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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.

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Speaker 2: Tracy, you know, we're several months, I guess, like five

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Speaker 2: months or so, recording to September sixteenth, five months or

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Speaker 2: so since Liberation days, since the trade war started. By

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Speaker 2: and large, the world is still kind of working right.

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Speaker 2: You could see its effects for sure, and certain categories

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Speaker 2: and so forth, but by and large, I don't think

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Speaker 2: the contours of the economy look that much different than

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Speaker 2: they did, say in March or April.

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Speaker 3: Look, I'm still missing my auction item that's supposed to

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Speaker 3: be mailed from the Netherlands, so it has affected me directly.

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Speaker 2: Wait what happened with it? Wait? Say more?

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Speaker 3: Okay, So I won something from a Dutch auction house

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Speaker 3: and they were supposed to mail it in house shipping,

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Speaker 3: and instead of mailing it, they sent out an email

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Speaker 3: saying that they can't mail it because everyone's trying to

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Speaker 3: figure out the new tariff schedule and customs and things

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Speaker 3: like that. I still haven't heard from.

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Speaker 2: Them, but it still feels like something happened. There was

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Speaker 2: some sort of rupture. Kind of hard to imagine going

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Speaker 2: to a March twenty twenty five world again, but also

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Speaker 2: hard to imagine going to a pre Trump one world ever, Like,

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Speaker 2: it's hard for me to imagine that in my lifetime

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Speaker 2: that there will ever be a sort of twenty fifteen

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Speaker 2: style trading relationship between the US and China.

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Speaker 3: Well, I could be wrong, never say never, but.

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Speaker 2: It's just hard for me to see at this point.

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Speaker 3: At this point, like, it's not a single administration thing. Right,

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Speaker 3: We've had Trump one point oh, and then Biden continued

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Speaker 3: a lot of the tariffs and even added some new ones,

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Speaker 3: and then we have Trump two point zero, which is

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Speaker 3: arguably going even harder on China. So it does seem

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Speaker 3: like at least a durable trend.

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Speaker 2: Yeah, not a fly. And as we've discussed, you mentioned

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Speaker 2: the fact that Biden was a continuation arguably an expansion

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Speaker 2: of Trump one, particularly with some of the export restrictions

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Speaker 2: on technology. Yeah, this is one of the rare trade

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Speaker 2: rethinking the global trading system, whatever that means, is one

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Speaker 2: of the rare areas of bipartisan consensus in dc IS,

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Speaker 2: as has come up in many episodes.

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Speaker 3: Yeah, that in housing, that in.

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Speaker 2: Housing right, that housing is very expensive. We really do

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Speaker 2: have the perfect guest, someone who has a very big

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Speaker 2: picture view on trade, someone who has been directly involved

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Speaker 2: in trade negotiations, someone who remembers the sort of pre Trump.

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Speaker 3: One, the long long long ago, the.

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Speaker 2: Long long long ago global trading system, and who could

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Speaker 2: talk about whatever remnants of that are left, or even

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Speaker 2: maybe who can explain to me what the global trading

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Speaker 2: system was. We're going to be speaking with Michael Frohman.

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Speaker 2: He is the President of the Council on Foreign Relations

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Speaker 2: and he was the former US Trade repper reve during

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Speaker 2: the Obama Obama two administration twenty thirteen to twenty seventeen.

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Speaker 2: Has continued to write a lot about this topic. So,

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Speaker 2: Michael Frohman, thank you so much for coming out odd last,

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Speaker 2: Thanks for having me. Absolutely What does the US trade

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Speaker 2: representative do? You had that job? I actually realized I

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Speaker 2: don't really know.

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Speaker 4: It's a great job. It really has the function of

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Speaker 4: negotiating trade agreements and enforcing US trade rights under previous agreements.

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Speaker 4: The reason I love the job is that it combines

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Speaker 4: high diplomacy, sitting down with ministers, presidents, prime ministers of

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Speaker 4: other countries, trying to reach agreements with having to have

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Speaker 4: a really detailed understanding of elements of the US economy.

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Speaker 4: I mean, I learned more from American farmers teaching me

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Speaker 4: the five hundred things you can do with a molecule

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Speaker 4: of milk and how they manipulate a molecule of milk

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Speaker 4: to circumvent trade restrictions and get around tariffs, so you

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Speaker 4: export it as butter or his way, or as low

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Speaker 4: calorie powder or whatever.

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Speaker 5: This is a whole episode episode, right, But that's really

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Speaker 5: one example of the literally thousands of issues you have

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Speaker 5: to learn as US trade rep to be able to

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Speaker 5: sit down with your counterparts in other countries and negotiate agreements.

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Speaker 3: Can you give us an idea or a sense of

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Speaker 3: the average negotiation? What exactly is the process? Like do

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Speaker 3: you meet for the first time in a designated room

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Speaker 3: somewhere or is there prep that goes into these you're

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Speaker 3: exchanging emails? What exactly happens?

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Speaker 4: So in the past, and of course it's a very

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Speaker 4: different situation now, But in the past, the US or

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Speaker 4: another country might come up with an idea of what

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Speaker 4: they wanted to do in a trade negotiation, a set

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Speaker 4: of issues they wanted to take on a set of

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Speaker 4: countries they wanted to negotiate with, and they would go

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Speaker 4: around and do consultations with other countries, float the ideas,

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Speaker 4: see what kind of feedback they got, and scope out

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Speaker 4: the nature of the negotiation. Is it going to be

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Speaker 4: just about goods and tariffs? Is it going to touch

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Speaker 4: upon agriculture, sure and regulations and services and labor and

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Speaker 4: environment and all various other issues that have become part

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Speaker 4: of trade negotiations in the past, and get agreement by

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Speaker 4: the other countries that this was the agenda. And then

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Speaker 4: in the past usually it's the US that has been

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Speaker 4: sort of driving the agenda. These would be the topics

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Speaker 4: we would deal with. The US would come up with

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Speaker 4: proposals of what are the disciplines that we would like

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Speaker 4: to see in each of these areas, what are the

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Speaker 4: rules that we'd like to see. And it was the

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Speaker 4: way the US brought other countries along to adopt high

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Speaker 4: standard rules across one sector, one subject matter or another.

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Speaker 4: And the idea was, we know, we live in a

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Speaker 4: high wage, highly regulated economy. We compete with economies that

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Speaker 4: oftentimes have lower wages, lower regulation, and if we could

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Speaker 4: raise other country standards closer to our own. It would

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Speaker 4: level the playing field for American workers and farmers and

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Speaker 4: ranchers and make it easier for us to compete.

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Speaker 2: I mean, for better or worse. It really just seems

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Speaker 2: like a totally different era and out the idea of

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Speaker 2: getting to the idea of going back to some world

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Speaker 2: where the US is actively working with a bunch of

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Speaker 2: country on rules rather than rates terror for it really

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Speaker 2: does seem it seems like ancient history. Now, it just

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Speaker 2: seems right.

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Speaker 4: Look, I think that's right. First of all, I think

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Speaker 4: I think the international trading system had been under stressed

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Speaker 4: for some time. President Trump, in some ways put was

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Speaker 4: the final nail in the coffin of it. But you know,

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Speaker 4: the global multilateral rules based system, that's like the wto

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Speaker 4: the World Trade Organization, where one hundred and sixty plus

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Speaker 4: countries got together, agreed to a set of rules, agreed

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Speaker 4: to some mechanisms for enforcing those rules and for monitoring them.

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Speaker 4: That's been under stress for a long time. There's been dissatisfaction,

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Speaker 4: and I think now, in fact, you're right. I think

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Speaker 4: we can't go back to the way things were pre Trump.

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Speaker 4: We're gonna have to think about what comes next.

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Speaker 3: Just to play a devil's advocate for a second, to

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Speaker 3: what extent did we actually have a rules based trading

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Speaker 3: system in the sense that everyone was actually beholden to

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Speaker 3: the same limitations or the same rules, Because looking back,

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Speaker 3: there were always accusations about China cheating or maybe the

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Speaker 3: US was taking advantage in some way, And in fact,

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Speaker 3: you could argue that that sense of unfairness is kind

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Speaker 3: of what got us to where we are today. So

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Speaker 3: was it really rules based for everyone?

