Latest / Global Insights / Beyond Tariffs: The New Multipolar Trade Web

Transcript

Beyond Tariffs: The New Multipolar Trade Web · Global Insights

0:00
SPEAKER_04: We are at the point where we may actually be breaking that goose that laid the golden egg.
0:05
SPEAKER_03: There's been essentially zero investment in the U.S.
0:09
SPEAKER_03: by corporations outside of the AI and AI adjacent sector since Trump took off.
0:15
SPEAKER_02: A year ago, the United States imposed tariffs not seen since the Great Depression.
0:21
SPEAKER_02: Most allies didn't retaliate.
0:24
SPEAKER_02: Instead, they started cutting deals with each other.
0:27
SPEAKER_02: The EU closed a trade agreement with India that it stalled for more than 20 years.
0:32
SPEAKER_02: Canada opened talks with Beijing.
0:34
SPEAKER_02: And Brazil lowered its barriers to Europe.
0:38
SPEAKER_02: Meanwhile, inside the United States, corporate investment outside of AI has gone flat.
0:44
SPEAKER_02: Small businesses are struggling to play around rules that shift by the week.
0:48
SPEAKER_02: And net migration is falling towards zero for the first time in a half century.
0:53
SPEAKER_01: Who would have thought that the EU would now be considered such an adversary in today's parlance?
1:00
SPEAKER_02: The old trade order was built under American leadership.
1:03
SPEAKER_03: What's replacing it is still taking shape.
1:07
SPEAKER_03: Everybody's a loser.
1:08
SPEAKER_03: I think even China's a loser in this.
1:20
SPEAKER_02: Today, the new shape of trade.
1:29
SPEAKER_02: Joining us today is Edward Alden, Senior Fellow at the Council on Foreign Relations, Alice Slayton Clark, Senior Vice President for Trade at the U.S.
1:38
SPEAKER_02: Council for International Business, and Dr.
1:40
SPEAKER_02: Adam Posen, the president of the Peterson Institute for International Economics.
1:46
SPEAKER_02: Moderating the conversation is Courtney Doggard, the president of Network 2020.
1:53
SPEAKER_00: All right, good afternoon, everyone, and welcome to Network 2020's discussion about the new shape of trade.
2:00
SPEAKER_00: I do realize that a lot of people's focus on trade at the moment is on what is or is not happening in the Strait of Hormuz, basically the physical aspects of trade, because goods do need to get from place to place and they need fuel to do that.
2:14
SPEAKER_00: But there is also a lot happening in the legal structures that encourage trade between countries, particularly a year plus after Liberation Day.
2:23
SPEAKER_00: And so this is what I really look forward to exploring with our guests today.
2:29
SPEAKER_00: Adam, I'd love to start with you, just a scene setter.
2:34
SPEAKER_00: Since the Second World War, since the end of the Second World War, the world, as we have often discussed, has operated under a US-led system that prioritized open markets and global trade.
2:45
SPEAKER_00: Today, that foundation is fracturing.
2:48
SPEAKER_00: Why is that massive shift happening right now?
2:52
SPEAKER_00: Is this as a result of the trade announcements of last year, or is it a result of breakdown in the global rules that we have followed for decades?
3:00
SPEAKER_00: So, what's causing what we're seeing right now?
3:04
SPEAKER_03: Well, thank you for having me back on Network 2020, Courtney.
3:08
SPEAKER_03: And I'm glad to be with Alice and Ted trying to contribute to public understanding.
3:14
SPEAKER_03: The way to think about it is that there has been a recurring theme in US foreign policy and U.S.
3:21
SPEAKER_03: economic policy of suspicion that the rest of the world is somehow ripping us off.
3:27
SPEAKER_03: This was in place around World War I.
3:30
SPEAKER_03: This was in place in the aftermath of World War II.
3:34
SPEAKER_03: This was very vociferous under Richard Nixon when they dropped out of the Bretton Woods system of currencies.
3:43
SPEAKER_03: And it has come back with a vengeance since President Trump took office the first time.
3:49
SPEAKER_03: It's not necessarily a majority point of view among American voters, but it is a substantial minority who find this an appealing point of view.
4:00
SPEAKER_03: And under President Biden, in between the two Trump terms, there was some of this as well.
4:06
SPEAKER_03: Now, you can say that this is largely due to China, but I think that's a misunderstanding, or at least it's it's not sufficient explanation, because the actual impact of China on the US was mostly for the good.
4:24
SPEAKER_03: And cheating by China in various ways in the international economic system arguably is a reason to build up and maintain one's integration with allies and keep open markets for the rest of the world and maybe keep China out.
4:40
SPEAKER_03: So it's not necessarily that just because China rose, we had to behave this way.
