end of the day in terms of what it is the president should do, the Biden administration should do? And just as important, what shouldn't it be doing?

Shannon O'Neil:
So as I look at this, where we should be heading in the United States is embracing international trade and particularly embracing international trade with our neighbors. So we should not be bashing NAFTA and the USMCA, which is the successor; we should be embracing it. And the way we embrace it is we protect it and we expand it, because the USMCA actually has to be renegotiated every set number of years. So that's coming up in the next four or five years. But we should also be investing in ways that make it easier to trade with our neighbors. So partly that's building infrastructure that connects the three countries, whether that's physical infrastructure: the ports of entry, and the railroads and the like. We should be connecting electricity grids and those sorts of things so it makes it easier to move back and forth.

We should also understand that if you're going to have regional supply chains, that not only do those goods need to move but so do services and services are often provided by people. So people need to move back and forth along the supply chain to make this happen. We should also be thinking about education. So you need all three, you need a continental workforce. And how do you train a continental workforce for the 21st century? Every country will have their own education policy, that's for sure. But we should be coordinating and thinking about how do we do this together so that North America is an attractive place to make things, because we have the best workers, the most productive workers and the like.

And we should be thinking about our migration policy because that is in the end, as we look forward over the next 20 to 50 years, it's human capital, it's people, it's ideas, it's innovation that really is going to win the day. And so yes, the United States is a center of this but so are our neighbors. So I think there we should be thinking about this more broadly.

What we should not be doing is pulling back, is making everything America first or buy America, because what that does is it limits our products to the United States. So really it boils down to this, do we want to have a bigger piece of a smaller pie, in fact a shrinking pie? Do we want to have more of the production for the U.S. market be made just in the United States? But those products are going to be more expensive, so U.S. consumers will buy less of them. If a car costs $2,000 more, you might wait six months before you replace your car, or you might fix your washing machine rather than buy a new one if it costs that much more.
So do we want that sort of big piece of a smaller and shrinking pie, or do we want to compete for that much bigger global pie. Those eight billion consumers that are out there, the billion new middle class consumers that are going to come online in the next decade, most of them in Asia over the next 10 years. Do we want to compete for those? And if we do, then we need to do this with other countries. We need regional supply chains that allow us to make things very high quality but at more affordable prices. And that will be good in the end for US consumers because those cars will cost less, but it'll also let us potentially sell to the rest of the world whatever our products are. So what should we do? We should be thinking about that. How do we compete on the global stage because we can. We have in the past and we can again, but we do need to do it with other countries. It can't just be an isolated U.S. product.

Jim Lindsay:
On that note and with that critical question in the air, I am going to close up The President's Inbox for this week. My guest has been Shannon O'Neil, vice president and deputy director of Studies in Nelson and David Rockefeller, senior fellow for Latin America Studies here at the Council. Shannon, thanks as always for talking with me.

Shannon O'Neil:
Thank you for having me.

Jim Lindsay:
Please subscribe to The President's Inbox on Apple Podcast, Google Podcast, Spotify, or wherever you listen. And leave us your review, we love the feedback. You can find the books and all articles mentioned in this episode as well as a transcript of our conversation on the podcast page for The President's Inbox on cfr.org. As always, opinions expressed on The President's Inbox, or solely those of the host or our guests are not of CFR, which takes new institutional positions on matters of policy. Today's episode was produced by Ester Fang with senior podcast producer Gabrielle Sierra. Special thanks brought to Michelle Kurilla for her assistance. This is Jim Lindsay. Thanks for listening.