A Turning Point for Global Trade

 

https://youtu.be/fZO6qjPTSP8?si=dPyoDWuen4ejOCLj&t=12 

Barack Obama/Fox Business: We are part of a global economy. We’re not reversing that. It can’t be reversed.

 

https://www.youtube.com/watch?v=iupPQ6yv9qk

Evan Greer/YouTube: Hell no, TPP! Hell no, TPP!

 

https://youtu.be/yoZiTCz_wYA?si=LcydQqVVI8zT4or2 

DW Documentary: But the idea of free and fair trade is losing  ground, as competition between the world's economic powers grows.

 

https://www.youtube.com/watch?v=avqW9zPnU3w&ab_channel=Channel4News

Channel 4 News: Tariffs and Twitter feeds, the ammunition in the latest escalation of a bitter trade dispute between the U.S. and China. 

 

https://youtu.be/ZaL_MuwDlXM?si=eRwa7ERdX9-FjU_e&t=8 

Bernie Sanders: Trade is a concept that is good; we all support trade. But we have got to move away from unfettered free trade. 

 

https://www.youtube.com/watch?v=Xt4m-HcpP6Q 

Bruno Le Maire/CNBC: We have to avoid the worst case scenario. No fragmentation but more cooperation. No trade war but just a fair competition. No new war but engagement of all countries.

 

We live in a world shaped by free trade. The food we eat and the goods we buy come from all over the globe, and the products we make are sold everywhere too. For several decades, world leaders more or less agreed that free and open trade brings us closer and makes all of us safer and richer. But now, as the costs of trade become more clear, that consensus seems to be changing. And the United States, usually considered a standard-bearer of free trade, is at a major turning point. 

 

At the center of the debate is a wonky term - industrial policy. In short, the U.S. is spending billions of dollars to subsidize industries critical to national security and the fight against climate change all while attempting to bring jobs that had moved overseas back home. 

 

At the same time, other countries are pursuing industrial policies of their own. The choices that are made now could affect everything, even how peaceful or conflict-driven our world becomes. 

 

My name is Gabrielle Sierra and this is Why It Matters. Today, let’s get to the bottom of the current state of global trade and whether or not industrial policy will define our future. 

 

Jennifer HILLMAN: We all trade every single day, probably almost every hour of every single day. And we have to. 

 

This is Jennifer Hillman. She is a senior fellow at the Council, a professor at Georgetown Law School and co-director of Georgetown's Center of Inclusive Trade and Development. She is also the co-author of a recent Council Special Report called Rethinking International Rules on Subsidies.

 

HILLMAN: I mean, none of us could grow all of our own food, make all of our own clothes, build our own cars, put together our own cell phones, design and run the internet, get all of the energy that we need to power our homes. Nobody could do that. So we all trade every day. 

 

Inu MANAK: Trade is about the exchange of goods, of services, ideas among people, and firms around the world. And trade is really about comparative advantage. 

 

And this is Inu Manak. She is a fellow for trade policy here at the Council, where she focuses on U.S. Trade policy and the politics of the World Trade Organization. She is the co-author of the Council Special Report with Jennifer.

 

MANAK: Let's take the example of Taylor Swift. She's a phenomenal singer, has made millions of dollars, helped the U.S. economy substantially through her Eras tour. But she also loves baking, right? She's an avid hobbyist baker. So we would ask ourselves, should Taylor Swift stop singing and open up a bakery? Or open up a bakery on the side? I would say absolutely not. Taylor's a great singer, she should rest on her comparative advantage, and keep doing what she's doing really well. And this is what trade allows us to do. It allows us to specialize in things that we're really good at, and sell that around the world. And that's what she does, and that's what it benefits all of us in doing.

 

So, just like Taylor Swift, every country is better at making some things than others. And the broad idea is that everyone should do what they’re best at - though the global balance can be, shall we say...delicate.

 

Edward ALDEN: That's a major way that countries grow wealthier, comparative advantage. We make things more efficiently, our lives become better, not just our lives, the lives of people around the world. 

 

This is Edward Alden. He is a senior fellow at the Council, and a visiting professor in economics and business at Western Washington University in Bellingham, Washington. 

 

ALDEN: And trade's also important for building better relations among nations. Doesn't always work as we've seen with Russia and Ukraine, but more often than not, countries that trade with each other are less likely to fight with each other.