4:47
SPEAKER_03: I think substantively the way to think about it is the US had been providing a form of insurance to the rest of the world, or rather several forms of insurance.
4:57
SPEAKER_03: So on trade, the things you mentioned, but also military naval support so that people could ship things around the world and didn't really think twice about safety going through the Straits of Hermos or off the coast of Somalia or wherever.
5:13
SPEAKER_03: But also on the financial side, providing the U.S.
5:17
SPEAKER_03: Treasury's market and the dollar that people could get in and out of very freely, keep value stored there and not worry.
5:25
SPEAKER_03: We can think of the world essentially paying the U.S.
5:29
SPEAKER_03: insurance premia in the form of supporting us at the UN, paying for our military bases, overholding dollars so that we had cheaper interest rates, accepting U.S.
5:42
SPEAKER_03: demands, not always, but a lot of times with regard to business standards or things or sanctions.
5:49
SPEAKER_03: And this to me, I'll conclude here, this to me was a good deal for the U.S.
5:55
SPEAKER_03: It was the economic version of the sort of enlightened self-interest of a foreign policy around NATO and protecting allies.
6:02
SPEAKER_03: It was a similar sort of thing.
6:05
SPEAKER_03: And what has happened in the last year and a half since President Trump took office or at least won the election is that we went from being an insurer to running an insurance racket or a protection racket.
6:19
SPEAKER_03: Essentially, the U.S.
6:20
SPEAKER_03: government has gone around bullying allies in particular because they can't do it effectively against China and saying, you have a nice little economy there.
6:28
SPEAKER_03: It would be a shame if anything happened to it.
6:31
SPEAKER_03: And therefore you should write me a check for billions and billions of dollars.
6:35
SPEAKER_03: And so there's a very big distance between saying, huh, the world's a riskier place.
6:41
SPEAKER_03: Maybe we should charge a little more for insurance than we used to because of China, to going to, we're not really providing insurance.
6:49
SPEAKER_03: We want you to buy insurance so we don't hurt you.
6:52
SPEAKER_03: So it's a very different world, in my view.
6:55
SPEAKER_03: Even if one accepts the somewhat exaggerated claims about how many American workers and businesses were displaced by Chinese manufacturing jobs, say.
7:07
SPEAKER_03: And even if one accepts that most of that was through cheating and none of it was through fair competition, which I don't think is quite right.
7:15
SPEAKER_03: But even if you accept both of those things, it's actually relatively small in human terms for the people involved.
7:23
SPEAKER_03: Of course, it matters.
7:25
SPEAKER_03: But we have 165 million people working in the US economy, roughly, not counting deported undocumented migrants.
7:35
SPEAKER_03: Um the total turnover of people losing jobs to U Chinese competition was on the order of two million people over 15 years.
7:47
SPEAKER_03: Now, that's a lot of human beings.
7:49
SPEAKER_03: In some cases, it was localized in particular towns.
7:53
SPEAKER_03: But the average churn in the US labor market, meaning how many people a year lose jobs, move jobs, turnover jobs, is 40 million.
8:04
SPEAKER_03: So we were talking about 175,000 jobs or less a year out of 40 million people losing their jobs.
8:13
SPEAKER_03: And then at the same time, we had enormous subsidies to US Treasury bills because of all the stuff that you that China was buying.
8:23
SPEAKER_03: We had Chinese students in our labs, which some people say was stealing ideas, but it provided us with workers in our labs and our research.
8:33
SPEAKER_03: We had Chinese products, which really improved the purchasing power of huge numbers of Americans and improved the viability of a lot of American small business.
8:44
SPEAKER_03: So again, I am not opposed to playing hardball with China's government or China's Communist Party about certain behaviors they've engaged in.
8:55
SPEAKER_03: But that's different from saying, oh, China came, we lost everything, we've been screwed, which is just not the case.
9:04
SPEAKER_00: Ted, turning to you in the current moment.
9:07
SPEAKER_00: Over the last few months, we've seen a lot of moves like the EU India and the EU Mercosur trade deals, as well as diplomatic visits from British and Canadian leaders to China, and they're busy discussing how they can diversify their markets.
9:21
SPEAKER_00: So what do you see as the significance of these moves, both in dollar terms and long-term implications?
9:29
SPEAKER_04: One of the big questions I think that that all of us who pay attention to this have watched is trying to understand why, even though the consequences of the US raising its tariffs substantially have not been positive.
9:46
SPEAKER_04: There's no question that it's fed somewhat into inflation.
9:49
SPEAKER_04: It's probably depressed investment.
9:51
SPEAKER_04: It's actually probably slightly harmed manufacturing jobs in the United States, was not done what the president hoped it would.
9:59
SPEAKER_04: Despite the U.S.
