Latest / Trumponomics / What's Behind the Great Trade Skirmish

Transcript

What's Behind the Great Trade Skirmish · Trumponomics

• 0:00
  Speaker 1: America is imposing tariffs on steel and aluminum in the
• 0:04
  Speaker 1: name of national security. Allies and opponents alike are crying foul,
• 0:09
  Speaker 1: talk of retaliation. Even a trade war is in the
• 0:12
  Speaker 1: air by some reckonings, a trade conflict is already here.
• 0:16
  Speaker 1: But if war has broken out, how will we know
• 0:19
  Speaker 1: who's winning. If it hasn't broken out, how will we
• 0:23
  Speaker 1: know when it does, if at all? Welcome to Benchmark,
• 0:36
  Speaker 1: a show about the global economy. This week, we step
• 0:39
  Speaker 1: back from the daily skirmishes to try to figure out
• 0:42
  Speaker 1: what's really going on here and just as importantly, where
• 0:45
  Speaker 1: we are headed. I'm Scott Landman, an economics editor with
• 0:49
  Speaker 1: Bloomberg News in Washington, and I'm Daniel Moss, economics writer
• 0:53
  Speaker 1: and editor at Bloomberg View in New York. Guiding us
• 0:57
  Speaker 1: through thee she was Shannon O'Neil, a Latin American trade
• 1:01
  Speaker 1: ex but at the Council on Foreign Relations who's also
• 1:05
  Speaker 1: working on a book about the global supply chains. Riveting
• 1:08
  Speaker 1: stuff and perfectly timed, Shannon, Welcome back to Benchmark. Thanks
• 1:13
  Speaker 1: for having me so, Shannon. We'll get to steal an
• 1:16
  Speaker 1: aluminum shortly, but first let's try to define the terrain
• 1:20
  Speaker 1: what actually is a trade war other than a campaign slogan. Well,
• 1:25
  Speaker 1: it definitely is that a campaign slogan. But I would
• 1:28
  Speaker 1: say if we think about a trade war, UM, not
• 1:31
  Speaker 1: to stretch this metaphor too far, but right now we're
• 1:33
  Speaker 1: having skirmishes. We're having the Trump administration upset about particular products,
• 1:39
  Speaker 1: about steel, about aluminum, and launching out not just at China,
• 1:43
  Speaker 1: which is really the source of their ire, but at
• 1:45
  Speaker 1: the overall world. UM. But that really is one particular skirmish,
• 1:49
  Speaker 1: and we've seen these in the past, particularly over steel
• 1:51
  Speaker 1: as well as other issues. If we would get to
• 1:54
  Speaker 1: a trade war, which I don't see yet but we're
• 1:55
  Speaker 1: getting closer to that is where you start seeing a
• 1:58
  Speaker 1: tip for tattery, t allation from countries that may have
• 2:02
  Speaker 1: nothing to do with the underlying original grievance. And see
• 2:05
  Speaker 1: see other sectors, say agriculture, other sectors in the economy
• 2:09
  Speaker 1: hit with retaliatory tariffs and then this back and forth.
• 2:12
  Speaker 1: So that to me would be what we would see
• 2:14
  Speaker 1: as a full grown trade war. So we'll get back
• 2:16
  Speaker 1: to China a second. But when was the last time
• 2:19
  Speaker 1: we were in a war? What happened? Who won? A
• 2:23
  Speaker 1: lot of this is very fuzzy. The one that everybody
• 2:25
  Speaker 1: goes back to is is back in the nineteen late twenties,
• 2:27
  Speaker 1: early thirties with a Smoot Holly Act, And there we
• 2:30
  Speaker 1: really did see a trade where we saw dozens of
• 2:33
  Speaker 1: countries react to each other, throw up their trade barriers,
• 2:36
  Speaker 1: tariffs and others, and the overall global economy take a
• 2:39
  Speaker 1: sizeable hit because of it. That is the classic trade war.
• 2:43
  Speaker 1: But we've seen skirmishes before. We've seen them in the
• 2:45
  Speaker 1: nineteen eighties with the U S and the Japanese and others.
