WEBVTT - Trade Wars 0:00:15.396 --> 0:00:22.676 Pushkin from Pushkin Industries. This is Deep Background, the show 0:00:22.716 --> 0:00:25.716 where we explored the stories behind the stories in the news. 0:00:26.116 --> 0:00:30.956 I'm Noah Feldman. Welcome to this week's show, where we're 0:00:30.956 --> 0:00:33.476 going to take on the looming question of our time, 0:00:34.036 --> 0:00:38.156 trade wars. Almost no topic has been more prevalent in 0:00:38.196 --> 0:00:42.236 our public discourse since Donald Trump was elected in twenty sixteen. 0:00:42.796 --> 0:00:45.596 We've seen trade wars threatened, We've seen us pull back 0:00:45.676 --> 0:00:48.636 from trade wars, and now we seem to be back 0:00:48.676 --> 0:00:52.516 in the game again. To discuss this crucial and all 0:00:52.516 --> 0:00:55.916 important topic, I decided to turn to the person whom 0:00:55.956 --> 0:00:59.276 I learned everything that I know about trade from my 0:00:59.396 --> 0:01:02.476 trade guru, as it were, and that's my colleague at 0:01:02.476 --> 0:01:05.716 Harvard Law School, Mark wu. Mark had an important job 0:01:05.716 --> 0:01:08.316 in the Office of the United States Trade Representative. Then 0:01:08.396 --> 0:01:11.156 he decided that wasn't enough. He went to law school, 0:01:11.276 --> 0:01:13.356 He became a law professor, he got tenure at Harvard 0:01:13.476 --> 0:01:17.156 Law School, and all along the drumbeat of Mark's path 0:01:17.196 --> 0:01:21.236 breaking scholarship has been the growing challenges in the US 0:01:21.356 --> 0:01:25.036 China trade relationship and the way that those challenges would 0:01:25.156 --> 0:01:29.236 ultimately transform the nature of the international trade regime of 0:01:29.356 --> 0:01:31.796 all of the scholars that I know, I can't think 0:01:31.836 --> 0:01:35.116 of anyone else who started by saying something that left 0:01:35.196 --> 0:01:40.396 him way out on the dissenting cold side of the field, 0:01:40.916 --> 0:01:43.516 kept on saying it, kept on saying it, and then 0:01:43.596 --> 0:01:49.716 turned out to be painfully accurately and sadly right. Mark, 0:01:49.756 --> 0:01:51.916 Thank you for being here, Thanks for having me. No, 0:01:52.196 --> 0:01:54.476 I wish it were under a happier circumstances than the 0:01:54.556 --> 0:01:57.836 fact they were actually in a trade war. Now, so 0:01:58.316 --> 0:02:02.956 let's start with the question of how much of where 0:02:02.956 --> 0:02:06.236 we are is Donald Trump. All those years when you 0:02:06.276 --> 0:02:10.356 were talking about rising trade tensions between in the United States, 0:02:11.076 --> 0:02:13.316 you were not predicting there would be someone named Donald 0:02:13.316 --> 0:02:16.916 Trump who would become president, but you were predicting structural 0:02:17.316 --> 0:02:20.396 differences that you always said would lead to greater and 0:02:20.476 --> 0:02:24.876 greater conflict. Would all this have happened eventually in one 0:02:24.876 --> 0:02:27.556 way or another even if Donald Trump had not been 0:02:27.596 --> 0:02:32.796 elected president. There is an underlying structural tension in the 0:02:32.956 --> 0:02:38.156 US China relationship. So to that extent, would the economic 0:02:38.236 --> 0:02:42.956 relationship have deteriorated? I think the answer certainly yes. Would 0:02:42.996 --> 0:02:47.156 it have deteriorated in this particular way with this type 0:02:47.196 --> 0:02:52.396 of confrontation. I think that part is very much specifically 0:02:52.436 --> 0:02:55.876 Donald Trump. I don't think we'd be seeing policy conducted 0:02:55.956 --> 0:02:59.956 via tweets and sort of this whiplash left, whiplash right 0:03:00.076 --> 0:03:03.996 type of approach. That's very much a Trumpian style of 0:03:04.076 --> 0:03:07.076 approach towards taking on China, and it's something I think 0:03:07.116 --> 0:03:09.356 has really thrown the Chinese for a loop as well. 0:03:09.956 --> 0:03:15.876 We'll talk about that. How do people sitting in Beijing, sophisticated, 0:03:16.116 --> 0:03:18.996 educated people with years of experience in watching the United 0:03:19.036 --> 0:03:22.716 States and understanding international trade and a long term strategy 0:03:22.716 --> 0:03:25.876 that they were pursuing quite successfully, how do they think 0:03:25.916 --> 0:03:29.756 about the wild card or the curveball that is Donald Trump? 