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Speaker 4: So I think we have to look back at the

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Speaker 4: whole history of the post war period because for decades,

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Speaker 4: China wasn't a factor, it wasn't part of the global

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Speaker 4: trading system, it wasn't a major economy, and it was

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Speaker 4: the US and Europe, Japan, others who came together to

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Speaker 4: really form this set of rules. And it's never a

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Speaker 4: perfect system. My sense is what rules means is that

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Speaker 4: most countries follow most of the rules most of the time,

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Speaker 4: not that it's one hundred percent perfection. By the way,

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Speaker 4: that's true when you have laws in the United States,

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Speaker 4: I mean we have laws of the United States because

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Speaker 4: people do commit crimes. The existence of laws does not

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Speaker 4: prevent people from committing crimes. That's why you need enforcement.

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Speaker 4: Same thing is true on the international side as well.

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Speaker 4: The big difference, as you pointed out, Tracy, is when

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Speaker 4: China became a major factor in the global economy and

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Speaker 4: began to integrate globally. On one hand, there was an

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Speaker 4: opportunity to say, Okay, this is an opportunity for bring

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Speaker 4: China into the global system, get them to adopt the

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Speaker 4: set of rules that the rest of us have all

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Speaker 4: agreed to, because they appear to be on this path

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Speaker 4: towards market reform, openness, liberalization. I think what happened in

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Speaker 4: reality is that trajectory wasn't as linear, didn't go as far,

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Speaker 4: didn't go as fast as people anticipated. And what we

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Speaker 4: did not anticipate is that somebody like President She would

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Speaker 4: come in and in fact stop or reverse it. And

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Speaker 4: so now we have an economy that is huge, second

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Speaker 4: largest economy in the world, biggest manufacturing part of the

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Speaker 4: global economy, likely to be accounting for something like forty

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Speaker 4: five percent of all global manufacturing in a few years,

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Speaker 4: which is the I guess that any country has ever

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Speaker 4: been in history, and it's following a fundamentally different set

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Speaker 4: of rules, and that has led to a law of

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Speaker 4: the stress in the international system.

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Speaker 2: Can you explain maybe the philosophical premise behind the idea

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Speaker 2: that trade with China? I guess, why do we care

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Speaker 2: about what their internal rules are? Right theory of trade,

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Speaker 2: it's sort of okay, they're cheaper for whatever reason, or

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Speaker 2: they're more efficient, et cetera, and so you know, comparative

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Speaker 2: advantage we benefit from that. Why does the global trading

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Speaker 2: system why is it or was it or is it

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Speaker 2: premised on this notion that all of the participants would

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Speaker 2: and in some sort of more liberal direction with their

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Speaker 2: domestic economies.

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Speaker 4: You know, I think it's because the actions that China

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Speaker 4: has taken domestically to drive they're really quite remarkable economic

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Speaker 4: growth over the last few decades does have ramifications outside

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Speaker 4: of China, has ramifications for the rest of the world,

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Speaker 4: for manufacturing in the rest of the world, for other factors,

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Speaker 4: and so it's not something that can be limited to

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Speaker 4: China if China gets to where it's going, because it

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Speaker 4: steals intellectual property, because it produces over capacity, so it

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Speaker 4: creates far more factories than it needs to for the

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Speaker 4: reasonable demand for a product in order to drive other

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Speaker 4: producers out of the market in other countries that has

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Speaker 4: an average effect on us. If they subsidize state owned

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Speaker 4: enterprises or even private enterprises in such a way that

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Speaker 4: it creates this unlevel playing field, then it affects the

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Speaker 4: rest of US as well. And I think that's what's

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Speaker 4: really happened, is that China, whether it's a state owned enterprise,

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Speaker 4: is subsidization, intellectual property rights, theft, government intervention into the

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Speaker 4: private sector, all towards positioning China as the leading manufacturer.

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Speaker 4: But it has come at the expense of other industrialized countries,

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Speaker 4: in some cases other emerging economies, and that's why there's

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Speaker 4: been thisess counter reaction.

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Speaker 3: So I know you were trade representative before the tensions

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Speaker 3: with China really ramped up under the first Trump administration,

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Speaker 3: But how were you thinking back then about incentivizing other

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Speaker 3: countries when it comes to trade negotiations like KARRA and

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Speaker 3: stick strategy. Was it mostly about incentives and if so,

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Speaker 3: what were you giving them or was it sometimes maybe threats?

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Speaker 4: So you have to use both. I think on the

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Speaker 4: threat side, it's not really threats. It was enforcement that

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Speaker 4: we would bring cases against countries, including China at the

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Speaker 4: WTO or against other trading partners where we had arrangements

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Speaker 4: if we felt that they were violating our rights under

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Speaker 4: those agreements. We brought during the Obama I think we

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Speaker 4: brought the most cases ever brought against China. We won

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Speaker 4: all the cases that got to conclusion. The problem was

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Speaker 4: China would find ways either of delaying implementation or by

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Speaker 4: the time the fix was implemented, the relevant industry in

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Speaker 4: the United States or elsewhere was gone, and so it

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Speaker 4: was really sort of cold comfort. And that's one of

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Speaker 4: the challenges I think that we saw in the World

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Speaker 4: Trade Organization. I think on the incentive side, that's where

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Speaker 4: trade agreements, real trade agreements come into play. I was

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Speaker 4: involved in something called the Transpecific Partnership, which was twelve

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Speaker 4: countries around the Asia Pacific region that were working on

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Speaker 4: opening their economies to each other, abiding by a high

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Speaker 4: standard set of rules. Some of the countries already had

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Speaker 4: free trade agreements with US, about half of them did,

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Speaker 4: so we weren't giving them any more access to our economy.

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Speaker 4: We'd already given them access. But at the table we

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Speaker 4: had Japan, and Japan was an economy that had never

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Speaker 4: really opened up to other markets, and these other countries

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Speaker 4: knew that they couldn't get Japan to open on their own,

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Speaker 4: but if the US was pushing Japan to open, they

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Speaker 4: would benefit from it. So you had countries like Peru

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Speaker 4: or Chile who already had free trade agreements with US

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Speaker 4: willing to raise their labor standards or willing to enforce

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Speaker 4: environmental laws because they were getting access not to our market,

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Speaker 4: but to Japan, and that incentive was one that was

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Speaker 4: powerful for them.

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Speaker 2: That's a very uh, that's a very interesting dynamic. Talk

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Speaker 2: a little bit more about those years twenty thirteen pre

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Speaker 2: Trump in the actions towards China, because if you said,

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Speaker 2: by that point Obama had already introduced a record number

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Speaker 2: of actions against China, winning many of them, winning all

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Speaker 2: of them to do something, well, all of them that

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Speaker 2: went to conclusions, all of them that went to conclusion,

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Speaker 2: but it didn't really matter because either there was some

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Speaker 2: way to evade or the US industry had been decimated.

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Speaker 2: Was there something pre Trump, I mean, I don't know.

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Speaker 2: Whenever that was there a feeling that something has to

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Speaker 2: change fundamentally in how the US and China trade or

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Speaker 2: the rules governing that trade.

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Speaker 4: At that point, no, absolutely, Look the day one of

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Speaker 4: the Obama administration. The world had been involved in something

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Speaker 4: called the Doha Round of negotiations at the World Trade

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Speaker 4: Organization had been going on since two thousand and one,

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Speaker 4: and I remember going to a G twenty summit. There

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Speaker 4: was one in April in London, and all the other

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Speaker 4: leaders around the table here was the new President of

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Speaker 4: the United States. On their mind was asking him, Okay,

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Speaker 4: what are you going to do to bring the Doha

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Speaker 4: Round to successful conclusion this year? And the President said,

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Speaker 4: all right, We're going to go back and take a

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Speaker 4: look at this, and he asked a group of us

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Speaker 4: to do a study, and by the summer we had

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Speaker 4: come back to him and said, this Doha Round isn't

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Speaker 4: going to get done. The door A Round was founded

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Speaker 4: on this fundamental premise in two thousand and one that

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Speaker 4: basically developing countries. It was called the Development Round, and

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Speaker 4: the primary beneficiaries of the door A Round would have

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Speaker 4: been developing countries, not industrialized countries. And the fundamental premise

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Speaker 4: was developing countries shouldn't have to live by too many

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Speaker 4: rules industrial countries should, and this would help the developing

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Speaker 4: countries catch up. By two thousand and nine, when we

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Speaker 4: saw what had happened with China between two thousand and

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Speaker 4: one and two thousand and nine. There was no way

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Speaker 4: that an agreement that gave China a pass on rules

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Speaker 4: so they could continue to expand its manufacturing and undermine

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Speaker 4: manufacturing around the world, that that was going to fly.