 

Gabrielle SIERRA: And it's pretty good for getting stuff.

 

ALDEN: Well, I mean, if you look at stuff, we're awash in inexpensive, high quality stuff. I mean, there've been studies on the Apple iPhone, if the whole thing were made in the United States, we'd be paying two or three times as much for it as we do in a world of global supply chains where, you know, you've got components from thirty different countries. So it's critical for providing material goods that make our lives better.

 

And boy are we used to getting stuff. For most of human history, only the very rich had access to goods from overseas. Now, thanks to robust international trade, we have access to an incredible range of affordable products, foods, and other goods from all over the world, regardless of season or distance.

 

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@iJustine/YouTube: And we’re here for another year of the Apple events, it's the iPhone 15, it is iPhone season, friends - let’s get into it.

 

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NBC: From the cucumbers and tomatoes in your salad, to the avocados in your guacamole, nearly half of all imported vegetables are grown in Mexico.

 

We all know how connected the world is, but it’s worth remembering that it wasn’t always that way. In fact, most of it has happened in the past few decades. Communication, travel, information sharing, trade - all of these have been the cement for globalization. But they are also the source for growing backlash. 

 

ALDEN: Globalization is a bit broader than trade. Globalization means there's a whole bunch of ways in which the world has shrunk. It's easier to move from place A to place B. People are immigrating and relocating more than ever. Ideas travel around the world at unprecedented speeds. Money, trillions of dollars, sloshes into capital markets all over the world. So trade, which is largely the movement of goods, though sometimes we talk about services as well, is one component of the bigger story of globalization, which is all of the ways in which the world has become much more closely integrated over the last 100, 150, whatever period of years you wish to put on it. But the modern world, we're all a lot more closely linked than we were a few hundred years ago.

 

SIERRA: Which I guess could be good or bad?

 

ALDEN: Can be good or bad, yeah. I mean, we might discover that we like each other when we get to know each other, we might also discover we don't like each other as much. Globalization has its challenges for sure. I mean, the good thing about all of this is the world became a lot wealthier. I mean, if you look in the period from the late '80s through the financial crisis in 2008, which was sometimes called the period of hyper-globalization, when this integration was happening most rapidly, you saw more people worldwide brought out of poverty than any other period in human history. So there were enormous gains.

 

Almost every country in the world is richer today than it was three to four decades ago, and many experts believe that that is because of globalization. A 2001 study by World Bank economists concluded that in 1980, incomes in developing countries that embraced globalization grew 3.5 times more than incomes in other developing countries. Just ten years later, in 1990, it was 5 times more.

 

The benefits seem to be pretty broad, as well. During the second half of the 20th century, illiteracy rates in adults declined by 30 percentage points in China, Ghana, India, Korea, and Mexico. Child mortality rates in developing countries have declined on average by nearly 60 percent since 1990.

 

SIERRA: Can you point out some of the good things and bad things globalization has caused? 

 

ALDEN: Okay, well, super brief history. I would say the first big wave of globalization was in the 19th century. It occurred largely under British global leadership. Countries were able to exchange currencies freely. All this, to be clear, is part of the industrial revolution, modern shipping and railroads and the ability to move goods around the world. All of that basically collapses with World War I. Countries in Europe primarily enter into a horrible, long, bloody conflict. The world collapses into the depression of the late '20s and 1930s, World War II. And then after the Second World War, it all gets rebuilt, this time largely under U.S. leadership. So, you know, again, a not dissimilar story. You have the U.S. dollar become the global currency. You have foreign investment growing, a lot of it from the United States, but over time, more from Europe and Japan and elsewhere. You have the taxes on imports, tariffs coming down to historic lows. 

 

A tariff is a tax a country imposes on the goods and services it buys from another country. If a tax gets imposed on, say, coffee beans from Colombia, American consumers will have to pay extra to buy those beans. Some of those consumers will decide to stop buying them as a result.

 

It sounds simple, but in practice tariffs can be complicated. So, on one hand, they can be an effective way to protect homegrown industries from foreign competition. On the other hand, they can lead to inefficiencies and even conflict.

 

The other option is the idea of free trade - minimizing tariffs and stimulating competition across borders to reduce costs for everyone.

 

SIERRA: Historically, what role has the United States played in international trade?

