Local Leaders in the Global Economy

For decades, many Americans believed in the benefits of globalized trade. But recently, a backlash has been brewing against globalization. Critics cite high environmental and climate costs, job loss, risks to national security, and most of all the fact that some places and people in the United States have gotten the short end of the stick.

A few episodes back, we did a deep dive on international trade. Today, we’re jumping into your feed with an extra episode to take a quick look at two additional angles in that story. So first, we’ll unpack how the downsides of globalization have led some experts in Washington to seek a new consensus on trade, and America’s place in the global economy. After that, we’ll take a look at how state and local governments in the United States are playing an increasingly meaningful role in global trade and diplomacy — with countries around the world taking note.

I’m Gabrielle Sierra, and this is Why It Matters. Today, subnational diplomacy - and the question of how to make the global economy work better, for everyone. 

Matthew P. GOODMAN: A lot of the strength of our economy lies in what we're making and doing in cities, and that is essential to our overall economic strength and ability to shape world events. 

To start the episode off, we are speaking with Matthew Goodman. Matt is the distinguished fellow for Global Economic Policy at the council. He’s also heading up a new project - it’s called RealEcon - and we’ll talk more about that later.  

GOODMAN: In the other direction, there's no question that the world has an impact on American cities, whether it's through trade where cities and localities are making things or offering things that they need to find markets for. And, as famously said, 95 percent of people in the world are not in the United States. We're only 5 percent of the world population. So there's a huge opportunity to sell to those people, and cities are very much a part of that. In addition, you've got investment coming in creating businesses and jobs for Americans in American cities. So cities are at the heart of this because they're at the heart of the American economy, and one way or another, their success or otherwise is going to be a determinant of whether the U.S. is able to engage in the world successfully and benefit from that engagement in the world. 

International trade has made American cities richer, provided a lot of jobs, and reduced the price for goods like food, medicine, and gadgets. But still, more and more people feel like the gains from globalization just haven't been fairly distributed. The wealthy have benefited more than the poor, and some places within the United States have benefited more than others. As companies moved operations to China, for example, some manufacturing-dependent areas of the country, like Detroit, Michigan, saw reduced employment. 

GOODMAN: So it is a reality that globalization has losers as well as winners. And that certainly is something that is a reality here in the United States today and a lot of cities are dealing with that reality and have dealt with it over the past few decades. And I think one has to acknowledge that when talking about the positive sides of globalization, the efficiencies, the cost reductions, the opportunities for new markets and all of that, there's also a downside, a disruptive factor that comes into play here.

https://youtu.be/RhvkvTJdbl8?si=AfnMoTVBN3os-Qjq&t=5

DW News: For decades we’ve taken the principle of U.S. power to globalization as a given.

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CNBC Television: Literally it was a record week for the S&P, the Dow, and the Nasdaq.

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CNBC International: Has globalization gone too far?

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CNBC Television: Let’s meanwhile note that Apple just hit the three trillion dollar mark in total market cap.

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CNBC International: Worker exploitation and a rise in inequality have also been attributed to globalization.

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More Perfect Union: What I’d like people to know is, don’t think you’re safe. 

GOODMAN: There's no question that these effects from globalization had real impacts in particular towns, cities, rural areas where people were depending on a long-standing factory or business that was there for many decades and where there was employment in that local town and it got devastated. My wife's family is from Dayton, Ohio, and Dayton used to be the home of NCR cash registers, and that moved to Mexico many years ago, and the people working there were put out of work, and it caused a lot of pain in Dayton. And my wife's family saw that, a generation ago. Another example is South Carolina, a state that got quite badly hit by globalization. They used to be very central to the textiles trade. And a lot of that has moved overseas and out of South Carolina. But now South Carolina has new investments. For example, there's the Korean company, Hyundai, is investing in South Carolina to make electric vehicles and batteries to support the electric vehicle industry. And South Carolina is really taking advantage of that and creating new jobs and new opportunities. And this is the hope that these forces will create new opportunities and that Americans will get the skills and the training they need to be able to take advantage of these new opportunities in service industries, in new technologies that are being developed in clean energy solutions and other things that give them new opportunities. But there's no question that in the initial wave of some of these globalization forces, it causes great pain at the local level. And in some cases those are extended and are still there.

