Latest / Stephanomics / How 'Friend-Shoring' Has Made America More Like China

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How 'Friend-Shoring' Has Made America More Like China · Stephanomics

• 0:00
  Speaker 1: When China joined the WTO, I think there was a
• 0:04
  Speaker 1: view that over time they would become more like us.
• 0:07
  Speaker 1: I think the reality is we have become more like that.
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  Speaker 2: Hello, Stephanomics. Here the podcast that brings you the global economy.
• 0:17
  Speaker 2: And that was Michael Frohman, former United States Trade Representative
• 0:21
  Speaker 2: under President Obama and a senior Treasury official in the
• 0:24
  Speaker 2: early two thousands. Back then, policymakers in Washington tended to
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  Speaker 2: assume China would keep moving in the direction of freer markets,
• 0:33
  Speaker 2: more open trade. It didn't, well, not really. Instead, what
• 0:38
  Speaker 2: we've seen is first President Trump and now President Biden
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  Speaker 2: intervening more in the US economy and putting more constraints
• 0:46
  Speaker 2: on global trade. A speech a few weeks ago at
• 0:50
  Speaker 2: the Brookings Institution, a US think tank, by National security
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  Speaker 2: advisor Jake Sullivan crystallized for me the different philosophy now
• 0:59
  Speaker 2: underpinning US economic policy at home and abroad.
• 1:04
  Speaker 3: Much of the international economic policy of the last few
• 1:06
  Speaker 3: decades had relied upon the premise that economic integration would
• 1:10
  Speaker 3: make nations more responsible and open, and that the global
• 1:14
  Speaker 3: order would be more peaceful and cooperative. That bringing countries
• 1:18
  Speaker 3: into the rules based order would incentivize them to adhere
• 1:22
  Speaker 3: to its rules. It didn't turn out that way. In
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  Speaker 3: some cases, it did, in a lot of cases it
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  Speaker 3: did not. No one, certainly not me, is discounting the
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  Speaker 3: power of markets, but in the name of oversimplified market efficiency.
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  Speaker 3: Entire supply chains of strategic goods, along with the industries
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  Speaker 3: and jobs that made them moved overseas, and the postulate
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  Speaker 3: that deep trade liberalization would help America export goods, not
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  Speaker 3: jobs and capacity was a promise made but not kept well.
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  Speaker 2: Sullivan says a lot more in that speech. She also
• 1:59
  Speaker 2: talks about foreign policy for the middle class. But what
• 2:02
  Speaker 2: I found, maybe more striking than the content, was just
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  Speaker 2: how many different people seemed to have noticed it in
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  Speaker 2: the two weeks after it was delivered. A Scottish trade unionist,
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  Speaker 2: a London investment fund manager, and a colleague in Singapore
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  Speaker 2: all spontaneously mentioned it to me and my sister. That
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  Speaker 2: doesn't happen very often. So I was interested in what
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  Speaker 2: Mike Frohman thought of it, whether he was worried about
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  Speaker 2: where all this talk of decoupling in the global economy,
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  Speaker 2: active trade and industrial policies might lead our conversation. You'll
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  Speaker 2: hear in a little bit, but we're not all talk
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  Speaker 2: on Stephanomic, So no, we go out to see for ourselves,
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  Speaker 2: or at least my hard working Bloomberg colleagues too. In
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  Speaker 2: this case, our economic state craft expert Brendan Murray went
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  Speaker 2: to Tangier because if the world is decoupling, if globalization
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  Speaker 2: really is going into reverse, someone forgot to tell the Moroccans.
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  Speaker 4: The first thing you notice inside the Renault factory, where
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  Speaker 4: some of Europe's most popular car models are built, is
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  Speaker 4: the noise, the buzzing of pneumatic drills, the stamping of
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  Speaker 4: sheet metal, the constant humming of conveyor belts. Then you
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  Speaker 4: notice the hundreds of young women and men operating the machines.
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  Speaker 4: This production line assembles more than a thousand cars a day.
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  Speaker 4: About eight thousand people work in the sprawling facility. It's
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  Speaker 4: in a region of Morocco about ninety minutes south of
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  Speaker 4: Spain by Ferry. It's all part of the French automaker's
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  Speaker 4: strategy to develop a local auto industry with global reach.
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  Speaker 4: From this northwestern corner of Africa, where no communications manager
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  Speaker 4: Lamerbourdain takes me on a tour, are.
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  Speaker 5: In the assembly departments will reassemble more than one thousand,
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  Speaker 5: fourteen hundred pieces Flaura It's car.
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  Speaker 4: The Renault plant has two production lines, each running six
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  Speaker 4: days a week to meet demand.
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  Speaker 6: So all the the site can produce sixty sixty cars.
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  Speaker 4: Prou Yeah, but globalization is under threat. Here's US Treasury
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  Speaker 4: Secretary Janet Yellen speaking at an event held by the
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  Speaker 4: Atlantic Council, where she introduced the idea of friendshoring, where
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  Speaker 4: rivals like the US and China try to find more
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  Speaker 4: reliable trading partners.
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  Speaker 7: Let's build on and deepen economic integration and the efficiencies
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  Speaker 7: it brings on terms that work there for American workers,
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  Speaker 7: and let's do it with the countries we know we
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  Speaker 7: can count on favoring the fringe shoring of supply chains
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  Speaker 7: to a large number of trusted countries.