 

ALDEN: Well, I mean, I think an absolutely critical one. So, in the breakdown of the first wave of globalization after World War I, the United States was a problem. U.S. protectionism in the '20s and '30s, I think was a big driver of global protectionism. A lot of other countries put their tariffs back up because we were raising our tariffs. After the second World War, the United States had a change of heart and said, "We kind of blew it in the interwar period. We didn't play a responsible global leadership role. We need to do that.” Basically the United States was the global champion of free trade from the end of the Second World War until sometime in the early two thousands when our faith in our own creation began to wane.

 

SIERRA: Hmm. What do you mean?

 

ALDEN: Well, again, the promise had been that trade would be good for Americans and trade would be good for the world. Second part of it, undoubtedly true. First part became more debatable. There were also a lot of tensions because a world in which goods and capital can move freely means that companies have the ability to invest wherever they want. And so you saw a lot of work, outsourced, from the wealthier countries like the United States and Europe and go to Latin America and China and Southeast Asia and other places. And so there was a lot of tensions in the advanced economies because they were losing manufacturing jobs, which were particularly for people with just a high school or community college education. These were really good jobs that paid really well. So there was a lot of disruption associated with modern globalization, that is probably the most notable downside.

 

As trade accelerated between 1998 and 2021, the U.S. lost more than 5 million manufacturing jobs and roughly 70,000 manufacturing plants.

 

The burden of those job losses has not been spread evenly, with manufacturing cities in the midwestern United States hit particularly hard. In the 1970s, General Motors employed more than 80,000 people in Flint, Michigan, then a bustling city of almost 200,000 people. As American demand for cheaper foreign cars increased over the following 20 years, GM began closing plants in Flint, until the final one closed 25 years ago. Today, Flint’s whole population is barely 80,000 people, and the city has a soaring poverty rate. For populations like these, globalization has become a potent political issue. 

 

SIERRA: Do you think that some Americans get left behind by globalization?

 

ALDEN: There's no question. I mean, one way to think about globalization... if you think about music, so you go back a hundred plus years, and every town would have their local performers and they'd perform on stage, and there were benefits all around. And then the phonograph gets invented, and you can listen to Pavarotti. You don't have to have your local opera singer, you can listen to Pavarotti. And so the gains for the best people go up and up and up. And we saw something similar with modern globalization. The gains for highly educated Americans, people connected into the global economy, grew and grew and grew. Those who were more locally based, those whose jobs depended on local markets, often suffered a lot more. So, you saw a significant increase in inequalities - it wasn't just true in the United States, it was true in other places - associated with globalization.

 

HILLMAN: This has been one of the reasons why I think there's been so much pushback recently to trade agreements, to the concept of globalization, is because those that benefit tend to be fairly dispersed across a very wide swath. One job here, four jobs there, six jobs there, very dispersed. The downside of trade. When imports have caused so much import competition that an individual company has to close, all of those job losses are in one place. One town, one company that closed, and often they have then major ripple effects. Everybody that used to work at that company now has to figure out what else to do. That what else to do can often involve moving, which means they have to sell the house that they're in right now. Which, once the company has closed, it may be that nobody wants to come into that town and buy that house. So there's a huge amount of loss that is very concentrated. And as a result, the perception that trade has caused more downsides than upsides, is very real.

 

And this is still happening. In Chestnut Ridge, a town outside Morgantown, West Virginia, between 1500 and 2000 people lost their jobs in 2021 when a manufacturing plant run by the pharmaceutical company Viatris moved operations to India and Australia. The plant had been known for providing high-paying jobs in one of the poorest U.S. states. Union officials said the closure would cost the local economy $150 to $200 million, and that many families would be forced to move out of state.

 

ALDEN: I think two things have happened that have really reshaped the world of trade. And those of us who work on this are still trying to figure out exactly what happened and what all the implications are. I mean, one was this backlash against inequality as it were. The people who got left behind saying, "Trade has not been in our interests." And a lot of that came together in Donald Trump's 2016 presidential election when he went around to all of the Midwest manufacturing states, which happened to be very important electorally. And he told voters there, "Look, you got screwed by globalization. The elite screwed you. All your jobs went to China and elsewhere overseas, and if you vote me in, I'm going to bring all these great manufacturing jobs back again." And that really sort of blew up the post-World War II consensus, which was that, "Yeah sure, trade benefited the rest of the world, but it also benefited the United States, and we could redistribute all the gains and everybody'd be happy." The consensus had been fraying for years. That was the first thing. And then the second is just the massive geopolitical changes that we have seen in the world. I mean, modern globalization was built largely under American leadership, but with the rise of China, with Russia's increasingly aggressive stance in the world, all of that has fallen apart. And so trade is suddenly being looked at through a different lens. If we're in a situation where we need to have a powerful military, where we need to be the country that dominates critical technologies that are important, not just for the economy, but for the military, then free, open, low cost trade isn't necessarily in our interest. So there's a whole recalculation going on of the strategic implications of trade. So those are two very dramatic changes, which had been happening slowly, but really crystallized over the last decade.

