Autos, Bilats, and the U.S.-China Deal
February 25, 2019
Scott Miller: I'm Scott.
Bill Reinsch: I'm Bill.
Bill & Scott: And we're the trade guys.
Andrew Schwartz: You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm H. Andrew Schwartz and I'm here with Scott Miller and Bill Reinsch, the CSIS trade guys. In this episode, we recorded in front of a live audience here at CSIS. The crowd was made up of trade professionals from the Association of Women in International Trade and the LGBT Professionals in International Trade. Joining me and the trade guys were two trade legends, Barbara Weisel and Marjorie Chorlins. We discussed auto tariffs, bilateral trade agreements and what's going on with the U.S.-China deal. All on this episode of the Trade Guys.
Andrew Schwartz: Hi everybody. We'll welcome everybody to the CSIS. I especially want to welcome our guests from WIIT and GATT. It's so wonderful to have all of you here today for this live recording of the Trade Guys. We don't get to do live recordings every month. But when we do, we try to keep Bill and Scott restrained. But today we're surrounded by trade legends, so I think they will be restrained.
Bill Reinsch: We also are alive when we do the regular podcasts.
Andrew Schwartz: Yeah.
Bill Reinsch: As an opener ...
Andrew Schwartz: That's true, that's true.
Scott Miller: ... that's sometimes quite difficult, yeah.
Andrew Schwartz: But literally today we're surrounded by trade legends. We have Barbara Weisel here. Barbara is the managing director at Rock Creek Global Advisors currently. But before that she was U.S. Chief negotiator for the 12 country TPP, that's Trans-Pacific Partnership deals, from its inception in 2008 through its signing in 2016. That's a big deal. We'll have her bio in the notes. In addition to that, she also served as assistant U.S. TR for Southeast Asia and the Pacific.
Andrew Schwartz: Marjorie Chorlins is also here. She's vice president for European affairs at the US Chamber of Commerce where she develops policy and executes programs related to trade and investment in Europe. She's also the executive director of the U.S.-UK business council. She served under Senator John C. Danforth, one of the really good guys, Republican from Missouri.
Marjorie Chorlins: Just tells you how old I am.
Andrew Schwartz: Well he was a great guy, and you don't look old at all.
Marjorie Chorlins: Thank you.
Andrew Schwartz: And, for our listeners out there, Scott and Bill are looking ...
Scott Miller: But we sound young Andrew.
Andrew Schwartz: But they sound young. This is true.
Bill Reinsch: See, that's the advantage of radio or podcasts. Nobody can see.
Andrew Schwartz: In case you didn't know, WIIT is the Association of Women in International Trade. And GATT is LGBT Professionals in International Trade in DC. So we're really happy to have you all here with us today. And we're going to talk about trade. And we're going to talk about some really interesting issues. One of the issues that we all have in common to talk about is the section 232 tariffs and what's happening with that. Why don't we kick it off and kick it around. Because Barbara, from your point of view you're looking at it I guess from U.S.-Japan. Marjorie, you're looking at it U.S.-EU. There's been news this week. The chairman of Toyota was out there saying, "Look out." The Europeans, even though President Trump had assured the trade whisperer, Jean-Claude Juncker, that we were okay. It doesn't seem like we're okay. What's going on?
Andrew Schwartz: This is Marjorie for you guys listening out there.
Marjorie Chorlins: This week - this week right - the administration put out their report. Or I should say ...
Bill Reinsch: Well they didn't put it out.
Marjorie Chorlins: ... Commerce sent the report to the White House.
Andrew Schwartz: This is the secret 232 report that the U.S. Commerce Department did.
Marjorie Chorlins: Right, but they have yet to put out.
Andrew Schwartz: They reported it to the White House.
Marjorie Chorlins: Right.
Bill Reinsch: Correct. Okay.
Marjorie Chorlins: So we don't know what's actually in the report. We have the surmise that the report may well call for the imposition of duties on imported autos and auto parts from a number of our major trading partners. The Europeans are especially nervous about this, the Germans in particular. And it tells you something that back in July when President Trump and Juncker sat together and "negotiated" the statement that they did, that the language talked about lowering non-auto industrial tariffs. And the administration specifically called for or wanted to include that language, non-auto, so that they could hold open the possibility at a future date of possibly imposing auto tariffs. Now the agreement also has a ceasefire clause that says as long as neither side imposes new tariffs, we'll continue to talk and see where we can make some progress. Well the Europeans are nervous. There's no question about it. And Cecilia Malmstrom has said, she said it when she was here last month, that Brussels has a list of counter-retaliatory measures that they are ready to impose at a moment's notice. So their expectation is that these tariffs are coming at some point. And I think we've obviously ... Chambers weighed in, obviously strongly opposed to these, as we did on the steel and aluminum tariffs. But I think we just have to assume there's a real possibility. If the President gets impatient with the pace of the U.S.-EU talks or the U.S.-Japan talks or something else ...