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  Speaker 4: So I wondered, how does this nation of thirty seven
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  Speaker 4: million people feel about its future after spending so much
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  Speaker 4: time and so much money becoming an international hub for
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  Speaker 4: trade and manufacturing. I spent a few days touring the
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  Speaker 4: Tangier region that's where much of the government's efforts are concentrated.
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  Speaker 4: What I found was international commerce forging ahead, an oasis
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  Speaker 4: from the protectionism, the geopolitical rivalries, and none of the
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  Speaker 4: talk of unraveling a world stched together by trade.
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  Speaker 5: So, as I said, we're pretty diverse.
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  Speaker 4: First, I went to an American company called poly Design Systems.
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  Speaker 4: It's an auto supplier that produces parts like sunvisors, headrests
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  Speaker 4: and center consoles in the Tangier Free Zone. The general manager,
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  Speaker 4: Julian Furman, showed me around. It's really a bustling place.
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  Speaker 2: Yeah, it is.
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  Speaker 4: As we toured Furman's facility, which has grown from fifty
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  Speaker 4: employees twenty years ago to sixteen hundred today, it was
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  Speaker 4: hard to fathom untangling the company's global interconnectedness. Moroccan workers
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  Speaker 4: here are rating Swiss or German or Italian built machines.
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  Speaker 4: Some newly stitched steering wheels were being shipped off to Portugal.
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  Speaker 4: Other parts were headed to Morocco based customers like Stilanties
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  Speaker 4: or Renault, or further afield to Jaguar, Range, Rover or Volvo.
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  Speaker 4: All told, the company's reach extends to twenty six countries.
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  Speaker 4: Inner office, Furman described an environment in Morocco or Chinese companies,
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  Speaker 4: Indian companies and even Russian businesses operate alongside their European
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  Speaker 4: and American rivals oblivious to the friends shoring talk from
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  Speaker 4: politicians in Washington or Brussels.
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  Speaker 5: I mean, you don't have any of this type of
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  Speaker 5: political discussion or tension. But we're all kind of just
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  Speaker 5: doing our business and shipping our parts.
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  Speaker 4: To attract foreign investment, Morocco has several enterprise zones within
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  Speaker 4: an hour's drive from the northern city of Tangier that
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  Speaker 4: offer incentives for foreign investors like tax breaks, construction deals
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  Speaker 4: and streamline paperwork. In one of these zones, called Tangier
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  Speaker 4: Automotive City, tractor trailers are everywhere shuttling loads between companies
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  Speaker 4: like Michigan based Lear Corporation, Chinese cable producer ZTT, and
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  Speaker 4: car component makers from Italy, India, Germany, Japan and Spain.
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  Speaker 4: I spoke with Ahmed Bennis, who oversees the Tangier med Zones.
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  Speaker 6: Tanja MAD Zone started its activity in two thousand and
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  Speaker 6: we host today more than one thousand, two hundred multinational
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  Speaker 6: companies in a total footprint of five thousand hecto that
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  Speaker 6: has been dedicated to the development of these special economic
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  Speaker 6: zones and those industrial facilities. Two five hundred hectails have
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  Speaker 6: been already developed, the the remainment footprints and the development
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  Speaker 6: and will be developed in the next one hundred tenure.
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  Speaker 4: None of Morocco's industrial development would be possible with out
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  Speaker 4: the expansion of its biggest container port, called Tangier Med.
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  Speaker 4: It's become one of the world's most connected gateways for
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  Speaker 4: global markets and ranks fourth overall in the World Bank's
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  Speaker 4: Port Performance Index, well ahead of even Singapore or Hong Kong.
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  Speaker 4: The Danish shipping line Marisk has invested more than a
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  Speaker 4: billion euros in its terminals. So I spoke with the
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  Speaker 4: CEO of the Tangier Med Special Agency, Medi Tazi. He
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  Speaker 4: oversees the region and explained to me how the whole
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  Speaker 4: ecosystem aims to boost the nation's economy with foreign capital
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  Speaker 4: and ultimately good paying jobs.
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  Speaker 8: The entire Moroccan import export flows through the Tangermin port
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  Speaker 8: that's on the port side, now on the industrial class platform. Obviously,
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  Speaker 8: the direct impacts from rock and economy are the contribution
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  Speaker 8: to GDP and jobs. We have no stopped nineteen thousand
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  Speaker 8: jobs and that by.
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  Speaker 9: Itself is of course it breaks through its industry. Suving
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  Speaker 9: service is not in tourism.
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  Speaker 8: This is pure.
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  Speaker 4: Industrial along with success have come strains on one of
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  Speaker 4: Morocco's biggest resources and selling points, a young and eager workforce.
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  Speaker 4: In Morocco, the average age is twenty nine years old.
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  Speaker 4: That's on par with Mexico and India, but in Japan
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  Speaker 4: and Germany it's in the high forties, and Eastern Europe
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  Speaker 4: the average ages in the low forties, and in the
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  Speaker 4: US it's thirty nine. Even with all the industry jobs,
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  Speaker 4: youth unemployment hovers around twenty five percent according to the
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  Speaker 4: World Bank, and the jobless rate countrywide was almost thirteen
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  Speaker 4: percent in the first quarter. Morocco's public transportation also needs help.
