Mexico, the EU, and Going Nowhere Fast
June 5, 2019
Scott Miller: I'm Scott.
Bill Reinsch: I'm Bill.
Scott Miller: We're The Trade Guys.
Bill Reinsch: 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. I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.
Andrew Schwartz: On this episode of The Trade Guys we'll talk about President Trumps latest tariff threat against Mexico and unpack what it means for USMCA, consumers and businesses on both sides of the border.
Andrew Schwartz: Stock markets are in turmoil this morning after the president promised to levy new tariffs on Mexico unless they stop the flow of migrants to the US.
Andrew Schwartz: Plus we're joined by CSIS' very own Heather Conley to discuss the recent European Parliament elections, Brexit, and President Trump's visit to the UK and France.
Andrew Schwartz: Gentlemen, the big question facing everybody on USMACA, as Scott is fond to call it, the US ... What is it now? What are we calling it?
Bill Reinsch: US-Canada-Mexico Agreement it stands for.
Scott Miller: Wait, it depends on where you are.
Bill Reinsch: That's right.
Scott Miller: But in Canada it's CUSMA-
Andrew Schwartz: CUSMA.
Scott Miller: Canada-US. In Mexico it's MUSCA, Mexico-US. Here it's USMCA.
Andrew Schwartz: Some people call it the new NAFTA.
Scott Miller: If you want to have a bad pun it's USMACA.
Andrew Schwartz: Okay. We'll just-
Scott Miller: Pick your choice.
Andrew Schwartz: Okay. We'll go with USMACA. Big question, is President Trump bluffing on these new tariffs?
Scott Miller: No, I don't think he's bluffing. I think it's a classic leverage move on his part. He only has one tactic, which is to hit the other people in the face and hope they'll fold. He does it with 10 days warning. Sorry, with 11 days warning. They don't go into effect until June 10th.
Scott Miller: The Mexicans quickly have rushed up here. They're here now. Negotiations are to be, I think, tomorrow or Wednesday. We'll see.
Scott Miller: I mean, I think his tactic is always get them to do what I want by threatening to do something horrible. I think he means it, in the sense that if they don't do what he wants he'll put the tariffs into effect, which would be disaster on many levels.
Andrew Schwartz: Well let's talk about that. The immediate disaster was the stock market dropped precipitously.
Scott Miller: That's a six week phenomenon at this point. The DOWs been soft for six weeks now.
Andrew Schwartz: Tell that to the guy who tried to retire the other day.
Scott Miller: Right, it's not good.
Andrew Schwartz: Yeah.
Scott Miller: Okay. The uncertainty is definitely playing into investor concerns. Bill makes the point, this is purely tactical. This is really not about a change to American trade policy in any way. It is the president being frustrated with a lack of cooperation and taking action to incentivize the cooperation. Leverage is exactly the right word for it. It just happened that ...
Scott Miller: Frankly, the statute that gave him the authority to do it, Emergency Economic Powers Act, is pretty broad latitude. Lawyers will disagree whether it applies to tariffs but it's one instrument the president has that's pretty much a blunt instrument. It appears to me that it is exactly what he says it is, "We need something to change here and if you don't change it I'm going to do something bad."
Andrew Schwartz: Okay. What he got was over the weekend the Mexicans rushed representatives here, so it makes Trump look like he does have leverage and he is powerful. That's a good thing if you're President Trump. No?
Bill Reinsch: We'll see. I think the long-term bad effect, which is too late to fix is, it cast doubt on the credibility of management of our trade policy. We just made an agreement with the Mexicans. Not only did we just make an agreement, less than a month ago we dropped the steel tariffs. Now he's turning around and re-imposing worse ... More tariffs potentially. Then if I were a foreigner I would say, "What is the point of making an agreement with the Americans? They don't keep them."
Scott Miller: I think the expression is arbitrary and capricious.
Bill Reinsch: That would be a good word.