Bill Reinsch: So you don't believe him when he says we're not going to do it as long as we're talking?
Marjorie Chorlins: I believe him up until he decides he wants to do something different.
Andrew Schwartz: So you mentioned all those groups that are nervous. I'm nervous too. You know why I'm nervous?
Marjorie Chorlins: Why?
Andrew Schwartz: I drive an Audi and my lease is up in a year. And really, people are really nervous. And a lot of people drive Japanese cars too, right? Is it a similar situation?
Barbara Weisel: Yeah, the Japanese are similarly concerned about the possibility that the President will go ahead and impose the tariffs. I think that most people believe him when he says, "I don't really want to impose these tariffs. I would like to use them as a threat and to keep them as leverage on Japan and the EU to ensure that we conclude these negotiations and that they will concede to the demands that we have." I think that most people recognize there's no support for 232 in the U.S. There is no stakeholder that supports the President going forward with this. I think even within the President's own cabinet there's not significant support for this.
Scott Miller: Barbara, that's the oddity of this, is that at least with the steel and aluminum 232 there was a constituency.
Barbara Weisel: Exactly.
Scott Miller: The domestic producers were actually interested in a bit of pricing ability.
Andrew Schwartz: Scott, you're talking about the domestic steel producers.
Scott Miller: Domestic steel and aluminum producers, yes. Aluminum was actually less charged up about it because they have an integrated North American business. But that aside, there was at least a constituency for it. And there was an argument about the weakness of the industry and how it might benefit from a capital infusion if prices were higher. So at least that kind of held together. On the auto 232, I think the President of the United States is the only person who thinks this is a good idea. And the testimony of the Commerce Department, it was strongly opposed by every group. And frankly, in my mind, it's just a complete misapprehension of the way the industry works. It's like we've talked before. The President is an '80s guy walking through the 21st century. And he sees ...
Bill Reinsch: No, he's a '50s guy.
Scott Miller: Oh, he's a '50s guy. Okay, either way ...
Andrew Schwartz: He's got a '50s haircut.
Scott Miller: ... you've got American cars made by an American industry. No you don't. You have an 85 million car global market. You have a dozen or so globally competitive companies. Two of whom happen to be U.S. Headquartered. And most of them see the world as an economic unit. They compete across markets and they have network suppliers and it's a matrix not an island chain. And so it's one of these things that the fact that everyone has given it such a negative review, I hope it makes an impact. We don't know because we haven't seen the report.
Bill Reinsch: Don't you guys think that this is really just leverage to get voluntary restraints or quotas? It's not about tariffs, it's about getting them to voluntarily
Barbara Weisel: I absolutely think that's what it's about.
Bill Reinsch: And do you think the Japanese will do that?
Barbara Weisel: The Japanese have said the same as the EU has said, that they will not accept voluntary restraints. The negotiations haven't started so we'll see how things develop. The Japanese have said that they are firmly opposed to quantitative restrictions. They will not accept them. And that's their position going in. I think we'll see the way that this plays out.
Marjorie Chorlins: I would just echo that and say the Europeans have been very clear that they won't accept any sort of artificial constraints like that. Having said that, you know, the Europeans also said that they wouldn't come to the negotiating table if the steel and aluminum tariffs were still in place. And, lo and behold, they're coming to the negotiating table and those tariffs are still in place.
Bill Reinsch: This is what you said earlier, they won't until they do.
Scott Miller: Until they do.
Bill Reinsch: Same as Trump.
Scott Miller: Is that the same with agriculture? Because the initial deal in the rose garden was no agriculture. And I think somebody in the administration talked to Chairman Grassley and recalibrated.
Marjorie Chorlins: Yeah. Look, I have heard from people who were in the room when that statement was negotiated who have diametrically opposed views about what was said and what was ultimately put on the paper.
Scott Miller: That's a real confidence builder.
Marjorie Chorlins: Yeah. So look, it's not there now. The Europeans have made it clear that agriculture's not on the table. The U.S. has said it has to be on the table. But I think, even before that, there's been this mismatch from the outset of these talks, ever since last summer, right? There's a desire on the one hand to do something quickly, to generate some real results really fast, like on soybeans and LNG exports and things like that. But where they've actually decided to focus much of their attention is on regulatory cooperation, which is by definition not going to yield results quickly. So there's already this disconnect. And I think that's one of the reasons why, frankly, I'm worried that these negotiations are going to stall before they get started.
Bill Reinsch: Is the announcement the President's going to pay a state visit to Japan at the end of May going to accelerate the process? Is he going to want to win something while he's there? And can this be finished by then?
Barbara Weisel: They haven't agreed on a date for a first round. And that first round is not likely to occur until at least the end of April, if not the beginning of May. So, no, they can not conclude by the time of a state visit in May. They'll be lucky if they have one round by then.