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  Speaker 4: Each day at Renault, for example, some one hundred and
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  Speaker 4: fifty packed shuttle buses bring workers to and from their
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  Speaker 4: shifts at the assembly plant, adding traffic on the roads,
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  Speaker 4: pollution in the air, and trip commutes of two hours
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  Speaker 4: each day for many of them. So more affordable housing
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  Speaker 4: is needed near the industrial zones. The economy could benefit
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  Speaker 4: too from more women participating in the labor force. Here's
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  Speaker 4: World Bank economists Fredrika Marso clearly you know that.
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  Speaker 9: The short answer to your question is like no.
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  Speaker 8: Currently the labor market doesn't seem in great shape.
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  Speaker 9: To pick up this challenge.
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  Speaker 7: It is one of the priorities in the new development model,
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  Speaker 7: and so the government is trying to start us to
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  Speaker 7: solve the.
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  Speaker 9: Puzzle in a cell.
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  Speaker 4: Companies in Morocco also need help shifting away from fossil
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  Speaker 4: fuels for their energy needs or risk losing business to
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  Speaker 4: jurisdictions that can do it faster. Here's Julianne Furman again
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  Speaker 4: from Polly.
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  Speaker 5: Design on that note. There needs to be movement and
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  Speaker 5: very very quickly.
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  Speaker 2: It should be feasible.
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  Speaker 5: You probably see all the press information on renewable energies,
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  Speaker 5: whether it's solar, wind or green hydrogen, but I think
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  Speaker 5: we need to move much more quickly or we're going
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  Speaker 5: to lose our competitiveness. From poly design standpoint, is something
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  Speaker 5: that I want to use as a competitive advantage against
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  Speaker 5: our competitors. But it's going to be difficult because our
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  Speaker 5: competitors are in Europe, mostly Eastern Europe. They receive help
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  Speaker 5: in financing from the European organizations and they're moving very
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  Speaker 5: quickly and it could very easily freeze out Morocco.
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  Speaker 4: After a few days traveling around Tangier, med a couple
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  Speaker 4: of things were clear. Morocco's fast growth has stretched the
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  Speaker 4: local workforce and businesses need more tools to adapt to
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  Speaker 4: climate change. But it's also a place where US, Chinese,
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  Speaker 4: Spanish or Indian companies are coexisting, competing, and even collaborating.
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  Speaker 4: Here in Morocco, they haven't turned inward like many other
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  Speaker 4: countries have when it comes to trade, but are banking
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  Speaker 4: on globalization to throw I've been to the future, so
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  Speaker 4: their economy can too. From Northern Morocco, I'm Brendan Murray
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  Speaker 4: for Bloomberg News.
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  Speaker 2: Now I'm very pleased to talk about some of these
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  Speaker 2: shifting currents for global trade and economic policy that Brendan
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  Speaker 2: mentioned there with someone who has witnessed close hand the
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  Speaker 2: machinations of international economic policy in his various incarnations, Michael Frohman.
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  Speaker 2: We both work together, as it happens, in the Clinton
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  Speaker 2: Treasury a long time ago, in the late nineteen nineties.
• 12:32
  Speaker 2: Then I slunk back to journalism, but he went on
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  Speaker 2: to be Deputy National Security Advisor and then US Trade
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  Speaker 2: Representative under President Obama. He's been until very recently a
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  Speaker 2: vice chairman at MasterCard, but in a few weeks he
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  Speaker 2: will be taking over what I think one would say
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  Speaker 2: was America's most illustrious foreign policy think tank, the Council
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  Speaker 2: on Foreign Relations. Mike, thanks very much for doing this.
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  Speaker 2: I don't have to quite call you mister President yet.
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  Speaker 9: Thanks for having me. It's good to see you.
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  Speaker 2: We've got lots to talk about, but I wanted first
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  Speaker 2: to ask you about that speech that National Security Advisor
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  Speaker 2: Jake Sullivan made a few weeks ago at the Brookings
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  Speaker 2: Institution in Washington. It's a speech that seems to have
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  Speaker 2: been heard around the world, or at least in some
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  Speaker 2: surprising corners of it, and I think that's perhaps because
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  Speaker 2: it seemed to capture quite how much has changed in
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  Speaker 2: US thinking about international economic policy since the years of
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  Speaker 2: President Clinton or Obama. So what did you think about it?
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  Speaker 1: Well, first of all, I thought was really a quite
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  Speaker 1: artful speech, and I think I agree with much of it.
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  Speaker 1: I think for those of us who've been involved in trade,
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  Speaker 1: we've often made the point that trade policy can't exist
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  Speaker 1: in a vacuum, that trade policy needs to be paired
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  Speaker 1: with robust domestic economic policy, because we all know that
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  Speaker 1: the benefits of trade are broadly shared, but the negative
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  Speaker 1: impact or the dislocations that come with trade, or can
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  Speaker 1: come with trade, are more acutely felt, and one of
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  Speaker 1: the challenges in the United States has been that we've
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  Speaker 1: rarely had the consensus necessary to pair trade policy with
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  Speaker 1: some sort of meaningful domestic policy to address those challenges.
