WEBVTT - What's Behind the Great Trade Skirmish 0:00:00.160 --> 0:00:04.040 America is imposing tariffs on steel and aluminum in the 0:00:04.160 --> 0:00:08.600 name of national security. Allies and opponents alike are crying foul, 0:00:09.000 --> 0:00:12.200 talk of retaliation. Even a trade war is in the 0:00:12.280 --> 0:00:15.880 air by some reckonings, a trade conflict is already here. 0:00:16.360 --> 0:00:19.439 But if war has broken out, how will we know 0:00:19.680 --> 0:00:23.159 who's winning. If it hasn't broken out, how will we 0:00:23.239 --> 0:00:36.000 know when it does, if at all? Welcome to Benchmark, 0:00:36.159 --> 0:00:39.360 a show about the global economy. This week, we step 0:00:39.440 --> 0:00:42.360 back from the daily skirmishes to try to figure out 0:00:42.440 --> 0:00:45.800 what's really going on here and just as importantly, where 0:00:45.840 --> 0:00:49.159 we are headed. I'm Scott Landman, an economics editor with 0:00:49.240 --> 0:00:53.480 Bloomberg News in Washington, and I'm Daniel Moss, economics writer 0:00:53.680 --> 0:00:57.920 and editor at Bloomberg View in New York. Guiding us 0:00:57.960 --> 0:01:01.360 through thee she was Shannon O'Neil, a Latin American trade 0:01:01.400 --> 0:01:04.880 ex but at the Council on Foreign Relations who's also 0:01:05.040 --> 0:01:08.679 working on a book about the global supply chains. Riveting 0:01:08.720 --> 0:01:13.040 stuff and perfectly timed, Shannon, Welcome back to Benchmark. Thanks 0:01:13.040 --> 0:01:16.400 for having me so, Shannon. We'll get to steal an 0:01:16.440 --> 0:01:20.280 aluminum shortly, but first let's try to define the terrain 0:01:20.880 --> 0:01:25.480 what actually is a trade war other than a campaign slogan. Well, 0:01:25.480 --> 0:01:28.280 it definitely is that a campaign slogan. But I would 0:01:28.280 --> 0:01:31.039 say if we think about a trade war, UM, not 0:01:31.120 --> 0:01:33.160 to stretch this metaphor too far, but right now we're 0:01:33.160 --> 0:01:39.400 having skirmishes. We're having the Trump administration upset about particular products, 0:01:39.440 --> 0:01:43.760 about steel, about aluminum, and launching out not just at China, 0:01:43.800 --> 0:01:45.640 which is really the source of their ire, but at 0:01:45.640 --> 0:01:49.280 the overall world. UM. But that really is one particular skirmish, 0:01:49.280 --> 0:01:51.520 and we've seen these in the past, particularly over steel 0:01:51.560 --> 0:01:54.160 as well as other issues. If we would get to 0:01:54.200 --> 0:01:55.880 a trade war, which I don't see yet but we're 0:01:55.920 --> 0:01:58.760 getting closer to that is where you start seeing a 0:01:58.800 --> 0:02:01.880 tip for tattery, t allation from countries that may have 0:02:02.000 --> 0:02:05.920 nothing to do with the underlying original grievance. And see 0:02:05.960 --> 0:02:09.440 see other sectors, say agriculture, other sectors in the economy 0:02:09.760 --> 0:02:12.679 hit with retaliatory tariffs and then this back and forth. 0:02:12.720 --> 0:02:14.320 So that to me would be what we would see 0:02:14.320 --> 0:02:16.480 as a full grown trade war. So we'll get back 0:02:16.480 --> 0:02:19.160 to China a second. But when was the last time 0:02:19.200 --> 0:02:23.520 we were in a war? What happened? Who won? A 0:02:23.520 --> 0:02:25.240 lot of this is very fuzzy. The one that everybody 0:02:25.280 --> 0:02:27.880 goes back to is is back in the nineteen late twenties, 0:02:27.919 --> 0:02:30.240 early thirties with a Smoot Holly Act, And there we 0:02:30.280 --> 0:02:33.280 really did see a trade where we saw dozens of 0:02:33.320 --> 0:02:36.480 countries react to each other, throw up their trade barriers, 0:02:36.520 --> 0:02:39.440 tariffs and others, and the overall global economy take a 0:02:39.560 --> 0:02:42.880 sizeable hit because of it. That is the classic trade war. 0:02:43.200 --> 0:02:45.320 But we've seen skirmishes before. We've seen them in the 0:02:45.400 --> 0:02:47.959 nineteen eighties with the U S and the Japanese and others. 