Scott Miller: That's the way we look. I mean, we look unreliable.
Andrew Schwartz: Does it undercut ... I mean, Lighthizer couldn't have been too happy about this.
Bill Reinsch: The gossip is that he was against it.
Andrew Schwartz: Right.
Scott Miller: It definitely makes his job more difficult.
Bill Reinsch: Treasury Secretary as well.
Andrew Schwartz: What I heard was neither was happy and they both felt undercut.
Bill Reinsch: I think they were both focused on trying to get USMACA through the Congress, which would be an important policy victory for the president and a deserved one. Except that he's stepping all over himself. It's going to make it much harder.
Scott Miller: USMCA has two partners, both of who's legislators were taking it up. Both the assembly and Mexico ... The National Assembly and the Canadian Parliament-
Bill Reinsch: Right now.
Scott Miller: ... right now are considering USMCA. This is not a ... It doesn't help.
Andrew Schwartz: Okay. Please tell me how this is good politics for the president because on the one hand he doesn't get what he wanted passed, which would have been a great thing as you said and deservedly so. On the other hand he's, at least in the short-term, hurting the economy. The people that he's hurting are the people that vote for him, both at the high end and at the low end. How is this good politics in the long run?
Scott Miller: Hang on, just a second, nobody's been hurt yet because the tariffs haven't gone into effect. It's a week from today till they go into effect.
Andrew Schwartz: But I felt bad though. This made me feel a little bad.
Scott Miller: Okay. Well-
Bill Reinsch: You're worried about your guacamole and your tequila.
Andrew Schwartz: You said it.
Scott Miller: Lindsey Graham said it actually.
Andrew Schwartz: Oh did he?
Bill Reinsch: If you have a millennial in the house it's guacamole toast. That is of great concern.
Scott Miller: They call it avocado toast.
Bill Reinsch: Avocado toast. That's right. You're right.
Andrew Schwartz: We'll go with guacamole though, we're old school.
Scott Miller: Definitely there are worries but there's no actual harm yet. No agreement's been made one way or the other and USMCA is sill before the congress. The job is more difficult when we're doing this, much as when the steel and aluminum tariffs persisted. That was a problem for the congress. Once they're lifted, once again, you eliminate that threshold issue. These tariffs, if they even go into effect, will be another threshold issue that will prevent its consideration but it doesn't eliminate it.
Bill Reinsch: It's only good for him politically if he can say that it stopped the influx of migrants at the border. His signature campaign issue is going to be migration. Trade will be up there but immigration will be number one. His rationale for doing this is that the Mexicans are not doing enough to stop the migrants so if they turn around, and do something, and the number of migrants goes down, he looks good politically.
Andrew Schwartz: Does he have any evidence that they actually can do something to stop-
Bill Reinsch: No.
Andrew Schwartz: ... migration?
Bill Reinsch: He isn't even clear about what he wants them to do. He just wants it to stop.
Andrew Schwartz: Okay. He wants it to stop. Scott's saying no one was hurt yet but I can't tell you how many text, calls and emails I got, over the last few days, saying ... These aren't for anti-Trumpers either. These are just for legitimate people saying, "Is the president trying to wreck the economy? Is he just trying to be all powerful? What is he trying to do?" I had a lot of people ask me that.
Scott Miller: Yeah. I personally don't see it that way. For me it's a leverage move. It's one ... But he has great frustration over this migration problem, which exists because of a law on refugees that was written with the idea of refugees from basically the Middle East or some place a lot further from the United States. Mexico and Canada were excluded from this but then Mexico is an asylum state as well.
Scott Miller: As President sees it, I think, he would say that if people from the Northern Triangle want to escape a bad situation or more importantly repression, the kinds of things that generate a legitimate asylum claim, they could request asylum in Mexico. They don't have to come all the way to the US.