0:03:30.156 --> 0:03:31.676 And you talk to all of these people on a 0:03:31.716 --> 0:03:34.076 regular basis or don't violate any confidences, but give us 0:03:34.076 --> 0:03:37.756 an overview picture. Well, I think over the last decade 0:03:37.836 --> 0:03:44.356 or so, the Chinese increasingly became more sophisticated in their 0:03:44.476 --> 0:03:49.756 what they call American studies. So they thought they had 0:03:49.796 --> 0:03:52.476 the US more or less figured out, and they had, 0:03:52.636 --> 0:03:56.036 to the extent that we're talking about conventional what goes 0:03:56.076 --> 0:03:59.276 on within the Beltway, right, they thought there are these 0:03:59.276 --> 0:04:02.116 structural issues, but they can be managed. Was an example 0:04:02.156 --> 0:04:04.556 of the structurature they thought they could. So, for example, 0:04:05.036 --> 0:04:09.396 they know that there are job losses happening in the US. 0:04:10.036 --> 0:04:12.916 They know that some of that is due to the 0:04:12.956 --> 0:04:17.156 fact that jobs are moving to China because of offshoring 0:04:17.196 --> 0:04:19.476 and so forth. They know that there's going to be 0:04:19.516 --> 0:04:22.836 a political backlash against that. But they thought they could 0:04:22.836 --> 0:04:27.716 control that because you can certainly align the US business 0:04:27.796 --> 0:04:31.876 community in a way that they have gains from the 0:04:31.916 --> 0:04:36.276 growing Chinese market. You have farm purchases from certain states 0:04:36.676 --> 0:04:40.676 they're politically important. You have ways of trying to win 0:04:40.716 --> 0:04:43.836 over our hearts and minds by making certain types of 0:04:43.876 --> 0:04:49.276 investments and states that are the industrializing. So they thought, 0:04:49.316 --> 0:04:52.236 you know, people can sense that there's a China threat, 0:04:52.596 --> 0:04:55.956 but that threat doesn't have to seem as ominous. And 0:04:55.996 --> 0:04:59.716 they were making friends and creating a certain type of alliances. 0:04:59.756 --> 0:05:03.796 But they hadn't anticipated, much like most Americans hadn't anticipated 0:05:04.116 --> 0:05:07.356 the scale of the populist backlash and that it would 0:05:07.356 --> 0:05:09.236 take the form of Donald Trump. So I think it's 0:05:09.276 --> 0:05:11.316 really thrown them for a loop. Is that because they 0:05:11.596 --> 0:05:13.996 overplayed their hand. I mean, as you said, they had 0:05:13.996 --> 0:05:17.396 a strategy and during the Clinton Bush and Obama administrations. 0:05:17.556 --> 0:05:20.396 It worked pretty well. There were people who were mad 0:05:20.396 --> 0:05:23.876 at China, but they were peripheral. China wasn't identified publicly 0:05:23.916 --> 0:05:26.996 as the great threat to the United States, and then, 0:05:27.036 --> 0:05:29.996 as you say, we got Donald Trump. I mean, there 0:05:30.076 --> 0:05:31.756 was one sort of cosmic way of looking at it. 0:05:31.756 --> 0:05:34.116 It says they couldn't have gotten away without forever, and 0:05:34.316 --> 0:05:36.756 they didn't. I think it'll be interesting to see how 0:05:36.796 --> 0:05:41.076 history judges this. You could look to say that that's 0:05:41.076 --> 0:05:43.276 the case, and maybe they tried to push too far, 0:05:43.396 --> 0:05:45.476 too fast. But I think this is a bit like 0:05:45.596 --> 0:05:49.756 asking the questions the Democratic Party not do enough after 0:05:49.756 --> 0:05:52.876 the two thousand and eight financial crisis. It's hard to 0:05:52.916 --> 0:05:55.636 say with hindsight. Right, on the one hand, the economy 0:05:55.676 --> 0:05:57.636 got better, I mean, one hand, the economy got better. 