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Speaker 4: And the President went back to the other leaders at

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Speaker 4: the next year twenty meeting and said, the Doha Round

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Speaker 4: is not going to get done on the path that

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Speaker 4: is currently on. And I remember we were at a

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Speaker 4: G twenty summit and the other leaders all went around

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Speaker 4: and read their talking points. The traditional talking point at

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Speaker 4: the time was the Doha Round will get completed by

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Speaker 4: December this year or by the ministerial this year. And

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Speaker 4: you know, President Obama intervened, He made his point. The

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Speaker 4: other leaders read their talking points, and he put his

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Speaker 4: flag back up and said, you know, you guys aren't listening.

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Speaker 4: This isn't going to happen. And that was the first

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Speaker 4: indication that something needed to change. And then we were

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Speaker 4: sitting down with the Chinese bilaterally in lots of consultations,

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Speaker 4: sort of on ending consultations, and we'd have this conversation

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Speaker 4: with them and remind them that their tremendous success was

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Speaker 4: based on a benign international environment, the capacity to export

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Speaker 4: to the rest of the world, and that if we

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Speaker 4: didn't address these underlying concerns, stayed on enterprises, subsidization, IPR rights, etc.

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Speaker 4: That benign international environment was going to disappear. And that,

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Speaker 4: of course, is exactly what's happened, and that's the bipartisan

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Speaker 4: consensus against China that has now emerged. We started warning

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Speaker 4: them of that back in two thousand and nine twenty ten,

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Speaker 4: and I think we made some modest progress during the

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Speaker 4: Obama administration to get them changed certain practices. But by

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Speaker 4: the time President she came in and made it clear

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Speaker 4: he was going to be dominant in the following sectors.

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Speaker 4: He was going to reduce his dependency on the rest

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Speaker 4: of the world and increase everybody else's dependency on China,

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Speaker 4: the game was over.

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Speaker 3: Lead into my next question, which is we've talked a

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Speaker 3: lot about how you know there was this break in

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Speaker 3: the rules based liberal trading order. Was there a single

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Speaker 3: moment where you went like, Aha, this has fundamentally broken

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Speaker 3: instead of just like slowly declining, slowly changing, was there

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Speaker 3: something that sticks out to you about, Wow, this is

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Speaker 3: actually changing right now.

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Speaker 4: So I think that Doha moment back in two thousand

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Speaker 4: and nine was one of them. I also think later

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Speaker 4: on in the Obama administration, we were trying to negotiate

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Speaker 4: an agreement over environmental goods. It was a list of

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Speaker 4: two hundred and fifty or so products that would have

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Speaker 4: been good for countries to buy more of and produce

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Speaker 4: more of because it was good for the environment, for

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Speaker 4: climate change or otherwise. And it failed. It failed over

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Speaker 4: bicycles that between China and the EU. The EU was

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Speaker 4: protecting the Polish bicycle industry. I wanted to put bicycles

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Speaker 4: on the list, and they couldn't agree on what to

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Speaker 4: do with bicycles, and so the entire agreement fell over

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Speaker 4: that one issue. And to me, it's sort of underscored. Okay,

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Speaker 4: we're pretty far from reaching consensus that if we can't

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Speaker 4: reach agreement over bicycles, we're not going to reach agreement

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Speaker 4: over things that are much more meaningful.

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Speaker 2: Were you surprised at all? I want to we start

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Speaker 2: to move a little bit closer to the present. But

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Speaker 2: before we go to the present, was it inevitable that,

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Speaker 2: in your view, that the Biden administration ended up as

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Speaker 2: a continuation slash expansion of some of the Trump restrictions.

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Speaker 2: Was there still an opportunity to turn somewhere closer to

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Speaker 2: a pre Trump path.

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Speaker 4: I think there was an opportunity to make some changes,

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Speaker 4: but not to go back to the way things were before.

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Speaker 4: The Biden administration, for example, launched a review of the

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Speaker 4: China tariffs, and I think in many respects, the by

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Speaker 4: administration was very strategic in how it approached export controls

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Speaker 4: and foreign investment constraints, was very targeted the tariffs. They

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Speaker 4: launched a review to try and distinguish between strategic and

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Speaker 4: non strategic tariffs. There's a case to be made for

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Speaker 4: tariffs if there's unfair trade practices, or if it's a

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Speaker 4: product that you really need to produce here in the

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Speaker 4: United States. You don't want dependency, But do we need

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Speaker 4: tariffs on t shirts and underwear and socks? Is that

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Speaker 4: important to our national security? And they never got themselves

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Speaker 4: to the position of reducing those tariffs. And to me,

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Speaker 4: it's not necessarily a criticism of the Biden administration. I

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Speaker 4: think it just goes to show that tariffs are easy

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Speaker 4: to put on and hard to take off, because once

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Speaker 4: they're on, there are constituencies that are supportive of them,

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Speaker 4: and any movement to reduce tariffs, particularly in this political context,

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Speaker 4: is seen as being weak on China, even if it

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Speaker 4: makes pure sense from an economic point of view. Who

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Speaker 4: is hurt most by tariffs on underwear t? Shirts? And

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Speaker 4: it tends to be low income Americans who spend a

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Speaker 4: disproportionate amount of their disposable income on imported goods, And

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Speaker 4: we could afford to bring in those products from China

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Speaker 4: without questioning our national.

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Speaker 3: Security, without losing our strategic underwear producing capacity. Although I

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Speaker 3: think the US military does actually have some strategy.

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Speaker 4: There are restrictions. Yeah, under I used to call it

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Speaker 4: the Department of Defense the Department of War, that require

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Speaker 4: uniforms for where to the things to be made in

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Speaker 4: the United States.

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Speaker 3: Fun fact, how would you actually describe the current state

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Speaker 3: of the global trade system, because you know, I've heard

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Speaker 3: people say there are shades of mercantilism, protectionists, that sort

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Speaker 3: of thing. What's your description of where we are right now?

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Speaker 4: Well, I think the challenge of where we are right

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Speaker 4: now is you have the two largest economies in the world,

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Speaker 4: the US and China, basically following their own set of

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Speaker 4: rules rather than the multilateral rules based system that the

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Speaker 4: US was very much driving the creation and the defense

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Speaker 4: of over all these over all these years. And when

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Speaker 4: you have the two largest economies doing that, the question is, well,

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Speaker 4: what are their other economies going to do? Are they

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Speaker 4: going to start imitating the US or China? Will they

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Speaker 4: continue to abide by the rules if nobody else does.

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Speaker 4: I think they're all sort of wrestling with that question

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Speaker 4: because for some of them, like the European Union, European

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Speaker 4: Union is more ideologically in favor of free trade, integration,

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Speaker 4: the rules based system. The whole notion of the European

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Speaker 4: Union is based on that bringing the European countries together,

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Speaker 4: let alone the rest of the world. So it's harder

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Speaker 4: for them to make this leap than it has been

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Speaker 4: for the United States. But I think the reality is

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Speaker 4: is that the system is under great stress and we're

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Speaker 4: going to have to think through how does it evolve,

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Speaker 4: What are the elements of it that we want to

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Speaker 4: try and preserve or reconstitute, and how does it need

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Speaker 4: to change to take into account not only the lessons

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Speaker 4: of the last eighty years prior to Trump, but the

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Speaker 4: lessons of the Trump administration. You know, some of which

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Speaker 4: will be instructured.

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Speaker 2: Let's talk more about some of the paths that things

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Speaker 2: could go, because I'm thinking about sitting aside even the

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Speaker 2: Europe in the US, you know, there was the bricks

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Speaker 2: gathering recently. These are there are a lot of countries

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Speaker 2: whose own developmental trajectory could be undermined by China's manufacturing

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Speaker 2: success right, and yet perhaps because of the actions of

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Speaker 2: this administration, et cetera, they don't feel that there is

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Speaker 2: a sort of comfortable home or friend in DC and

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Speaker 2: that maybe it makes more sense for them even given

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Speaker 2: the competitive challenges to be friendlier with Beijing, et cetera.

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Speaker 2: What is your view on that? Do you believe there

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Speaker 2: could be a new I mean, one thing we've heard

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Speaker 2: we were talking to We recently interviewed Robert Kaplan, vice

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Speaker 2: chairman over at Goldman Sect. His view was globalization is alive,

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Speaker 2: and well, it's just that the US isn't really part

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Speaker 2: of it, and that we're actually re emerging sort of

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Speaker 2: free trade, etc. Acceptance with China at the home Is

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Speaker 2: that a fair characterization? Like what is happening with these

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Speaker 2: mass of other countries as they think about who their

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Speaker 2: partners and friends are.