Scott Miller: What he's dealing with is a situation where about a million people so far have come to the US. We know from history their asylum claims are successful in a very small minority of the occasions that there's actually a hearing. He sees it as an abuse of our law. No help from Mexico, which is also an asylum country. Where they could ... An asylum declaration by someone from the Northern Triangle could be made without traversing the entire length of Mexico. I think he's just frustrated with the fact that he's got no help from Congress or any of the governments involved. He just decided to take action.
Bill Reinsch: The financial analysts are saying that ... It's 5% on June 10th. Then the first of every successive month it goes up five more if nothing's happening, until it hits 25. The financial analysts say, "If it's five or 10 it won't make a lot of difference. When it gets 15, 20, 25 then it's going to be significant."
Scott Miller: Well the peso dropped more than 5% on Friday.
Bill Reinsch: Well that offsets it.
Scott Miller: Which would offset it at 5% tariff.
Andrew Schwartz: When it gets to 25% that's when we say, "Holy guacamole."
Bill Reinsch: Well yes. Well the big losers will be avocado eaters. The biggest loser will be the automobile industry. I mean, the thing-
Andrew Schwartz: How so?
Bill Reinsch: Because-
Scott Miller: Well the supply chains were built around free trade.
Bill Reinsch: Yes.
Scott Miller: They were designed to function in an environment of zero tariffs.
Bill Reinsch: I think Scott pointed this out before, Mexico is now our biggest trading partner.
Scott Miller: Sure.
Bill Reinsch: We import more stuff from Mexico than we do from China, believe it or not, as of March. A third of that is autos or auto parts.
Andrew Schwartz: Well total-
Bill Reinsch: [crosstalk 00:09:12] They're the primary victims here and their supply chains are going to be crippled by this tariff.
Andrew Schwartz: Okay. Total US exports to Mexico in 2018, 265 billion.
Bill Reinsch: That was behind China in '18. '19 they've caught up and passed China.
Andrew Schwartz: Amazing.
Bill Reinsch: Because of Chinese tariffs among other things.
Andrew Schwartz: Top US imports from Mexico, vehicles and parts, electric machinery, oil.
Bill Reinsch: One of the ironies of this is the other thing the administration wants to happen is to have US companies to leave China. They're encouraging them to leave China. Well one of the places they're looking to go is Mexico. The president has just stepped all over his China policy. Why are you going to go to Mexico and face possible 25% tariffs when that's what you've already got in China. Start investing in a third country.
Scott Miller: The action undermines the decoupling intention of the administration. It's not a big surprise, we've been dealing with this now for about two and a half years. It's hard to see it as trade policy. That's the only thing that we're just going to have to figure out.
Bill Reinsch: Let's talk about something more pleasant.
Andrew Schwartz: Before we do though, I want your predictions on how Mexico is going to handle this. Mexico's president, AMLO, is a tough guy. Andres Manuel Lopez Obrador or AMLO as we refer to him, he's a pretty tough guy. How is he going to handle this?
Bill Reinsch: So far he's been remarkably restrained, and careful, and appears to want to solve it. I think there'll be a genuine effort made to do that. At the same time I predict that-
Andrew Schwartz: I mean, I bet he doesn't think he's as tough as our president.
Scott Miller: Well look-
Bill Reinsch: He's chosen to handle it smartly I think.
Scott Miller: I think ... I agree with Bill on AMLO so far. The president has been very measured but I would also remind our listeners that during the NAFTA negotiations, the USMCA negotiations, Mexico did a superbly professional job with a very high context personal negotiation, face-to-face. It was classic Latin American negotiations in many ways but they modeled it and they were able to close with the US well before Canada. They have people in place, Jesus Seade being the leader of the NAFTA negotiations, among ... His counterparts are actually quite good at this, they're quite skillful diplomats. I'd give them a chance. Let's give them a week.
Bill Reinsch: But I will bet you that if the tariffs in the US are imposed the Mexicans will respond in kind.
Scott Miller: Oh yes.