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  Speaker 1: I think what the National Security Advisor Jake Sullivan did
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  Speaker 1: was lay out the Biden doctrine on this issue, which
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  Speaker 1: is that very much we have to focus initially on
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  Speaker 1: investing in our own country, making sure that we are
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  Speaker 1: in this case using industrial policy and innovation to help
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  Speaker 1: drive leadership and key technologies, help continue to support good
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  Speaker 1: middle class jobs, manufacturing jobs, and not be focused on
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  Speaker 1: He somewhat characterized his trade policy as being only about
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  Speaker 1: tariffs but not be focused solely on terror production as
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  Speaker 1: the and end all, and that I.
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  Speaker 9: Entirely agree with.
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  Speaker 1: I think it does show an evolution, particularly with regard
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  Speaker 1: to how we're thinking about domestic policy in the United States.
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  Speaker 1: Industrial policy has never been has not been popular until
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  Speaker 1: recently in the United States. We've not had great experience
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  Speaker 1: with it in the past. But what's been going on
• 15:19
  Speaker 1: between the Infrastructure Bill, the Chips Act, and the IRA
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  Speaker 1: with regard to clean energy technologies, I think is a
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  Speaker 1: fundamental shift, and we're seeing some quite significant progress early
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  Speaker 1: days still in those areas, and I think that's an
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  Speaker 1: important pillar of being able to also engage in international
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  Speaker 1: economic policy.
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  Speaker 2: Well, it's interesting, and you mentioned at the start sort
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  Speaker 2: of the fact that trade policy you couldn't exist sort
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  Speaker 2: of in a vacuum. And there's a very striking phrase
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  Speaker 2: in the speech, which is, you know, the postulate that
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  Speaker 2: deep trade liberalization would help America export goods, not jobs
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  Speaker 2: and capacity was a promise made and not kept. I mean,
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  Speaker 2: that's quite an indictment that saying, you know that the
• 16:02
  Speaker 2: promise that was made to people in signing up to
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  Speaker 2: this these trade deals was just not kept.
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  Speaker 1: So I think there's always the risk that trade deals
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  Speaker 1: are over sold. I'm not sure I agree completely with
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  Speaker 1: that assessment. The US has relatively low tariffs. It's an
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  Speaker 1: average tariff about two point four percent, so much lower
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  Speaker 1: than the global average, much lower than most of our
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  Speaker 1: trading partners, which means when we engage in a trade negotiation,
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  Speaker 1: they are reducing tariffs far more than we are, which
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  Speaker 1: at least theoretically should help us promote our exports to
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  Speaker 1: that country. It's reducing a barrier they already have effectively,
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  Speaker 1: they already have access to our market and we are
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  Speaker 1: now getting access to their market. And the fact that
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  Speaker 1: our exports continue to grow, both in services and in goods,
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  Speaker 1: I think is a testament to that. What Jake also
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  Speaker 1: refers to as the China Shock in the paper, and
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  Speaker 1: the impact that the China Shock had on the United
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  Speaker 1: States manufacturing sector. That wasn't the result of some FTA.
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  Speaker 1: We weren't giving China preferred access to our market. It
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  Speaker 1: was the fact that they were a low cost producer
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  Speaker 1: that American companies decided to move their production there in
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  Speaker 1: the late nineteen nineties and early two thousands, and that
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  Speaker 1: had a very significant impact on the US manufacturing center.
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  Speaker 1: That cannot be denied. But that's a separate issue from
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  Speaker 1: trade liberalization or FTAs per se.
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  Speaker 2: And I guess we should talk about that sort of
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  Speaker 2: broader premise underlying a lot of the international economic policy,
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  Speaker 2: certainly in the Clinton White House and to some extent
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  Speaker 2: Obama as well. Jake Sullivan refers to it. He says
• 17:47
  Speaker 2: much of the international economic policy of the last few
• 17:50
  Speaker 2: decades had relied upon the premise that economic integration would
• 17:54
  Speaker 2: make nations more responsible and open, and the global order
• 17:58
  Speaker 2: would be more peaceful and cooperate. If bringing countries into
• 18:01
  Speaker 2: the rule based order would incentivize them to adhere to
• 18:04
  Speaker 2: its rules. It didn't turn out that way. There was
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  Speaker 2: this basic view that bringing the world closer together, having
• 18:10
  Speaker 2: closer economic integration, would sort of make countries better, and
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  Speaker 2: that's turned out to be wrong. Do you agree that
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  Speaker 2: that's turned out to be a mistake.
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  Speaker 1: I think it's hard to argue the counterfactual here because
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  Speaker 1: certainly as more let's leave China to the side for
• 18:29
  Speaker 1: one moment, we'll come back to it.
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  Speaker 9: But if we look at the rest of the.
• 18:32
  Speaker 1: World, as they became integrated with the open they opened up,
• 18:35
  Speaker 1: they became integrated with each other, regionally, they became integrated
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  Speaker 1: with the global trading system. Most countries I adhere to
• 18:44
  Speaker 1: most rules most of the time. It's never a perfect record,
• 18:49
  Speaker 1: but I think we've seen in general a relatively robust
• 18:53
  Speaker 1: rules based trading system. Now China. China is a different
• 18:57
  Speaker 1: case because it did come in under the rules of
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  Speaker 1: the w T at the time, and frankly.
• 19:02
  Speaker 9: The rules that were negotiated at the.