 

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ABC News: I don’t buy for one second that the vitality of American manufacturing is a thing of the past. American manufacturing was the arsenal of democracy in World War II. And it must be the engine of American prosperity now.

 

https://www.youtube.com/watch?v=UES0NrKmhok 

ABC News: President Biden just signed a bill into law today boosting domestic semiconductor production and research in the United States.

 

https://youtu.be/U9sZdmhxl2A?si=QCKvRuJ7DeXzHoTh&t=167 

CBS Sunday Morning: The biggest risk is geopolitics as tensions between China and Taiwan escalate, there’s more and more concern that China could try to disrupt chip supplies out of Taiwan.

 

In 2001, China was inducted into the World Trade Organization. It was a really big deal, and experts were excited about the prospects of liberalizing the rapidly growing Chinese economy, and having it play by international rules. 

 

But that didn’t happen. China exploited WTO loopholes to boost its own economy. By 2018, U.S. officials were fed up. That year, the Trump administration imposed a number of tariffs on Chinese goods, and the Biden administration has added its own. 

 

Recently, this contentious relationship has laid bare the vulnerabilities in U.S. supply chains. Semiconductor manufacturing in Taiwan - a topic that we’ve covered before on the show - became a particular point of tension, with the United States seeking to restrict Chinese access to the chips that power technological advancement. 

 

Meanwhile, countries around the world are scrambling to do something about climate change, which just this year contributed to the hottest summer ever recorded. And so, all of this takes us to the industrial policy side of our story. 

 

MANAK: We're talking about it now because governments are taking a lot of action around the world to directly subsidize, to give money, or some other benefit to the expansion of certain economic sectors over others. And they're doing it for a lot of different policy reasons. For some it's economic security, for others it's climate change. For some it's creating jobs. In the United States, we're spending $805 billion in subsidies on semiconductor manufacturing and research, and climate and energy investments, and infrastructure spending. And the Biden Administration has openly embraced this strategy, calling it industrial strategy, not industrial policy. But that's just rhetoric. 

 

In addition to restricting chip exports to China, the Biden administration has sought to bolster their domestic production, and the production of other so-called ‘critical technologies.’ This agenda has led to passage of bills like the CHIPS Act and the Inflation Reduction Act that significantly subsidize industries like semiconductors and electric vehicles - if they are produced in the United States.

 

Many of these changes are taking place at the local level, with states offering billions in tax breaks and other subsidies for companies to build factories - especially ones that help fight climate change.

 

MANAK: I would say, the big point here though that we need to remember is that not every country's as enthusiastic as the United States. And this is where we're seeing some problems. So what's the problem exactly? Though you can have economic opportunities from industrial policy by injecting money into sectors that maybe could become very competitive over time. There's also a lot of risks, because you don't know if you're going to choose the right sector. You don't know if you're going to create over capacity and spend too much money. There are difficulties here to know and predict what's going to happen. But second, if you want to create a really successful industrial policy, you also need to get your trading partners on board that may be making similar things. So you can create a global supply chain that's far more resilient. Now, those partners may not agree with all of your goals for your industrial policy, and that makes it really, really hard to coordinate. So you create these tensions that could happen as we did with the Inflation Reduction Act, which essentially has a part in it that discriminates against electric vehicles made in places other than our free trade agreement partners. Which includes the European Union and Japan. Pretty big car makers and a lot of Americans buy cars from Japan and the EU. So that creates trade tensions there. And lastly, you're creating some distortions in the global economy. Because only some countries have enough money to spend to inject this into their economy, and that means that you're going to create potential global inequities with developing economies that can't do as much. 