0:05:57.716 --> 0:06:00.676 On one hand, right, China created a lot of win 0:06:00.756 --> 0:06:03.876 win situations, especially for US business. It helped keep the 0:06:03.916 --> 0:06:07.236 global economy afloat after the financial crisis. It became the 0:06:07.316 --> 0:06:11.156 largest market for many goods. Lots of people did well, 0:06:11.516 --> 0:06:14.476 either directly through their businesses in China or more indirectly 0:06:14.476 --> 0:06:18.636 through through their pension funds investing in certain firms that 0:06:18.756 --> 0:06:21.756 made quite a bit in China, and there are displaced 0:06:22.076 --> 0:06:25.316 pockets of people who suffered tremendously as or resolved this. 0:06:25.436 --> 0:06:27.916 But they thought they had that under control. Right. So 0:06:27.956 --> 0:06:32.156 now you're sitting there in Chinese government circles, You've got 0:06:32.156 --> 0:06:35.236 this Trump phenomenon to deal with. We're struggling here to 0:06:35.356 --> 0:06:37.396 make sense of it. How do they make sense of it? 0:06:37.436 --> 0:06:39.076 Do they think of it as on the whole, as 0:06:39.116 --> 0:06:42.276 a temporary phenomenon of temporary deviation, or do they think, no, 0:06:42.476 --> 0:06:44.196 this is the way of the future, at least with 0:06:44.196 --> 0:06:48.116 respect to US China relations. So, on the one hand, 0:06:48.316 --> 0:06:51.196 I think they're struggling to figure out the same question 0:06:51.276 --> 0:06:53.436 that we're struggling figure out here in the United States. 0:06:53.756 --> 0:06:57.156 They're trying to figure out is this just another couple 0:06:57.156 --> 0:07:01.516 of more months until sanity returns or are we going 0:07:01.596 --> 0:07:04.516 to have another four years of Donald Trump? And so 0:07:04.596 --> 0:07:06.516 that's the same question that we're sitting here in United 0:07:06.556 --> 0:07:08.276 States trying to figure out. So you don't think they 0:07:08.356 --> 0:07:10.476 have a better or a clearer or more thoughtful of 0:07:10.476 --> 0:07:12.716 you than we do. No, But I think what the 0:07:12.836 --> 0:07:16.276 recent trade war has made much clearer to them is 0:07:16.316 --> 0:07:19.036 that this is surfaced earlier than they thought it would 0:07:19.636 --> 0:07:22.556 but sooner in that's what has surfaced earlier, the fact 0:07:22.596 --> 0:07:25.116 that the US would see arising China as a threat. 0:07:25.316 --> 0:07:28.996 I see. I think many of them thought, evankfully, sooner 0:07:29.076 --> 0:07:32.996 or later the Americans war going to come to some sense. 0:07:34.116 --> 0:07:38.716 They would feel uncomfortable with the fact that the US 0:07:38.916 --> 0:07:42.556 is being pushed out of parts of the Western Pacific 0:07:42.796 --> 0:07:45.756 or being displaced as the most important. But they thought 0:07:45.756 --> 0:07:48.316 they had five or ten more years before before it happened. 0:07:48.596 --> 0:07:50.836 So let's talk about the content of the trade war now. 0:07:50.876 --> 0:07:52.396 And I want to start by asking you a question 0:07:52.476 --> 0:07:56.636 that troubles me very much. So if you move in 0:07:57.836 --> 0:08:02.596 mainstream democratic circles, then for many years, the background assumption, 0:08:02.716 --> 0:08:05.036 certainly through let's say the Bill Clinton years and into 0:08:05.036 --> 0:08:09.756 the Obama years too, the background assumption of thoughtful making 0:08:09.796 --> 0:08:15.036 liberal democrats was international trade is good. They basically thought 0:08:15.116 --> 0:08:19.916 that on the whole, more open trade rules served the 0:08:19.996 --> 0:08:24.156 United States made our economy more competitive, that the rising 0:08:24.196 --> 0:08:26.996 tide lifted all boats. If you ask them about countries 0:08:27.236 --> 0:08:29.916 that were raising people out of poverty by virtue of trade, 0:08:29.956 --> 0:08:32.396 like China, they would say, well, that's great. It's nice 0:08:32.436 --> 0:08:36.596 that people are being brought out of poverty. Now, in 0:08:36.676 --> 0:08:41.516 the last cycle of election, certainly going back to twenty sixteen, 0:08:41.876 --> 0:08:44.276 Democrats and especially the more left wing of the Democratic 0:08:44.316 --> 0:08:48.876 Party started rethinking that question quite seriously. They began to 0:08:48.956 --> 0:08:51.996 question NAFTA in various ways. They began to question the 0:08:52.036 --> 0:08:57.276 expansion of US liberal trade treaties with Asia. And that 0:08:57.316 --> 0:08:59.996 didn't bring in the Hillary Clinton wing of the party initially, 0:09:00.036 --> 0:09:01.756 but it did bring in the Bernie Sanders bring of 0:09:01.796 --> 0:09:03.996 the party. Donald Trump got elected, and now the Democratic 0:09:03.996 --> 0:09:07.516 Party is moving even more in the direction of greater protectionism. 