Andrew Schwartz: Let me read you all a statistic. This kind of puts in perspective for the United States. Japanese auto companies have 24 manufacturing plants and 44 research and development and design centers in 19 states in the United States. And they directly employ 92,000 people. Why isn't that something that we got to get done right away if you're President Trump? That's a lot of jobs. The Japanese cars are made in the United States. European cars are made in the United States. We've talked about this on this podcast. BMW's largest plant is in where? In South Carolina.
Bill Reinsch: And Daimler's is in Alabama.
Andrew Schwartz: Right.
Bill Reinsch: And if you watch, one of the more interesting characters of this episode has been the new Senator from Alabama, Senator Jones, who was recently filled a vacancy. So he was elected in, what?, 2017 I guess. And I remember, I had occasion to meet him while he was campaigning and he ran on a classic Democratic pro-union, organized labor trade plan. But who is leading the fight against the car tariffs right now? Doug Jones.
Andrew Schwartz: Wow.
Bill Reinsch: Because they've got ...
Scott Miller: Jobs.
Bill Reinsch: ... thousands and thousands of workers in Huntsville who make and export Mercedes I guess it is
Andrew Schwartz: And do you know how many Mercedes they import to Bethesda, Maryland?
Bill Reinsch: I don't know Andrew.
Andrew Schwartz: A lot.
Andrew Schwartz: It's a lot.
Bill Reinsch: Okay? I can tell you.
Andrew Schwartz: And BMW imports a lot or exports ...
Bill Reinsch: The President would say too many.
Marjorie Chorlins: Right.
Bill Reinsch: He doesn't like all those BMWs and Mercedes in New York.
Andrew Schwartz: But they're made in America. They're made in the U.S. by U.S. workers. Yeah, they're U.S. workers. They're made in America. They're great cars. The parts come from America. They're U.S. jobs for every one of those jobs at the actual plant. There's industries and service jobs that have sprouted up around in those communities. So what are we talking about here?
Bill Reinsch: Well there's an irony here too because that is a ... Bob Lighthizer should take credit for that. That is a result of what he did in the '80s. He's a managerial guy. One of the things he did in the '80s was get a voluntary restraint on the Japanese on exports. How did they respond? They invested in the United States. So this is a good thing, right? So it's his fault.
Andrew Schwartz: So it's a good thing right?
Bill Reinsch: I don't think he appreciates the work that he did.
Marjorie Chorlins: No, they're trying to rerun that same playbook now.
Bill Reinsch: Yes.
Andrew Schwartz: Is that the play? Is that what the play is?
Marjorie Chorlins: Well if you listen to what the President says and what Bob says, the idea is to try to bring back as much of the manufacturing here as possible.
Scott Miller: More investment here.
Marjorie Chorlins: Right? And that just completely overlooks the fact, as Scott said, that we're talking about global supply chains. It's not just for the auto sector, but for just about every sector.
Andrew Schwartz: So we're going to be bombarded in these next two years by a lot of campaign rhetoric. And a lot of it's going to center around working and U.S. jobs and the future of work. How does all of this play into it? Scott, what do you think?
Scott Miller: Well, look, I think that the President is going to be anxious for concrete deliverables in any negotiation he launches. That was true in the USMCA, it was true even with the renegotiation of the Korea FTA. And when it comes to Europe and Japan, they're both top five trading partners, they're important markets. But getting quick results is going to be a real difficult trick.
Scott Miller: As Bill commented earlier the President does not want to go to Cleveland, Ohio, and say, "Look at the wonderful agreement on conformity assessment I got from the Europeans." That's really not a campaign theme.
Scott Miller: I can tell you my wife and her whole family are from Cleveland, Ohio, and nobody knows what conformity assessment is. They wouldn't say it. The President probably wouldn't say it.
Marjorie Chorlins: But you know what's interesting? If you look at what again, the July statement between Juncker and Trump, what were some of the sectors that were identified in that statement? Soybeans on the one hand, right? And LNG exports, right? Those were two areas where the Europeans committed to buy more even though the Commission doesn't buy soybeans, but they committed anyway to see more European imports of U.S. soybeans. So, okay, so the Europeans very cleverly, within weeks of having agreed to that deal, announced that indeed their imports of U.S. soybeans had increased and that they were making strides to increase imports of U.S. LNG as well. But, when you hear Ambassador Sondland talk about it, those-
Bill Reinsch: Who is our Ambassador to the-
Marjorie Chorlins: ... the U.S. Ambassador to the EU ... he will tell you that that's window dressing. Quote, unquote. So, if that's what's in the deal, or what they agreed last summer, and that's considered window dressing, you have to ask yourself, "What is it that the Administration is really looking for, in this negotiation?
Scott Miller: Sounds like the goal posts are moving. And moving pretty fast. Which I'm sure they will for Japan as well.
Barbara Weisel: Well, I mean, I think there's some very basic underlying questions, here. You know, normally when you're negotiating a trade agreement, you're not trying to deal with a bilateral trade deficit. You're trying to open markets-
Marjorie Chorlins: Exactly.