• 2:48
  Speaker 1: We've seen them along the way. And what it does,
• 2:50
  Speaker 1: what history seems to tell us, is that in the end,
• 2:53
  Speaker 1: no one really wins. So when we're talking about today,
• 2:57
  Speaker 1: you said we're still in kind of skirmish is at
• 3:00
  Speaker 1: the moment? How will we know if we're in a
• 3:03
  Speaker 1: full blown trade war as opposed to say just sponsoring
• 3:07
  Speaker 1: some rebels with cash and some spare M sixteens. So
• 3:12
  Speaker 1: one of the things I would say is I look
• 3:13
  Speaker 1: back at the last seventy plus years, as we've actually
• 3:16
  Speaker 1: had in this particular area in the trade arena, we've
• 3:19
  Speaker 1: actually had some rules of the road. Um, we had
• 3:21
  Speaker 1: it through gap than through the w t O, the
• 3:23
  Speaker 1: World Trade Association organization. We have seen more and more
• 3:27
  Speaker 1: countries join in and actually allow sort of a multilateral
• 3:30
  Speaker 1: system to develop, also including free trade agreements among many
• 3:33
  Speaker 1: different countries. So there has been many countries this idea
• 3:37
  Speaker 1: that it is better to follow these overall rules multilateral rules.
• 3:42
  Speaker 1: Sometimes you win, sometimes you lose in particular sectors, but
• 3:45
  Speaker 1: the rules and the stability that provides has is beneficial
• 3:48
  Speaker 1: overall to your economy as well as others. And so
• 3:51
  Speaker 1: the issue today is do those rules stand. And we
• 3:55
  Speaker 1: have had countries along the way who that have defected
• 3:57
  Speaker 1: from these rules, that have not followed the rules, Ida
• 4:00
  Speaker 1: being one of the the you know perpetrators here where
• 4:03
  Speaker 1: they don't tend to follow those rules even as they've
• 4:05
  Speaker 1: tried to join the World Trade Organization, the w t
• 4:08
  Speaker 1: O and the like. And so the question here, I
• 4:10
  Speaker 1: think is do those overall rules falter. That's when you
• 4:14
  Speaker 1: get into a real trade war. And what I would
• 4:17
  Speaker 1: be looking for is, as these steel and aluminum tariffs
• 4:20
  Speaker 1: go forward, do the Europeans retaliate the way they have
• 4:23
  Speaker 1: said that they'll go after agricultural products are products in
• 4:25
  Speaker 1: particular districts of Mitch McConnell and Paul Ryan and others.
• 4:29
  Speaker 1: And then does the Trump administration retaliate that he's threatened
• 4:32
  Speaker 1: back that he'll put a tariff on cars. If you
• 4:34
  Speaker 1: start seeing this tip for tap back and forth, I
• 4:36
  Speaker 1: think that's where we really will see see a full
• 4:38
  Speaker 1: blown escalation. So you mentioned Japan. It didn't seem like
• 4:42
  Speaker 1: it at the time when people were smashing Toshiba's on
• 4:44
  Speaker 1: the steps of Congress, but Japan relied on the US
• 4:48
  Speaker 1: for its defense. The two countries were treaty allies. The
• 4:52
  Speaker 1: post nineteen political system is a product of US in position.
• 4:58
  Speaker 1: I mean, what did we miss then and now we
• 5:00
  Speaker 1: at risk of missing it now. We did see incredible tensions.
• 5:04
  Speaker 1: The Reagan administration put on several types of protectionist measures, tariffs,
• 5:10
  Speaker 1: but more voluntary controls the Japanese agreed to. There's a
• 5:13
  Speaker 1: lot of back and forth there, and partly because of
• 5:15
  Speaker 1: the things you mentioned, there was this underlying defense alliance.
• 5:19
  Speaker 1: There was an underlying agreement on a lot of other
• 5:22
  Speaker 1: issues there that they were able to disagree strongly, vehemently
• 5:27
  Speaker 1: about the trade issues, but come to some sort of agreement.