Bill Reinsch: Our farmers will be right back where they were a month ago.
Andrew Schwartz: All right. Let's talk about something more pleasant.
Bill Reinsch: We have someone more pleasant here to do it with us.
Heather Conley: Well thank you.
Andrew Schwartz: We have the most pleasant expert ever to appear on The Trade Guys.
Bill Reinsch: And the second time.
Andrew Schwartz: May I introduce Ms. Heather Conley, Director of our Europe and Eurasia program. Senior Vice President at CSIS and our favorite colleague.
Heather Conley: Aw. Well don't stop, keep going guys. Thank you.
Andrew Schwartz: We will keep going. Heather but you're here for a reason. There's a lot going on ...
PART 1 OF 3 ENDS [00:12:04]
Scott Miller: We'll keep going.
Heather Conley: Thank you.
Scott Miller: Heather, but you're here for a reason. There's a lot going on in Europe. There is the EU elections, Brexit and President Trump, as we speak today is in the United Kingdom.
Heather Conley: For a state visit.
Scott Miller: State visit. What do you have to tell us?
Heather Conley: Well gosh, let's start with the European Parliament elections.
Scott Miller: That was big.
Heather Conley: That was big. That was a triumph of democracy. Although Ambassador Bolton in an op ed thought the 2016 Brexit referendum was in fact a triumph of democracy. But this actually was important. An increase in voter turnout, which was fantastic because usually these elections turn out tends to be a little low. This the prize was 751 seats in the European Parliament. This election occurs every five years. So with increased turnout, three things happen simultaneously. The first thing that happened was I would call them the World War Two Establishment parties. So the center left, Social Democrats, the center right, the Christian Democrats, for want of a better term, they both declined. And this has been a trend in Europe. Those traditional center parties have been in a slow state of collapse for really the last decade.
Scott Miller: So that's like Merkel's people.
Heather Conley: Yeah, so the European People's Party, which is the Pan European center right party, which of course includes a Angela Merkel's Christian Democratic Unionist Party. And then the center left, which is basically a combination of social democrats across Europe. They did not do well, they lost and they'd been hemorrhaging voters.
Scott Miller: Who's the personification of that?
Heather Conley: So the personification, and this gets in sort of the contest. Europe is trying to create sort of this real feel of of a race of direct democracy. So each party is supposed to put forward their lead candidate. So in fact it feels like a presidential campaign. That there's one person that's attached to a pan-European party.
Scott Miller: This is for what position?
Heather Conley: So this, they call it, a German term, [foreign language 00:14:04]. And what that is, it's the leading candidate for a political grouping and they, they campaign across the EU. And so you're hoping that when a European citizen goes to vote, even though they may be in Slovakia, that they will think about that lead candidate. Because they would like that lead candidate to be the president of the European Commission. The executive. And there's other senior leadership positions as well. The problem is it doesn't work like that because there aren't national lists and these elections, these are 28 separate national elections that focus on a lot of local issues. A lot of it's a protest vote against the government, but this election, certainly there were European issues. Migration of course as you were talking about on the Mexico contest is top of mind for Europeans. Also austerity and just economic cuts, and really a reaction. I call it the Brexit effect. The reaction from the Brexit referendum that Europeans are like, "Hey, we can't take this for granted. If we believe in this project, we have to support it."
Heather Conley: So the candidates and these elections were happening. So as I said, the first trend was those establishment parties didn't do well. The good news was the second trend, a new centrism is coming to the fore and this is what we called the green wave. So Green parties pretty much across the spectrum-
Scott Miller: I love the green wave because that's [Tulaine's 00:15:28] nickname, the green wave.
Heather Conley: The green wave.
Scott Miller: I know that has nothing to do with Europe, but I just had to jump in on that. Sorry.
Heather Conley: Thank you. And then the new sort of liberals. So they did very well. So the older parties didn't do well. This new centrism I and Green came forward, which is exciting.