10:01
SPEAKER_04: having raised tariffs to the highest rates we've seen since Smoon Hawley in the 1930s, we've not seen a kind of economic collapse.
10:08
SPEAKER_04: There's been nothing like the deep fall in world trade that we saw during the Great Uh Depression.
10:15
SPEAKER_04: And so one of the questions is why is that?
10:17
SPEAKER_04: Why have the effects not been as serious as many of us?
10:22
SPEAKER_04: And I'd put myself in that category had had feared.
10:24
SPEAKER_04: I mean, one possibility is what my former employer, the Financial Times, cleverly dubbed the taco trade that Trump always chickens out.
10:31
SPEAKER_04: So the actual tariffs that the U.S.
10:34
SPEAKER_04: is charging on imports are considerably less than the headline numbers.
10:37
SPEAKER_04: I mean, there are very few products that are actually facing 25 or 35% or higher tariffs.
10:42
SPEAKER_04: There are a lot of exemptions.
10:44
SPEAKER_04: Most of trade in North America is still conducted under USMCA rules.
10:49
SPEAKER_04: And there have been a wide range of one-off exemptions.
10:51
SPEAKER_04: Still, even with that, you know, the average tariffs are in the high single digits, which again is the highest we've seen since the 1930s.
10:59
SPEAKER_04: So that alone, I don't think, quite explains it.
11:01
SPEAKER_04: To me, a bigger part of the explanation is how the rest of the world has reacted, with the notable exception of China.
11:07
SPEAKER_04: And I think Adam framed this correctly.
11:09
SPEAKER_04: China's not a country that the United States can push around.
11:13
SPEAKER_04: And so it has the ability to retaliate effectively.
11:16
SPEAKER_04: With the notable exception of China, other countries did not retaliate as they did in the 1930s.
11:21
SPEAKER_04: The Canadians tried it a bit and then backed off.
11:23
SPEAKER_04: But by and large, the rest of the world said, look, tariffs hurt us.
11:27
SPEAKER_04: Our companies need imported components.
11:29
SPEAKER_04: It drives prices up, hurts our consumers.
11:32
SPEAKER_04: And it probably isn't going to make a difference anyway.
11:35
SPEAKER_04: We don't have the leverage to force this president to change direction.
11:39
SPEAKER_04: So let's not retaliate.
11:48
SPEAKER_04: Other countries have even lowered their trade barrier somewhat further.
11:51
SPEAKER_04: So I think that's really dampened the effect of the tariffs.
11:54
SPEAKER_04: And the other thing which you alluded to in the question is that the rest of the world is busy trying to preserve and build as much of the global trading system as it can.
12:06
SPEAKER_04: It was a system built under U.S.
12:08
SPEAKER_04: leadership.
12:09
SPEAKER_04: The United States, for a variety of reasons that Adam mentioned, some of has lost interest.
12:13
SPEAKER_04: The rest of the world has not lost interest.
12:16
SPEAKER_04: So the EU concluded what I suspect will be an extremely important trade deal with India.
12:22
SPEAKER_04: This was a negotiation that had gone on for more than two decades, comes home in the wake of Trump's action.
12:27
SPEAKER_04: The EU similarly completed a deal with the Mercosur countries in South America, a country like Brazil, which is historically quite protectionist focused on domestic industrial policy.
12:40
SPEAKER_04: Another negotiation that had been languishing for more than two decades has come together.
12:44
SPEAKER_04: It will be partially implemented on May 1st.
12:49
SPEAKER_04: Very, very significant agreement.
12:51
SPEAKER_04: And then you mentioned what the Canadians have done.
12:54
SPEAKER_04: I grew up in Canada, so I follow the Canadians very closely.
12:57
SPEAKER_04: Carney, Mark Carney, the new Prime Minister, has mended fences.
13:01
SPEAKER_04: The Prime Minister Carney's speech at Davos, Canada is so vulnerable to US bullying on trade.
13:06
SPEAKER_04: And yet the Prime Minister had the courage to speak out and say, look, the rest of us need to find ways to cooperate to resist this, or we're going to pay the costs.
13:14
SPEAKER_04: And I think you are seeing the rest of the world do that.
13:18
SPEAKER_04: And I think trade has held up remarkably well despite the disruptive influence of the Trump administration.
13:26
SPEAKER_00: Alice, zoom in on how this is impacting businesses.
13:31
SPEAKER_00: How do these shifts matter?
13:33
SPEAKER_00: How does this unsteady environment impact US businesses versus what you're seeing with businesses abroad?
13:40
SPEAKER_01: Yeah, there is this kind of breakdown and a retreat from multilateralism to more unilateralist actions.
13:47
SPEAKER_01: And I think it has to do with the Trump administration, but it also goes back to this feeling that the global trading system wasn't working as it had been anticipated with respect to the WTO and China.