0:02:48.120 --> 0:02:50.560 We've seen them along the way. And what it does, 0:02:50.639 --> 0:02:52.960 what history seems to tell us, is that in the end, 0:02:53.000 --> 0:02:57.359 no one really wins. So when we're talking about today, 0:02:57.560 --> 0:03:00.440 you said we're still in kind of skirmish is at 0:03:00.440 --> 0:03:03.560 the moment? How will we know if we're in a 0:03:03.639 --> 0:03:07.160 full blown trade war as opposed to say just sponsoring 0:03:07.360 --> 0:03:12.160 some rebels with cash and some spare M sixteens. So 0:03:12.200 --> 0:03:13.639 one of the things I would say is I look 0:03:13.639 --> 0:03:16.240 back at the last seventy plus years, as we've actually 0:03:16.280 --> 0:03:19.040 had in this particular area in the trade arena, we've 0:03:19.040 --> 0:03:21.400 actually had some rules of the road. Um, we had 0:03:21.440 --> 0:03:23.160 it through gap than through the w t O, the 0:03:23.200 --> 0:03:27.440 World Trade Association organization. We have seen more and more 0:03:27.480 --> 0:03:30.600 countries join in and actually allow sort of a multilateral 0:03:30.600 --> 0:03:33.680 system to develop, also including free trade agreements among many 0:03:33.720 --> 0:03:37.840 different countries. So there has been many countries this idea 0:03:37.920 --> 0:03:42.160 that it is better to follow these overall rules multilateral rules. 0:03:42.200 --> 0:03:44.760 Sometimes you win, sometimes you lose in particular sectors, but 0:03:45.080 --> 0:03:48.160 the rules and the stability that provides has is beneficial 0:03:48.240 --> 0:03:50.800 overall to your economy as well as others. And so 0:03:51.520 --> 0:03:54.920 the issue today is do those rules stand. And we 0:03:55.080 --> 0:03:57.680 have had countries along the way who that have defected 0:03:57.680 --> 0:04:00.200 from these rules, that have not followed the rules, Ida 0:04:00.280 --> 0:04:03.080 being one of the the you know perpetrators here where 0:04:03.080 --> 0:04:05.760 they don't tend to follow those rules even as they've 0:04:05.760 --> 0:04:08.120 tried to join the World Trade Organization, the w t 0:04:08.240 --> 0:04:10.600 O and the like. And so the question here, I 0:04:10.640 --> 0:04:14.440 think is do those overall rules falter. That's when you 0:04:14.440 --> 0:04:17.360 get into a real trade war. And what I would 0:04:17.360 --> 0:04:20.520 be looking for is, as these steel and aluminum tariffs 0:04:20.520 --> 0:04:23.400 go forward, do the Europeans retaliate the way they have 0:04:23.440 --> 0:04:25.919 said that they'll go after agricultural products are products in 0:04:25.960 --> 0:04:29.120 particular districts of Mitch McConnell and Paul Ryan and others. 0:04:29.480 --> 0:04:32.200 And then does the Trump administration retaliate that he's threatened 0:04:32.200 --> 0:04:34.000 back that he'll put a tariff on cars. If you 0:04:34.040 --> 0:04:36.360 start seeing this tip for tap back and forth, I 0:04:36.400 --> 0:04:38.520 think that's where we really will see see a full 0:04:38.520 --> 0:04:42.200 blown escalation. So you mentioned Japan. It didn't seem like 0:04:42.240 --> 0:04:44.800 it at the time when people were smashing Toshiba's on 0:04:44.839 --> 0:04:48.279 the steps of Congress, but Japan relied on the US 0:04:48.400 --> 0:04:52.800 for its defense. The two countries were treaty allies. The 0:04:52.880 --> 0:04:58.240 post nineteen political system is a product of US in position. 0:04:58.720 --> 0:05:00.599 I mean, what did we miss then and now we 0:05:00.640 --> 0:05:04.920 at risk of missing it now. We did see incredible tensions. 0:05:04.960 --> 0:05:10.080 The Reagan administration put on several types of protectionist measures, tariffs, 0:05:10.080 --> 0:05:13.560 but more voluntary controls the Japanese agreed to. There's a 0:05:13.560 --> 0:05:15.880 lot of back and forth there, and partly because of 0:05:15.880 --> 0:05:19.520 the things you mentioned, there was this underlying defense alliance. 0:05:19.600 --> 0:05:22.039 There was an underlying agreement on a lot of other 0:05:22.120 --> 0:05:26.880 issues there that they were able to disagree strongly, vehemently 0:05:27.000 --> 0:05:29.400 about the trade issues, but come to some sort of agreement. 