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Speaker 4: So, first of all, I think I think globalization is

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Speaker 4: not over. Other countries continue to move ahead to integrate

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Speaker 4: their economies. European Union has signed additional trade agreements with

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Speaker 4: Marcasour that're working on one with India. Africa has a

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Speaker 4: continental wide free trade agreement signed a few years ago

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Speaker 4: that they're in the process of implementing. So I think

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Speaker 4: Robert Kaplan's observation that it's the US that has exempted

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Speaker 4: itself is to a certain degree correct. I'm not sure

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Speaker 4: the next step is that this is all in a

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Speaker 4: shift to China, and it's going to be a China

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Speaker 4: led block because there's no country that's more concerned about

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Speaker 4: the potential adverse impact of Chinese exports on their own

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Speaker 4: manufacturing and economic aspirations than India, India, and you could

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Speaker 4: add Brazil, you could add Indonesia, you could add South Africa.

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Speaker 4: They're all deeply concerned that if the US and Europe

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Speaker 4: begin to close their markets, all that excess capacity from

439
00:24:25,560 --> 00:24:27,880
Speaker 4: China has to go somewhere, and it could well get

440
00:24:27,960 --> 00:24:31,280
Speaker 4: dumped in their markets and hurt their capacity to build

441
00:24:31,359 --> 00:24:35,680
Speaker 4: up their manufacturing base as well. And so I've been

442
00:24:35,960 --> 00:24:39,440
Speaker 4: of the view that we had this. The Cold War

443
00:24:39,520 --> 00:24:44,840
Speaker 4: was about bipolarity US Soviet Union. The wall came down,

444
00:24:44,880 --> 00:24:47,840
Speaker 4: the Soviet Union was dismantled, and that was kind of

445
00:24:47,880 --> 00:24:51,320
Speaker 4: a unipolar moment. That's over. Now that thirty year period

446
00:24:51,359 --> 00:24:54,600
Speaker 4: is over. What we have now isn't multipolarity. It's not

447
00:24:54,720 --> 00:24:58,479
Speaker 4: like you've got two or three camps that do everything together,

448
00:24:58,680 --> 00:25:02,159
Speaker 4: a China camp, a US camp, some other camp. I

449
00:25:02,240 --> 00:25:07,160
Speaker 4: think it's really more akin to like polyamorous life right

450
00:25:07,680 --> 00:25:12,800
Speaker 4: in India is the prompt. India is the greatest, is

451
00:25:12,800 --> 00:25:15,919
Speaker 4: the greatest example of this. India loves the United States

452
00:25:16,000 --> 00:25:23,800
Speaker 4: released until recently, for technical technological cooperation, for civil nuclear cooperation,

453
00:25:24,160 --> 00:25:28,080
Speaker 4: for investment, for the relationship between the Indiandia aspora and

454
00:25:28,160 --> 00:25:31,320
Speaker 4: our you know, entrepreneurial ecosystem.

455
00:25:31,359 --> 00:25:31,560
Speaker 1: Here.

456
00:25:32,119 --> 00:25:36,199
Speaker 4: They love Russia for oil, for arms, They love Iran

457
00:25:36,680 --> 00:25:39,760
Speaker 4: for oil. They love and they hate, depending on the

458
00:25:39,840 --> 00:25:42,640
Speaker 4: day they've had. It's one of the countries they've gone

459
00:25:42,640 --> 00:25:45,359
Speaker 4: to war with, you know, on their border. They've had skirmishes,

460
00:25:45,359 --> 00:25:48,960
Speaker 4: people have died in armed conflict between India and China.

461
00:25:49,320 --> 00:25:52,640
Speaker 4: But then as you saw recently, there was a conference

462
00:25:52,680 --> 00:25:56,960
Speaker 4: in China where you had Mody she and putin holding hands,

463
00:25:57,760 --> 00:26:00,840
Speaker 4: walking down the red carpet together. So I think India's

464
00:26:00,960 --> 00:26:05,119
Speaker 4: is archetypal example of trying to play these relationships.

465
00:26:05,400 --> 00:26:07,639
Speaker 2: They were during the Cold Wars too, right, they were

466
00:26:08,840 --> 00:26:10,320
Speaker 2: non aligned, that's right, right.

467
00:26:10,400 --> 00:26:12,560
Speaker 4: I mean it's changed now then they were non aligned.

468
00:26:12,640 --> 00:26:15,160
Speaker 4: Now I think they're multi aligned, so they'd be aligned

469
00:26:15,160 --> 00:26:19,440
Speaker 4: with the polyamorous and you could use the same analysis too,

470
00:26:19,440 --> 00:26:21,199
Speaker 4: I think cover a lot of other countries, a lot

471
00:26:21,240 --> 00:26:23,640
Speaker 4: of the other Middle countries. That makes it a much

472
00:26:23,680 --> 00:26:26,720
Speaker 4: more complicated world. You know, in retrospect, the Cold War

473
00:26:26,800 --> 00:26:29,000
Speaker 4: was very simple. It was black and white. You were

474
00:26:29,000 --> 00:26:31,040
Speaker 4: with us, you're with the Soviet Union, you know, and

475
00:26:31,080 --> 00:26:33,520
Speaker 4: there were some proxy wars in between, but it was

476
00:26:33,560 --> 00:26:36,080
Speaker 4: pretty it was pretty simple. This is much more complicated,

477
00:26:36,440 --> 00:26:38,920
Speaker 4: and it leads to the view that you're going to

478
00:26:38,960 --> 00:26:43,040
Speaker 4: have to be very proactive and creative and creating coalitions

479
00:26:43,040 --> 00:26:46,240
Speaker 4: of the willing around various issues, because sometimes India might

480
00:26:46,240 --> 00:26:49,399
Speaker 4: be in it, sometimes they might not. Sometimes China might

481
00:26:49,400 --> 00:26:51,240
Speaker 4: be in it, sometimes not. And I think that's the

482
00:26:51,760 --> 00:26:55,120
Speaker 4: challenge for the United States to continue to exert leadership

483
00:26:55,160 --> 00:26:55,760
Speaker 4: going forward.

484
00:26:55,960 --> 00:26:59,960
Speaker 3: How resilient would those smaller coalitions of the willing act

485
00:27:00,000 --> 00:27:03,679
Speaker 3: actually be because I can imagine maybe it's easier to

486
00:27:03,720 --> 00:27:06,840
Speaker 3: negotiate with a smaller group, maybe you don't get caught

487
00:27:06,960 --> 00:27:10,399
Speaker 3: up in debates over bicycles and things like that. But

488
00:27:10,560 --> 00:27:12,679
Speaker 3: on the other hand, if you don't have like a

489
00:27:12,800 --> 00:27:17,240
Speaker 3: big trading partner who is necessarily driving the agenda, it

490
00:27:17,400 --> 00:27:20,440
Speaker 3: seems like it might be a little bit more difficult

491
00:27:20,440 --> 00:27:21,040
Speaker 3: to enforce.

492
00:27:22,119 --> 00:27:25,239
Speaker 4: I think you need a combination of smaller groups of

493
00:27:25,400 --> 00:27:29,000
Speaker 4: like minded countries. But it does, to your point, tracy,

494
00:27:29,040 --> 00:27:32,000
Speaker 4: require leadership, and in the past, the US has been

495
00:27:32,040 --> 00:27:33,640
Speaker 4: a leader of it. I mean, you've got some very

496
00:27:33,680 --> 00:27:36,879
Speaker 4: strong examples, like NATO. You know, a military alliance is

497
00:27:36,920 --> 00:27:41,240
Speaker 4: the strongest example of a plurilateral group, so something less

498
00:27:41,280 --> 00:27:43,840
Speaker 4: than the whole world, but like minded countries that have

499
00:27:43,880 --> 00:27:46,159
Speaker 4: agreed to do certain things together because they have a

500
00:27:46,160 --> 00:27:48,680
Speaker 4: combination to do so. I'm not sure it would exist

501
00:27:48,760 --> 00:27:52,800
Speaker 4: without US leadership and US driving it going forward. That

502
00:27:52,880 --> 00:27:55,680
Speaker 4: was true of the transpecific partnership as well. I think

503
00:27:55,680 --> 00:27:57,320
Speaker 4: it could be true of a number of these other things.

504
00:27:57,320 --> 00:27:58,879
Speaker 4: And by the way, China is very good at this.