14:00
SPEAKER_01: We thought China would convert to a Western-style model, market-based economy.
14:04
SPEAKER_01: And here and here we are still battling some of these managed economy practices that are creating competitiveness issues.
14:10
SPEAKER_01: So this is really a global competitiveness issue.
14:13
SPEAKER_01: And then on top of it, COVID really threw the wrench into the system.
14:17
SPEAKER_01: We had vulnerabilities in our supply chains.
14:19
SPEAKER_01: And so we're now in a, I think, a general mindset of how do we reshore critical industries that we've been able to identify as important to self-sufficiency.
14:30
SPEAKER_01: Trump, I think, has just been able to take that ball forward in his own way, his America First Trade Policy.
14:36
SPEAKER_01: Unilateralism is now the new world order.
14:39
SPEAKER_01: We find that now economic security is being dis is being described as national security, which really creates a problem in terms of businesses being able to be in the room to voice opposition to what's being done.
14:50
SPEAKER_01: It kind of hamstrings arguments on the economic benefits of free trade.
14:56
SPEAKER_01: Our companies are trying to manage a ever-shifting tariff landscape.
15:00
SPEAKER_01: The Section 301 tariffs, that's the authority to, you know, wage tariffs against unfair trading practices.
15:07
SPEAKER_01: The use of the Section 232 national security tariffs, which is really going into trying to onshore or at least near shore as much as possible some of these critical industries.
15:17
SPEAKER_01: And we can quibble over what how you define a critical industry because it's been very broadly defined under this administration.
15:24
SPEAKER_01: But all of this, and then of course, on the China piece, the export controls.
15:28
SPEAKER_01: Really been clamping down on selling goods to China because of a competition in uh digital and high-tech.
15:36
SPEAKER_01: So that has an impact on all of our companies.
15:39
SPEAKER_01: Uh USCIB represents mostly large multinational corporations that are engaged in the global commercial space.
15:45
SPEAKER_01: So we're really affected by these policies.
15:49
SPEAKER_01: It's created higher costs, it's created fragmentation in the global arena, and it creates a lot of uncertainty for our companies.
15:56
SPEAKER_01: A lot of the tariffs are now being passed on to our businesses and consumers.
16:00
SPEAKER_01: I think Goldman Sachs has come up with something in the range of 35 to 55% of the tariff costs are actually being absorbed by businesses that are bringing in inputs and companies that are passing on the costs to consumers.
16:14
SPEAKER_01: So, and I think you're seeing the especially higher impacts on the Section 232, which are to tend to be higher tariffs on some of these products that are coming in.
16:24
SPEAKER_01: Interestingly, 40% of imports into the United States are actually inputs into our manufacturing base.
16:29
SPEAKER_01: So you can see that's impacting what the Trump administration is trying to do, which is which is to bring manufacturing back to the United States.
16:36
SPEAKER_01: And because it's being done in such a, I think, broad brushed way, I think they're having collateral, collateral impacts that they had not expected.
16:44
SPEAKER_01: Um as a um as a business association, we've been trying to weigh in with the administration as much as possible on the policies and trying to work there to ameliorate some of the impacts and make sure that business voices in the room so they can anticipate unintended consequences as they move forward with these policies.
17:02
SPEAKER_01: And I can get that into that more later.
17:04
SPEAKER_01: But um, but you know, the other issue that we really are worried about is the fragmentation of the global policy global commercial space.
17:11
SPEAKER_01: It's disrupting our supply chains.
17:13
SPEAKER_01: And then of course it creates higher compliance costs as you have to figure out which tariffs apply to which uh which products, which countries, is it still in place?
17:22
SPEAKER_01: Is it shifted?
17:23
SPEAKER_01: It's just been a real puzzle piece and it's hugely expensive, especially to small and medium-sized businesses.
17:29
SPEAKER_01: So for our companies with huge compliance teams and you know, lawyers who can manage all this, um, it's it's it's it's a burden, but for small and medium-sized enterprises, they're really suffering.
17:41
SPEAKER_01: We haven't had a lot of retaliation, but that is a possibility.
17:45
SPEAKER_01: Certainly, China has opposed our actions with retaliatory measures.
17:49
SPEAKER_01: Our ag industry is really suffering because of it in terms of purchases.
17:54
SPEAKER_01: And of course, then Canadians, we have consumer boycotts.
17:57
SPEAKER_03: So that's had a huge hit on some of our A lot of economists have emphasized is the point that you made, Alice, about uncertainty.
18:04
SPEAKER_03: Businesses, particularly small businesses that have never really been exposed to this and don't have the in-house competence to deal with this, having to make up their minds about very big new questions.
18:16
SPEAKER_03: Do I continue buying from the Turkish or the Chinese or the Vietnamese or the Mexican source?