Scott Miller: When did the Greens become the center? The Greens were always the left.
Heather Conley: See really when the center left has been in this slow state of collapse. The Greens became a viable alternative. They aren't extreme, they hold centrists positions. They are pro European and quite frankly from most of the countries, the Green party has been, hold onto it, consistent. Not changing their views, whether it's migration or anything. They've been consistent and steady and that's where a lot of those social democrats have gone. In Germany right now, an anecdote, a poll just came out over the weekend. The German Greens are now polling as the largest party in Germany. So we can talk about Germany separately.
Heather Conley: But this is growing across, so that was a rising force. The other rising force, which is the bad news sort of giving, you the good, the bad, and the ugly was at the euroskeptic percentage in the European Parliament increased from 20% from 2014 to about 25% and so this is no longer fringe.
Scott Miller: A quarter of the voters is not fringe.
Heather Conley: A quarter of the voters. This is here to stay. And again, these Euro-skeptics are not interested in leaving the European Union. They're interested in changing the European Union from within in their own image. It's a completely different things. So from from these three trends, what you have now is as a problem, it's a consternation for European leaders because now they need three, if not four of these political groupings to carve out a majority in the European Parliament. This makes the jobs, who it becomes the European Commission president, who becomes the European Union foreign minister, who becomes the next head of the European Central Bank, which is a very important position. Who becomes eventually the president of the European Parliament? These major positions now, there is a real jockeying. And this whole concept of this [foreign language 00:05:42], or this lead Canada has sort of ... It's not dead yet, but it's sort of gotten to a point of people aren't sure where they're going to go. So the European leaders will meet June 20th to 21st and hopefully their desire is to sort all of this. But I think it's going to take a while to sort.
Scott Miller: Now as a footnote, could you talk a little bit about what happened in the UK? Because there the conventional parties got demolished. The Conservatives came in fifth if I recall, and Conservatives plus Labor was only 25% of the vote. And those parties covered basically all voters maybe five years ago. So what's going on?
Heather Conley: So again, this was the election that should have never happened. So if things had gone according to plan, the UK would have departed the European Union on March 29th never needing these elections. But because they have failed to, to get through the House of Commons, the withdrawal agreement, they had to participate in these European Parliament elections. So it was not a very well prepared election. The Conservative Party really wasn't competing in the election and I think this is the biggest takeaway from British politics today. There is no more left and right in the British political spectrum. There is only leave or remain.
Heather Conley: And so the parties that had the clearest view on whether to leave, which is now Nigel Farrage's brand new three week old Brexit party, and the Liberal Democrats, the Lib Dems, that have always been the strongest remain party. They came out very strong because they were clear and consistent. Labor is so twisted and tortured on Brexit. You have it just as the conservative party is twisted and contorted on Brexit, they fared very poorly so now, but it was a real national indication of if there is a general election to be held, this is just going to be a potentially a bloodbath for both the Conservative Party and certainly not labors finest alums as well.
Scott Miller: So what's this mean as a next step? I mean, it seems like Brexit means Brexit and according to the voters. But there's still not a majority for any Brexit plan in the parliament. So who does what now?
Heather Conley: So when the EU gave a the UK their latest extension, six months to October 31st. Yes, I am already telling you I'm naming the commentary, trick or treat, when we get there. But when they were given that six month, the European Council president, Donald Tusk, a former Polish prime minister gave the UK the admonishment, "Don't waste this time, use this time, get it through." And what is the UK doing?
Scott Miller: Wasting time.
Heather Conley: Wasting time like nobody's business.
Scott Miller: Well that's human nature. We look at the Congress, everything happens the day before the deadline. Why expect anything else?
Heather Conley: So what they're occupying themselves with now, first they had to get through the European Parliament election that they should never have had. Now Theresa May has resigned. Her last day will be on June the 7th. So the state visit is her grand finale. She'll go into caretaker status and now the party is having a leadership contest. As of this morning, there are now 13 conservative party contenders.