• 5:29
  Speaker 1: And what's different today is that that doesn't seem to
• 5:32
  Speaker 1: be the case with China. We don't have as many
• 5:35
  Speaker 1: areas of agreement, we don't have as many partnerships. We
• 5:37
  Speaker 1: certainly don't have the security alliance that we had with
• 5:40
  Speaker 1: Japan or that we've had with Europe and other places.
• 5:42
  Speaker 1: So I think there are less easy areas of cooperation
• 5:46
  Speaker 1: to turn to to try to take down the temperature
• 5:48
  Speaker 1: on on these areas of conflict, which are definitely in
• 5:51
  Speaker 1: the commercial area along with others. But was that type
• 5:54
  Speaker 1: of context actually available at the time. If you go
• 5:57
  Speaker 1: back to just iconic cult trull symbols of that era,
• 6:02
  Speaker 1: the classics got to be the Michael Crichton book Rising
• 6:04
  Speaker 1: Sun and the movie that came of it, you would
• 6:07
  Speaker 1: never know that the U. S And Japan were close
• 6:10
  Speaker 1: military allies. I mean that was depicted as a war,
• 6:14
  Speaker 1: It's true, right, and that was It was an incredibly
• 6:16
  Speaker 1: tense time. And so perhaps we come out of where
• 6:19
  Speaker 1: we are today and we come out the other end,
• 6:21
  Speaker 1: and you say, oh, we forgot about all these other
• 6:23
  Speaker 1: things that that bound the United States and China, or
• 6:26
  Speaker 1: bound the United States and Europe together. But I do
• 6:28
  Speaker 1: think that Chinese US relationship is a very different one. Today,
• 6:32
  Speaker 1: there's no military alliance. There's no military alliance, and there's
• 6:35
  Speaker 1: there's a distance over over time. There you don't have
• 6:38
  Speaker 1: this long history of cooperation where you have other areas
• 6:41
  Speaker 1: of the government, if not in the popular perception, but
• 6:44
  Speaker 1: other areas of the government that had long standing partnerships
• 6:47
  Speaker 1: and communications and day to day working back and forth
• 6:51
  Speaker 1: that could calm down or at least bring in those
• 6:54
  Speaker 1: securities concerns, those defense concerns to the overall relationship. And today,
• 6:58
  Speaker 1: I would say, as we look at that s Chinese relationship,
• 7:01
  Speaker 1: it's not just the commercial side that worries the United States,
• 7:04
  Speaker 1: but it's the defense side that worries as well. Right
• 7:06
  Speaker 1: General Madison others on Defense Department are very worried about
• 7:09
  Speaker 1: where China is going on the defense side. On the
• 7:12
  Speaker 1: security side, it's positions in South China, sea, in the
• 7:16
  Speaker 1: in the like. So that isn't an area today of cooperation.
• 7:18
  Speaker 1: In fact, is one of potential conflict or worry as well. Shannon,
• 7:23
  Speaker 1: we mentioned earlier that you're working on a book about
• 7:25
  Speaker 1: global supply chains. The tariffs imposed by President Donald Trump
• 7:31
  Speaker 1: were on imported steel and aluminum. Before that, uh, there
• 7:35
  Speaker 1: were solar panels washing machines. Is there a pattern here
• 7:40
  Speaker 1: and how with this figure into these kinds of global
• 7:44
  Speaker 1: supply chains. Are they going to get gumped up by
• 7:47
  Speaker 1: these tariffs or is everything just going to keep functioning smoothly.
• 7:51
  Speaker 1: This is something that I do think is threatened by
• 7:54
  Speaker 1: this back and forth on on tariffs. And what we
• 7:57
  Speaker 1: have seen around the world is yes, there are global
• 7:59
  Speaker 1: supply chains, but there are really regional hubs that have developed.