18:21
SPEAKER_03: If I don't for that product, where else do I go?
18:24
SPEAKER_03: How do I make the decision?
18:26
SPEAKER_03: How do I know whether I pay the tariffs or not?
18:29
SPEAKER_03: Because Trump keeps changing, the Supreme Court keeps changing.
18:32
SPEAKER_03: How do I put that into planning?
18:34
SPEAKER_03: There's been essentially zero investment in the US by corporations outside of the AI and AI adjacent sector since Trump took office.
18:45
SPEAKER_03: And this is actually very striking.
18:46
SPEAKER_03: Everybody remarks and they say, oh, AI is the source of all the investment.
18:50
SPEAKER_03: But if you think about all the things the Trump administration did, some good, some bad, but all which should have been encouraging short-term investment, right?
18:58
SPEAKER_03: Pressures on the Fed to lower interest rates, lower regulation, lower energy prices, weaker enforcement of regulation, permanent change to the tax code in favor of capital, most of all.
19:11
SPEAKER_03: Again, whether you like them or not, as a forecaster, I was expecting a large boom in corporate investment, plus rolling back some of the Biden team's excesses on antitrust, which should have led to a boom in MA.
19:27
SPEAKER_03: And instead, what we've seen is absolutely flat corporate investment outside of AI.
19:33
SPEAKER_03: And to me, this is like what we saw in Britain after the Brexit vote.
19:37
SPEAKER_03: You saw business investment flatline after the Brexit vote because it created so much uncertainty.
19:45
SPEAKER_03: And I think a lot of it is due to the tariffs and anti-migration policies.
19:50
SPEAKER_00: Turning back to you and kind of picking up on this labor piece, how do you see these more protectionist policies impacting U.S.
19:58
SPEAKER_00: long-term competitiveness?
19:59
SPEAKER_04: I would have to very much agree with Adam here.
20:01
SPEAKER_04: One of the things that's I think is interesting looking at U.S.
20:04
SPEAKER_04: history is these two things tend to go together protectionist trade policy and restrictiveness on immigration.
20:12
SPEAKER_04: That was very much the story in the 1920s.
20:15
SPEAKER_04: It was actually the story in the 1890s.
20:17
SPEAKER_04: It's very much the story today.
20:19
SPEAKER_04: So these two things often go hand in hand.
20:23
SPEAKER_04: I've been writing going back 25 years now about the incredible boost that the United States has had because we have been so attractive to migrants and especially attractive to the smartest and most entrepreneurial migrants, despite the fact that our immigration system has never been all that well set up for that.
20:46
SPEAKER_04: The H1B program has a ton of problems.
20:49
SPEAKER_04: The big magnet has been American universities.
20:51
SPEAKER_04: Foreign students come here, American universities are still considered the best in the world.
20:56
SPEAKER_04: There's been lots of research that pretty clearly suggests Silicon Valley would not have been Silicon Valley without the contributions of migrants, most of them who got started as foreign students in the United States.
21:07
SPEAKER_04: We are at the point where we may actually be breaking that goose that laid the golden egg.
21:13
SPEAKER_04: We're going to see net migration.
21:16
SPEAKER_04: We have seen it in 25, we're going to see it in 26, basically fall to zero or negative.
21:20
SPEAKER_04: First time that's happened in the United States in 50 years.
21:22
SPEAKER_04: We've seen a huge decline in legal immigration to the United States.
21:26
SPEAKER_04: Foreign students aren't coming, temporary visitors aren't coming.
21:29
SPEAKER_04: Trump administration has slowed green card approvals dramatically.
21:33
SPEAKER_04: We are really seeing that pipeline turned off.
21:36
SPEAKER_04: And that creates enormous challenges at all levels of the labor market.
21:42
SPEAKER_04: So I think if you put the two pieces together, the trade piece, in which we're really, in various ways, cutting ourselves off from the rules of global trade that we created, becoming a kind of pariah.
21:54
SPEAKER_04: Nations have to deal with us.
21:55
SPEAKER_04: We're too big, we're too important, but they're looking for alternatives.
21:58
SPEAKER_04: And then you look at what we're doing on the immigration.
22:00
SPEAKER_04: Side.
22:00
SPEAKER_04: And I think that's just a really severe dumble whammy for competitiveness.
22:07
SPEAKER_00: Adam, who stands out to you as winners and what stands out who stands out to you as losers?
22:13
SPEAKER_03: I think with the exception of certain Trump associates who are getting side payments and very particular companies managers who are getting saved for competition, everybody's a loser.
22:28
SPEAKER_03: I think even China's a loser in this.
22:31
SPEAKER_03: I think the main exception would be, as Alice indicated, some countries, or as Ted spoke about in the EU-India deal, some countries that had previously been unwilling to liberalize or do things for their own people and their own business now are willing to do so.