Speaker 1: Almost as good as the Democrats here.
Heather Conley: They're getting there, they're getting there.
Speaker 2: The Democrats have like 25 at this point.
Heather Conley: Well they got a little ways to go. So what happens is the members of parliament of the Conservative Party whittle down this field of today 13, could be more, eventually to two, and then the two finalists go out and then the Conservative Party membership of about 120,000 will then vote on these-
Scott Miller: Oh it's a popular ... It's not just among members.
Heather Conley: It's only the members of the conservative-
Scott Miller: Members of the party. But not MP's.
Heather Conley: So the MP's whittle it down, the final two candidates go to the membership of the Conservative Party.
Scott Miller: Oh that's interesting.
Heather Conley: So the anticipation is we will have a new prime minister if you're optimistic mid July. If there's a little time crunch here, probably end of July. So nothing is going to happen on this until the end of July. And then the House of Commons, unless change, goes on their August recess.
Heather Conley: So really we're going to get back down to this in September and you're absolutely right, the math doesn't change of how the House of Commons will work. The question is, is the next prime minister going to subscribe to a no deal exit? And that's certainly what the leading candidate, Boris Johnson has said. He has said he will bring the UK out of the EU on October 31st, no extensions. If he can't get a new deal, no extensions, they'll leave under WTO rules.
Scott Miller: Can you pack the party? Could the Brexit voters, 30,000 of them go off and suddenly join the Conservative Party and stack the deck?
Heather Conley: I don't know all the rules. I think it is too late to do that now. Some of you pay a five pound or 20 pound fee or whatever it is. I think that point, but it's a fairly small, super small subsection of the population of the country that will choose the next prime minister.
Scott Miller: Does Labor do it the same way?
Heather Conley: Labor has a ... Their threshold is much lower and they ... All the parties will have a party convention. I think that the Tory convention is actually extremely early this year. It's like end of September, which you can imagine will be a very rawkus convention. Labor has a slightly different threshold and when they went through their leadership contest, there was a very low threshold, and you're absolutely right, a lot of young people joined the Labor party known as the movement, very supportive of a Labor leader, Jeremy Corbyn. And that actually helped push him and helps protect him as the party leader when many of his own members of parliament in his party very much disagree with him. So it can work both ways.
Heather Conley: So we're going to go through a leadership contest and then that new prime minister is going to go, "Well, I'm going to go to Brussels and I'm going to negotiate a new deal." The EU has told them, "Nope, sorry, the deal is the deal. Take it or leave it." But they feel that they weren't tough enough on Brussels. So they'll go through that time lag and then they'll come back and then they're going to have to decide whether they're going to seek another extension. They're going to leave on a no deal or-
PART 2 OF 3 ENDS [00:24:04]
Heather Conley: ... extension. They're going to leave on a no deal. Or a can parliament step in, in any way and try to basically rest control of this from government. And try to do a series of indicative votes or laws that would prevent a no deal exit. Guys, I have no idea.
Heather Conley: The other scenario is we could actually go to an early election before October the 31st, potentially. If a vote of confidence is held against the new prime minister running, so Boris Johnson becomes the next prime minister. Would there be enough Tories and Labor and Lib Dem's who want to block a no deal, would join together with a vote of no confidence. If that would be successful, and a government couldn't form... a new prime minister couldn't be formed in 14 days, then they go to early election. So lots of different routes to go here, but it looks increasingly like no deal.
Andrew Schwartz: Yeah.
Heather Conley: To be honest with you. What this whole thing has been about since 2013 since David Cameron first proposed the holding of a referendum, it was always keeping the party together was always more important than the country. That continues to be true today. And it's the tragedy of where we are and the consequences of those decisions.
Andrew Schwartz: President Trump's there now. He has said that he may meet with Nigel Farrage and Boris Johnson during his visit. Do you think he will and if he does, what does that indicate?