• 8:02
  Speaker 1: So we have one in Asia, we have one in Europe,
• 8:05
  Speaker 1: and we have one here in the United States in
• 8:06
  Speaker 1: North America. And so anything that would put tariffs to
• 8:11
  Speaker 1: limit protect the movement of goods between the three nations
• 8:14
  Speaker 1: here in North America, the United States, Canada, and Mexico
• 8:18
  Speaker 1: could come up, as you say, these supply chains and
• 8:20
  Speaker 1: so these tears. Right now, the Trump administration has said
• 8:24
  Speaker 1: that steel and aluminum will be that our neighbors will
• 8:26
  Speaker 1: be exempt at least until we see whether or not
• 8:29
  Speaker 1: not to as solved. So it hasn't happened yet, but
• 8:31
  Speaker 1: if we saw steel tariffs aluminum tearrists put on Canadian
• 8:35
  Speaker 1: and Mexican products, this would particularly hit these very integrated
• 8:39
  Speaker 1: supply chains and the worst off those hit hardest would
• 8:42
  Speaker 1: be the auto industry. These are big inputs into the
• 8:45
  Speaker 1: auto industry. Much of that steel aluminum comes from Canada,
• 8:48
  Speaker 1: comes from Mexico, goes into US cars is put together
• 8:51
  Speaker 1: in US factories, and so those are the ones that
• 8:54
  Speaker 1: would lose out. And in fact, one of my colleagues
• 8:57
  Speaker 1: at the Council Foreign Relations did is that calculation and
• 8:59
  Speaker 1: said that if we applied all these tariffs, that yes,
• 9:03
  Speaker 1: you would see maybe upwards of thirty thousand steel jobs recovered,
• 9:07
  Speaker 1: but you would see at least that much in just
• 9:10
  Speaker 1: the auto industry, that you would see a decline of
• 9:12
  Speaker 1: forty plus thousand jobs in the first couple of years,
• 9:15
  Speaker 1: because you would see people cut back on buying cars.
• 9:17
  Speaker 1: Just that little increase in price in the overall car
• 9:19
  Speaker 1: would lead to really ripple effects through the supply chains. Now,
• 9:23
  Speaker 1: the President sign to national security in the steel and
• 9:26
  Speaker 1: aluminum decisions and then went on to say that national
• 9:30
  Speaker 1: security allies would have opted outs. Reconcile that for US, well,
• 9:37
  Speaker 1: consistency doesn't seem to be part of this overall plan here,
• 9:40
  Speaker 1: and and that is the real question. And pulling out
• 9:43
  Speaker 1: the national security banner as the reason to put these
• 9:47
  Speaker 1: these tariffs in place, you're saying that all these countries
• 9:50
  Speaker 1: are gonna apply to are threatening national security. But then
• 9:55
  Speaker 1: this is the question. But then the question is if
• 9:58
  Speaker 1: you allow people to be exempted, and in for instance,
• 10:01
  Speaker 1: what they're saying is you're allowed to be exempted Mexico
• 10:03
  Speaker 1: and Canada as long as they renegotiate NAFTA, then you're
• 10:07
  Speaker 1: saying that actually, this isn't for national security reasons, this
• 10:10
  Speaker 1: is for some other sort of reason, which is a
• 10:13
  Speaker 1: real question. And then this also, if we allow any
• 10:17
  Speaker 1: issue to be put forward for national security and it's
• 10:20
  Speaker 1: a broad blanket that affects every country. I mean, we're
• 10:22
  Speaker 1: saying Brazil and Germany and other European countries, all of
• 10:25
  Speaker 1: these are national security challenges to the United States. Then
• 10:28
  Speaker 1: you're inviting back from those countries their ability to say
• 10:32
  Speaker 1: that things that they want to protect in their economy
• 10:34
  Speaker 1: are asta national security interests. So you know, French farmers
• 10:37
  Speaker 1: can say that it's a national security interest to to
• 10:40
  Speaker 1: keep out US grains or other products. We could see
• 10:43
  Speaker 1: this reverberate through the system and and a lot of
• 10:45
  Speaker 1: the careful work that's gone to build the World Trade Organization,
• 10:48
  Speaker 1: these these global rules could begin to fall apart. Well,
• 10:53
  Speaker 1: I was just going to follow up on that, these
• 10:54
  Speaker 1: global rules you're talking about, even though you know some actors,
• 10:58
  Speaker 1: some states are going a little bit out side, it
• 11:00
  Speaker 1: seems like talking about national security and the possibility of
• 11:06
  Speaker 1: other countries using other kinds of justifications that might not
• 11:11
  Speaker 1: be on their face totally justified. Is its own way
• 11:15
  Speaker 1: of sort of scrapping the rules and in a way
• 11:19
  Speaker 1: that nobody would agree on them anymore and could lead
• 11:24
  Speaker 1: to a lot of unforeseen consequences. Is that a fear
• 11:27
  Speaker 1: that you might have. It is a fear that I have.