So, globalization has losers and winners. And these divergent experiences can create a real divide between local and national interests. As a result, some Americans have pushed for isolationism, or the idea that the United States shouldn’t engage internationally. And this is where a new CFR initiative comes in. 

GOODMAN: We're about to launch this new program, new initiative called Real Econ, or Reimagining American Economic Leadership in its full name. And it's an effort to try to start a conversation about why it matters for the United States to be in the international economy and leading in the international economy, what's good and bad about that and why it matters for ordinary Americans.

Gabrielle SIERRA: By ordinary, we mean anyone who isn't steeped in this every single day.

GOODMAN: Exactly. The 330 million Americans.

SIERRA: So just everyone. Yeah.

GOODMAN: Of the 330 million Americans, I'm guessing maybe a hundred of us think about this every day here, and most of us are here in Washington or New York, but actually it really matters to people around the country.

SIERRA: So in speaking with officials, students, people around the country, what information do you really hope to learn and what do you hope to do with it?

GOODMAN: We need to get out and really understand what people say and what people think. And to talk to them in a way that makes sense to them and not just in sort of Washington policy talk. So we're planning to go around the country and talk to a diverse set of people in a diverse set of states about these issues. People who have been hurt by globalization, people who have been helped by globalization, people who maybe don't know whether they've been hurt or helped. We think this conversation about American economic involvement in the world economy starts with listening. So we want to try to tease out what people think, for better or worse, about trade, about how the U.S. gives foreign aid to other countries, about risks that we face from China, from climate change, from other new factors in the global economy that we think have an impact on American lives. So we want to talk to people. 

Matt and his colleagues aren’t the only foreign policy experts who have realized how important state and local officials are - the U.S. state department has too. So to learn more, we spoke with the person in charge of the new office of subnational diplomacy, Nina Hachigian.

Nina HACHIGIAN: Subnational diplomacy is, when mayors, governors, county supervisors, town officials are conducting activities overseas for the benefit of their constituents.

SIERRA: So what led the state department to create the subnational diplomacy unit?

HACHIGIAN: First of all, humanity is becoming more urban. The UN says that by 2050, two-thirds of people will live in cities. So, that's one factor. Another is the rise of transnational challenges, challenges that are crossing borders. The most recent one we all dealt with was COVID, but then we have the climate crisis, fentanyl, cybersecurity, backsliding of democracy, gender equality. And we deal with all of those issues at the State Department trying to solve them, but local leaders deal with all of them too. So, that's another reason is to try to connect these dots between the local leaders who are on the front lines and the policymakers who are also trying to solve them. And then these growing transnational threats is one reason why the national security strategy of the Biden administration for the first time made an explicit statement about how foreign and domestic policy are inseparable. I actually wrote about this in some early 2000s with a term that really did not catch on - I called it formestic. But in any case, that is the space we live in where these two things are butting up against each other.

Formestic may not have stuck, but subnational diplomacy has. And while this office is new, state and local representatives have actually had a hand in international relations for a long time. But a slew of new, transnational challenges are now raising the stakes for states and cities across the country, leading them to think and act more globally than ever before.

HACHIGIAN: There's a lot of global activity that if you want to be a good local leader, I think you need to be thinking about at least if not engaging in yourself. There are a few things that states and cities can't do. They can't write binding trade agreements. They can't marshal armies or any physical force. But that said, there's a lot of foreign policy, foreign activities that mayors and governors and county officials and town leaders do engage in. So, for example, jobs come from foreign direct investment. They come from trade missions overseas. They come from global events that you can host. Many, many governors and mayors go on trade missions. And it's not that they're going to change U.S. trade policy, but they are going to connect their companies with companies in those places and governments in those places just to make it easier to do trade and to find new opportunities and to grow the footprint that way.