 

Both the Inflation Reduction Act and the CHIPS Act have caused some problems with U.S. partners. European governments are particularly concerned that the Inflation Reduction Act’s tax subsidies could entice EU businesses to relocate to the United States, decreasing Europe’s access to industries like critical mineral processing that are integral to transitioning away from fossil fuels. And Taiwan, which produces the most advanced semiconductors, as it deals with a steady threat from China, is worried that the CHIPS Act could weaken what the Taiwanese president calls its “silicon shield.”

 

HILLMAN: The perception was that there was a huge shortage in semiconductors, therefore they needed to pass the CHIPS Act in order to specifically say, "We want more investment going into the semiconductor industry in the United States." That's the reason for that. Again, the biggest of all of these bills was the Inflation Reduction Act, which to me was an attempt to say, “The market in the United States has been failing to put enough money into climate change. And therefore we are going to create tremendous incentives to move into renewable energy, to move into electric vehicles, to encourage much more adoption of decarbonization technologies, to create much more funding for research and development.” In general, a perception that the market has failed to put enough investment into fighting climate change. So the government is going to stimulate that investment by putting all of these subsidies, financial contributions, grants, loans at below market rates, tax breaks. All of those things that the government can do to try to say, "I want the private sector to invest over here, and not over here."

 

SIERRA: I mean, I don't know. That sounds pretty good, that the government would focus on something like we were talking about climate, we're talking about chips. I don't quite understand the downside of that.

 

HILLMAN: It’s good! It is very good, but you have to do it right. Okay. And right really does mean that you are using taxpayer dollars, because let's remember this is a lot of taxpayer dollars, $850 billion of taxpayer money. You want to make sure it's well spent, and that it's not wasted on something that the private sector would do anyway, or where you're not going to end up with any result that is actually helpful. That it's a commercial product that can be sold that actually moves the needle on fighting climate change. So part of it is to make sure you don't have a lot of waste. But the other part of it is, to do it right means to avoid unnecessary trade fights, and wars with your trading partners. And the concern here is that if you do it in a way that is unnecessarily provocative of your trade partners, then they end up taking trade actions against the United States. So they end up putting their own tariffs, or sanctions, on American exports.

 

ALDEN: And then there's the whole question of what's the message we send to the rest of the world if we don't want to import their goods? I mean, for a lot of the world, the thing that makes the United States most attractive, maybe they like our culture, maybe they like our athletes. They might or might not like Hollywood movies. But the most attractive thing about the United States is we're this enormous wealthy consumer market, by far the largest in the world. So, there are a lot of producers in poorer countries that sell their stuff to the United States. And if the United States is suddenly saying, "We don't want to buy your stuff," our political leverage in the world really vanishes. To a lot of the world, that's the most attractive thing about the United States is we buy their stuff. We're not going to buy their stuff anymore, they're not going to have a lot of time for us.

 

And, as it turns out, the reverse is true as well. We depend on the world’s markets to sell our goods, just as they rely on ours. 

 

HILLMAN: If we are successful and we produce a lot more semiconductors, or a lot more electric vehicles, or lots of other products, we need a place to sell them. So whatever we produce as a result of these subsidies, it has to find a market in part outside of the United States. But if we have angered all of our trading partners and caused them to put up trade barriers around U.S. goods, we're going to make it very difficult for our industrial policy to succeed over the long run. What you do not want to do is to exacerbate the already existing inequalities. And that's both within the United States, where we're seeing huge income inequalities. And huge inequalities between certain parts of the United States that are thriving and others that are not thriving. And equally, you don't want to exacerbate the gap between the rich countries, that can afford to do these subsidies, and the developing world that is going to feel that they are being left farther and farther behind. Particularly in the fight against climate change, when we need everybody to be moving to renewable energy, and everybody to be joining in this fight. What you don't want to do is push countries away because you're granting subsidies to your producers, but you're not doing anything to help them. You look at other concerns about whether or not, other countries are gaining a trade advantage in an unfair way. And as soon as you say that, many will point to China as one of those that has gained an unfair advantage, because they're producing goods with heavy, heavy, heavy subsidies. Again, government money that the Chinese government, the Communist Party, is giving to its companies. And that comes in the form of financial money supporting their companies. It comes in the form of often free land, free water, low cost labor. So it's allowed Chinese goods to come in at a price that no one can compete with fairly. And so again, a perception that that is not fair to an American worker to ask you to effectively compete with the Communist Party in China. And all of the largesse that the Communist party in China has been providing. That's just perceived as, and is, not fair to American workers. And recently you've seen an increasing awareness that we also need to be aware of whether goods are being made under labor conditions that are, again, inappropriate. That are abusive of human beings, and their basic human rights. And a perception that we need to be very careful that we are not encouraging labor abuse to occur all around the world, in order to just allow cheaper goods to come into the U.S. market.