22:50
SPEAKER_03: And there is, that's, I think, the most positive side of this.
22:55
SPEAKER_03: And to some degree, some of the somewhat more rational Trump officials will say things.
23:01
SPEAKER_03: You know, they'll make an analogy to the threats about NATO getting other countries to increase the defense spending.
23:08
SPEAKER_03: They'll say these threats got these other countries to liberalize certain things they didn't in the past.
23:15
SPEAKER_03: But that's no good way to judge this policy when you think about the list of costs that we've all talked about.
23:22
SPEAKER_03: And when you think about this as a repeated game, it's not that one off you get this tariff reduction from in India or Brazil.
23:32
SPEAKER_03: It's that, as Alice was saying, in future, people may be less willing to invest here.
23:38
SPEAKER_03: In future, American manufacturing, which may not be a jobs engine, but was very competitive and certain in the specific sectors, becomes uncompetitive because its inputs become too costly.
23:51
SPEAKER_03: It can't fight.
23:53
SPEAKER_03: A lot of the rest of the world, they are getting on with trade.
23:56
SPEAKER_03: They're getting on with plurilateral, meaning coalition of the willing trade deals.
24:00
SPEAKER_03: They're getting on with various other integration efforts.
24:04
SPEAKER_03: World trade hasn't fallen apart.
24:06
SPEAKER_03: It's gotten a little more costly, a little more risky.
24:09
SPEAKER_03: The world is hungry for the kind of insurance that the U.S.
24:12
SPEAKER_03: used to provide.
24:14
SPEAKER_03: So the world may not be as good a place economically, but the rest of the world is going on with life.
24:21
SPEAKER_04: People are scared.
24:22
SPEAKER_04: I think there's an element of fear that did not exist before.
24:25
SPEAKER_04: And so in the past, I think it was more sort of bureaucratic hassle, bureaucratic hassle versus the potential payoff of a life living and working in the United States.
24:36
SPEAKER_04: And the United States was attractive enough that people were willing to put up with a lot to, and you know, I'm not going to say it's not, it's impossible to rebuild that trust.
24:46
SPEAKER_04: A lot of things can change.
24:48
SPEAKER_04: There's a a reservoir, I think, of goodwill towards the United States, but boy, it's a lot smaller than it used to be.
24:56
SPEAKER_03: It's a fair question, but it's always important to remember the stock market does not see all.
25:01
SPEAKER_03: And even when it sees all, it doesn't always judge all.
25:04
SPEAKER_03: It's motivated by certain things that are not necessarily reflective of the economy as a whole.
25:11
SPEAKER_03: So when I look at the performance of the stock market, I think there are three obvious things going on.
25:18
SPEAKER_03: The first is, as everybody knows, AI and AI-adjacent investment is for real.
25:26
SPEAKER_03: We can debate about how disruptive it's going to be or how soon the benefits are coming.
25:31
SPEAKER_03: But I think at this point, there's no question that this is, at a minimum, a general purpose technology that is going to have a lasting effect on the economy, much in excess of what the internet had, which is an extraordinary statement.
25:46
SPEAKER_03: And so the investment in that, I can't tell you the exact price at which these companies are should be valued, but the scale of investment in that and the sustainability of the prices in those sectors and adjacent sectors is just not unreasonable.
26:02
SPEAKER_03: We're unused to the US having a forward sector and a backward sector.
26:07
SPEAKER_03: But many of the world's economies, think of Japan, think of Mexico, we'll go on, think of Italy, we'll go on for years where there's world-class companies and industries, even while there are some parts that are stagnating.
26:20
SPEAKER_03: And again, that's not something we're used to seeing in the US, but the stock market's effectively saying that.
26:25
SPEAKER_03: A second thing that's going on is, as I think many of your listeners are aware, there's been this shift in financing in the US.
26:34
SPEAKER_03: Fewer companies are coming to market, fewer companies are getting their credit from I don't mean coming to market to sell things.
26:43
SPEAKER_03: I mean coming to the equity market to get their financing, or getting their credit from traditional banks and other sources.
26:49
SPEAKER_03: So there is a more limited set of places people's savings can be parked.
26:55
SPEAKER_03: And so they you you people are, in a sense, a little bit overweight US publicly listed equities, because uh there aren't that many other good things you can do with the money.
27:08
SPEAKER_03: Um, you have to have a very strong stomach and a very high set of fees if you want to be in the private credit or private equity market, for example.
27:15
SPEAKER_03: And I wouldn't recommend people put their 401ks in that.
27:19
SPEAKER_03: So that keeps pushing up the value of stocks.
27:22
SPEAKER_03: And thirdly, and relatedly, even though I think rightly European, East Asian, notably Korean and Japanese stocks have shot up a lot the last couple of years, there is still a sense that medium to long term, I completely agree with that.