0:09:08.316 --> 0:09:10.996 So the question that troubles me is is Trump a 0:09:10.996 --> 0:09:14.276 little bit right? Is there something to be said despite 0:09:14.316 --> 0:09:17.516 all of our I think justifiable horror at Trump on 0:09:17.636 --> 0:09:20.156 moral grounds, did Trump get something right? Or is he 0:09:20.196 --> 0:09:23.476 getting something right something which is overlapping with some parts 0:09:23.476 --> 0:09:27.516 of the Democratic Party with respect to the significant downsides 0:09:27.756 --> 0:09:31.556 of the US China trade relationship as it is currently configured. 0:09:32.116 --> 0:09:34.476 I think the answer to that is yes, I think 0:09:34.996 --> 0:09:41.156 there is something to be said about the diagnosis of 0:09:41.676 --> 0:09:46.196 structural tensions in this relationship is accurate. The question is 0:09:46.196 --> 0:09:50.196 whether or not the prescription that the doctor is offering 0:09:50.596 --> 0:09:52.916 is the right prescription. Well, let's start with the sickness, 0:09:52.916 --> 0:09:54.636 before we get before we get to the cure, let's 0:09:54.676 --> 0:09:56.836 dive into the sickness. I mean, it's it can't just 0:09:57.036 --> 0:10:00.116 be Donald Trump's formulation, which is, oh my goodness, there's 0:10:00.116 --> 0:10:02.756 a trade deficit. I'm not even totally clear that Trump 0:10:02.756 --> 0:10:06.556 gets what a trade deficit actually is. So what is 0:10:06.556 --> 0:10:09.676 the thing that's the problem for you? So I think 0:10:09.716 --> 0:10:12.236 we should be clear about this, right. I think most 0:10:13.116 --> 0:10:16.596 people think the deficit is not the right barometer. So 0:10:16.636 --> 0:10:20.076 to the extent the Trump white House is talking about that, 0:10:20.396 --> 0:10:23.516 I think that's not correct, right. I think also to 0:10:23.556 --> 0:10:25.836 the extent that what Trump is just to be clear 0:10:25.836 --> 0:10:29.556 for listeners, that the Trump white House is basically saying 0:10:29.996 --> 0:10:33.476 we buy more Chinese stuff than China buys our stuff. 0:10:33.756 --> 0:10:36.556 And that's, after all, what a trade deficit amounts to. 0:10:37.236 --> 0:10:41.636 And most mainstream observers of trade, economists, scholars and others 0:10:42.116 --> 0:10:44.596 think that who buys more stuff is not the only 0:10:44.676 --> 0:10:48.116 or the most relevant measure, right, And that's because supply 0:10:48.196 --> 0:10:50.996 chains are complicated, the accounting isn't quite correct. All this 0:10:50.996 --> 0:10:54.596 stuff we can nerd out about, but more importantly, this 0:10:54.676 --> 0:10:56.356 is deepackground you're allowed to hern out for a bit, 0:10:56.436 --> 0:11:00.236 but more importantly, right, the deficits and reflections of different 0:11:00.236 --> 0:11:04.556 types of saving traits. And so the fact that you know, 0:11:04.636 --> 0:11:07.716 we are the reserve currency and the fact that we 0:11:07.836 --> 0:11:12.036 have instance savings rates means that inevitably, right, this is 0:11:12.036 --> 0:11:13.956 going to show up in this type of account. So 0:11:14.516 --> 0:11:18.396 we save less money on the average than many Asian 0:11:18.636 --> 0:11:22.276 Increasian countries save. And yet many people all over the 0:11:22.276 --> 0:11:26.236 world put their earnings into dollars because dollars a reserve currency, 0:11:26.516 --> 0:11:28.596 and so that's always going to turn up looking like 0:11:28.716 --> 0:11:31.156 a trade deficit. Yeah, and just a question of whether 0:11:31.196 --> 0:11:33.876 that deficit is with which country, and it could be 0:11:33.956 --> 0:11:37.356 artificially larger with one country than another, because say, for example, 0:11:37.396 --> 0:11:40.676 with an iPod, right with the last place it gets 0:11:40.676 --> 0:11:43.236 