 

ALDEN: I mean, I think the honest answer is this has always been something of an aside. Advanced countries have made various nods to try to improving factory conditions and living standards in developing countries. But I think broadly there's been an acceptance that, "Sure, there's exploitation going on, but boy, we're getting a lot of nice stuff for not very much money.” And for the most part, I think the U.S. and Europe and others continue to look the other way, not quite so much as they look the other way 30, 40 years ago. But there's still a lot of blind eye out there.

 

SIERRA: Okay, so workers rights still have a lot of room for improvement. But I’d also like to zoom in on the part of this that focuses on security and strategy. 

 

HILLMAN: I do think there has been a pretty significant change in the trading system in that, we used to all feel that there was a line between what countries were doing for their economic security, and what they were doing for their national security. And we all knew where that line was, and all of us that were in the trade system, stayed on the economic side. And all of our friends on the military side, stayed on their side. And now that line is erased, it's gone. And much now, our trade policy is entirely seen and filtered through a national security lens. And we are starting now to see trade barriers come up, for national security reasons. We're starting to see controls on exports, for national security reasons. And we're starting to see changes in the way we finance trade, and the way in which we move money being also a subject of controls, related to national security. And that I do think is a very big change from when the trading system started out. And so the ideas then were, what do we need to have a peaceful, stable world order going forward? And so you had this really epic making period of time in those 1940s, where you created the United Nations, you created the World Bank, you created the International Monetary Fund, and you created, what was to have been this international trade organization, that then was downsized into this general agreement on tariffs and trade. But you created an international economic order, that had at its core peace, and stability, and economic growth. And the idea was that the system would create those things. Now you are seeing a real challenge to whether or not this connection between peace and trade is really still the same. Or whether we've upset, again, this balance between economic security and national security.

 

Tensions between economic and national security are not new, and governments have a history of using industrial policy to find the balance between them.

 

SIERRA: So how have we used industrial policy in this country historically? Have we seen anything like this before?

 

HILLMAN: The analogy that we draw in this paper is to what happened in the agriculture sector. And there, I think, there's a lot of lessons to be learned. So again, throughout the 50s, 60s, 70s, 80s, the United States and the European Union, and Japan and others, granted just significant volumes of subsidies to our farmers. Just a tremendous amount of money, export support, and support to farmers across the board. And the problem was, everybody was doing it. So again, the amount of subsidies kept getting greater and greater. The Europeans would say, "Well, if the Americans are granting this much subsidies, then we need to up ours." Europe would up their subsidies, we would up ours. So we started into this kind of subsidies race, where we just kept granting more, and more, and more subsidies. And again, you started to see a huge problem in all of the rest of the developing world, that nobody could compete with the United States and the European Union, who were granting these mega mega subsidies. So we were on the one hand, putting huge tax burdens on our taxpayers. And on the other hand, creating agriculture at prices that nobody else in the world could compete with. So we were creating tremendous distortions, and real harm to a lot in the developing world. So an agreement came, as a result of these trade negotiations, in the World Trade Organization to say, "We need to do a couple of things." One is we need to just say there's a cap. There's just a maximum amount above which we just won't subsidize more than X dollars. So we, Europe, Japan, everybody agreed that we would not go above our own caps. We set different caps for each other, but we would not go above these caps. And secondly, we started to say, some subsidies we can characterize as good ones. They're helping. Research and development subsidies, subsidies to try to cut back on certain production that is in oversupply. Certain subsidies we're going to put into various boxes and say, these are good. They don't even count against the cap. But these other ones over here are having really bad distortive effects on trade. And we should therefore call them out as negative subsidies. We can, and we should be doing the same thing on the industrial subsidy side, is to say, "Okay, now we can figure out which subsidies are really causing problems, and try to stop those." Many people would put, for example, subsidies to create more fossil fuels into that category of, should we really be continuing to subsidize greater drilling, greater production of fossil fuel subsidies, given what it does to the climate. But nonetheless, could you think about creating a category of industrial subsidies where we say just no. And could you on the same time create a set of subsidies where you say, these should be green-lighted. These should be encouraged. 