505
00:27:59,080 --> 00:28:02,919
Speaker 4: I mean the conference, the Shanghai Cooperation Organization Conference that

506
00:28:03,160 --> 00:28:06,880
Speaker 4: they recently held, where Mody and others were present. That's

507
00:28:06,920 --> 00:28:11,119
Speaker 4: a good example of them pointing together coalitions. Bricks is

508
00:28:11,160 --> 00:28:13,720
Speaker 4: another good example. Now we can talk about the strengths

509
00:28:13,760 --> 00:28:16,000
Speaker 4: and the weaknesses of bricks and where the countries actually

510
00:28:16,000 --> 00:28:19,320
Speaker 4: have common interests and conflicting interests. But it's that kind

511
00:28:19,320 --> 00:28:21,800
Speaker 4: of drive that you need a leader and you need

512
00:28:21,840 --> 00:28:23,160
Speaker 4: a group of like minded countries.

513
00:28:23,640 --> 00:28:25,320
Speaker 2: Let's talk a little bit more about some of these

514
00:28:25,520 --> 00:28:31,280
Speaker 2: tensions that emerge, because it does sound like, you know,

515
00:28:31,920 --> 00:28:34,680
Speaker 2: bricks is a nice acronym did Gremonial from Goldman sex

516
00:28:34,680 --> 00:28:36,760
Speaker 2: As in management came up with in two thousand and one,

517
00:28:36,800 --> 00:28:41,560
Speaker 2: in which may now be you know, this important geopolitical

518
00:28:41,680 --> 00:28:44,760
Speaker 2: entity we'll see. We don't really know for sure yet,

519
00:28:44,960 --> 00:28:48,320
Speaker 2: but it seems like one possibility is that, Okay, the

520
00:28:48,440 --> 00:28:51,520
Speaker 2: US we feel that we need to have in key

521
00:28:51,600 --> 00:28:55,360
Speaker 2: strategic sectors some sort of you know, capacity to build

522
00:28:55,400 --> 00:28:59,080
Speaker 2: semiconductors or maybe capacity to build batteries. At least there

523
00:28:59,120 --> 00:29:01,480
Speaker 2: was a big push under at under the Biden administration.

524
00:29:01,600 --> 00:29:05,280
Speaker 2: Of course, China has that and it's growing. I mean,

525
00:29:05,360 --> 00:29:08,360
Speaker 2: when people think about the economy going forward, is there

526
00:29:08,400 --> 00:29:11,960
Speaker 2: a risk that essentially every country feels they have to

527
00:29:12,000 --> 00:29:15,200
Speaker 2: make that decision that India feels it has to have

528
00:29:15,240 --> 00:29:17,600
Speaker 2: its own battery making capacity, the Germany feels it has

529
00:29:17,640 --> 00:29:21,000
Speaker 2: to make its own battery making capacity, and that there's

530
00:29:21,040 --> 00:29:23,520
Speaker 2: a sort of domino effect and we just wind up

531
00:29:23,600 --> 00:29:26,920
Speaker 2: in a much costlier, less efficient world.

532
00:29:27,160 --> 00:29:29,600
Speaker 4: Well, I think we are heading towards a cost layer

533
00:29:29,760 --> 00:29:33,320
Speaker 4: less efficient world. I'm not sure that's necessarily a bad

534
00:29:33,360 --> 00:29:37,800
Speaker 4: outcome in that to go down the path of greatest

535
00:29:37,800 --> 00:29:41,800
Speaker 4: efficiency could be at least in the short run, to

536
00:29:41,880 --> 00:29:44,920
Speaker 4: become utterly dependent on China for all of this product

537
00:29:44,920 --> 00:29:47,880
Speaker 4: because they can produce things cheaper, not not always because

538
00:29:47,880 --> 00:29:51,520
Speaker 4: it's cheaper labor, but because they become very efficient infrastructure,

539
00:29:52,280 --> 00:29:55,280
Speaker 4: massive scale. And I think the question is is it

540
00:29:55,320 --> 00:29:57,280
Speaker 4: a good thing? I mean that the US have a

541
00:29:57,280 --> 00:29:59,640
Speaker 4: battery industry and that Europe have a battery industry.

542
00:30:00,000 --> 00:30:00,800
Speaker 2: It's probably a good thing.

543
00:30:01,080 --> 00:30:03,960
Speaker 4: It may not be as efficient as relying completely on China,

544
00:30:04,040 --> 00:30:07,160
Speaker 4: but having that diversification, particularly over the long run, is

545
00:30:07,160 --> 00:30:11,720
Speaker 4: a positive rule number one of risk management diversification. And

546
00:30:12,320 --> 00:30:16,720
Speaker 4: yet we became very complacent and very it became very

547
00:30:16,720 --> 00:30:20,000
Speaker 4: complacent over the years of just relying on China as

548
00:30:20,040 --> 00:30:24,440
Speaker 4: our manufacturing floor. And now I think companies have come

549
00:30:24,480 --> 00:30:28,160
Speaker 4: to the conclusion, whether it's because of natural disasters, COVID

550
00:30:28,720 --> 00:30:33,240
Speaker 4: or political intervention as we've seen with China, that it's

551
00:30:33,400 --> 00:30:36,560
Speaker 4: to their benefit, their economic benefit, even over the longer run,

552
00:30:36,960 --> 00:30:39,800
Speaker 4: to diversify, even in the short run if it's more expensive.

553
00:30:40,480 --> 00:30:44,400
Speaker 3: With your trade representative, hat On, can you maybe say

554
00:30:44,440 --> 00:30:49,240
Speaker 3: something about how you view military strategy and I guess

555
00:30:49,480 --> 00:30:51,840
Speaker 3: trade and this idea of well, maybe we want to

556
00:30:51,880 --> 00:30:55,080
Speaker 3: be independent, maybe we want to have independent capacity in

557
00:30:55,160 --> 00:30:59,120
Speaker 3: something that's strategically important, like semiconductors or I don't know,

558
00:30:59,200 --> 00:31:02,200
Speaker 3: making ballistic missiles or something like that. How does the

559
00:31:02,280 --> 00:31:06,160
Speaker 3: US government actually think about the relationship between trade and

560
00:31:06,400 --> 00:31:07,280
Speaker 3: military might.

561
00:31:07,880 --> 00:31:12,360
Speaker 4: So I think over time, broadly economics and national security

562
00:31:12,440 --> 00:31:17,400
Speaker 4: have converged into economic security, and we're sorting through what

563
00:31:17,400 --> 00:31:19,760
Speaker 4: that means in practice. So in the case of the

564
00:31:19,760 --> 00:31:23,560
Speaker 4: Biden administration, they talked about a small yard and a

565
00:31:23,600 --> 00:31:26,719
Speaker 4: high fence. So take a limited number of technologies and

566
00:31:26,800 --> 00:31:31,560
Speaker 4: say these technologies we refuse to export to our competitors

567
00:31:31,600 --> 00:31:35,600
Speaker 4: and our adversaries. We refuse to allow them to buy

568
00:31:35,960 --> 00:31:39,360
Speaker 4: US companies that specialize in those technologies, and refuse our

569
00:31:39,400 --> 00:31:43,520
Speaker 4: companies to who dominate that area to invest in China

570
00:31:43,560 --> 00:31:46,040
Speaker 4: and give them their capacity, but it was a relatively

571
00:31:46,080 --> 00:31:51,400
Speaker 4: few sectors, relatively few technologies. The question is, is there

572
00:31:51,640 --> 00:31:56,040
Speaker 4: an exorable set of pressures to expand that yard and

573
00:31:56,080 --> 00:31:57,560
Speaker 4: to add more and more things to it, and where

574
00:31:57,600 --> 00:32:00,360
Speaker 4: is it appropriate and where is it not appropriate? And

575
00:32:00,400 --> 00:32:03,000
Speaker 4: I think that's what we're now sort of wrestling with.

576
00:32:03,480 --> 00:32:06,440
Speaker 4: We're highly dependent on China for all the ingredients that

577
00:32:06,480 --> 00:32:09,440
Speaker 4: go into our pharmaceuticals. Do we feel comfortable with that?