• 19:04
  Speaker 1: Uraguay Round on state owned enterprises, on subsidies, on non
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  Speaker 1: market economies did not fully take into account the nature
• 19:13
  Speaker 1: of the challenge that China would end up posing to
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  Speaker 1: the global trading system, and when people talk about multilateral
• 19:19
  Speaker 1: trade reform or wto reform, these are the issues that
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  Speaker 1: need to be looked at, because clearly the multilateral system
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  Speaker 1: was not up to the bar that it needed to
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  Speaker 1: be to deal with the challenge that the China posed,
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  Speaker 1: an economy that big, that integrated with the rest of
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  Speaker 1: the world, operating in some respects on a very different
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  Speaker 1: set of rules and business models, and that has been
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  Speaker 1: that has been the challenge. But to say that all
• 19:44
  Speaker 1: of that you know that the rules based system never
• 19:47
  Speaker 1: really worked, I think that is probably an overstatement. And
• 19:50
  Speaker 1: what we don't know, even with regard to China is
• 19:53
  Speaker 1: if they had not been part of the global trading system,
• 19:56
  Speaker 1: what kinds of policies would they have pursued, whether they
• 19:59
  Speaker 1: have been more protectionists that I was struck at one point, Stephanie,
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  Speaker 1: as you may recall, I was the G twenty shirtpap
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  Speaker 1: and I remember various G twenty summits, and each G
• 20:09
  Speaker 1: twenty summit is right after the financial crisis, there was
• 20:12
  Speaker 1: a statement in the communicate that said we stand against
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  Speaker 1: trade protectionism, and we'll roll it back where it exists.
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  Speaker 9: G twenty is not a legal institution.
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  Speaker 1: There's no implication, no ramifications if you violate a statement
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  Speaker 1: in a leader's communicate from the G twenty. And yet
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  Speaker 1: I remember summits where leaders fought to the end on
• 20:36
  Speaker 1: that point because they did not want to be criticized
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  Speaker 1: for taking protectionist measures.
• 20:40
  Speaker 9: So the rules based system does have.
• 20:43
  Speaker 1: This effect, whether it's fully enforceable in the way that
• 20:46
  Speaker 1: we like it or not, on constraining government behavior. And again,
• 20:52
  Speaker 1: without it, we don't know how much worse things would
• 20:54
  Speaker 1: have been.
• 20:55
  Speaker 2: Okay, But just to take that point, because it feels
• 20:59
  Speaker 2: like it is just China, there's a lot of countries
• 21:02
  Speaker 2: that have ended up kind of rejecting some of the
• 21:06
  Speaker 2: models represented by the G twenty, whether it's Russia or
• 21:10
  Speaker 2: the UAE or even India on occasions, you know, have
• 21:13
  Speaker 2: wanted to go their own way. And I guess you
• 21:16
  Speaker 2: know when you think about those discussions in the G twenty.
• 21:21
  Speaker 2: The G twenty itself was based on an idea that
• 21:24
  Speaker 2: you could separate. You could have kind of very different
• 21:26
  Speaker 2: political values sitting around the table, very different political systems.
• 21:30
  Speaker 2: You could part that outside the door and still have
• 21:33
  Speaker 2: a useful conversation and a useful goal of moving towards
• 21:38
  Speaker 2: economic rules, and you know, you could move the economy forward,
• 21:41
  Speaker 2: move economic policy forward, and kind of part the politics
• 21:44
  Speaker 2: outside the door just doesn't feel like that, if it
• 21:49
  Speaker 2: was ever possible, doesn't feel like that's possible now. And
• 21:51
  Speaker 2: certainly even the G twenty can't agree on anything as
• 21:53
  Speaker 2: long as Russia's invaded Ukraine.
• 21:56
  Speaker 1: Well, look, I think the G twenty was at its
• 21:58
  Speaker 1: best in that period of eight oh nine twenty ten
• 22:03
  Speaker 1: in dealing with the global financial crisis, and to your point,
• 22:08
  Speaker 1: countries were able to park their politics on the outside
• 22:10
  Speaker 1: and cooperate with each other to deal with a global crisis.
• 22:15
  Speaker 1: As the agenda of the G twenty evolved over time,
• 22:18
  Speaker 1: it was never meant to be a foreign policy forum
• 22:22
  Speaker 1: to deal with issues like war and peace in Ukraine
• 22:28
  Speaker 1: and even the even some of the other economic issues
• 22:32
  Speaker 1: where we do not have consensus, including with China over
• 22:35
  Speaker 1: the WTO or over global rules. It does certainly have
• 22:39
  Speaker 1: its limitations, and I think that's why countries have opted
• 22:44
  Speaker 1: for pursuing coalitions of the willing, coalitions of the ambitious
• 22:48
  Speaker 1: regional agreements, sexual agreements.
• 22:51
  Speaker 9: Friends, shoring near shoring. They've sort of pursued.
• 22:55
  Speaker 1: Things outside the wto outside those frameworks because those frameworks
• 23:00
  Speaker 1: have proven to be somewhat limited in their capacity to
• 23:03
  Speaker 1: really develop a meaningful consensus.
• 23:06
  Speaker 2: One more thing, going back to the speech, and then
• 23:08
  Speaker 2: I just want to have a couple of questions about
• 23:10
  Speaker 2: the future. I mean Frank four who has written quite
• 23:13
  Speaker 2: sort of elegantly about it in Atlantic he said, the
• 23:15
  Speaker 2: Biden administration is doing nothing less than rejecting the economic
• 23:19
  Speaker 2: orthodoxy of the past fifty years and proposing a new
• 23:22
  Speaker 2: theory of capitalism. Do you think that's right, even allowing
• 23:26
  Speaker 2: for a little bit of journalistic embellishment, I think.