assembled is in China and it gets shipped over the US. 0:11:43.436 --> 0:11:47.236 Think they made the iPod anymore? Mark? Sorry, iPhone, let's 0:11:47.236 --> 0:11:49.196 retape that part. I thought it was funny. Go ahead, 0:11:50.116 --> 0:11:53.356 So let's take the iPhone right, the last place that 0:11:53.476 --> 0:11:57.396 they assemble all that is in China. When it gets 0:11:57.396 --> 0:11:59.516 shipped over the US. All that is going to count 0:11:59.556 --> 0:12:02.676 against the trade deficit there, even though many of the 0:12:02.716 --> 0:12:07.476 component parts come from Korea. Taime one, Japan, parts of Europe, 0:12:07.476 --> 0:12:09.556 even parts of the United States, rights, and even though 0:12:09.596 --> 0:12:13.236 Apple is an American company exactly right, which is presumably 0:12:13.276 --> 0:12:16.956 gaining a huge percentage of the profits relative to anybody 0:12:16.956 --> 0:12:19.236 else in the supply chain. So I think the way 0:12:19.316 --> 0:12:23.396 the administration is talking about how to measure this trade 0:12:23.396 --> 0:12:25.436 wars are easy to win and all that, that's not 0:12:25.516 --> 0:12:27.396 quite right. But let's talk a little bit about some 0:12:27.436 --> 0:12:29.836 of the things they did. I think get right. Please. 0:12:29.956 --> 0:12:33.076 So I think there's two parts that we should disagreeate here. 0:12:33.476 --> 0:12:39.236 One is it's a widely recognized truism amongst economists right 0:12:39.356 --> 0:12:44.916 that free trade does expand the pie makes everybody better off. 0:12:44.916 --> 0:12:47.276 And the basic theory is, if we're trading, it's to 0:12:47.316 --> 0:12:49.396 make us each better off. Otherwise, if I didn't think 0:12:49.396 --> 0:12:51.036 it would make me better off, I wouldn't trade with you. 0:12:51.116 --> 0:12:52.356 If you didn't think it was making you better off, 0:12:52.396 --> 0:12:54.476 you wouldn't trade with me. And presumably you do some 0:12:54.556 --> 0:12:56.836 things better than I do. I do certain things that 0:12:57.116 --> 0:12:59.756 better than you do. So we each take advantage of 0:12:59.756 --> 0:13:03.396 our comparative advantages and then we trade this with each other. 0:13:03.436 --> 0:13:06.956 So thank you, Adam Smith. That widely recognizes as truism. 0:13:07.036 --> 0:13:11.316 Then there's a question of amongst that pie that's grown, 0:13:11.596 --> 0:13:15.196 are we sharing this fairly with our fellow countrymen. So 0:13:15.236 --> 0:13:18.276 I think this is a part that both Donald Trump, 0:13:18.756 --> 0:13:23.396 as well as the progressive wing of the Democratic Party 0:13:23.796 --> 0:13:27.276 and increasingly much of the Democrat Party is now saying no, 0:13:27.476 --> 0:13:31.076 or it's certain greedy bastards took too big a slice 0:13:31.076 --> 0:13:33.276 of that that they may and they aren't distributing it. 0:13:33.556 --> 0:13:36.196 But the solutions that Donald Trump has for how to 0:13:36.276 --> 0:13:38.236 deal with this, right, we need to have more tax 0:13:38.236 --> 0:13:41.476 cuts to stimulate growth to sort of filter all this down, 0:13:41.516 --> 0:13:44.116 compared to the solutions that Bernie Sanders has and all 0:13:44.156 --> 0:13:47.036 that are very very different. But so I think there's 0:13:47.236 --> 0:13:49.236 but I mean, just to be clear, Mark, are you 0:13:49.276 --> 0:13:51.916 saying that the income inequality piece is one of the 0:13:51.956 --> 0:13:53.996 things that Trump is getting right? I mean, I don't 0:13:54.036 --> 0:13:56.396 dispute that income in equality is a hugely important issue, 0:13:56.436 --> 0:13:58.676 but I also don't really hear that from Trump. No. 0:13:58.836 --> 0:14:01.716 I think the part that I'm talking about is I 0:14:01.756 --> 0:14:04.596 think both the left and the right are saying the 0:14:05.436 --> 0:14:10.196 free trade right expanded the overall national GDP, but it 0:14:10.356 --> 0:14:14.196 made only some richer than other, A small fraction of 0:14:14.236 --> 0:14:18.516 Americans much wealthier than others, and it made a very 0:14:18.596 --> 0:14:22.076 small portion much wealthier, right, And did it make some 0:14:22.116 --> 0:14:24.836 people much worse off as well? It made it certainly 0:14:24.876 --> 0:14:28.396 made some people worse off. Some people it's just marginal, right, 0:14:28.436 --> 0:14:30.076 because it made you a little bit worse off in 0:14:30.156 --> 0:14:32.956 terms of putting downward wage. Pretty sure. By the other hand, 0:14:32.996 --> 0:14:35.716 you got cheaper consumer goods so that you could buy, 0:14:35.916 --> 0:14:38.436 So it's a bit of a wash. But for some people, 0:14:38.476 --> 0:14:40.756 they lost their jobs, and they were in communities that 0:14:40.916 --> 0:14:43.796 lost a large portion of their jobs, and then that 0:14:43.916 --> 0:14:47.596 then turned into different types of spillover effects onto the 0:14:47.596 --> 0:14:51.276 service economy that then had certain effects into an OPII crisis. 0:14:51.316 --> 0:14:53.476 And so far then these are quite concentrated communities and 0:14:53.556 --> 0:14:56.636 made those communities much worse off. So then one point 0:14:56.756 --> 0:14:59.116 on which you're giving Trump credit is identifying the idea 0:14:59.156 --> 0:15:01.356 that there are some parts of the United States, you know, 0:15:01.476 --> 0:15:03.276 we can imagine them as being in the rust belt 0:15:03.356 --> 0:15:07.276 or other de industrialized places where the spiral of destruction 0:15:07.796 --> 0:15:11.036 really was generated by relatively free trade between the US 0:15:11.076 --> 0:15:13.876 and China. Yes, but I think we should be clear 0:15:14.116 --> 0:15:17.996 to say the effect of technology on that is actually 0:15:18.076 --> 0:15:21.116 as large if not much larger than trade, right, But 0:15:21.196 --> 0:15:23.956 there is this phenomenon that's happening, and it's this double 0:15:23.996 --> 0:15:28.636 whammy of technological change as well as globalization that's expanding 0:15:28.716 --> 0:15:31.396 the pie for everyone. Just like technology right increases all 0:15:31.396 --> 0:15:35.076 of our productivity, but it's having a concentrated cost. And 0:15:35.116 --> 0:15:37.156 so I think that part is correct, and we haven't 0:15:37.236 --> 0:15:40.116 quite figured out how we're going to deal with those 0:15:40.156 --> 0:15:43.596 types of concentrated costs, as well as the fact that 0:15:43.796 --> 0:15:46.716 for some people it's really been just a wash or 0:15:46.796 --> 0:15:49.756 a slight negative cost. And so I think that's one 0:15:49.796 --> 0:15:52.676 part that's great. There's another part, which is to say, 0:15:52.836 --> 0:15:56.076 even though we're trading with one another and it's expanding 0:15:56.116 --> 0:15:58.516 both of our pie, are we each getting our own 0:15:58.516 --> 0:16:02.356 fair share? And I think here's another part where both 0:16:03.276 --> 0:16:07.636 the Trump folks in the White House today as well 0:16:07.676 --> 0:16:11.436 as many mainstream Democrats or Republicans would also agree to 0:16:11.476 --> 0:16:17.316 say that even though it's lifted both sides, overall, the 0:16:17.476 --> 0:16:21.436 Chinese are getting unjust desserts. So this is the China 0:16:21.596 --> 0:16:25.356 is not playing fair version of the story. I'm fascinated 0:16:25.356 --> 0:16:28.676 by this and I want to go deeply into it. So, 0:16:28.836 --> 0:16:31.396 first of all, you're saying you think you do buy that. 0:16:31.436 --> 0:16:36.516 In part, I think there is definitely a mere cantilist, 0:16:37.316 --> 0:16:41.436 beggar thy neighbor type of policy. Those are fancy words. 0:16:41.516 --> 0:16:43.396 Part of it goes a little bit like this. Right, 0:16:43.436 --> 0:16:46.676 So there's too much steel all around the world in 0:16:46.676 --> 0:16:50.316 the free market system, some of those would go bankrupt. 0:16:50.516 --> 0:16:52.036 Some of the companies that make that steal would go 0:16:52.036 --> 0:16:54.236 bankrupt yep. Over the course of time, some of that 0:16:54.276 --> 0:16:57.356 production was shut down. People would lose your jobs overall this, 0:16:57.676 --> 0:17:00.716 but eventually you get to a stable level steel production yep. 0:17:01.156 --> 0:17:05.876 Basic theory of capitalists. So overproduce, lose your shirt. So 0:17:06.076 --> 0:17:10.356 this all works a certain way, but some and the 0:17:10.476 --> 0:17:12.356 thing this is what the Chinese government has done is 0:17:12.356 --> 0:17:17.036 to say, well, we want to manage the flow of unemployment. 