578
00:32:10,080 --> 00:32:12,440
Speaker 4: China has done nothing to say they would cut it off,

579
00:32:12,800 --> 00:32:16,520
Speaker 4: but they could, and we've seen recently China has used

580
00:32:17,040 --> 00:32:22,760
Speaker 4: its choke point capacity rare earth's magnets to demonstrate that

581
00:32:22,840 --> 00:32:26,000
Speaker 4: it has leverage too, and it worked. The Trump administration

582
00:32:26,080 --> 00:32:28,720
Speaker 4: raised tariffs to one hundred and forty five percent on China,

583
00:32:29,160 --> 00:32:33,240
Speaker 4: China restricted the export of certain rare earths and magnets,

584
00:32:33,360 --> 00:32:36,800
Speaker 4: and suddenly there was a de escalation. And so we

585
00:32:36,840 --> 00:32:38,920
Speaker 4: have to now wrestle with that and decide over the

586
00:32:38,960 --> 00:32:42,240
Speaker 4: long run, what products do we actually need to be

587
00:32:42,320 --> 00:32:45,440
Speaker 4: made in the United States because they're so critical to

588
00:32:45,560 --> 00:32:49,800
Speaker 4: national security or our sense of national security, and which

589
00:32:49,840 --> 00:32:51,480
Speaker 4: ones And this is where there's been I think in

590
00:32:51,480 --> 00:32:54,880
Speaker 4: sufficient attention, which ones can we rely on our allies

591
00:32:54,880 --> 00:32:58,720
Speaker 4: and partners because we probably can't produce everything at least

592
00:32:58,720 --> 00:33:02,280
Speaker 4: in the short run, makes sense to produce everything ourselves.

593
00:33:02,520 --> 00:33:05,200
Speaker 4: But can we rely on Canada and Europe and Japan

594
00:33:05,320 --> 00:33:08,560
Speaker 4: and South Korea and Mexico for some of this production

595
00:33:09,360 --> 00:33:12,600
Speaker 4: or in India? And how do we differentiate between which

596
00:33:12,640 --> 00:33:15,360
Speaker 4: products fit in what group? And therefore then what do

597
00:33:15,400 --> 00:33:17,560
Speaker 4: we need to do about it? To drive production here

598
00:33:17,560 --> 00:33:20,520
Speaker 4: we're necessary, and to develop the relationships with the allies

599
00:33:20,520 --> 00:33:21,880
Speaker 4: and partners where possible.

600
00:33:22,080 --> 00:33:24,680
Speaker 2: The idea of friends shoring or whatever you want to

601
00:33:24,720 --> 00:33:27,120
Speaker 2: call it sounds very intuitive, and it's like, we don't

602
00:33:27,160 --> 00:33:29,080
Speaker 2: need to build a ton of shipyards. Maybe we could

603
00:33:29,120 --> 00:33:32,200
Speaker 2: get the Koreans to do that for us. Or I

604
00:33:32,200 --> 00:33:34,880
Speaker 2: don't know. The private fins are good at I'm not sure,

605
00:33:35,520 --> 00:33:35,960
Speaker 2: et cetera.

606
00:33:36,280 --> 00:33:37,040
Speaker 4: The fins are very good.

607
00:33:38,480 --> 00:33:40,560
Speaker 2: Yeah, that's right, one of these facts that we've learned

608
00:33:41,080 --> 00:33:44,280
Speaker 2: over the years. But is there I mean, when you

609
00:33:44,320 --> 00:33:48,560
Speaker 2: look at the current administration, do you see anything other

610
00:33:48,600 --> 00:33:53,760
Speaker 2: than widening a gulf between those partners? Like yeah, it

611
00:33:53,800 --> 00:33:56,960
Speaker 2: sounds great to have a nice relationship with the Koreans

612
00:33:56,960 --> 00:33:59,920
Speaker 2: for them to build more ships for us, and then

613
00:34:00,040 --> 00:34:03,240
Speaker 2: that solves the problem of scale and redundancy, etc. But

614
00:34:03,640 --> 00:34:07,520
Speaker 2: in practice, from your perspective, is going the opposite direction.

615
00:34:08,080 --> 00:34:11,920
Speaker 4: Well, look, I think one of the challenges of any administration,

616
00:34:12,000 --> 00:34:14,840
Speaker 4: but it's certainly evidence in this one, is the connecting

617
00:34:14,880 --> 00:34:18,800
Speaker 4: of dots between one policy objective and another policy objective.

618
00:34:19,239 --> 00:34:22,759
Speaker 4: And so yes, in the short run, it's going to

619
00:34:22,800 --> 00:34:24,840
Speaker 4: take us a while to build up our shipbuilding industry,

620
00:34:25,000 --> 00:34:27,560
Speaker 4: and it's going to require a lot of government support,

621
00:34:27,600 --> 00:34:28,880
Speaker 4: and I mean it's going to require a lot of

622
00:34:28,920 --> 00:34:32,960
Speaker 4: policies that we've not yet adopted. Perhaps it's something we

623
00:34:32,960 --> 00:34:35,759
Speaker 4: should do, but it will take years to really build

624
00:34:35,800 --> 00:34:38,840
Speaker 4: that up. In the meantime. Should we look to Korea,

625
00:34:38,880 --> 00:34:41,760
Speaker 4: Should we look to Japan? Should we look to Finland

626
00:34:42,080 --> 00:34:45,680
Speaker 4: for the ships that we need right now? That's one

627
00:34:45,719 --> 00:34:48,640
Speaker 4: set of objectives. Then you have the raid on the

628
00:34:48,680 --> 00:34:52,800
Speaker 4: Hondai plant, which was another set of objectives, objectives around migration,

629
00:34:52,920 --> 00:34:57,719
Speaker 4: illegal migration, and illegal workers. I sometimes wonder whether the

630
00:34:57,760 --> 00:35:01,279
Speaker 4: dots are being connected within the administration or whether there's

631
00:35:01,280 --> 00:35:03,080
Speaker 4: a view and they may be right, they may be wrong,

632
00:35:03,120 --> 00:35:05,160
Speaker 4: but they can have it both ways. That they can

633
00:35:05,200 --> 00:35:08,040
Speaker 4: come down on Korean workers in the United States and

634
00:35:08,080 --> 00:35:11,799
Speaker 4: still look to Korea and say you will deliver US chips.

635
00:35:12,160 --> 00:35:15,640
Speaker 3: And share your expertise and technical knowledge and.

636
00:35:15,360 --> 00:35:17,680
Speaker 4: And help US billship building here in the United States.

637
00:35:17,960 --> 00:35:22,520
Speaker 3: I want to broaden out the conversation, very ambassador, of course,

638
00:35:23,320 --> 00:35:24,640
Speaker 3: just to broaden out the conversation.

639
00:35:24,760 --> 00:35:24,960
Speaker 2: Though.

640
00:35:25,280 --> 00:35:29,320
Speaker 3: Back in March, I wrote an Odd Thoughts newsletter titled

641
00:35:29,560 --> 00:35:32,919
Speaker 3: the US is looking a lot like China. I got

642
00:35:32,920 --> 00:35:36,120
Speaker 3: an enormous amount of pushback on it, but you actually

643
00:35:36,200 --> 00:35:39,760
Speaker 3: wrote something similar, And I don't even have a question.

644
00:35:39,920 --> 00:35:41,040
Speaker 3: Just tell me that I was right.

645
00:35:42,719 --> 00:35:44,439
Speaker 4: You're right, you were right.

646
00:35:44,520 --> 00:35:44,799
Speaker 3: Thank you.

647
00:35:44,840 --> 00:35:48,080
Speaker 4: Look, I think we spent years. We always thought there

648
00:35:48,120 --> 00:35:51,160
Speaker 4: was a theory of convergence. By bringing China into the

649
00:35:51,200 --> 00:35:54,439
Speaker 4: international system, we would become more alike Now. Our view

650
00:35:54,560 --> 00:35:57,520
Speaker 4: was they would become more like us, like US, more open,

651
00:35:57,640 --> 00:36:00,680
Speaker 4: more liberal, more market oriented. And we used to go

652
00:36:00,760 --> 00:36:05,040
Speaker 4: to them and lecture them about don't be protectionists, don't

653
00:36:05,080 --> 00:36:08,880
Speaker 4: restrict foreign investment in your country, don't make it impossible

654
00:36:08,920 --> 00:36:11,280
Speaker 4: for our companies to invest in your company, don't engage

655
00:36:11,280 --> 00:36:16,040
Speaker 4: in industrial policy and subsidization, and don't take stakes in

656
00:36:16,080 --> 00:36:20,120
Speaker 4: private companies and intervene in the private sector, and now

657
00:36:20,320 --> 00:36:23,640
Speaker 4: what are we doing. We are protectionists, we have restrictions

658
00:36:23,680 --> 00:36:28,880
Speaker 4: on foreign investment, we are engaged in limited industrial policy,

659
00:36:29,280 --> 00:36:32,279
Speaker 4: and now we're beginning to take stakes government stakes in

660
00:36:32,320 --> 00:36:35,640
Speaker 4: private companies. So rather than them becoming more like us,

661
00:36:36,120 --> 00:36:38,960
Speaker 4: we have become more like them. And the challenge of that,

662
00:36:39,040 --> 00:36:42,279
Speaker 4: I think is that we're now competing with them on

663
00:36:42,560 --> 00:36:46,200
Speaker 4: their playing field, under their set of roles. I'm not

664
00:36:46,239 --> 00:36:48,800
Speaker 4: at all convinced that we can compete on their playing

665
00:36:48,800 --> 00:36:51,960
Speaker 4: field as well as we can compete on ours, because

666
00:36:52,000 --> 00:36:54,239
Speaker 4: we don't have unlimited We can't go to Congress and

667
00:36:54,239 --> 00:36:56,960
Speaker 4: say give us unlimited resources to invest in this sector

668
00:36:57,080 --> 00:37:01,440
Speaker 4: or after that sector. We can't subes you know, the

669
00:37:01,760 --> 00:37:07,200
Speaker 4: commanding heights of the technology competition. And I think it's

670
00:37:07,520 --> 00:37:09,480
Speaker 4: unfortunate because I think the Chinese can play that game

671
00:37:09,520 --> 00:37:10,319
Speaker 4: much better than we can.