0:05:29.560 --> 0:05:32.880 And what's different today is that that doesn't seem to 0:05:32.920 --> 0:05:35.440 be the case with China. We don't have as many 0:05:35.480 --> 0:05:37.719 areas of agreement, we don't have as many partnerships. We 0:05:37.760 --> 0:05:40.600 certainly don't have the security alliance that we had with 0:05:40.720 --> 0:05:42.880 Japan or that we've had with Europe and other places. 0:05:42.880 --> 0:05:46.360 So I think there are less easy areas of cooperation 0:05:46.440 --> 0:05:48.640 to turn to to try to take down the temperature 0:05:48.720 --> 0:05:51.560 on on these areas of conflict, which are definitely in 0:05:51.560 --> 0:05:54.159 the commercial area along with others. But was that type 0:05:54.160 --> 0:05:57.800 of context actually available at the time. If you go 0:05:57.839 --> 0:06:02.000 back to just iconic cult trull symbols of that era, 0:06:02.120 --> 0:06:04.800 the classics got to be the Michael Crichton book Rising 0:06:04.839 --> 0:06:07.400 Sun and the movie that came of it, you would 0:06:07.520 --> 0:06:10.279 never know that the U. S And Japan were close 0:06:10.360 --> 0:06:13.360 military allies. I mean that was depicted as a war, 0:06:14.480 --> 0:06:16.760 It's true, right, and that was It was an incredibly 0:06:16.839 --> 0:06:19.240 tense time. And so perhaps we come out of where 0:06:19.279 --> 0:06:21.120 we are today and we come out the other end, 0:06:21.120 --> 0:06:23.400 and you say, oh, we forgot about all these other 0:06:23.440 --> 0:06:25.960 things that that bound the United States and China, or 0:06:26.000 --> 0:06:28.640 bound the United States and Europe together. But I do 0:06:28.800 --> 0:06:32.680 think that Chinese US relationship is a very different one. Today, 0:06:32.720 --> 0:06:35.680 there's no military alliance. There's no military alliance, and there's 0:06:35.720 --> 0:06:38.520 there's a distance over over time. There you don't have 0:06:38.600 --> 0:06:41.840 this long history of cooperation where you have other areas 0:06:41.839 --> 0:06:44.680 of the government, if not in the popular perception, but 0:06:44.839 --> 0:06:47.919 other areas of the government that had long standing partnerships 0:06:47.920 --> 0:06:51.760 and communications and day to day working back and forth 0:06:51.880 --> 0:06:54.680 that could calm down or at least bring in those 0:06:54.680 --> 0:06:58.360 securities concerns, those defense concerns to the overall relationship. And today, 0:06:58.680 --> 0:07:01.360 I would say, as we look at that s Chinese relationship, 0:07:01.640 --> 0:07:04.160 it's not just the commercial side that worries the United States, 0:07:04.240 --> 0:07:06.600 but it's the defense side that worries as well. Right 0:07:06.880 --> 0:07:09.840 General Madison others on Defense Department are very worried about 0:07:09.880 --> 0:07:12.960 where China is going on the defense side. On the 0:07:12.960 --> 0:07:16.280 security side, it's positions in South China, sea, in the 0:07:16.360 --> 0:07:18.840 in the like. So that isn't an area today of cooperation. 0:07:18.840 --> 0:07:23.400 In fact, is one of potential conflict or worry as well. Shannon, 0:07:23.440 --> 0:07:25.800 we mentioned earlier that you're working on a book about 0:07:25.880 --> 0:07:31.200 global supply chains. The tariffs imposed by President Donald Trump 0:07:31.200 --> 0:07:35.160 were on imported steel and aluminum. Before that, uh, there 0:07:35.160 --> 0:07:40.360 were solar panels washing machines. Is there a pattern here 0:07:40.520 --> 0:07:44.320 and how with this figure into these kinds of global 0:07:44.360 --> 0:07:47.120 supply chains. Are they going to get gumped up by 0:07:47.200 --> 0:07:51.240 these tariffs or is everything just going to keep functioning smoothly. 0:07:51.640 --> 0:07:54.440 This is something that I do think is threatened by 0:07:54.480 --> 0:07:56.960 this back and forth on on tariffs. And what we 0:07:57.040 --> 0:07:59.080 have seen around the world is yes, there are global 0:07:59.120 --> 0:08:02.720 supply chains, but there are really regional hubs that have developed. 