Heather Conley: I think he will. I think it will likely happen. There'll be a dinner Tuesday evening at a the US ambassador's residence, Winfield House ambassador Woody Johnson. What happens on US soil is up to the US in many ways. And the British government has said that, although they have said this would be inappropriate. I would like to put the shoe on the other foot, let's say, while whether it's Theresa May or let's say force Johnson would come to the US and he decided to have a coffee with Joe Biden.
Andrew Schwartz: Sure.
Heather Conley: Wow. Wow. Because he thinks he's a terrific guy and is doing great things for the country.
Andrew Schwartz: He is.
Heather Conley: Wouldn't that be a real insult to President Trump as you are hosting this leader? Of course it is. You have to imagine how this, particularly in a leadership context. Particularly in a a moment that the UK is so polarized, so divided, this doesn't help. And of course Nigel Farage of not only helping to break up the conservative party, which does not help Boris Johnson at all. But the president, let's be clear, he's consistent.
Scott Miller: He does like who he likes.
Heather Conley: Consistent, and he supports, he has always supported Brexit. He thinks this is a great thing. He thinks the EU is a foe. And of course Ambassador Bolton, as I refer to it in an Op Ed said, "This is really, this is the UK's Independence Day. And the UK will be so much better off when it cleanly leaves."
Andrew Schwartz: How's that going to play for our trade relationship?
Heather Conley: Well, this is where the rhetoric of, it's going to be so quick and easy. Yet have a massive trade deal after the UK leaves the EU. What has occurred over the last two and a half years is USTR and the the UK office, that deals with international trade have been in working groups. So they've been working and trying to to shape a framework for a future US, UK free trade agreement.
Andrew Schwartz: They haven't yet invited the Trade Guys to tea.
Heather Conley: Ah, well, that could be a next and positive step in the right direction.
Andrew Schwartz: [crosstalk 00:27:37]
Scott Miller: I think there's plenty of time.
Heather Conley: We don't know the relationship
Scott Miller: Our processes are such that nothing is fast and nothing is quick now, because decisive will be pulled out of a hat.
Heather Conley: Right. Well, we honestly don't know what the future relationship the UK will have with the European Union.
Scott Miller: Right.
Heather Conley: If they go to a permanent customs union, even in a single market, there's not going to be space for a bilateral negotiation. Now if they leave under WTO rules. Okay, that would certainly open an opportunity. But this getting back to again your conversation on Mexico, everything is leverage. The UK, is it a moment of weakness. We're not going to help them. We're going to use every piece of leverage that we have to get what is in our interest.
Heather Conley: So for those in the UK who see that it's okay to leave the EU because the, the US trade relationship is going to be vastly more important in the future. I think misunderstand how much the US is going to take it's leverage and actually forced the UK into a choice between the European market and the American market. And quite frankly, I'm not sure that the British would choose the American market right now.
Bill Reinsch: No, I agree with you. They have much more trade with the continent-
Heather Conley: Yes.
Bill Reinsch: ... than they do with us. I think you're exactly right. We will insist on them adopting our position on GIs, geographical indications, on genetically modified organisms. We'll insist that they adopt our health, safety, environmental standards. All of which will make their products unacceptable in the EU. I mean, it's just a why they would do that would make no sense. It makes sense.
Scott Miller: Then to add into that, the fact that our processes take so long. All right. This transition period, however long it is, it will be longer if the United States involved with a free trade agreement with Britain. That's a three to six year project depending on how much urgency is delivered.
Bill Reinsch: Now there is a solution.
Heather Conley: Yes.
Bill Reinsch: Which is, well maybe we have different ones. But mine would be if the United States and the EU could negotiate an agreement that would harmonize a lot of these issues, then the UK doesn't have the same problem.
Heather Conley: Well that would be the good news if things were going positively-
Bill Reinsch: And how likely is that?