672
00:37:10,520 --> 00:37:13,040
Speaker 3: Yeah, I think this is a really important point because

673
00:37:13,080 --> 00:37:16,040
Speaker 3: when we're thinking about you know, choke points in terms

674
00:37:16,080 --> 00:37:20,399
Speaker 3: of manufacturing or whatever, China has the most experience out

675
00:37:20,400 --> 00:37:24,239
Speaker 3: of practically anyone in the world of like building up

676
00:37:24,440 --> 00:37:27,480
Speaker 3: strategic capacity and doing it in a very conscious and

677
00:37:27,520 --> 00:37:28,680
Speaker 3: interventionist way.

678
00:37:28,800 --> 00:37:33,960
Speaker 2: Well, and also a lot of that sort of massive

679
00:37:34,520 --> 00:37:39,719
Speaker 2: oversupply that people call it is maybe to some extent intentional,

680
00:37:39,960 --> 00:37:43,360
Speaker 2: but maybe also just to some extent a function of

681
00:37:43,360 --> 00:37:48,359
Speaker 2: their provincial versus provincial relationship, where the provinces are hypercompeting, etc.

682
00:37:48,680 --> 00:37:52,440
Speaker 2: For market share. That's just a dynamic that does. Nothing

683
00:37:52,520 --> 00:37:55,640
Speaker 2: like that exists in the United States. And so the

684
00:37:55,680 --> 00:37:59,640
Speaker 2: idea of moving in that direction all kinds of conditions,

685
00:38:00,080 --> 00:38:04,120
Speaker 2: either by design or just sort of by happenstance of

686
00:38:04,160 --> 00:38:06,239
Speaker 2: the political structure of the system.

687
00:38:06,440 --> 00:38:09,040
Speaker 4: It's just very different, exactly, right, Joe. I think you know,

688
00:38:09,760 --> 00:38:14,000
Speaker 4: in their case, leadership says we want to be dominant

689
00:38:14,040 --> 00:38:18,040
Speaker 4: in these fifteen sectors. Every provincial governor looks at that

690
00:38:18,080 --> 00:38:20,000
Speaker 4: and says, all right, I'm going to take.

691
00:38:19,880 --> 00:38:22,759
Speaker 3: My local stage judge to ability.

692
00:38:23,680 --> 00:38:25,239
Speaker 4: And we have you know, in China, I think they're

693
00:38:25,280 --> 00:38:28,480
Speaker 4: over one hundred ev companies, right, you know, and so

694
00:38:28,880 --> 00:38:31,560
Speaker 4: and they're producing and they will be producing enough cars

695
00:38:32,600 --> 00:38:35,640
Speaker 4: to meet the demand of the entire world. So where

696
00:38:35,640 --> 00:38:38,040
Speaker 4: does that leave the US auto sector? Where does it

697
00:38:38,080 --> 00:38:41,799
Speaker 4: leave the European auto sector. Now, in our case, I

698
00:38:41,840 --> 00:38:44,839
Speaker 4: think you know, we have effectively kept them out. We've

699
00:38:44,840 --> 00:38:46,880
Speaker 4: effectively said we're not going to have Chinese evs here,

700
00:38:46,880 --> 00:38:49,640
Speaker 4: at least at the moment, Europeans have a slight you know,

701
00:38:49,719 --> 00:38:53,399
Speaker 4: more schizophrenic about it. They've also adopted protectionism, but they're

702
00:38:53,400 --> 00:38:56,920
Speaker 4: more open I think to having Chinese imports. What does

703
00:38:56,920 --> 00:38:59,560
Speaker 4: that mean for the future of Volkswagen, for the future

704
00:38:59,600 --> 00:39:02,240
Speaker 4: of now, for the future of the other auto companies,

705
00:39:02,239 --> 00:39:04,760
Speaker 4: and you know, in that case it could have broad

706
00:39:04,840 --> 00:39:08,160
Speaker 4: political implications in Europe as well over time.

707
00:39:08,640 --> 00:39:11,520
Speaker 3: I hesitate to ask this question, but is there anything

708
00:39:11,600 --> 00:39:15,120
Speaker 3: the US can learn from China in terms of you know,

709
00:39:15,400 --> 00:39:17,520
Speaker 3: trade and building out strategic industries.

710
00:39:18,480 --> 00:39:22,360
Speaker 4: Well, look, I think China. We shouldn't make China into

711
00:39:22,360 --> 00:39:25,480
Speaker 4: more than it is. China's made huge mistakes. They've wasted

712
00:39:26,480 --> 00:39:31,400
Speaker 4: hundreds of billions of dollars on bad domestic investments, and

713
00:39:31,440 --> 00:39:35,719
Speaker 4: they've got, you know, tremendous challenges, including demographic challenges that

714
00:39:35,760 --> 00:39:39,880
Speaker 4: the US currently it doesn't have, and so we shouldn't

715
00:39:39,880 --> 00:39:42,759
Speaker 4: make them out to be twelve feet tall. I think

716
00:39:42,800 --> 00:39:46,120
Speaker 4: one thing that is current is to think through, Okay,

717
00:39:46,239 --> 00:39:48,600
Speaker 4: if there is an industry that you think is important

718
00:39:48,760 --> 00:39:52,680
Speaker 4: for national security or otherwise, what's the best way of

719
00:39:52,719 --> 00:39:57,400
Speaker 4: supporting it by the government. The Trump administration's approach I

720
00:39:57,400 --> 00:40:00,680
Speaker 4: think has been based largely on tariffs. We create this

721
00:40:00,840 --> 00:40:04,359
Speaker 4: wall of tariffs, companies will have to produce or have

722
00:40:04,440 --> 00:40:08,400
Speaker 4: to move their supply chain to the United States, and

723
00:40:08,440 --> 00:40:10,920
Speaker 4: that's how we'll build out this area. I think what

724
00:40:10,960 --> 00:40:14,480
Speaker 4: we've seen in China is that yes, they've used tariffs

725
00:40:14,480 --> 00:40:18,320
Speaker 4: and other restrictions, they've also used industrial policy. They've also

726
00:40:18,360 --> 00:40:23,240
Speaker 4: invested in the subsidies credit free energy. They've also invested

727
00:40:23,239 --> 00:40:27,640
Speaker 4: heavily in R and D in many sectors, the life sciences,

728
00:40:28,480 --> 00:40:32,839
Speaker 4: obviously AI, among others, government subsidies and government investment, and

729
00:40:32,920 --> 00:40:36,120
Speaker 4: it's that combination of policies that probably is more effective

730
00:40:36,160 --> 00:40:40,319
Speaker 4: than tariffs alone. To me, the concern is we're approaching

731
00:40:40,480 --> 00:40:43,680
Speaker 4: this from a position of tariffs are the answer to everything.

732
00:40:44,120 --> 00:40:46,839
Speaker 4: We know what the cost of tariffs are, and we're

733
00:40:46,840 --> 00:40:50,360
Speaker 4: taking a gamble on whether the benefits will be there

734
00:40:50,680 --> 00:40:54,440
Speaker 4: and whether tariffs alone are going to re manufacture the

735
00:40:54,520 --> 00:40:55,520
Speaker 4: United States economy.

736
00:40:56,360 --> 00:41:00,000
Speaker 2: You mentioned that some degree of greater redundancy and higher

737
00:41:00,120 --> 00:41:02,799
Speaker 2: costs is not the end of the world, particularly if

738
00:41:03,560 --> 00:41:07,160
Speaker 2: there's some political it creates some political sustainability.

739
00:41:07,320 --> 00:41:07,759
Speaker 4: What is it?