• 23:30
  Speaker 9: That goes a bit far. If you look at what.
• 23:34
  Speaker 1: The administration is doing, for example, on the Indo Pacific
• 23:37
  Speaker 1: Economic Framework, they are taking a series of issues that
• 23:42
  Speaker 1: are meaningful. There's significant issues, things around supply change, things
• 23:46
  Speaker 1: around digital trade and working with other countries. I think
• 23:51
  Speaker 1: they've got fourteen other countries there fifteen other countries now
• 23:54
  Speaker 1: around the table to try and come up with rules.
• 23:58
  Speaker 9: I think Jake is right his speech that.
• 24:01
  Speaker 1: Oftentimes too much attention is paid to tariffs, as the
• 24:04
  Speaker 1: boll And end all of trade policy. But that was
• 24:08
  Speaker 1: also a little bit of a caricature. If you notice
• 24:10
  Speaker 1: in his speech he talks about the nineteen nineties and
• 24:13
  Speaker 1: then he talks about the twenty twenties, there's conveniently a
• 24:17
  Speaker 1: twenty year gap.
• 24:19
  Speaker 2: It's like the gap in the during which time you
• 24:21
  Speaker 2: were in charge of trade policy.
• 24:22
  Speaker 1: I'm just saying the Bush administration and the Obama administration.
• 24:27
  Speaker 1: It was two thousand and seven when Sandy Levin and
• 24:31
  Speaker 1: the House Democrats negotiated with the Bush administration a series
• 24:34
  Speaker 1: of agreements about how labored environment should be included in
• 24:38
  Speaker 1: trade agreements, and certainly the trade agreements that we pursued
• 24:41
  Speaker 1: during the Obama administration that was finalizing Korea, Columbia and
• 24:49
  Speaker 1: Panama or TPP or t TIP, they were not fundamentally
• 24:54
  Speaker 1: or only about tariffs. They were about rules on labor,
• 24:58
  Speaker 1: on environment, on standards, on new issues like digital economy,
• 25:04
  Speaker 1: and so I think there's been an evolution in how
• 25:07
  Speaker 1: people think about this. It's the teriff production that gets
• 25:11
  Speaker 1: the most attention, and it's the most sensitive because it
• 25:14
  Speaker 1: affects goods and therefore manufacturing as well as of course agriculture.
• 25:19
  Speaker 9: But the trade agreements.
• 25:21
  Speaker 1: For some time have been broader, and in fact, I
• 25:24
  Speaker 1: think our approach has been quite explicitly to use trade
• 25:28
  Speaker 1: and trade agreements to get other things done, use the
• 25:32
  Speaker 1: power of market access to get countries to raise their
• 25:35
  Speaker 1: labor standards, or use the power of tariffs to enforce
• 25:40
  Speaker 1: environmental agreements that were not otherwise enforceable, like the Convention
• 25:45
  Speaker 1: on in their National Trade and the Dangerous Species. So
• 25:48
  Speaker 1: I think the trading system has gone through a bit
• 25:50
  Speaker 1: of an evolution. I think it went further during the
• 25:52
  Speaker 1: Trump administration when it came to labor rights enforcement, and
• 25:56
  Speaker 1: we see that with Mexico, and I think that's been
• 25:58
  Speaker 1: a healthy step in that direction. The question for the
• 26:00
  Speaker 1: Biden administration to go to Frankfort's argument is not so
• 26:06
  Speaker 1: much it's a new theory of capitalism, but can we
• 26:11
  Speaker 1: pursue a robust economic engagement and leadership agenda that doesn't
• 26:16
  Speaker 1: have terror production at its core? And I think the
• 26:19
  Speaker 1: answer is potentially yes. It just means you need to
• 26:21
  Speaker 1: flesh out the rest of the tree there and make
• 26:24
  Speaker 1: sure that there are things that help bring the countries.
• 26:27
  Speaker 9: To the table.
• 26:27
  Speaker 1: And at a time, particularly in the Asia Pacific, when
• 26:30
  Speaker 1: there's a desire by our allies and our partners at
• 26:34
  Speaker 1: the US be engaged shows leadership. There's a desire to
• 26:37
  Speaker 1: have that opportunity to work with the US on issues
• 26:41
  Speaker 1: as a counterbalance to China's natural dominance in that region.
• 26:46
  Speaker 1: And so that's I think the great challenge and the
• 26:50
  Speaker 1: great opportunity for the Biden administration.
• 26:58
  Speaker 2: So if you will US representative, now, what is your job?
• 27:02
  Speaker 2: I mean, you're not doing the President Biden has suggested
• 27:05
  Speaker 2: anyway that free trade agreements are not really you know,
• 27:08
  Speaker 2: they're kind of old fashioned tool. I think he said,
• 27:11
  Speaker 2: we certainly don't have a great lot of energy around
• 27:13
  Speaker 2: the world trading WTA World Trade Organization anymore. So what's
• 27:18
  Speaker 2: your job now?