Heather Conley: ... for the US, EU trade talks. Which again, it's really a mechanism created last July to try to stave off US auto parts tariffs against the EU. So this is an exercise in trying to prevent something bad from happening, not necessarily seeking opportunity for growth.
Scott Miller: And the context for that is, it goes back to 2010 and the tea tip process, which has been going nowhere fast. And is likely to go nowhere fast in at least in our lifetimes.
Heather Conley: Well this is the frustrating part, and to the EUs credit, they are buying more L&G. They are buying more soybeans. I mean they're trying to show that they're doing the right thing. But the steel and aluminum tariffs are still on track. The six month pre reprieved not withstanding, this is still a very active threat. And you're absolutely right, the regulatory harmonization is where the money is, and that's where it's the most difficult to do.
Scott Miller: It's where the resistance is. Its what nobody wants.
Heather Conley: Exactly right.
Bill Reinsch: That brings us sort of full circle, how will the new parliament and the new commission change any of that? Are we in for five more years of the same impasse? Or do you think they'll bring in fresh thinking on their side?
Heather Conley: So this is where the timing for both of us has always screwed up any positive results coming from the US, EU trade talks, because this year was the year of election. So new European Parliament, which is, I read then the shape of the new groupings, is going to be harder. You're going to have the greens that are going to want the highest environmental protections, worker's protections. You have the liberals, anti-competition very worried about big tech, very worried about data protection. They're not enthusiastic about this. I mean EU's enthusiastic about free trade agreements to sort of demonstrate the International Liberal Trade Order still exists, but it's unpopular. Free Trade is unpopular in Europe, as it's largely somewhat here in the US.
Heather Conley: So you have a new parliament that's going to want to review things. You're going to have a new commission seated on November the first, they're going to review mandates. You're going to have where these is all sorted out. And of course once they get their house in order, then we go into an election cycle. It's just these democracies, they just keep having elections. It's going to be a real challenge to get this through.
Bill Reinsch: Trump would say that's a flaw. If we could dispense with the election.
Heather Conley: Well, No, no, no. These are good things. But it's complicated to get tough things on where people... Look there is an increasing protectionist stance in Europe from France to Italy. Industrial policy now is in fashion. Germany and France are now advocating for an industrial policy, to try to mitigate both China and the United States. But we've seen across the board a weak name in the eurozone economy. And they're not as well prepared to handle the next financial crisis. Their banks are not strong. You now have Italy and the Italian government wanting to throw a lot of challenges to the EU while they're managing Brexit. And while you have now a political transition process going on in Germany, that means that not a lot can happen. So this is sort of a, it's a real stagnation point now. They're not being able to take strong actions, a defensive crouch. But this is not a Europe that can make big bold decisions.
Heather Conley: And of course they can't trust Washington. Again, getting back to Mexico, even when you have an agreement, you don't have an agreement.
Bill Reinsch: We're an unreliable partner.
Heather Conley: Exactly.
Bill Reinsch: I think it won't be long till the NGO that created the tea tip Trojan horse that used to be on the Ground Plaza in Brussels. I think that kind of things coming out of storage. It'll be back there before we know it.
Heather Conley: Probably.
Andrew Schwartz: Heather, all I know is somebody better invite you to tea over there fast, because you have all the answers.
Heather Conley: No. No.
Andrew Schwartz: Thank you for being with us here today on the Trade Guys. Please come back soon. I bet you we will have you back before anyone comes here twice.
Heather Conley: Oh, well I love being here with you guys. Thank you for the invitation.
Andrew Schwartz: Thanks for being here.
Andrew Schwartz: To our listeners, if you have a question for the Trade Guys, write at firstname.lastname@example.org, that's email@example.com. We'll read some of your emails and have the trade guys react to it. You'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.
Scott Miller: Thanks.
Bill Reinsch: Thank you.
Andrew Schwartz: You've been listening to the Trade Guys, a CSIS pod-