740
00:41:07,800 --> 00:41:12,080
Speaker 2: What does the left tail risk looks look like to you?

741
00:41:12,440 --> 00:41:15,720
Speaker 2: What is the scenario in which things really, the wheels

742
00:41:15,719 --> 00:41:18,120
Speaker 2: really come off one.

743
00:41:18,520 --> 00:41:22,280
Speaker 4: The US doesn't have a great history with industrial policy,

744
00:41:22,360 --> 00:41:26,240
Speaker 4: so if we were to multiply our efforts in various

745
00:41:26,239 --> 00:41:29,080
Speaker 4: ways but not do it well, that would that would

746
00:41:29,160 --> 00:41:31,640
Speaker 4: be a waste of resources and costs that we didn't

747
00:41:31,680 --> 00:41:34,359
Speaker 4: need to need to incur. I think if we don't

748
00:41:34,560 --> 00:41:36,960
Speaker 4: go back to the point about allies and partners, if

749
00:41:37,000 --> 00:41:41,719
Speaker 4: we insist on reshoring everything and not ensuring anything, I

750
00:41:41,719 --> 00:41:45,880
Speaker 4: think we probably lose some of the economies of scale

751
00:41:46,600 --> 00:41:49,799
Speaker 4: and some of the comparative advantage that we have. I

752
00:41:49,840 --> 00:41:53,040
Speaker 4: also think if we're if the if the existential threat

753
00:41:53,239 --> 00:41:56,600
Speaker 4: is competition with China, if they are the pacing challenge,

754
00:41:58,120 --> 00:42:01,320
Speaker 4: working with allies and partners is our way to reach scale.

755
00:42:02,120 --> 00:42:04,480
Speaker 4: We're a big economy, we're the biggest economy in the world,

756
00:42:04,480 --> 00:42:06,960
Speaker 4: but when it comes to manufacturing, we're not going to

757
00:42:07,000 --> 00:42:10,480
Speaker 4: be able to compete with China alone necessarily, or rather,

758
00:42:10,480 --> 00:42:12,320
Speaker 4: we're gonna be able to compete with China much better

759
00:42:12,960 --> 00:42:14,920
Speaker 4: if we do so with our allies and partners.

760
00:42:16,000 --> 00:42:18,080
Speaker 3: I have just one more question, this is the most

761
00:42:18,120 --> 00:42:20,680
Speaker 3: important one. How good are you at Tradel?

762
00:42:21,520 --> 00:42:22,759
Speaker 2: Do you ever play that we do.

763
00:42:22,960 --> 00:42:27,000
Speaker 4: I love these games Trade All and World a World.

764
00:42:27,040 --> 00:42:28,759
Speaker 2: Oh yeah, that's the other one. I didn't get into that.

765
00:42:28,920 --> 00:42:31,080
Speaker 4: Yeah, the trade all I think is a great is

766
00:42:31,120 --> 00:42:33,680
Speaker 4: a great game. I don't always get it right, but

767
00:42:33,840 --> 00:42:36,920
Speaker 4: I it's it's a good Uh. It's a good reminder

768
00:42:36,960 --> 00:42:38,640
Speaker 4: of just how complex certain economies are.

769
00:42:39,000 --> 00:42:40,919
Speaker 2: After we're done with this, could you help us find

770
00:42:40,920 --> 00:42:42,480
Speaker 2: that dairy farmer who explained the five.

771
00:42:44,320 --> 00:42:46,760
Speaker 4: Absolutely, it's a fascinating lesson.

772
00:42:47,440 --> 00:42:50,360
Speaker 2: Michael Frohman, thank you so much for coming online.

773
00:42:50,000 --> 00:42:50,839
Speaker 4: Thanks for having me.

774
00:42:50,880 --> 00:42:51,200
Speaker 2: Thank you.

775
00:42:51,280 --> 00:42:52,080
Speaker 3: That was great.

776
00:43:05,640 --> 00:43:09,640
Speaker 2: Tracy. I'm really I'm really a fan of this neologism

777
00:43:09,760 --> 00:43:13,399
Speaker 2: or wherever it came from, the polyamorous world order, because

778
00:43:13,440 --> 00:43:17,520
Speaker 2: you know, people talk about the G seven and what's

779
00:43:17,520 --> 00:43:19,880
Speaker 2: his name talks about the G zero Yeah, and other

780
00:43:19,920 --> 00:43:22,960
Speaker 2: people talk, oh, bipolarity. But but I think this is

781
00:43:23,000 --> 00:43:23,479
Speaker 2: a good one.

782
00:43:23,719 --> 00:43:25,920
Speaker 3: It is kind of funny to me that there's this

783
00:43:26,040 --> 00:43:28,840
Speaker 3: idea out there that just because Goldman came up with

784
00:43:28,920 --> 00:43:31,879
Speaker 3: like a catchy acronym for the bricks, that somehow that's

785
00:43:31,920 --> 00:43:35,320
Speaker 3: going to like create a new strategic coalition from.

786
00:43:35,160 --> 00:43:38,239
Speaker 2: It's like so pretty dick, so perfect countries. We should

787
00:43:38,239 --> 00:43:40,960
Speaker 2: have Jim o'neilon to talk about. We've never talked to

788
00:43:41,040 --> 00:43:43,239
Speaker 2: Jimo neilon, So the thought of him coming up with

789
00:43:43,280 --> 00:43:45,320
Speaker 2: this paper, these are going to be the big economies,

790
00:43:45,560 --> 00:43:47,719
Speaker 2: and now they now that it's a rival. Yeah, but

791
00:43:47,800 --> 00:43:49,240
Speaker 2: the West is like a really good.

792
00:43:49,360 --> 00:43:51,800
Speaker 3: That would be really interesting. But I do think Okay,

793
00:43:51,880 --> 00:43:55,600
Speaker 3: one thing you can say about polyamorous relationships is they

794
00:43:55,600 --> 00:43:57,719
Speaker 3: tend to come with a lot of drama, right, and

795
00:43:57,760 --> 00:44:03,440
Speaker 3: so it it definitely feels like we're going to have

796
00:44:03,600 --> 00:44:06,879
Speaker 3: more instability, or at least like more things changing, more

797
00:44:06,880 --> 00:44:08,360
Speaker 3: things in flux, more volatility.

798
00:44:08,560 --> 00:44:08,759
Speaker 4: Right.

799
00:44:09,040 --> 00:44:16,000
Speaker 2: So this idea that I find it compelling, this idea

800
00:44:16,160 --> 00:44:20,120
Speaker 2: that the old globalization can't just be replaced with the

801
00:44:20,160 --> 00:44:23,480
Speaker 2: same globalization. Except the leader is right. I mean, the

802
00:44:23,600 --> 00:44:27,560
Speaker 2: US was this huge trade deficit country. China is a

803
00:44:27,640 --> 00:44:31,600
Speaker 2: huge trade surplus country. That naturally means that its relationship

804
00:44:31,640 --> 00:44:34,319
Speaker 2: with all of its partners on some level, even if

805
00:44:34,320 --> 00:44:37,960
Speaker 2: it wants to be at the forefront of creating new

806
00:44:38,200 --> 00:44:41,480
Speaker 2: terror free zones, et cetera, is going to be of

807
00:44:41,560 --> 00:44:44,680
Speaker 2: a different type than the relationship that the US had.

808
00:44:45,040 --> 00:44:47,440
Speaker 3: Absolutely, shall we leave it there, Let's leave it there,

809
00:44:47,480 --> 00:44:50,360
Speaker 3: all right? This has been another episode of the Authoughts podcast.

810
00:44:50,440 --> 00:44:53,240
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.

811
00:44:53,360 --> 00:44:56,239
Speaker 2: And I'm joll Wisenthal. You could follow me at The Stalwart.

812
00:44:56,440 --> 00:44:59,600
Speaker 2: Follow our guest Michael Frowman. He's at Mike Frohman. Follow

813
00:44:59,680 --> 00:45:03,759
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814
00:45:03,760 --> 00:45:06,719
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815
00:45:06,800 --> 00:45:09,280
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816
00:45:09,320 --> 00:45:12,200
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817
00:45:12,200 --> 00:45:14,279
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818
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819
00:45:18,000 --> 00:45:20,160
Speaker 3: And if you enjoy odd Lots, if you like it

820
00:45:20,200 --> 00:45:22,480
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821
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822
00:45:26,160 --> 00:45:28,799
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823
00:45:28,840 --> 00:45:32,040
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826
00:46:04,719 --> 00:46:10,720
Speaker 3: In the a