Barbara Weisel: ... and create fair competition between two parties, two countries. You're not trying to deal with a trade deficit, so that in and of itself as the first question here, of what is it we're trying to achieve? If you say, the President did make clear that he would like to see rapid results from this. And so, the initial statements both with the EU, also with Japan, suggested that these would be very narrow agreements that covered only goods, and they could be done very quickly and they could show results and the trade deficit would decline and all good things would happen.
Barbara Weisel: As it turns out, and for people who have been involved in trade negotiations and have had to work with Congress, you know, it's much, much, much more complicated than that. And so, as soon as-
Scott Miller: Well, starting with, none of us know how to get an agreement passed, without the Aggies. I mean, it's-
Barbara Weisel: ... as soon as they started having discussions with the Hill, it became clear we're not going to be able to do a narrow agreement. It's going to have to be comprehensive, therefore you have to go back to the EU, you have to go back to Japan and you have to renegotiate the scope of negotiations before you even get to the table.
Bill Reinsch: But doesn't this mean that the greatest deal maker in the world got played? By Juncker? And actually by Abe, too?
Barbara Weisel: They got-
Bill Reinsch: They got, well what did Juncker get? He got no agriculture, and no tariffs while we're talking. That's what he wanted. What did we get? An agreement to talk. And some soybeans.
Barbara Weisel: ... Some soybeans and some LNG exports.
Andrew Schwartz: Abe gave him a golden golf club.
Scott Miller: Well, that settles it.
Bill Reinsch: And a nomination for the Nobel Peace Prize.
Scott Miller: That would be important stuff.
Barbara Weisel: No, I don't think he got played by Abe. I think they both went into this thinking that they were going to get a quick agreement and the reality turned out to be something quite different.
Marjorie Chorlins: Well, and let's face it, is with the Europeans, nobody expected that they were going to come out with anything. The expectations for that meeting last July were so low that the fact that they ... look, it took them awhile to get out to the Rose Garden because they were in the back room, basically trying to scribble together that agreement. Nobody had done any advance planning for it.
Bill Reinsch: We experienced that here because Juncker was coming here to speak that afternoon, and he was what, an hour and a quarter late? Because they were scribbling in the, behind the Rose Garden.
Marjorie Chorlins: Right.
Andrew Schwartz: There's a technical term for what he was, when he got here. He was in a true schvitz. That means sweat, in Yiddish, for those of you who don't know. But, let's talk about Abe and the President for a second. Don't they have a pretty good relationship, actually? I mean President Trump is very popular in Japan, for a variety of reasons, whether it's North Korea, whether it's the relationship. Abe was the first visit to the United States when President Trump was President, they were, famously visited Mar-a-Lago. Now, President Trump's gonna be visiting Japan in May. Won't they just be able to hash out a deal together, while they're there?
Barbara Weisel: I don't think so. I mean, I don't think that you can expect anything that Abe has provided Trump, or any of the goodwill that's been built up, to provide any dividends to Japan. I mean, this is a very transactional president. They will meet, the President is there for very specific reasons, for the enthronement and to do various other things while he's in Japan. But I don't think that that necessarily translates into any goodwill toward Japan in terms of what they might do on the trade front. They're in completely separate cones. And until the Japanese are prepared to capitulate to the demands of the U.S, I don't think the President is gonna give them anything.
Andrew Schwartz: And the Japanese made pretty clear today that they're not.
Barbara Weisel: Or at least, Toyota did.
Bill Reinsch: Toyota made it clear that they're not.
Scott Miller: Well, look, I wouldn't minimize the ability of the political skills of Prime Minister Abe. Look, he is, at this point, who is very long serving, and he is the most popular of the G7 leaders. By far. In his home country. So you look at any sort of domestic polling in the G7, he's far and away the most popular. He has done, and he's done an outstanding job at picking up the pieces of TPP, and bringing it together when the U.S. pulled out. So this is a man who has some pretty impressive leadership credentials and public support. So I would not minimize the chance of a good meeting of some sort, knowing that our President wants a good meeting and that the definition of good can get very flexible when it comes to President Trump. But I'm not about to be disappointed with Japan any time soon.
Bill Reinsch: It's almost always a good meeting.
Scott Miller: Yes.
Bill Reinsch: No matter what happens.
Andrew Schwartz: Yeah, but Bill, doesn't President Trump need some wins right now?
Bill Reinsch: Well, I think so, although he probably could use wins a year from now, closer to the election.
Andrew Schwartz: Right. The question is, does he need to lay the groundwork now, for some wins a year from now?
Bill Reinsch: Well, yes, and if you're both right that these negotiations are going to last awhile, it will play into that. We were talking today about the China negotiation, and the timing of that. That's on a fast track, we're nearing maybe an end game. We're just ... well, not the end, this phase, end game. But it occurred to me, so, they reach an agreement in March, say, sometime because the two Presidents will meet. If there's an agreement, it will be the greatest one ever, and-
Andrew Schwartz: You're talking about the two Presidents, Trump and Xi Jinping.