0:08:02.720 --> 0:08:05.080 So we have one in Asia, we have one in Europe, 0:08:05.080 --> 0:08:06.840 and we have one here in the United States in 0:08:06.880 --> 0:08:10.400 North America. And so anything that would put tariffs to 0:08:11.600 --> 0:08:14.920 limit protect the movement of goods between the three nations 0:08:14.960 --> 0:08:17.800 here in North America, the United States, Canada, and Mexico 0:08:18.160 --> 0:08:20.880 could come up, as you say, these supply chains and 0:08:20.960 --> 0:08:24.040 so these tears. Right now, the Trump administration has said 0:08:24.080 --> 0:08:26.800 that steel and aluminum will be that our neighbors will 0:08:26.800 --> 0:08:29.320 be exempt at least until we see whether or not 0:08:29.320 --> 0:08:31.480 not to as solved. So it hasn't happened yet, but 0:08:31.520 --> 0:08:35.120 if we saw steel tariffs aluminum tearrists put on Canadian 0:08:35.160 --> 0:08:39.320 and Mexican products, this would particularly hit these very integrated 0:08:39.360 --> 0:08:42.440 supply chains and the worst off those hit hardest would 0:08:42.440 --> 0:08:45.040 be the auto industry. These are big inputs into the 0:08:45.080 --> 0:08:48.400 auto industry. Much of that steel aluminum comes from Canada, 0:08:48.559 --> 0:08:51.880 comes from Mexico, goes into US cars is put together 0:08:51.880 --> 0:08:54.680 in US factories, and so those are the ones that 0:08:54.720 --> 0:08:57.400 would lose out. And in fact, one of my colleagues 0:08:57.400 --> 0:08:59.720 at the Council Foreign Relations did is that calculation and 0:08:59.760 --> 0:09:03.000 said that if we applied all these tariffs, that yes, 0:09:03.120 --> 0:09:07.239 you would see maybe upwards of thirty thousand steel jobs recovered, 0:09:07.440 --> 0:09:10.440 but you would see at least that much in just 0:09:10.559 --> 0:09:12.280 the auto industry, that you would see a decline of 0:09:12.320 --> 0:09:15.040 forty plus thousand jobs in the first couple of years, 0:09:15.240 --> 0:09:17.400 because you would see people cut back on buying cars. 0:09:17.440 --> 0:09:19.839 Just that little increase in price in the overall car 0:09:19.920 --> 0:09:23.560 would lead to really ripple effects through the supply chains. Now, 0:09:23.600 --> 0:09:26.880 the President sign to national security in the steel and 0:09:26.920 --> 0:09:30.840 aluminum decisions and then went on to say that national 0:09:30.960 --> 0:09:37.120 security allies would have opted outs. Reconcile that for US, well, 0:09:37.240 --> 0:09:40.560 consistency doesn't seem to be part of this overall plan here, 0:09:40.600 --> 0:09:42.960 and and that is the real question. And pulling out 0:09:43.000 --> 0:09:47.600 the national security banner as the reason to put these 0:09:47.760 --> 0:09:50.920 these tariffs in place, you're saying that all these countries 0:09:50.960 --> 0:09:55.080 are gonna apply to are threatening national security. But then 0:09:55.520 --> 0:09:58.800 this is the question. But then the question is if 0:09:58.880 --> 0:10:01.600 you allow people to be exempted, and in for instance, 0:10:01.600 --> 0:10:03.720 what they're saying is you're allowed to be exempted Mexico 0:10:03.760 --> 0:10:07.559 and Canada as long as they renegotiate NAFTA, then you're 0:10:07.600 --> 0:10:10.840 saying that actually, this isn't for national security reasons, this 0:10:10.960 --> 0:10:13.680 is for some other sort of reason, which is a 0:10:13.720 --> 0:10:17.880 real question. And then this also, if we allow any 0:10:17.960 --> 0:10:20.360 issue to be put forward for national security and it's 0:10:20.400 --> 0:10:22.880 a broad blanket that affects every country. I mean, we're 0:10:22.880 --> 0:10:25.800 saying Brazil and Germany and other European countries, all of 0:10:25.840 --> 0:10:28.920 these are national security challenges to the United States. Then 0:10:28.960 --> 0:10:32.400 you're inviting back from those countries their ability to say 0:10:32.440 --> 0:10:34.240 that things that they want to protect in their economy 0:10:34.280 --> 0:10:37.280 are asta national security interests. So you know, French farmers 0:10:37.360 --> 0:10:40.240 can say that it's a national security interest to to 0:10:40.480 --> 0:10:43.240 keep out US grains or other products. We could see 0:10:43.280 --> 0:10:45.680 this reverberate through the system and and a lot of 0:10:45.679 --> 0:10:48.920 the careful work that's gone to build the World Trade Organization, 0:10:48.960 --> 0:10:53.080 these these global rules could begin to fall apart. Well, 0:10:53.120 --> 0:10:54.959 I was just going to follow up on that, these 0:10:54.960 --> 0:10:58.280 global rules you're talking about, even though you know some actors, 0:10:58.400 --> 0:11:00.920 some states are going a little bit out side, it 0:11:00.960 --> 0:11:06.440 seems like talking about national security and the possibility of 0:11:06.600 --> 0:11:10.760 other countries using other kinds of justifications that might not 0:11:11.120 --> 0:11:15.600 be on their face totally justified. Is its own way 0:11:15.640 --> 0:11:19.679 of sort of scrapping the rules and in a way 0:11:19.720 --> 0:11:24.360 that nobody would agree on them anymore and could lead 0:11:24.400 --> 0:11:27.320 to a lot of unforeseen consequences. Is that a fear 0:11:27.360 --> 0:11:29.240 that you might have. It is a fear that I have. 0:11:29.320 --> 0:11:30.960 I mean, it's a fear that we return, not to 0:11:30.960 --> 0:11:33.400 go back to your your philosophy courses in college. But 0:11:33.679 --> 0:11:36.199 are we moving back to this hobbsy in world where 0:11:36.400 --> 0:11:39.720 might makes right and everything's nasty, British and short. Or 0:11:39.760 --> 0:11:42.360 do we have a set of rules that people abide by, 0:11:42.480 --> 0:11:46.079 and when one actor, one player doesn't abide by the rules, 0:11:46.080 --> 0:11:49.760 do the others come together and punish that individual or 0:11:49.760 --> 0:11:53.400 that actor or that country for violating the rules. Or 0:11:53.440 --> 0:11:55.720 do you just throw the whole table over and say, okay, no, 0:11:56.320 --> 0:11:58.200 this person broke the rules. We won't have any rules 0:11:58.200 --> 0:12:00.160 at all and we'll just see what we could the 0:12:00.160 --> 0:12:02.640 most we can gain for our own country. And what 0:12:02.679 --> 0:12:07.520 we've seen in history is that that doesn't benefit everyone 0:12:07.559 --> 0:12:09.960 loses in that. In that case, yes, you might gain 0:12:10.000 --> 0:12:14.120 a bit more relatively than the others, but the pie shrinks. Now, 0:12:14.160 --> 0:12:19.120 when China positions itself in contrast to the US as 0:12:19.360 --> 0:12:23.960 supporters of the rules based system, what do they really mean. 0:12:25.880 --> 0:12:29.760 China has benefited tremendously from this rules based system. There's 0:12:29.800 --> 0:12:33.000 no doubt about that. They have grown if you think 0:12:33.040 --> 0:12:36.280 back to the late eighties, from a very small part 0:12:36.320 --> 0:12:39.040 of the world economy and the world exports to now 0:12:39.120 --> 0:12:42.679 one of the heavyweights. So this is something. This openness 0:12:42.679 --> 0:12:45.040 of markets, the ability to trade back and forth, the 0:12:45.080 --> 0:12:48.240 real consistency and rules has been a huge benefit to China. 0:12:48.320 --> 0:12:50.760 So of course they want the system to continue. Now, 0:12:50.800 --> 0:12:52.960 what the United States and many other countries want, and 0:12:53.000 --> 0:12:55.199 it's not just the United States but Europe and in 0:12:55.280 --> 0:12:57.640 Latin American countries all over the world, they want China 0:12:57.720 --> 0:12:59.480 to play by some of the same rules that they're 0:12:59.480 --> 0:13:03.280 playing by. And there is in many industries there's significant 0:13:03.320 --> 0:13:08.080 evidence that China forces the transfer of intellectual property and 0:13:08.080 --> 0:13:11.840 technology there's significant evidence of that. China in many ways 0:13:11.880 --> 0:13:16.160 unfairly props up staten't enterprises, gives them cheap credit, free land, 0:13:16.240 --> 0:13:19.040 removed from taxes, all sorts of things that create an 0:13:19.120 --> 0:13:21.599 unlevel playing field for for the private sector in the 0:13:21.679 --> 0:13:24.320 United States or Europe other places. So the Bosking and 0:13:24.520 --> 0:13:27.800 Great tripr right now, this is true, but you know, 0:13:27.920 --> 0:13:30.200 don't let the facts get in front of a good story, 0:13:30.320 --> 0:13:32.680 right and they're playing this to the hills. Um. But 0:13:32.720 --> 0:13:35.760 if the United States wants to step forward and enforce 0:13:35.800 --> 0:13:38.319 the rules, they're gonna need all these other countries that 0:13:38.440 --> 0:13:42.079 also want to enforce the rules together, So like the EU, 0:13:42.400 --> 0:13:45.000 like the countries in Latin America, Brazil, like Canada and 0:13:45.040 --> 0:13:48.280 Mexico together, that would be a much starter strategy in 0:13:48.360 --> 0:13:51.600 my view, to take on what may have been unfair practices, 0:13:51.600 --> 0:13:55.480 which I have been unfair practices and stealing aluminum for instance. Shannon, 0:13:55.600 --> 0:13:58.640 now that we're going down this path of skirmishes with 0:13:58.800 --> 0:14:02.040 an eye toward potential a war, rules being thrown out 0:14:02.080 --> 0:14:06.440 the window. New rules are picture early being written. Can 0:14:06.480 --> 0:14:10.760 we ever go back to a more rules based system 0:14:10.920 --> 0:14:13.960 or are we not going to get back there unless 0:14:14.000 --> 0:14:17.480 there's a whole war that forces everybody to start back 0:14:17.520 --> 0:14:19.880 over again. Well, I don't think we've entered the battlefield 0:14:19.920 --> 0:14:22.600 here yet. I think we're still before the war. But 0:14:22.680 --> 0:14:25.080 if we enter this, it will be hard to walk 0:14:25.120 --> 0:14:28.000 it back. And I think one of the telling aspects 0:14:28.080 --> 0:14:31.440 here is do we see in the coming months and years, 0:14:31.480 --> 0:14:36.040 do we see nations rally around a somewhat fragile World 0:14:36.040 --> 0:14:39.120 Trade Organization, the w t O and support it. We 0:14:39.160 --> 0:14:41.000 may need to reform it to make it stronger, to 0:14:41.040 --> 0:14:43.120 make it actually do the things that it needs to do, 0:14:43.800 --> 0:14:46.240 or do we see it blown up? And that really 0:14:46.320 --> 0:14:48.440 is is going to be a crucial moment. If we 0:14:48.520 --> 0:14:50.800 blow the World Trade Organization up, I think it will 0:14:50.800 --> 0:14:53.720 take many years, if not a decade or more, to 0:14:54.120 --> 0:14:57.720 rebuild that system. But it's still there. It's not gone yet. 0:14:57.760 --> 0:15:00.960 It's just in jeopardy. Shannon, you and I were both 0:15:01.080 --> 0:15:05.840 guests at the twenties seventeen Annual Mexican Business Summit, and 0:15:05.880 --> 0:15:07.880 there was a lot of angst, a lot of gnashing 0:15:07.920 --> 0:15:11.200 of teeth. Executives there thought, well, look, if we just 0:15:11.240 --> 0:15:15.040 set up these global supply chains, corporate interest will take 0:15:15.080 --> 0:15:17.720 care of itself, and we don't really have to worry 0:15:17.760 --> 0:15:22.200 about government at all. And the shock of the election, 0:15:22.240 --> 0:15:24.800 it's fair to say, was still sinking in. People were 0:15:24.800 --> 0:15:29.080 walking around stunt. What did they And by extension, we 0:15:29.200 --> 0:15:34.160 in the economic mainstream mess. I think what economists and 0:15:34.200 --> 0:15:38.720 investors and others sometimes miss is the rationality of the investment. 0:15:38.720 --> 0:15:43.160 The rationality decisions often belies the politics. And for many 0:15:43.240 --> 0:15:47.920 years we've forgotten the politics and politics are emotional. Politics 0:15:47.920 --> 0:15:52.360 are about people and ideas and aspirations, and some of 0:15:52.400 --> 0:15:55.840 that is not necessarily rational, or some of that only sees, 0:15:56.280 --> 0:15:58.920 you know, part of the proverbial elephant that's in the room. 0:15:59.000 --> 0:16:01.600 And so this is the challenge. I do think the 0:16:01.640 --> 0:16:04.120 United States, the world trading system, we were coming back 0:16:04.160 --> 0:16:07.280 from a global recession. We thought, okay, the economics has 0:16:07.320 --> 0:16:09.720 worked itself out, We're we're moving forward. This is all 0:16:09.760 --> 0:16:13.120 going to be fine. But those people, whether in Mexico 0:16:13.200 --> 0:16:15.080 or in the United States, around the world, that got 0:16:15.160 --> 0:16:17.360 hit by the recession, they were left behind. And it's 0:16:17.400 --> 0:16:21.120 not just that recession, it is the transformations that are 0:16:21.120 --> 0:16:23.520 happening around the world. Trade is a small part of this, 0:16:23.760 --> 0:16:25.880 a part of it um, but other things are happening. 