• 11:29
  Speaker 1: I mean, it's a fear that we return, not to
• 11:30
  Speaker 1: go back to your your philosophy courses in college. But
• 11:33
  Speaker 1: are we moving back to this hobbsy in world where
• 11:36
  Speaker 1: might makes right and everything's nasty, British and short. Or
• 11:39
  Speaker 1: do we have a set of rules that people abide by,
• 11:42
  Speaker 1: and when one actor, one player doesn't abide by the rules,
• 11:46
  Speaker 1: do the others come together and punish that individual or
• 11:49
  Speaker 1: that actor or that country for violating the rules. Or
• 11:53
  Speaker 1: do you just throw the whole table over and say, okay, no,
• 11:56
  Speaker 1: this person broke the rules. We won't have any rules
• 11:58
  Speaker 1: at all and we'll just see what we could the
• 12:00
  Speaker 1: most we can gain for our own country. And what
• 12:02
  Speaker 1: we've seen in history is that that doesn't benefit everyone
• 12:07
  Speaker 1: loses in that. In that case, yes, you might gain
• 12:10
  Speaker 1: a bit more relatively than the others, but the pie shrinks. Now,
• 12:14
  Speaker 1: when China positions itself in contrast to the US as
• 12:19
  Speaker 1: supporters of the rules based system, what do they really mean.
• 12:25
  Speaker 1: China has benefited tremendously from this rules based system. There's
• 12:29
  Speaker 1: no doubt about that. They have grown if you think
• 12:33
  Speaker 1: back to the late eighties, from a very small part
• 12:36
  Speaker 1: of the world economy and the world exports to now
• 12:39
  Speaker 1: one of the heavyweights. So this is something. This openness
• 12:42
  Speaker 1: of markets, the ability to trade back and forth, the
• 12:45
  Speaker 1: real consistency and rules has been a huge benefit to China.
• 12:48
  Speaker 1: So of course they want the system to continue. Now,
• 12:50
  Speaker 1: what the United States and many other countries want, and
• 12:53
  Speaker 1: it's not just the United States but Europe and in
• 12:55
  Speaker 1: Latin American countries all over the world, they want China
• 12:57
  Speaker 1: to play by some of the same rules that they're
• 12:59
  Speaker 1: playing by. And there is in many industries there's significant
• 13:03
  Speaker 1: evidence that China forces the transfer of intellectual property and
• 13:08
  Speaker 1: technology there's significant evidence of that. China in many ways
• 13:11
  Speaker 1: unfairly props up staten't enterprises, gives them cheap credit, free land,
• 13:16
  Speaker 1: removed from taxes, all sorts of things that create an
• 13:19
  Speaker 1: unlevel playing field for for the private sector in the
• 13:21
  Speaker 1: United States or Europe other places. So the Bosking and
• 13:24
  Speaker 1: Great tripr right now, this is true, but you know,
• 13:27
  Speaker 1: don't let the facts get in front of a good story,
• 13:30
  Speaker 1: right and they're playing this to the hills. Um. But
• 13:32
  Speaker 1: if the United States wants to step forward and enforce
• 13:35
  Speaker 1: the rules, they're gonna need all these other countries that
• 13:38
  Speaker 1: also want to enforce the rules together, So like the EU,
• 13:42
  Speaker 1: like the countries in Latin America, Brazil, like Canada and
• 13:45
  Speaker 1: Mexico together, that would be a much starter strategy in
• 13:48
  Speaker 1: my view, to take on what may have been unfair practices,
• 13:51