Bill Reinsch: Yes. And then there'll be a market bump. The market will be very excited, nobody will read the agreement, just the fact that there is one will mean we're not going to have a trade war.
Scott Miller: We're not going to die tomorrow.
Bill Reinsch: ... we're not dying tomorrow, then, what will happen I think over time is, people will read it and make a decision about whether it's any good. And my guess is, it won't be as good as the President says it is.
Scott Miller: And then it either is enforced or it's not.
Bill Reinsch: And then there's the question of whether the Chinese will implement it anyway.
Barbara Weisel: Right.
Bill Reinsch: And so, a year from now, he could not be looking quite as good as he's gonna look next month, because the agreement could end up being, you know, a minor disaster-
Scott Miller: It's gonna take a lot of very careful work, to look good.
Bill Reinsch: ... a lot closer to the election. He looks good only if it's a good agreement and the Chinese honor it. Two long shots, I think.
Barbara Weisel: And depending what the enforcement provisions are, in what they agree.
Bill Reinsch: But enforcement is an indication of failure, you know, the enforcement mechanism will be, "If you don't do it, we're gonna impose more tariffs." Or, "We're gonna restore the ones we took off," if they take them off. Or, "We're gonna increase the ones that we kept on." That's, in a way, a sign of failure and it's a sign of trade war.
Barbara Weisel: Well, and I think in the case of Europe, we have to keep in mind that the Europeans are having their own elections in May, they're gonna have a new European Parliament, and then we'll have a new Commission in place, hopefully by early December. But, you know, the Administration is now gonna be confronted with what is bound to be a less trans-Atlantic friendly European Parliament on the one hand, and a Commission that's gonna come in potentially with a different set of priorities.
Barbara Weisel: Now, this Commission has been doing, the European Commission has been doing a lot to get as far down the road as they can with a number of these trade negotiations, and the U.S. is the one that's sort of notably left behind. But I think that, again, the idea of seeing quick wins ... unless you're prepared to accept a handful of transactional deals, like more soybean sales, or certifying soybeans for use in biofuels, or increasing the U.S. portion of the quota on non-hormone beef imports ... I mean, unless you're prepared to accept those as good results, that you can then turn around and sell, however package them, the White House is going to be disappointed.
Bill Reinsch: At what point do you think this Commission runs out of gas and runs into the fact that they're leaving, and really can't, are not in position to negotiate effectively anymore?
Barbara Weisel: Well, to hear Commissioner Malmstrom tell it, she's gonna be there right up until the 11th hour, negotiating just as hard as she can. Practically speaking, I think it becomes a lot difficult for people by the end of May, early June.
Bill Reinsch: After the Parliament election.
Barbara Weisel: Yeah. Because there's gonna be jockeying then, around who becomes the Commission President, and then you're gonna be looking at how do you, who ends up taking which portfolios.
Scott Miller: Their version of the lame duck, basically. Yeah. Right.
Barbara Weisel: Basically. And there's the summer holiday, and so ... I would say, June is probably about as far as you can go with what I would consider to be substantive negotiations.
Bill Reinsch: So you don't see this particular negotiation, given that it hasn't really started yet, getting, being over with, before all that happens.
Barbara Weisel: I don't see how it can be.
Bill Reinsch: And you don't see the Japan one being over very soon, either?
Barbara Weisel: No, and I just come back to Scott's point. You know, I don't discount the possibility that President Trump and Prime Minister Abe have a good meeting, when they meet. But when you're talking about, will they be able to conclude a comprehensive deal-
Bill Reinsch: Not a chance.
Barbara Weisel: ... by May.
Bill Reinsch: Not a hope.
Barbara Weisel: Not a chance. Is there some possibility of a gift, you know, the Japanese will purchase more soybeans or beef or whatever, LNG? Maybe.
Marjorie Chorlins: Yeah.
Barbara Weisel: But-
Scott Miller: We'll run out of soybeans soon.
Barbara Weisel: ... Right.
Bill Reinsch: But, I was in a conversation this morning with, where the suggestion was, a whole bunch of military equipment.
Scott Miller: Ah, there you go. Defense procurement. That's an easy alternative, if you've got control of the budget.
Andrew Schwartz: Scott, what's your prediction on what's gonna happen with the China deal?
Scott Miller: The China deal will first of all, not happen March 1st, it'll happen sometime a little bit later, they've already signaled that. Second, it will be essentially coincident with the meeting of the two leaders. In other words, I think Ambassador Lighthizer and his counterparty will get the short list hammered out, and then, the bosses will settle it. The announcement will be favorable, and the substance will be fuzzy.
Bill Reinsch: Part of it'll be fuzzy. I think, big market access package, that won't be too fuzzy.