27:39
SPEAKER_03: I think we're undermining our competitiveness in a lot of ways.
27:42
SPEAKER_03: But medium to long term, meaning the two to 10 year horizon, US companies, even outside AI, on average, are going to do better than some other stock markets.
27:54
SPEAKER_03: That may erode further and that'll go away, but for the time being, many places are very long, the U.S.
28:01
SPEAKER_03: So there are a bunch of things that are causing people to keep their money in the U.S.
28:06
SPEAKER_03: stock market, not unreasonably or irrationally, but which are not in any way contradicting or um indicating that they don't think there's a real problem from anti-trade, anti-migration, low investment.
28:21
SPEAKER_03: It's other factors at work.
28:24
SPEAKER_00: But Alice, much of today's trade is digital services, data, and software.
28:29
SPEAKER_00: Does a fractured world for physical goods also make it harder for the digital economy to grow, or can tech thrive even if physical trade slows down?
28:40
SPEAKER_01: Yeah, that's a great question.
28:41
SPEAKER_01: So much of our digital services are embedded into our manufacturing goods.
28:45
SPEAKER_01: One of the big things that happened in the ministerial conference meetings at the WTO is whether or not to extend a moratorium on customs duties on electronic transmissions.
28:56
SPEAKER_01: Basically, it's that comp countries cannot impose a duty on transmissions that are conducted electronically.
29:04
SPEAKER_01: One of the things that's happened is some products have been digitalized lately.
29:08
SPEAKER_01: So, for example, movies or music, which used to trade with as a manufactured good, like a CD or a VHS, is now streamed.
29:19
SPEAKER_01: And so countries are feeling like they're losing revenue by having these digitalized as more and more gets put online and is transmitted electronically.
29:29
SPEAKER_04: I think there is also a trust issue here.
29:31
SPEAKER_04: The rest of the world is, outside of China and a few other places, pretty dependent still on American digital platforms.
29:37
SPEAKER_04: So this administration has shown that it's prepared to weaponize those dependencies, to use those tech platforms for non-economic purposes or sometimes for economic bullying purposes.
29:51
SPEAKER_04: And a lot of countries are talking about how do we free ourselves from the dependence on U.S.
29:56
SPEAKER_04: digital platforms.
29:57
SPEAKER_04: I think we are going to see over time an erosion in US dominance globally in this space, because other countries, for security reasons, are going to say we can't be building critical business or government applications on these US controlled platforms.
30:14
SPEAKER_04: Maybe I'll just take a bit of the commercial diplomacy piece.
30:17
SPEAKER_04: You know, I watch this as a reporter going all the way back to the Ron Brown days under Bill Clinton when he would lead these very high-profile commercial diplomacy missions to China and elsewhere, hoping to come back with a whole sort of series of contracts being promised.
30:32
SPEAKER_04: It's been very much the Trump administration style.
30:34
SPEAKER_04: We saw this in the trade deal with China in the first term, where they were all these sort of open-ended promises of all the things that China was going to buy.
30:43
SPEAKER_04: I think on balance, the history shows this is not very successful.
30:46
SPEAKER_04: There are a few products, I think most notably aircraft, where you, you know, big commercial aircraft, you've got two suppliers, Boeing and Airbus.
30:53
SPEAKER_04: So the sort of commercial diplomacy, political pressure from the United States might be able to throw a contract to Boeing rather than to Airbus or the Europeans do the same, vice versa.
31:04
SPEAKER_04: But I can't think of many other products where it makes a big difference.
31:08
SPEAKER_04: I do think commercial diplomacy is important in the sense that you want to have an on-the-ground presence.
31:14
SPEAKER_04: You want to be telling people that the United States has good products.
31:17
SPEAKER_04: We want to trade with you.
31:18
SPEAKER_04: There's that sort of, you know, more basic mission of selling the United States that's valuable.
31:23
SPEAKER_04: But this very high-level, high-profile commercial diplomacy looks great for the politicians because they come back with these commitments, but very rarely do they play out the way the promises uh from commercial diplomacy suggest.
31:37
SPEAKER_01: Who would have thought that the EU would now be considered such an um an adversary in today's parlance?
31:44
SPEAKER_01: I think there's still a lot of confidence in US brands.
31:47
SPEAKER_01: I mean, US brands are are very reputable.
31:50
SPEAKER_01: They, you know, we our companies uh act with the strongest integrity, responsible business conduct.
31:56
SPEAKER_01: You know, they're very committed to a lot of the social responsibility commitments they've made in the past.
32:02
SPEAKER_01: You know, depending, you know, I think despite despite um administrations come and go, I think the companies look at longer-term trends when they're planning.