  Speaker 1: which I have been unfair practices and stealing aluminum for instance. Shannon,
• 13:55
  Speaker 1: now that we're going down this path of skirmishes with
• 13:58
  Speaker 1: an eye toward potential a war, rules being thrown out
• 14:02
  Speaker 1: the window. New rules are picture early being written. Can
• 14:06
  Speaker 1: we ever go back to a more rules based system
• 14:10
  Speaker 1: or are we not going to get back there unless
• 14:14
  Speaker 1: there's a whole war that forces everybody to start back
• 14:17
  Speaker 1: over again. Well, I don't think we've entered the battlefield
• 14:19
  Speaker 1: here yet. I think we're still before the war. But
• 14:22
  Speaker 1: if we enter this, it will be hard to walk
• 14:25
  Speaker 1: it back. And I think one of the telling aspects
• 14:28
  Speaker 1: here is do we see in the coming months and years,
• 14:31
  Speaker 1: do we see nations rally around a somewhat fragile World
• 14:36
  Speaker 1: Trade Organization, the w t O and support it. We
• 14:39
  Speaker 1: may need to reform it to make it stronger, to
• 14:41
  Speaker 1: make it actually do the things that it needs to do,
• 14:43
  Speaker 1: or do we see it blown up? And that really
• 14:46
  Speaker 1: is is going to be a crucial moment. If we
• 14:48
  Speaker 1: blow the World Trade Organization up, I think it will
• 14:50
  Speaker 1: take many years, if not a decade or more, to
• 14:54
  Speaker 1: rebuild that system. But it's still there. It's not gone yet.
• 14:57
  Speaker 1: It's just in jeopardy. Shannon, you and I were both
• 15:01
  Speaker 1: guests at the twenties seventeen Annual Mexican Business Summit, and
• 15:05
  Speaker 1: there was a lot of angst, a lot of gnashing
• 15:07
  Speaker 1: of teeth. Executives there thought, well, look, if we just
• 15:11
  Speaker 1: set up these global supply chains, corporate interest will take
• 15:15
  Speaker 1: care of itself, and we don't really have to worry
• 15:17
  Speaker 1: about government at all. And the shock of the election,
• 15:22
  Speaker 1: it's fair to say, was still sinking in. People were
• 15:24
  Speaker 1: walking around stunt. What did they And by extension, we
• 15:29
  Speaker 1: in the economic mainstream mess. I think what economists and
• 15:34
  Speaker 1: investors and others sometimes miss is the rationality of the investment.
• 15:38
  Speaker 1: The rationality decisions often belies the politics. And for many
• 15:43
  Speaker 1: years we've forgotten the politics and politics are emotional. Politics
• 15:47
  Speaker 1: are about people and ideas and aspirations, and some of
• 15:52
  Speaker 1: that is not necessarily rational, or some of that only sees,
• 15:56
  Speaker 1: you know, part of the proverbial elephant that's in the room.
• 15:59
  Speaker 1: And so this is the challenge. I do think the
• 16:01
  Speaker 1: United States, the world trading system, we were coming back
• 16:04
  Speaker 1: from a global recession. We thought, okay, the economics has
• 16:07
  Speaker 1: worked itself out, We're we're moving forward. This is all
• 16:09
  Speaker 1: going to be fine. But those people, whether in Mexico
• 16:13
  Speaker 1: or in the United States, around the world, that got
• 16:15
  Speaker 1: hit by the recession, they were left behind. And it's
• 16:17
  Speaker 1: not just that recession, it is the transformations that are
• 16:21
  Speaker 1: happening around the world. Trade is a small part of this,
• 16:23
  Speaker 1: a part of it um, but other things are happening.