Scott Miller: Yes, okay. It's the-
Bill Reinsch: Commitments on the structural issues-
Marjorie Chorlins: What's the structural-
Scott Miller: ... Intellectual property is structural issues, it's contestable markets, is gonna be very
Bill Reinsch: ... more than cosmetic, but way less than we're asking for. An enforcement mechanism that will be unilateral-
Scott Miller: It'll Lighthizer's image. Yes.
Bill Reinsch: ... which the Chinese won't like, we get to decide if they're complying.
Scott Miller: Yes.
Bill Reinsch: And if we decide that they're not, we get to act unilaterally and they can't do anything about it. That's what we will insist on.
Scott Miller: Yeah, that's, that would a Lighthizer special.
Andrew Schwartz: So you like it when it's a little fuzzy, because then you can study more, and you can write more about it, and you can talk more about it? I'm being totally serious. Like, do you like it when it's a little fuzzy?
Bill Reinsch: No, because it's not a good outcome.
Barbara Weisel: Yeah.
Bill Reinsch: Because all it does is create more uncertainty, and-
Barbara Weisel: Business hates that. Business hates that uncertainty.
Bill Reinsch: Business hates uncertainty. The market hates uncertainty.
Scott Miller: Your choices with some ambiguity and you sort of roll along, and muddle through. Or, you have precision, and lawyers and failure. So, you know.
Barbara Weisel: Well, it could be that they continue the discussions, beyond the time-
Bill Reinsch: That could happen.
Barbara Weisel: ... that the President -
Scott Miller: That could happen as well, it's another way to sort of muddle through.
Bill Reinsch: I think that what will happen is, and I think Scott alluded to it, the President has sort of decreed the end game, which is that it will be in a meeting between the two Presidents. It won't be in a meeting between the two trade representatives.
Barbara Weisel: Only he can do it.
Bill Reinsch: Only he can do it. He's become his own trade representative, anyway, so.
Andrew Schwartz: He makes beautiful deals, I hear.
Bill Reinsch: That's what he tells everybody. So the job of Lighthizer and Lu Wei is to tee that up, narrow the issues, as you said, probably to low single digits, so-
Scott Miller: Yes.
Bill Reinsch: ... Trump can remember them. And I think that that the most likely one is, what'll happen to the tariffs.
Scott Miller: Yes.
Bill Reinsch: Because the Chinese are gonna say, "If we agree to all this stuff," whether it's big or small-
Yumi: Tariffs go away.
Bill Reinsch: ... "tariffs have to go away."
Scott Miller: Yeah.
Bill Reinsch: And then Trump will say, "No, no, no, no. I won't increase them."
Scott Miller: Yes.
Bill Reinsch: But they'll stay the, keep the current ones, to see what you're gonna do. That I think ends up being resolved by the Presidents and my guess is that Trump will fold.
Andrew Schwartz: Trump will fold?
Bill Reinsch: That's the pattern-
Barbara Weisel: Well, he hasn't, but he hasn't-
Bill Reinsch: That's the pattern, all along.
Barbara Weisel: ... but he hasn't folded on Canada and Mexico. He didn't make good on that promise.
Bill Reinsch: He folded on the negotiation. Look at what happened to all the poison pills-
Scott Miller: The end game, poison pills disappeared. He definitely folded on Korea.
Barbara Weisel: Fair point. But, the tariffs are still there. The tariffs are still there.
Bill Reinsch: The tariffs are still there, and that was a case of him overruling Bob, really.
Andrew Schwartz: Is any of this good for the United States of America?
Bill Reinsch: Well, he would say yes, because it's bringing jobs and production and manufacturing back here. I don't think that's empirically accurate, yet. Although ... brief commercial ... one of the things the Scholl Chair is doing, is a report on the impact of rules of origin on supply chains, using NAFTA autos as a case study. And one of the things that will probably happen with those rules of origin is a short term bump of some production being returned. But long term the industry will be less globally competitive than it is now, and cars will be more expensive. So you pay a price, but will there be more car jobs here, in the short run? Probably. So, it depends on what you're counting.
Scott Miller: But Andrew, you can't deny it's been good for the trade guys.
Andrew Schwartz: Been great for the trade guys. There's no question it's been great for the trade guys.
Bill Reinsch: Trade is a great business because no problems are ever solved.
Scott Miller: Right.
Bill Reinsch: And so it's permanent employment.
Scott Miller: Lifetime employment.
Barbara Weisel: Just the fact that people talk about trade nowadays is great.
Bill Reinsch: He is making people think about trade which is a good thing. The problem he has to wrestle with is you look at poll data, they're thinking about trade, but they're not coming out where he wants them to.
Barbara Weisel: Exactly.
Bill Reinsch: And I think this is gonna play out a little bit in the next election, although I don't think it's a decisive factor in any of that.
Andrew Schwartz: People sure were holding up, and Barbara and I were talking about this before, during the 2016 election, a lot of people holding up a lot of signs about trade and you know that's one of the reasons why we started the trade guys. We wanted to talk about trade in ways that everyone could understand and so that we could bring out some of these issues to have a better informed policy community and a better informed public.