• 27:18
  Speaker 1: If you're a USTR I think you work quite innovatively
• 27:22
  Speaker 1: with like minded countries and like minded broadly defined. We
• 27:26
  Speaker 1: don't have to agree on everything. Doesn't all have to
• 27:29
  Speaker 1: be democracies. I mean, there can be a wide range
• 27:32
  Speaker 1: of countries. I think inside the tent, you know, on
• 27:35
  Speaker 1: concrete ways to address common international economic issues. So supply
• 27:41
  Speaker 1: chain resilience, making sure that there's redundancy and diversification and
• 27:47
  Speaker 1: security in our supply chains, access to critical minerals and
• 27:52
  Speaker 1: critical materials, cooperation in R and D around the most
• 27:55
  Speaker 1: important technologies, rules around the digital economy. We're all every
• 28:01
  Speaker 1: country's wrestling with this, the most recent issue being AI.
• 28:04
  Speaker 9: But even before you know, chat GPT hit our.
• 28:08
  Speaker 1: Screens, we were dealing with issues around data and how
• 28:12
  Speaker 1: should data be protected and treated? And privacy issues, data
• 28:15
  Speaker 1: localization requirements. What kind of effect does that have on
• 28:18
  Speaker 1: the business models? How do countries and governments benefit, how
• 28:22
  Speaker 1: do individuals benefits? So lots and lots of issues like
• 28:25
  Speaker 1: that that governments really do need to work together on,
• 28:30
  Speaker 1: otherwise we're going to have really a balkanization of rules.
• 28:34
  Speaker 2: I was going to ask you what you thought the
• 28:36
  Speaker 2: risks were if you have this kind of robust approach
• 28:39
  Speaker 2: to industrial policy and a slightly more nuanced approach to
• 28:43
  Speaker 2: international trade policy, you know what are the risks? I mean,
• 28:47
  Speaker 2: I get. What I wonder about is just the number
• 28:50
  Speaker 2: of politicians now all around the world thinking great, I'm
• 28:53
  Speaker 2: allowed to get my hands on all the strategic industries.
• 28:56
  Speaker 2: I can just say I'm doing industrial policy just like
• 28:59
  Speaker 2: the Vibe Biden administration.
• 29:01
  Speaker 1: Well, there is a bit of an irony here that
• 29:03
  Speaker 1: when China joined the WTO, I think there was a
• 29:08
  Speaker 1: view that over time they would become more like us.
• 29:11
  Speaker 1: And I think the reality is we have become more
• 29:14
  Speaker 1: like them, and so we're now following their lead on
• 29:17
  Speaker 1: industrial policy, on protectionism, on a variety of measures, restraints
• 29:24
  Speaker 1: on for an investment and the like. That's just the reality.
• 29:27
  Speaker 1: I think of feeling as though since they weren't becoming
• 29:29
  Speaker 1: more like us, that it was on level playing field.
• 29:33
  Speaker 1: And this is since we have very little control over
• 29:36
  Speaker 1: what they do, we only have control over what we
• 29:38
  Speaker 1: could do, and that this is what this is what we.
• 29:40
  Speaker 9: Need to do.
• 29:41
  Speaker 1: Look today, actually, the Council of Correlations Foreign Affairs magazine
• 29:48
  Speaker 1: just published an article this morning by the Director General
• 29:51
  Speaker 1: of the WTO and Gozi Konjouela called why the World
• 29:56
  Speaker 1: still needs trade? And I think the risk you a
• 30:00
  Speaker 1: about the risk, I think the real risk is what
• 30:01
  Speaker 1: she cites, which is that trade has been the driver
• 30:06
  Speaker 1: of poverty alleviation for the last several decades, has helped
• 30:11
  Speaker 1: lift one of the factors that has helped lift hundreds
• 30:14
  Speaker 1: of millions, if not over a billion, people out of
• 30:16
  Speaker 1: abject poverty. And we've seen tremendous progress both on abject
• 30:21
  Speaker 1: poverty but also on all sorts of other human development
• 30:24
  Speaker 1: indicators because of growth, and growth needs to be more inclusive.
• 30:29
  Speaker 1: We need to make sure that people are benefiting from
• 30:31
  Speaker 1: it broadly. But we've seen backsliding with the pandemic, with
• 30:38
  Speaker 1: countries pulling apart. I think the biggest risk going forward
• 30:41
  Speaker 1: is that in fact trade does not contribute as much
• 30:45
  Speaker 1: to that kind of positive economic development, and that we
• 30:49
  Speaker 1: see more people falling into poverty.
• 30:53
  Speaker 2: And do you think countries like Morocco will ultimately have
• 30:56
  Speaker 2: to pick sides?
• 30:57
  Speaker 9: You know, I.
• 30:59
  Speaker 5: Don't.
• 31:00
  Speaker 9: I don't think so.
• 31:01
  Speaker 1: I mean, I think I think the issue of decoupling
• 31:05
  Speaker 1: and pulling apart to two great blocks. I think that's
• 31:09
  Speaker 1: again a bit overstated. I think we're going to find
• 31:12
  Speaker 1: where there's de risking or even a bit of decoupling,
• 31:15
  Speaker 1: it's over a very limited set of technologies, not broadly.
• 31:20
  Speaker 9: We're trading more.