Sometimes these trade missions seek out partnerships with untapped international markets and companies. Other times, they seek to bring the investment home. In either case, a lot is riding on the efforts of state and local officials. Sure, they can’t sign a trade agreement with another country, but they can make deals and partnerships that have an enormous effect on the people they lead at home. Take Arizona. A $40 billion investment by the Taiwanese semiconductor giant TSMC in two plants near Phoenix is expected to create 15,000 jobs and help turn the city into a hub for electronics manufacturing.

That investment followed federal legislation called the CHIPS Act, which pours hundreds of billions of dollars in subsidies into U.S. semiconductor manufacturing - something that American officials say is critical to national security.

GOODMAN: In that space, you have a lot of new technology companies coming in and investing here in the United States, both American and foreign companies taking advantage of this CHIPS Act and other government incentive programs. You also have the Inflation Reduction Act, which is kind of a misnamed act. It's really about negotiating healthcare prices, but mostly investing in new clean energy opportunities. So it's $360 billion of new government investments to support private investments into clean energy like wind and solar and other clean energy solutions, batteries and electric vehicles as well. So there's a lot going on and a lot of money coming out of the government, but also from the private sector, both American and foreign to create new businesses, new jobs.

HACHIGIAN: And then there's this whole other piece of this too, which is learning from other places, learning what other cities or regions are doing about a common problem. So, before I joined LA city government, the mayor went to Mexico City, and he met with the mayor there, and she took him on a tour of an earthquake early warning system that they had put in place. He decided he wanted to do it in LA. It took a long time, worked with the U.S. Geological Survey. And it was complicated but got it done, created an app that as an LA resident, you could install on your phone and it would give you a few seconds of warning before a major earthquake. And then California heard about it and adopted it for all of California. So, now there's 40 million people who theoretically at least, if they have the app, will be able to have a few seconds to get under a table or whatnot.

SIERRA: So you were really on the ground with all of this - this push to connect state and local officials with international initiatives and leaders. Tell me more about what you did in the LA city government.

HACHIGIAN: I was the first deputy mayor for international affairs, so I had a very wide open field to work in, and we did a whole bunch of things. We hosted lots of heads of state, which is another thing we haven't really talked about, but that happens all the time, cities and states hosting, you know, presidents and prime ministers and kings and princes and whatnot from other places. We had just gotten the Olympics awarded to LA. So, we did a lot of work on making sure that the legacy of that global event will benefit the city and I know that that work continues. We did trade missions. We went to Asia. We did a virtual one through COVID with Kenya and others. We started a program to send community college students overseas on their first international trips, sometimes their first time in an airplane. We went to about 10 countries, about 150 kids, working with our consular corps much of the time. That was an incredible program. I just love that. We started a vehicle for foreign direct investment, which surprisingly for a big city did not exist and a whole bunch of other things.

A big part of state and local diplomacy is knowledge sharing between leaders. This helps local officials find solutions to major challenges facing their communities, like a brewing migration crisis at the southern border, or acute climate disasters.

And the importance of American cities could be most apparent when things don't work. Just last week, a state-operated bridge near the Port of Baltimore collapsed, killing six people and cutting access to the port - which could have major repercussions for the global economy.

SIERRA: Okay, all of this said, it really seems like local elections are going to be really important this year. Not just for local issues, but for global ones too. 

HACHIGIAN: I will say that the local leaders have an incredible amount of power over improving the lives of their residents. So, I'm a firm believer that these elections really, really matter.