0:17:17.196 --> 0:17:20.316 And part of this is for domestic stability purposes. Right 0:17:20.356 --> 0:17:22.956 If you have all of a sudden, a couple hundred 0:17:22.956 --> 0:17:27.276 thousand steelworkers of work right away, they're going to be disgruntled. 0:17:27.276 --> 0:17:29.076 This is going to be constrained certain parts of the country. 0:17:29.076 --> 0:17:32.036 So we want to manage this flow. So we can 0:17:32.236 --> 0:17:35.116 because we also control the banks, we can direct the 0:17:35.156 --> 0:17:39.476 banks to continue lending to some of these firms even 0:17:39.556 --> 0:17:44.156 though they aren't all that profitable and so forth, they 0:17:44.156 --> 0:17:46.636 don't have to fire their employers. They're engaging in certain 0:17:46.676 --> 0:17:50.876 types of subsidies. So if that's the case, well, eventually 0:17:50.916 --> 0:17:53.516 this is a hydro system. It has to equalize itself out. 0:17:53.556 --> 0:17:56.916 So these steel companies aren't going out of business, then 0:17:57.116 --> 0:17:59.156 more steel companies in the rest of the world are 0:17:59.236 --> 0:18:02.956 going out of business. And so this is where the market. 0:18:03.196 --> 0:18:07.036 If everyone behaved according to market principles, it would spread 0:18:07.076 --> 0:18:11.076 this pain equally. But if one party is not behaving 0:18:11.076 --> 0:18:14.676 in quarities market principles and other sides are absorbing much 0:18:14.716 --> 0:18:18.076 more of this. So we're seeing this type of effect, right, 0:18:18.116 --> 0:18:20.196 This is a begger than neighbor type of effect than 0:18:20.236 --> 0:18:22.236 the Chinese will say, well, it's begger than neighbor, just 0:18:22.276 --> 0:18:25.276 to be clear, because if there's too much steal, someone's 0:18:25.316 --> 0:18:27.236 got to lose jobs in a steel mill. The question 0:18:27.276 --> 0:18:29.636 is in which country will that happen? And if it 0:18:29.676 --> 0:18:32.836 doesn't happen in China, then you're they're beggaring their neighbors 0:18:32.836 --> 0:18:35.196 in other countries exactly. So let me let me push 0:18:35.196 --> 0:18:36.796 back a little bit here. Maybe push back is the 0:18:36.796 --> 0:18:40.396 wrong word, but just to ask Mark, isn't this what countries, 0:18:41.356 --> 0:18:44.876 including the United States, have often done in crises. I mean, 0:18:44.916 --> 0:18:47.076 if you think of the Great Depression, you know, the 0:18:47.156 --> 0:18:50.196 United States tried to engage in interventions to try to 0:18:50.276 --> 0:18:52.916 keep people in work because people were losing jobs at 0:18:52.916 --> 0:18:55.676 a rate that was devastating to the overall economy. Or 0:18:55.676 --> 0:18:58.276 even to think much more recently, think of the bailout 0:18:58.276 --> 0:19:00.916 of the big banks after the two thousand and eight 0:19:01.036 --> 0:19:04.796 financial crisis. I mean, isn't that really isn't bailing out 0:19:04.796 --> 0:19:09.316 a big bank the same thing as bailing out the 0:19:09.796 --> 0:19:13.436 steel mill. So knowing there, you're sounding exactly like what 0:19:13.756 --> 0:19:17.436 the Chinese response to this is, right, They're sort of saying, well, 0:19:17.636 --> 0:19:19.996 we did this, but if you thought this was a 0:19:19.996 --> 0:19:23.076 good policy, you could do it yourself too. And but 0:19:23.196 --> 0:19:24.996 if everyone I'm not just saying you could do yourself, 0:19:25.036 --> 0:19:27.876 I'm saying we have done it. I mean, why wasn't 0:19:27.916 --> 0:19:30.196 the bailout of the banks in this sense of those 0:19:30.196 --> 0:19:33.996 REUS based banks. The first the w Bush administration and 0:19:33.996 --> 0:19:36.716 then the Obama administration thought that if those banks went 0:19:36.716 --> 0:19:38.836 down there would be huge knock on effects for the economy. 