0:16:25.920 --> 0:16:29.480 So I think the politics will be a guiding force 0:16:29.560 --> 0:16:31.360 as we look forward for the next couple of years 0:16:31.440 --> 0:16:34.320 and in decade, and that is something that frankly, I 0:16:34.360 --> 0:16:37.120 think a lot of those that talk about these issues 0:16:37.200 --> 0:16:41.480 were missing Shannon. Given these trends in politics one year 0:16:41.520 --> 0:16:43.920 from now, will we be in a global trade war? 0:16:45.440 --> 0:16:48.640 I'd like to stick with my optimistic nature and say no, 0:16:48.960 --> 0:16:52.440 but I do think these recent steps have been worrying. 0:16:53.080 --> 0:16:57.040 The one thing that I do see is that many 0:16:57.160 --> 0:17:03.280 countries around the world are moderating their behavior. Yes they're upset, 0:17:03.480 --> 0:17:06.480 yes they think it's unfair, but we haven't seen the 0:17:06.720 --> 0:17:09.760 quick reaction in many of these places that one might 0:17:09.760 --> 0:17:12.840 expect to what many will consider an affront. And so 0:17:13.400 --> 0:17:15.760 as we look forward, in particularly, I think about Latin America, 0:17:15.760 --> 0:17:18.280 where I spent a lot of time and look, right now, 0:17:18.320 --> 0:17:21.359 we probably have over the last few decades, we probably 0:17:21.359 --> 0:17:25.240 had the most free trade, friendly, pro market set of 0:17:25.280 --> 0:17:28.399 governments that we've had in many, many years. That may 0:17:28.480 --> 0:17:30.200 change this year because there's a lot of elections, a 0:17:30.280 --> 0:17:31.560 lot of people are going to come up, and we 0:17:31.600 --> 0:17:34.119 may see things turn over. But but that tells me 0:17:34.160 --> 0:17:36.399 as you look at this hemisphere, as you look at Europe, 0:17:36.440 --> 0:17:38.960 as you look at other places, there's a lot of leadership, 0:17:39.000 --> 0:17:40.359 and there are a lot of voters who have voted 0:17:40.400 --> 0:17:43.520 for those leaders in democracies, who still believe in these 0:17:43.520 --> 0:17:46.720 fundamental rules of the game, who still see trade as 0:17:46.800 --> 0:17:49.239 the way to prosperity and to growth. So I think 0:17:49.320 --> 0:17:53.240 we need to temper our pessimism um about some of 0:17:53.280 --> 0:17:55.080 the rhetoric that's going back and forth that can be 0:17:55.160 --> 0:17:57.919 quite hostile or acrimonious. And do remember that there is 0:17:57.960 --> 0:18:01.000 a large segment of the world that has benefited from 0:18:01.000 --> 0:18:03.919 this opening, that have seen their incomes rise, um, And 0:18:03.960 --> 0:18:06.200 so can we find a way for this net benefit 0:18:06.840 --> 0:18:10.280 to be more inclusive? That is the challenge of these politicians. 0:18:10.800 --> 0:18:15.960 Does that optimistic view about governments in the America's hinge 0:18:16.160 --> 0:18:20.600 on the outcome of Mexico's presidential election? What does the 0:18:20.800 --> 0:18:26.320 candidacy of Andreas Manuel Lopez Albert or Maine. This is 0:18:26.359 --> 0:18:29.280 really I think a bell weather for this optimistic versus 0:18:29.280 --> 0:18:32.680 pessimistic view and the front runner right now um and 0:18:33.560 --> 0:18:37.480 they call AMLO, that's his hackronym. He is an old 0:18:37.520 --> 0:18:42.360 school state development protectionist type. He was raised or came 0:18:42.440 --> 0:18:44.720 of age politically of age in the nineteen seventies and 0:18:44.720 --> 0:18:47.960 he's still there economically, that's how he sees the world. 