 

SIERRA: When we read your report and think about the new era of industrial policy, is there an opportunity to rewrite the rules here? Sort of learning the lessons of what didn't work with globalization to maintain those benefits without the costs.

 

HILLMAN: Obviously, we say yes. I mean, we think there really is an opportunity. And we think the United States is moving ahead really strongly with this Inflation Reduction Act, and the CHIPS Act, and the Infrastructure Investment Act. The United States has taken a very bold move here. And said, "This is the path we're going down." And now I think there is a real opportunity for the United States to lead on a process of rethinking, and tweaking the rules that we have. So we do have rules. And at some level they are in place and effective, but we need them to be updated so that they can retake on board this idea of being a little careful about how we go about our industrial subsidies. Be thoughtful about what's a good subsidy, and what's a bad subsidy. And be clear that you can draw that line. It is possible to do that.

 

SIERRA: I mean, after having gone into all this really complicated stuff, is there a way to tie it back to our regular lives at home? How would getting this right or wrong show up in a normal person's life?

 

ALDEN: It shows up in that you go to the store and you have high quality, affordable goods. You have high quality, affordable food. It means you can get on an airplane again, and it helps if you're European or American or you hold a passport that's more widely recognized. But you can get on an airplane and you can see friends around the world. You can take vacations. It shows up in your pension fund. Your pension fund is investing in the best opportunities around the world, and so your pension fund is growing. In fact, it shows up in our lives in almost every way imaginable. I mean, just in the clothes we're wearing here. Early 1970s, these would've all been made in the United States, and you could say, "Well, that's a great thing." But the average household spent 6% of its budget on clothing in the United States, now it's down 2%. That just means more money in our pockets. In fact, this stuff does affect us every day profoundly, just most of us don't recognize it. We take it for granted.

 

SIERRA: Right. There's a direct tie to quality of life that we just don't quite get every day.

 

ALDEN: Absolutely. No, we wouldn't be the modern, wealthy country we are without global trade.

 

SIERRA: What do you think people need to keep in mind as our country and other countries debate what comes next?

 

ALDEN: I think the most important thing to keep in mind is the danger of going down the road of unrestrained global economic competition. The phrase that was used in the 1930s was beggar-thy-neighbor policies. Adopting economic policies that harmed other countries where you were trying to selfishly hoard all the gains of trade for your own country and your own citizens, and to hell with what happened to the rest of the world. And we know from history that there's a danger of this sort of economic competition devolving into that very damaging free for all. I think is in so much of human affairs, the key here is balance. We're in a more competitive era. We're in a more insecure era. And so to imagine we're going to have this harmonious set of global trade rules is just not realistic. But you also want to avoid going to the other extreme and seeing trade just as a tool of strategic and military competition, because that would leave us all poorer and is also likely to escalate tensions among nations.We're going to have to find a new balance that works.

 

SIERRA: Sounds easy.

 

ALDEN: Not easy at all. I mean, again, you know this as well as I do living in the world of CFR, but international diplomacy, be it on military or political or economic matters is immensely complex because there's no world government. We work all this stuff out on an ongoing basis. We talk, talk, talk, and hopefully don't fight, fight, fight. But there's never any kind of comfortable place. You're always renegotiating the terms, sort of like a difficult marriage.

 

SIERRA: Yes. The day that someone on the show tells me it's easy is the day that I move to a beach and we no longer have to do the episodes.

 

ALDEN: Well, and it's funny, again, that's a sort of funny aside, but it's one of the challenges we face in the modern world is this is a very complicated story, and we're putting out these podcasts and we're like, "People, listen to this complexity and understand the dangers." And then you've got populous leaders, not just Donald Trump, but in Europe saying, "It's not complicated at all. The elites are screwing you, and if we just get rid of the elites that are screwing you, then we can solve this." And that's a heck of a lot easier to understand. So, it's a real challenge to communicate the complexities in any kind of way that people are willing to nod their heads and say, "Yeah, we should behave in cautious, reasonable ways." That's not a good soundbite, right?

 

For resources used in this episode and more information, visit CFR.org/whyitmatters and take a look at the show notes. 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. 

 

The show is produced by Asher Ross and me, Gabrielle Sierra. Our sound designer is Markus Zakaria. Our associate podcast producer is Molly McAnany. Our interns this summer are Rhea Basarkar and Kalsey Colotl. Production assistance for this episode was provided by Noah Berman. 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!