Bill Reinsch: We have competition as some of you know that are ... Peterson Institute does one of these too and I was talking to-
Andrew Schwartz: Who is the Peterson Institute?
Bill Reinsch: The Peterson Institute of International Economics. Chad Bone and I was talking to Nick Laherty and we were discussing the differences between podcasts and we agreed that theirs is aimed at graduate students and ours is aimed at sixth graders. With all due respect.
Andrew Schwartz: Sixth graders? We have, well high school.
Scott Miller: Maybe we should honor Woody Hayes and refer to Peterson Institute as the think tank up the street.
Andrew Schwartz: Yeah.
Scott Miller: Like he always called Michigan that team up north.
Andrew Schwartz: That's right.
Scott Miller: You never say the word.
Andrew Schwartz: That's right. That's right. There you go. Questions?
Naomi Freeman: I'm Naomi Freeman, I'm a consultant with Sandler, Travis, and Rosenburg. One is the recent appropriations deal that we opened the government. Did include improved exclusion process. Do you think that the smart lawyers in town could make enough exclusions that it kind of obviates everything that's happening that you're describing on 232 and on 301 and on all that? And the other thing is have you heard about the Chinese electric vehicles that have just been authorized to come to the United States and will that change all these dynamics?
Bill Reinsch: My former bureau of BIS got four and a half million to fix this.
Scott Miller: It couldn't get worse, by the way. It's really a classic government program at the moment.
Bill Reinsch: I mean fairness to them, I think their mistake was they grossly underestimated the number of requests that they were gonna get. They were figuring five thousand and they got fifty thousand. And they simply were not equipped to deal with it, even under the best of circumstances and I have a great fondness for the people that work there. They're good people. But it's simply a load that became unmanageable. I don't know if four and a half million is going to be enough to fix it. There's been some controversy about the process. There have been some steel companies, not all of them incidentally, but some, two in particular, that have chosen to oppose virtually every request. And that has complicated the process, because if there's opposition then you have to spend a lot more time analyzing than if there's no opposition.
Bill Reinsch: And so that has slowed it down and has also I think caused some internal ferment in inside the industry over whether that's the best strategy to pursue and there are cases where there really is no domestic production of the product and there probably wouldn't be any domestic production of the product even if the exclusion were not granted. Whether four and a half billion dollars is enough to fix it, I don't know. I'm inclined to doubt it, but the reality with things like this is it just leads to another equilibrium. People will make other plans and if they can't get it one way, they'll either get it a different way or they'll make it out of some other product or they'll, in some cases they're gonna go out of business. Not always happy endings.
Scott Miller: With regard to electric cars, I'll channel my racing buddies who say competition improves the breed and I think that if you are serious about electric vehicles as an important part of the US fleet for their carbon footprint reasons and you don't want to subsidize them forever as we have so far, then what you need is more competition. They may be great cars, they may be duds, okay. There's a lot of experimentation that goes on in markets. I note that Consumer Reports withdrew their favorable rating on the Tesla Model 3 today because of reliability problems. So it's actually harder to make a car than it looks, but more competition will make better cars at lower prices to please more consumers. So I happen to think Nissan with Leaf makes the best electric car that's actually a car today, in terms of range, safety, performance, all those things. And the more competitors there are in the field, the more likelihood innovation will accelerate and will get where the consumer wants to be ultimately. If it's a Chinese company, fine.
Bill Reinsch: Full disclosure we take no money from Nissan.
Scott Miller: Or the Chinese.
Andrew Schwartz: You're okay with Chinese electric cars?
Scott Miller: You still have a national safety regulator.
Andrew Schwartz: Yep.
Scott Miller: I was okay with Japanese sports cars in the '70s. Okay, a lot of guys wouldn't give their Corvettes until they got waxed by a 240Z. Okay, so it was one of those things. These things change, but look you have an American regulator, you have American safety standards. If they meet the standards, they ought to get national treatment.
Andrew Schwartz: And now everybody wants a vintage 280ZX.
Scott Miller: Oh they do.
Bill Reinsch: They want the new Supro, don't they?
Scott Miller: Yeah, the new Supro is sold for seven figures.
Andrew Schwartz: Seven figure car. For the first one.
Scott Miller: The first one.
Andrew Schwartz: The trade lady alerted us to that. Question?
Lauren Shapiro: So, hi, Lauren Shapiro from Steptoe & Johnson. Also on the board of GET. Thank you for having us, this has been incredibly enlightening. Um, my question is for both Barbara and-
Andrew Schwartz: Tell Senator Johnson we said hello.
Lauren Shapiro: He's on my floor.
Andrew Schwartz: Yeah. Good man. I worked for him.