0:18:48.000 --> 0:18:50.520 And this is really to me from Mexico, this is 0:18:50.520 --> 0:18:53.919 a bell weather election on the economic model of the 0:18:53.960 --> 0:18:57.639 last thirty years. This is an election about NAFTA. Is 0:18:57.720 --> 0:19:01.680 Mexico's path to prosperity, to grow the one that engages 0:19:01.720 --> 0:19:04.800 the world, that's market friendly, that's US friendly, that looks 0:19:04.840 --> 0:19:07.520 more openly, or do you go back to a very 0:19:07.560 --> 0:19:10.959 closed economy, one that's self sufficient as he would say, 0:19:11.000 --> 0:19:14.200 that's turned inwards. Now we can talk as economists about 0:19:14.200 --> 0:19:16.399 why that doesn't really work and why that won't happen, 0:19:16.480 --> 0:19:19.679 But but that vision is his vision. So I do 0:19:19.800 --> 0:19:22.920 think what happens July one, which is when this election happened, 0:19:23.200 --> 0:19:26.240 has huge ramifications not just for Mexico but for for 0:19:26.320 --> 0:19:29.800 this direction. Do you get one of the NAFTA partners, 0:19:29.840 --> 0:19:33.400 who in many ways matches Trump's temperament on trade, would 0:19:33.400 --> 0:19:35.880 turn back to a protectionism And I think that has 0:19:35.880 --> 0:19:37.960 a lot to say what would happen to NAFTA, But 0:19:38.040 --> 0:19:40.240 in general, what would happen with this tip for tat 0:19:40.240 --> 0:19:42.800 the potential back and forth you might see that would 0:19:42.880 --> 0:19:45.040 lead to a trade war. Now, it can seem like 0:19:45.080 --> 0:19:49.800 a fairly arcane thing to have an entire presidential campaign 0:19:50.200 --> 0:19:52.679 of a country of more than a hundred million people 0:19:53.560 --> 0:19:57.399 john NAFTA. But it's a central organizing principle of the 0:19:57.560 --> 0:20:02.000 entire Mexican country, is it not. Everything has been geared 0:20:02.359 --> 0:20:07.040 towards its economic relationship with United States, like everything it is, 0:20:07.320 --> 0:20:10.960 And NAFTA has really become the rule of law, the 0:20:11.080 --> 0:20:16.080 underlying rules for foreign investment for companies operating international companies 0:20:16.080 --> 0:20:19.560 operating in Mexico. So if you pull that away, you're 0:20:19.640 --> 0:20:23.400 left with Mexican rule of law, Mexican domestic courts, which 0:20:23.440 --> 0:20:26.680 are much more fragile and at times much more likely 0:20:26.720 --> 0:20:30.040 to be swayed, to be more arbitrary, uh than to 0:20:30.200 --> 0:20:33.120 uphold a much more balanced rule of law. So this 0:20:33.320 --> 0:20:35.680 is a huge fear of those that are down there, 0:20:35.840 --> 0:20:37.959 and frankly, it's a fear not just for international companies, 0:20:38.000 --> 0:20:40.800 for domestic companies, for the Mexican companies that want to 0:20:40.840 --> 0:20:45.040 operate in a place that's quite open to new ideas entrepreneurship. 0:20:45.160 --> 0:20:47.959 Mexico has been moving in that direction. And the worry 0:20:48.080 --> 0:20:51.080 is if you pull away NAFTA, if you turn back 0:20:51.080 --> 0:20:53.800 in if the state takes a much greater role in 0:20:53.880 --> 0:20:56.639 the economy, choosing champions and the like, back in that 0:20:56.680 --> 0:20:59.480 way of the nineteen seventies, that you will stifle a 0:20:59.520 --> 0:21:02.040 lot of the pretnership, the productivity, and the growth that 0:21:02.119 --> 0:21:05.560 has allowed Mexico to prosper over the last thirty years. 0:21:05.800 --> 0:21:07.960 All right, Shannon, Well, maybe we can have you back 0:21:08.000 --> 0:21:10.919 after the Mexican election or if there's a full blown 0:21:10.960 --> 0:21:14.160 trade war. Either way, I would love to thank you. 0:21:14.280 --> 0:21:18.120 Let's hope that doesn't mean next week exactly. Shannon, thanks 0:21:18.119 --> 0:21:24.200 so much for being on Benchmark. Will be back next week. 0:21:24.400 --> 0:21:26.600 Until then, you can find us on the Bloomberg terminal, 0:21:26.640 --> 0:21:30.600 Bloomberg dot com, our Bloomberg app, and podcast destinations such 0:21:30.600 --> 0:21:34.520 as Apple Podcasts, Spotify or wherever you listen. Please take 0:21:34.520 --> 0:21:36.760 the time to rate and review the show, and you 0:21:36.800 --> 0:21:39.159 can also find us on Twitter. You can follow me 0:21:39.359 --> 0:21:44.719 at at Scott Landman Dan You're at Moss Underscore Echo, 0:21:45.240 --> 0:21:49.080