GOODMAN: Yeah, local elections are critical, and we don't spend enough time thinking and talking about them here in Washington. I think we're always focused on the nationwide elections, the presidential elections, maybe the Senate and the House, but not these local elections that determine who's going to be the certainly mayors of important cities and smaller cities that are the ones who are dealing with some of the problems that we're talking about in the international space at a day-to-day level. Again, whether it's local economic issues or climate change related issues, or drug problems or other things that are part of the international conversation. And so the position of these cities and states is really important to how the U.S. federal government deals with these issues on an international level. And I'd say the views of local voters in states and cities on the issues that we've talked about really help shape the debates in Washington about what we can or should do. So for example, if it's trade, which is something we're focused on, if local voters decide to elect people who don't support trade or who don't want to be part of the globalization story, then that's going to have a big impact on what Washington can do here. We should be paying more attention to what the outcomes of these local elections will be, because it is going to have a big effect on national and international policies that are made here in Washington.

But again, not all Americans believe that more international engagement will resolve their problems.

SIERRA: So we touched on this a bit, but what would you say to the people who think isolationism is the best solution for improving the economy at home?

GOODMAN: Well, look, the United States is blessed with having a large landmass with a lot of resources, with no enemies on our border, with great capabilities, universities and talented people who can do great things. And we can do a lot ourselves. But we can't do everything. We don't have all the minerals that we need to produce electric vehicles, or to produce our defense needs even. So we need to trade for those things, or invest overseas to try to bring those things in. We ought to specialize in things we're good at and let others specialize in what they're good at, other countries, and then trade with them. And then we can use the profits or the proceeds from that better efficiency to invest in other things that we want to do. So the problem with isolationism is that it's very expensive. If you try to cut yourself off, even if you think you can take care of yourself, it's going to cost a lot more money at the end of the day. And there's one other reason that isolationism is not as great as it sounds, which is that we kind of need friends around the world. There are a lot of problems in the world that our allies in Europe, in Japan, in other parts of the world, have capabilities and willingness to help us tackle whether those are purely security military-like problems or problems of climate change or migration problems or other things that they can be very helpful with. And we need those allies and partners to do those things in addition to our economic need to trade with them. And so if we cut ourselves off, it doesn't create the kind of basis for relationships and partnerships that can help us deal with some of those other problems in the world. 

SIERRA: And what does the world look like without U.S. economic leadership?

GOODMAN: Well, I think the world would be much less prosperous and less secure if the United States was not out there, first of all, offering our economic products and services, frankly, offering our markets because people want to sell to us. We're all happy consumers that buy a lot of things from around the world, and that makes other countries more prosperous, more stable. And frankly, if we pull back from the world, bad things are going to happen and we're probably going to get drawn in one way or another. We may think that the world's problems are not our problems, but they will be at the end of the day, one way or the other. And so I think the United States has to be out there offering our economic power to the world because people want that from us. And it will help them become more prosperous and stable, which is not just something that's good for them, it's good for us as well, because these countries will be more able to help us.

Keep an eye out for Matt’s RealEcon initiative on CFR.org. You can find it linked in the show notes. 

For resources used in this episode and more information, visit CFR.org/whyitmatters. If you ever have any questions or suggestions or just want to chat with us, email at [email protected] or you can hit us up on Twitter at @CFR_org.

Why It Matters is a production of the Council on Foreign Relations. The opinions expressed on the show are solely that of the guests, not of CFR, which takes no institutional positions on matters of policy.

This episode was produced by Asher Ross, Molly McAnany, Noah Berman and me, Gabrielle Sierra. Our sound designer is Markus Zakaria. Our interns for this episode are Olivia Green, Rhea Basarkar and Meher Bhatia. Robert McMahon is our Managing Editor, and Doug Halsey is our Chief Digital Officer. Extra help for this episode was provided by Mariel Ferragamo. Our theme music is composed by Ceiri Torjussen. You can subscribe to the show on Apple Podcasts, Spotify, YouTube or wherever you get your audio. For Why It Matters, this is Gabrielle Sierra signing off. See you soon!