32:11
SPEAKER_01: So I think there's still a lot of confidence and um and admiration for US brands.
32:17
SPEAKER_01: I think that's gonna uh sell for itself.
32:20
SPEAKER_01: Uh, and I know you're right, uh Ted, there's been a lot of push by this administration.
32:24
SPEAKER_01: I know, especially on aircraft, a lot of the big purchase items when they go overseas, let's get the Chinese to buy US ag, let's get the Chinese to buy Boeing aircraft.
32:33
SPEAKER_01: Um, but I still think that there's a lot of brand saleability uh with US companies, and I and I I think that's gonna last.
32:40
SPEAKER_01: Um I think the other thing uh on trusted partners, that's a great question.
32:45
SPEAKER_01: I know that this administration's really pivoted to uh Western Hemisphere.
32:50
SPEAKER_01: I think they think that there's kind of a natural uh community here.
32:55
SPEAKER_01: Uh we have USMCA, they talk about building that out as a fortress North America.
33:00
SPEAKER_01: Is that is that the trusted partnership?
33:02
SPEAKER_01: We've been able to um create a lot of friction within that, which is interesting.
33:06
SPEAKER_01: The Canadians, I don't know if they consider that a trusted partnership.
33:09
SPEAKER_01: So it's gonna be a very slippery slope uh as we move forward.
33:13
SPEAKER_01: I think you're gonna see pivoting away a little bit more from Asia to Latin America under this administration, the new Don Roe Doctrine.
33:22
SPEAKER_01: I don't know how successful it'll be.
33:23
SPEAKER_01: I think it's it all is being done in in terms of competitiveness with China.
33:28
SPEAKER_01: It's trying to displace Chinese influence in the Western Hemisphere.
33:31
SPEAKER_01: There's a national security overlay to it.
33:34
SPEAKER_01: And I think this administration is, as you see, with Venezuela, with now Cuba, really working to create some sort of stable security uh uh region, and that will be where he focuses in terms of um, I think, friendshoring.
33:50
SPEAKER_01: So um it's gonna change depending on the administration.
33:53
SPEAKER_01: Do our do our partners feel the same way about us?
33:56
SPEAKER_01: There's many questions to ask there, and uh it's it's a really good question.
34:00
SPEAKER_00: All right, thank you.
34:01
SPEAKER_00: And I'll do the final word with you, Adam.
34:04
SPEAKER_00: So the international system built on the foundations of the GATT and the Kennedy and Uruguay, Uruguay Browns created a multilateral framework that successfully promoted and regulated trade for over 100 countries.
34:14
SPEAKER_00: Does this disruption inevitably lead to a more volatile world of competing regional blocks, or is it possible to build a new, more stable global order from the pieces?
34:24
SPEAKER_03: I'm gonna be more positive than the spirit of the question, but not 100% positive because I do think we're in a more volatile world, full stop.
34:35
SPEAKER_03: The world has gotten on with it.
34:37
SPEAKER_03: And I think you're seeing what I've been terming plurilateralism in a multilateral spirit, meaning rule of law, you set up criteria and rules, and anybody who can meet the requirements and the standards can join.
34:51
SPEAKER_03: We see CPTPP, the Asian trade deal, and the Europeans getting together, or EU Mercosur.
34:57
SPEAKER_03: We see things that are not so much about regional blocks.
35:00
SPEAKER_03: And Europe and ASEAN, and to a lesser degree, Japan, Canada, Australia can be sort of hubs for these, which are not defined by geography and which by definition are not national security alliances because none of these countries are first-order national security powers.
35:17
SPEAKER_03: I don't think we're gonna quite get neat blocks of China-based, Europe-based, US-based.
35:23
SPEAKER_03: And I think that's good.
35:26
SPEAKER_00: All right.
35:28
SPEAKER_00: Um, a very good forward-looking answer uh and well-timed too.
35:33
SPEAKER_00: Um we've reached the end of our discussion.
35:35
SPEAKER_00: Thank you all.
35:36
SPEAKER_00: This was fascinating.
35:38
SPEAKER_00: Alice, Ted, Adam, you brought so much insight and wisdom to this discussion.
35:42
SPEAKER_00: I really appreciate it.
35:43
unknown: Thank you.
35:44
SPEAKER_04: Thanks very much, Cordy.
35:45
SPEAKER_00: Thanks for the hearing one.
35:47
SPEAKER_00: Bye.
35:47
SPEAKER_00: Bye-bye.
35:53
SPEAKER_02: Thank you for joining us on this episode of Global Insights.
35:58
SPEAKER_02: You can subscribe to Global Insights on Apple Podcasts, Spotify, or wherever you get your audio.
36:06
SPEAKER_02: For more analysis, events, and ways to connect with our community, click on the link in the description.
36:14
SPEAKER_01: See you next time.