• 31:20
  Speaker 1: The US and China are trading more, and Jake says
• 31:22
  Speaker 1: is in a speech, we're trading more with each other
• 31:25
  Speaker 1: now than we ever have. You know, despite the protectionism,
• 31:27
  Speaker 1: despite the tariffs, despite the tensions in the relationship, our
• 31:31
  Speaker 1: bioloedal relationship is economic relationship is deeper and broader than
• 31:36
  Speaker 1: it's ever been, and so I don't think countries like
• 31:41
  Speaker 1: Morocco are going to have to pick size one or
• 31:44
  Speaker 1: the other, with the exception of some very discrete technologies,
• 31:49
  Speaker 1: whether it's in the telecom area, semiconductors, or you know,
• 31:53
  Speaker 1: maybe in some of the clean energy technologies, and you know,
• 31:58
  Speaker 1: I think we need to make it attractive for them
• 32:01
  Speaker 1: to pick our side. I think one of the challenges
• 32:04
  Speaker 1: we have is in Washington right now there is a
• 32:08
  Speaker 1: robust bipartisan consensus on the nature of the China problem.
• 32:13
  Speaker 1: There is less serious thought and consensus going into where
• 32:18
  Speaker 1: do we want this relationship to go in the future,
• 32:20
  Speaker 1: What is the new equilibrium that we want to establish
• 32:24
  Speaker 1: with China? And that's important not just so that we
• 32:26
  Speaker 1: know where we're going ourselves, but I think in our
• 32:29
  Speaker 1: conversations with Europeans with third countries, they don't want to
• 32:35
  Speaker 1: be put in this position of having to choose, and
• 32:38
  Speaker 1: they understand and in many respects share our concerns about China,
• 32:43
  Speaker 1: but they haven't yet seen what our vision is for
• 32:46
  Speaker 1: the future.
• 32:47
  Speaker 2: Of course, the other question in their minds is who's
• 32:49
  Speaker 2: going to win the next election. So what in this
• 32:53
  Speaker 2: approach that we've talked about for the last twenty minutes
• 32:56
  Speaker 2: or so changes if there's a Republican president from January
• 33:01
  Speaker 2: twenty twenty five. Stepping back from who it might.
• 33:03
  Speaker 1: Be, look, I think one thing that the Biden administration
• 33:07
  Speaker 1: has demonstrated is that there's a fair degree of continuity
• 33:11
  Speaker 1: between one administration and the next when it comes to
• 33:15
  Speaker 1: the diagnosis of the problem and even even some of
• 33:20
  Speaker 1: the responses. So the Biden administration has embraced the US
• 33:25
  Speaker 1: Mexico Canada Agreement and the labor provisions of that. Of course,
• 33:30
  Speaker 1: I mean it's a good agreement. My guess is a
• 33:34
  Speaker 1: future administration would continue to embrace some of the industrial
• 33:37
  Speaker 1: policy that the Biden administration has launched, the investment in chips,
• 33:42
  Speaker 1: in infrastructure, in electric vehicles, and the supply chain around
• 33:46
  Speaker 1: electric vehicles. So I think there's just a lot of
• 33:49
  Speaker 1: continuity at this point on these questions.
• 33:52
  Speaker 2: The final question, in a couple of weeks time, you're
• 33:54
  Speaker 2: going to be a few weeks time, you're going to
• 33:56
  Speaker 2: be taking over the reins at this as I said,
• 33:58
  Speaker 2: very illustrious institution. I think in some ways one might
• 34:01
  Speaker 2: think what the Council and Foreign Relations is most focused
• 34:04
  Speaker 2: on is what the at least the elite global conversation
• 34:08
  Speaker 2: is going to be about in the next few years,
• 34:10
  Speaker 2: where do you think where do you think you're going
• 34:12
  Speaker 2: to be putting more resources and sending more people to
• 34:17
  Speaker 2: think about at the Council.
• 34:19
  Speaker 1: Well, look, I think we've got the return of geopolitics
• 34:24
  Speaker 1: and war in Europe, which of course has to be
• 34:29
  Speaker 1: a major focus. We've got the rise of China and
• 34:32
  Speaker 1: the whole management of strategic competition. I think that's an
• 34:35
  Speaker 1: area that we'll need a lot of focus. And then
• 34:37
  Speaker 1: I think the whole area around technology and foreign policy,
• 34:41
  Speaker 1: technology and national security. I think we're just beginning to
• 34:44
  Speaker 1: scratch the surface in terms of what impact AI quants
• 34:48
  Speaker 1: of computing, synthetic biology, other new innovations in the technology
• 34:53
  Speaker 1: and science area are having or could have on international relations,
• 34:58
  Speaker 1: on global governance in the life.
• 35:00
  Speaker 2: So if you're good on those things, get your resumes
• 35:03
  Speaker 2: into the Council form relations in the next few weeks.
• 35:05
  Speaker 2: Michael Freeman, thank you.
• 35:06
  Speaker 9: Very much, thanks for having me.
• 35:14
  Speaker 2: Well that's it for this episode of Stephanomics. Next week
• 35:16
  Speaker 2: we'll have more, But in the meantime you can get
• 35:19
  Speaker 2: all your economic insight and news from the Bloomberg terminal
• 35:22
  Speaker 2: website or app. This episode was produced by Magnus Henrickson,
• 35:26
  Speaker 2: Yang Yang and Samma Sadi, with help from Moses and
• 35:30
  Speaker 2: special thanks to Brendan Murray and Michael Froehman. The executive
• 35:34
  Speaker 2: producer of Stephanomics is Molly Smith and the head of
• 35:37
  Speaker 2: Bloomberg Podcast is Sage Bowman.