Lauren Shapiro: Oh nice. So question for both Barbara and Marjorie. Eventually the timeline for Trump to make a decision on the auto tariffs will run out in 90 days, so he'll have to say yes or no. So the question is, what is your prediction with what happens at the end of that 90 days? If he defers on auto tariffs and doesn't choose to impose them, what becomes the leverage, like the threat leverage at that point? And what does that do for the outlook for each negotiations for the EU and Japan?
Barbara Weisel: So, I think the most likely scenario is that the President declares that autos are a threat to the U.S. economy and national security and that the administration decides that it has to impose the tariffs, but that he's gonna determine that he will not go ahead. He will suspend them for those countries with which the U.S is actively negotiating, Japan and the EU. And then he will hang them over, the Sword of Damocles, over both of those negotiations for as long as they see fit.
Marjorie Chorlins: Which is essentially what I had expected him to do with the steel and aluminum tariffs initially with Europeans. Sort of say, I'm going to oppose them, but I'm gonna take them off as long as we're talking, but that didn't work out. I think Barbara's absolutely right. I think that he will get to that point. I guess is he actually statutorily required at the end of 90 days?
Barbara Weisel: Yes, he has to make a decision.
Bill Reinsch: But he doesn't go to jail if he doesn't. There's no penalty. So there's been debate about this. Does he really have to do it in 90 and the statue I think says-
Barbara Weisel: Says 90 days.
Bill Reinsch: It says 90, but if he doesn't, nothing happens, right?
Barbara Weisel: He's required under the statue. It doesn't say what happens.
Andrew Schwartz: We can do two, lightning round.
Ayumi Makiyama: Hi, my name is Ayumi Makiyama. I'm an intern for Simon Chair for Political Economy at CSIS. My question for you is, so if the U.S.-China trade deal is successful, or if there is an outcome, would that give us a hint for how the U.S.-Japan trade deal would proceed?
Paul Somdahl: Thank you, I'm Paul Somdahl, I'm with the Norwegian Embassy. I would like to hear your views. There are many countries in the world that are deeply concerned about the multilateral trading system but it doesn't seem to be high on the agenda here in the U.S. right now. Do you have any views on where we will be heading and what will happen to the WTO after December this year?
Scott Miller: Quickly on your question, I think Japan and China are independent of one another. And they're independent political issues very interesting for the American people. Americans see Japan as fair traders and China as unfair traders.
Bill Reinsch: The WTO question is long, complicated one. I think the U.S. attitude as near as I can tell is - Lighthizer's point of view is it's a useful tool. We can litigate, we win a lot, we don't win all of them. As long as it's a useful tool I think we're gonna be there. That doesn't mean we're gonna be contributing positively. People who are there now that don't work for the American Embassy there tell me that we continue to maintain a very high level of activity at the working level in the WTO. We go to committee meetings, we have ideas, so nothing has changed at that level. Up at the top, a little bit different. I think in it's own way, once again, the President has focused attention on legitimate issues and I think there's a lot of countries that would agree that some of the problems we've identified are real problems. And he's probably performed a useful service in identifying them. Whether his tactic is the right one to get them resolved, I don't know. My guess is probably not. But it depends on how it plays out. He certainly got people focused. He's gotten the EU and the Japanese moving. He's gotten the Canadians and the group of 13, I guess it is moving.
Scott Miller: Talking about dispute settlements, yes. And there's a conversation on-
Bill Reinsch: So wheels are turning. It'll probably not come to a head until the ministerial in June of 2020, right? Not this year. It's 2020 in Kazakhstan. So it's gonna take a while and the appellate body may disappear in the interim. So I'm not sure this is the best tactic, but it may actually end up with some kind of resolution that would be constructive.
Scott Miller: People actually talking about developing country status. That was kind of taboo for a long time. So, who knows?
Bill Reinsch: Yes and having the defense of the current system come from the Chinese and the Indians and the South Africans is probably-
Scott Miller: It's ironic.
Bill Reinsch: The height of irony, but there it is.
Andrew Schwartz: Trade Guys, thank you, but I really want to thank Barbara and Marjorie. This has been awesome. I want to thank our great live studio audience for being here tonight. This will be posted. Yumi our amazing producer is here. Yumi I think it'll be up tomorrow, right?
Andrew Schwartz: Hopefully tomorrow, all right. Well thanks everybody. Barbara and Marjorie, I hope you guys will come back sometime soon.
Barbara Weisel: Anytime.
Andrew Schwartz: It's been great having you here. Thanks so much.
Barbara Weisel: Thank you.
Andrew Schwartz: To our listeners, if you have a question for the Trade Guys, write us at email@example.com. That's firstname.lastname@example.org. We'll read some of your emails and have the Trade Guys react to it. We're also now on Spotify, so you can find us there when you're listening to the Rolling Stones, or you're listening to Tom Petty, or whatever you're listening to. Thank you Trade Guys.
Bill Reinsch: Thank you.
Scott Miller: You've been listening to the Trade Guys. A CSIS podcast.