0:19:39.036 --> 0:19:41.356 They were worried about the consequences of that, and so 0:19:41.436 --> 0:19:45.556 the government engaged in a bailout to prop up those 0:19:45.836 --> 0:19:49.116 those banks. I mean, from an economist perspective, is there 0:19:49.156 --> 0:19:51.876 a meaningful difference between that and the propping up of 0:19:52.076 --> 0:19:54.756 steel mills. So the difference is this, if you look 0:19:54.796 --> 0:19:58.276 at just amb right, they might look very similar, but 0:19:58.356 --> 0:20:02.956 the difference is they're at least amongst the Western liberal economies. 0:20:02.996 --> 0:20:06.236 There's a sense of we only do this in times 0:20:06.236 --> 0:20:10.596 of dire financial crises, and when we do, we only 0:20:10.676 --> 0:20:13.836 do it on a very small, temporary basis, and when 0:20:13.876 --> 0:20:16.796 we've consulted with everyone else around the world to sort 0:20:16.796 --> 0:20:18.676 of say we all need to engage in this type 0:20:18.676 --> 0:20:22.436 of thing to sort of keep the global economy afloat, right. 0:20:22.596 --> 0:20:24.436 I think we asked the Chinese. I don't think we 0:20:24.436 --> 0:20:28.076 asked the Chinese. Well, we certainly did have a G 0:20:28.596 --> 0:20:33.516 seven and G twenty coordination process financial crisis. We're trying 0:20:33.556 --> 0:20:36.076 we actually we're trying to So we were trying to 0:20:36.116 --> 0:20:38.956 sort of say, like, what the difference here is what, 0:20:39.316 --> 0:20:42.636 or at least what Americans and Europeans and Japanese would say, 0:20:42.716 --> 0:20:45.516 is we're not trying to do this on a day 0:20:45.556 --> 0:20:50.116 and day out basis in the interest of getting ahead 0:20:50.276 --> 0:20:53.516 faster and catching up with you and getting our share, 0:20:54.116 --> 0:20:56.436 getting more of our share, And there is no we 0:20:56.516 --> 0:20:57.876 only do it when we look like we're going to 0:20:58.076 --> 0:21:00.316 fall desperately. I mean, if I were the you know, 0:21:00.356 --> 0:21:03.796 the Chinese responding here, my reaction would be, that doesn't 0:21:03.796 --> 0:21:05.796 make it better, that makes it worse. You're saying, you 0:21:05.836 --> 0:21:08.636 guys only do it on a large scale, in a 0:21:08.716 --> 0:21:11.476 coword needed way when you really have to do it. Well, 0:21:11.516 --> 0:21:13.476 we're going to do it on a much softer, smaller 0:21:13.516 --> 0:21:15.476 scale and a consistent basis so that we don't have 0:21:15.516 --> 0:21:17.836 a crisis like you had. I mean, that sounds a 0:21:17.836 --> 0:21:21.116 lot more prudent, doesn't it. Well, they even say this, right, 0:21:21.156 --> 0:21:24.596 they'll say, well, look, we spend the same amount of money. 0:21:24.796 --> 0:21:27.676 It's just better we spend it keeping people going to 0:21:27.716 --> 0:21:32.516 work every day and they feel meaningfully productive. Right. You 0:21:32.596 --> 0:21:34.596 spend it on the back end, you lay them all off, 0:21:34.636 --> 0:21:36.396 and then you have to deal with it through higher 0:21:36.396 --> 0:21:41.916 healthcare costs when they're yeh. And we gave it to 0:21:41.996 --> 0:21:43.956 rich people because we gave it to on the whole, 0:21:43.956 --> 0:21:46.476 because we gave it to investors and large financials. So 0:21:46.836 --> 0:21:49.916 I think the Chinese feel as though, in some ways 0:21:49.956 --> 0:21:52.676 for the West is pointing its fingers and saying, right, 0:21:52.756 --> 0:21:54.796 will you have one model of dealing with it, we 0:21:54.876 --> 0:21:57.476 have a different model of dealing but they're both equally 0:21:58.276 --> 0:22:01.676 Just why are you pointing fingers at us? But I 0:22:01.716 --> 0:22:04.436 think there is a sense here in the US and 0:22:04.476 --> 0:22:09.076 elsewhere that what they're engaging in is a wholesale attempt 0:22:09.316 --> 0:22:14.716 to take more than they deserve based on the competition principles, 0:22:14.876 --> 0:22:17.876 and this ties in not just the subsidies, is one 0:22:17.916 --> 0:22:20.076 part of it, right, But there's another type of begger 0:22:20.116 --> 0:22:23.036 than neighbor, which is, just if we give you access 0:22:23.156 --> 0:22:26.076 to our markets, but you don't give us access to 0:22:26.156 --> 0:22:29.036