• 16:25
  Speaker 1: So I think the politics will be a guiding force
• 16:29
  Speaker 1: as we look forward for the next couple of years
• 16:31
  Speaker 1: and in decade, and that is something that frankly, I
• 16:34
  Speaker 1: think a lot of those that talk about these issues
• 16:37
  Speaker 1: were missing Shannon. Given these trends in politics one year
• 16:41
  Speaker 1: from now, will we be in a global trade war?
• 16:45
  Speaker 1: I'd like to stick with my optimistic nature and say no,
• 16:48
  Speaker 1: but I do think these recent steps have been worrying.
• 16:53
  Speaker 1: The one thing that I do see is that many
• 16:57
  Speaker 1: countries around the world are moderating their behavior. Yes they're upset,
• 17:03
  Speaker 1: yes they think it's unfair, but we haven't seen the
• 17:06
  Speaker 1: quick reaction in many of these places that one might
• 17:09
  Speaker 1: expect to what many will consider an affront. And so
• 17:13
  Speaker 1: as we look forward, in particularly, I think about Latin America,
• 17:15
  Speaker 1: where I spent a lot of time and look, right now,
• 17:18
  Speaker 1: we probably have over the last few decades, we probably
• 17:21
  Speaker 1: had the most free trade, friendly, pro market set of
• 17:25
  Speaker 1: governments that we've had in many, many years. That may
• 17:28
  Speaker 1: change this year because there's a lot of elections, a
• 17:30
  Speaker 1: lot of people are going to come up, and we
• 17:31
  Speaker 1: may see things turn over. But but that tells me
• 17:34
  Speaker 1: as you look at this hemisphere, as you look at Europe,
• 17:36
  Speaker 1: as you look at other places, there's a lot of leadership,
• 17:39
  Speaker 1: and there are a lot of voters who have voted
• 17:40
  Speaker 1: for those leaders in democracies, who still believe in these
• 17:43
  Speaker 1: fundamental rules of the game, who still see trade as
• 17:46
  Speaker 1: the way to prosperity and to growth. So I think
• 17:49
  Speaker 1: we need to temper our pessimism um about some of
• 17:53
  Speaker 1: the rhetoric that's going back and forth that can be
• 17:55
  Speaker 1: quite hostile or acrimonious. And do remember that there is
• 17:57
  Speaker 1: a large segment of the world that has benefited from
• 18:01
  Speaker 1: this opening, that have seen their incomes rise, um, And
• 18:03
  Speaker 1: so can we find a way for this net benefit
• 18:06
  Speaker 1: to be more inclusive? That is the challenge of these politicians.
• 18:10
  Speaker 1: Does that optimistic view about governments in the America's hinge
• 18:16
  Speaker 1: on the outcome of Mexico's presidential election? What does the
• 18:20
  Speaker 1: candidacy of Andreas Manuel Lopez Albert or Maine. This is
• 18:26
  Speaker 1: really I think a bell weather for this optimistic versus
• 18:29
  Speaker 1: pessimistic view and the front runner right now um and
• 18:33
  Speaker 1: they call AMLO, that's his hackronym. He is an old
• 18:37
  Speaker 1: school state development protectionist type. He was raised or came
• 18:42
  Speaker 1: of age politically of age in the nineteen seventies and
• 18:44
  Speaker 1: he's still there economically, that's how he sees the world.
• 18:48
  Speaker 1: And this is really to me from Mexico, this is
• 18:50
  Speaker 1: a bell weather election on the economic model of the
• 18:53
  Speaker 1: last thirty years. This is an election about NAFTA. Is
• 18:57
  Speaker 1: Mexico's path to prosperity, to grow the one that engages
• 19:01
  Speaker 1: the world, that's market friendly, that's US friendly, that looks
• 19:04
  Speaker 1: more openly, or do you go back to a very
• 19:07
  Speaker 1: closed economy, one that's self sufficient as he would say,
• 19:11
  Speaker 1: that's turned inwards. Now we can talk as economists about
• 19:14
  Speaker 1: why that doesn't really work and why that won't happen,
• 19:16
  Speaker 1: But but that vision is his vision. So I do
• 19:19
  Speaker 1: think what happens July one, which is when this election happened,
• 19:23
  Speaker 1: has huge ramifications not just for Mexico but for for
• 19:26
  Speaker 1: this direction. Do you get one of the NAFTA partners,
• 19:29
  Speaker 1: who in many ways matches Trump's temperament on trade, would
• 19:33
  Speaker 1: turn back to a protectionism And I think that has
• 19:35
  Speaker 1: a lot to say what would happen to NAFTA, But
• 19:38
  Speaker 1: in general, what would happen with this tip for tat
• 19:40
  Speaker 1: the potential back and forth you might see that would
• 19:42
  Speaker 1: lead to a trade war. Now, it can seem like
• 19:45
  Speaker 1: a fairly arcane thing to have an entire presidential campaign
• 19:50
  Speaker 1: of a country of more than a hundred million people
• 19:53
  Speaker 1: john NAFTA. But it's a central organizing principle of the
• 19:57
  Speaker 1: entire Mexican country, is it not. Everything has been geared
• 20:02
  Speaker 1: towards its economic relationship with United States, like everything it is,
• 20:07
  Speaker 1: And NAFTA has really become the rule of law, the
• 20:11
  Speaker 1: underlying rules for foreign investment for companies operating international companies
• 20:16
  Speaker 1: operating in Mexico. So if you pull that away, you're
• 20:19
  Speaker 1: left with Mexican rule of law, Mexican domestic courts, which
• 20:23
  Speaker 1: are much more fragile and at times much more likely
• 20:26
  Speaker 1: to be swayed, to be more arbitrary, uh than to
• 20:30
  Speaker 1: uphold a much more balanced rule of law. So this
• 20:33
  Speaker 1: is a huge fear of those that are down there,
• 20:35
  Speaker 1: and frankly, it's a fear not just for international companies,
• 20:38
  Speaker 1: for domestic companies, for the Mexican companies that want to
• 20:40
  Speaker 1: operate in a place that's quite open to new ideas entrepreneurship.
• 20:45
  Speaker 1: Mexico has been moving in that direction. And the worry
• 20:48
  Speaker 1: is if you pull away NAFTA, if you turn back
• 20:51
  Speaker 1: in if the state takes a much greater role in
• 20:53
  Speaker 1: the economy, choosing champions and the like, back in that
• 20:56
  Speaker 1: way of the nineteen seventies, that you will stifle a
• 20:59
  Speaker 1: lot of the pretnership, the productivity, and the growth that
• 21:02
  Speaker 1: has allowed Mexico to prosper over the last thirty years.
• 21:05
  Speaker 1: All right, Shannon, Well, maybe we can have you back
• 21:08
  Speaker 1: after the Mexican election or if there's a full blown
• 21:10
  Speaker 1: trade war. Either way, I would love to thank you.
• 21:14
  Speaker 1: Let's hope that doesn't mean next week exactly. Shannon, thanks
• 21:18
  Speaker 1: so much for being on Benchmark. Will be back next week.
• 21:24
  Speaker 1: Until then, you can find us on the Bloomberg terminal,
• 21:26
  Speaker 1: Bloomberg dot com, our Bloomberg app, and podcast destinations such
• 21:30
  Speaker 1: as Apple Podcasts, Spotify or wherever you listen. Please take
• 21:34
  Speaker 1: the time to rate and review the show, and you
• 21:36
  Speaker 1: can also find us on Twitter. You can follow me
• 21:39
  Speaker 1: at at Scott Landman Dan You're at Moss Underscore Echo,
• 21:45
  Speaker 1: and our guest Shannon O'Neil is at Shannon Kay O'Neil.
• 21:49
  Speaker 1: Benchmark is produced by Toper Foreheads the head of Bloomberg Podcasts,
• 21:53
  Speaker 1: Francesca Levy. Thanks for listening. See you next time. The tent,
• 22:02
  Speaker 1: the super Barer and my fingers the bod