Trade Guys on the Road: Georgetown University Edition
April 4, 2019
Scott Miller: I'm Scott.
Bill Reinsch: I'm Bill
Scott and Bill: 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 brought the Trade guys all the way across town to Georgetown. Georgetown University, home of the Hoyas. We recorded in front a live audience of students who asked us very sharp questions, which you'll hear throughout the episode. And we discussed what's happening with the U.S. China trade talks, what the President means by U.S. Japan trade deal and more, all right here on this episode of the Trade Guys at Georgetown University.
Andrew Schwartz: It is so great to be here at the home of Georgetown University, one of the greatest universities in the United States of America and I don't just say this because I'm here with you guys today. I grew up in D.C. and that means that I have been a lifelong fan of Georgetown basketball. When I was a kid, OK, I was here ... Yeah! That's what I'm talking about. We can get the Hoya Saxa chant going in a minute if you want, but I was here as a kid. My dad took me to all the games when Patrick Ewing was a freshman, OK, and when Allen Iverson was a freshman and when Alonzo Mourning and Dikembe Mutombo were freshmen and all through their careers here at Georgetown when John Thompson was the coach. I remember when Freddie Brown threw the pass that Michael Jordan intercepted in the National Championship game, that North Carolina went on to win and I remember when the Hoyas finally went to the promised land and beat Akeem Olajuwon and Houston to win the National Championship.
Andrew Schwartz: I remember the most epic game in the history of college basketball when Villanova and Georgetown faced off in the National Championship after playing against each other in the Big East. You guys can't even imagine what Big East basketball used to be like. I'm sure you hear stories about it all the time. Well, guess what? It's coming back, OK. Big East basketball is coming back. Nova's great. Marquette's great. Seton Hall is great. Georgetown is on the verge of being great again. You've got-
Bill Reinsch: It won't be long now.
Andrew Schwartz: Let's make Georgetown great again, okay?
Scott Miller: It won't be long now.
Andrew Schwartz: As you know, it's great to have Patrick Ewing in the back of the class here, so ... No, I'm just kidding. Patrick is not here. He is your coach, but it is totally great to be here with you guys. The Trade Guys.
Bill Reinsch: You know, he worked on the Hill.
Andrew Schwartz: Was it-
Bill Reinsch: Patrick Ewing worked on the Hill when I was there. He was an intern on the Finance Committee.
Andrew Schwartz: Is that right? You know, I did know that. So, that's one of the great benefits of-
Bill Reinsch: Bob Dole hired him. Bob Dole. Do you remember Bob Dole?
Andrew Schwartz: I remember Bob Dole. Bob Dole's still around.
Bill Reinsch: In the 90s, yes.
Andrew Schwartz: Bob Dole ran for President.
Bill Reinsch: Ran for President in '96. He was Senate Majority Leader. He was Chairman of the Finance Committee and Patrick Ewing was one of his interns. I remember him.
Andrew Schwartz: So, this is one of the great draws of going to school in Washington, D.C. Not only do you have very famous professors like Victor Cha, who is your professor, you get to intern on Capitol Hill. You get to intern at CSIS and one of the great things you can do is you can intern at CSIS, not in the summer when everybody else is trying to intern at CSIS. You can intern in the fall and the spring. So, I know you guys all know about CSIS's internship program. I urge you to apply and take advantage of it. I also urge you to subscribe to the Trade Guys podcast. Leave us a review on Apple Podcasts. Subscribe to us on Apple or Spotify or wherever you get your podcasts and-
Bill Reinsch: My interns are actually here.
Andrew Schwartz: Your interns are here?
Bill Reinsch: Jonas and Madeline, are you here somewhere? Raise your hands so you can talk. They will tell you how great it is to be a CSIS intern. Or not.
Andrew Schwartz: Okay, we'll tell you how great.
Bill Reinsch: Afterwards.
Andrew Schwartz: We can do that after. Bill, can I ask you to lead off and tell us, what is the latest on China?
Bill Reinsch: Well, it's sort of the never-ending story, you know? It just keeps going on and on and on. They are continuing to-
Andrew Schwartz: Is this the way the Chinese want it to be? Is this the way Trump wants it to be?
Bill Reinsch: It's probably convenient for them. It's not the way Trump wants it to be. He's impatient, by nature. He wants it to be over. The Chinese interest is to drag it out as long as they possibly can. They're doing a good job of that. Ambassador Lighthizer was in China last week. Apparently ... I thought there was some significance to it. I thought, ah, he's going to close and it turns out it was mostly because the Chinese keep track of how many times they come here and how many times we go there and it was our turn to go there, so he went, for what was essentially one half day of talks and a visit to the Forbidden City.
Andrew Schwartz: That's a schlep.
Bill Reinsch: It's a major schlep for the Forbidden City. I've done that, although actually for more than a half day. But Lui He, his Chinese counterpart, is here this week. They're talking starting today. All accounts are they continue to get closer. They're going to have a package that consists of ... They're going to buy a lot of stuff and the latest rumor is maybe not quite as much stuff as they said they were going to buy because somebody finally did some research and figured out that we can't possibly make all the stuff that they promise to buy. The rumor number was they were going to buy $1.2 trillion worth of American products over six years. That's $200 billion a year. Last year, we sold them $120 billion, so this would be, you know, like 150% more than what we've been doing annually. There's still only one soybean crop a year in the United States and, you know, even if they bought every one of them, it would be problematic.
Bill Reinsch: I think what's also beginning to set in, is people who think about this are realizing we don't want to sell everything to China, because then you put all your eggs in one basket and that creates a situation five years down the road where, if they decide to cut us off, you know, we're all hosed. Whereas, if we have markets elsewhere and a diversified trade posture, we're in much better shape. But, there's going to be a big buy, because the President wants a big number, so it will be, you know, some large number. They continue to argue about the so-called structural issues that the White House has put on the table and I think most people, in the United States anyway, would agree they're the right issues. The Chinese appear to be willing to make concessions on theft of intellectual property. We’ve talked about this before. They promised Obama they wouldn't do it. They certainly can promise Trump they won't do it and it's in their interest not to allow theft because they've got IP of their own they want to protect. They appear to be moving in the direction-
Andrew Schwartz: But, we're not stealing their IP, because who would we give their IP to?
Bill Reinsch: Well, we'd keep it for ourselves and use it to advance our own industrial ball.
Andrew Schwartz: But, we wouldn't steal Chinese IP and give it to X company, the way they've done in the past.
Bill Reinsch: Well, two questions there. How do you know we don't steal their IP?
Andrew Schwartz: Well, I don't.
Bill Reinsch: Do you really know?
Andrew Schwartz: Well, you were Undersecretary of Commerce. You tell me.
Bill Reinsch: I'm not going to tell you. But, what I will tell you is that the United States has a very firm policy of not sharing intelligence with private companies.
Andrew Schwartz: Correct.
Bill Reinsch: And it's for a pragmatic purpose, which is they don't want to choose between them.
Andrew Schwartz: Sure, after all, we are capitalists.
Bill Reinsch: If we somehow, and this is all hypothetical, if we somehow glean from the Chinese the latest innovations in automobile battery technology for electric cars, who would we give it to? Do we give it to Ford? Do we give it to GM? Do we give it to Chrysler? Which is an Italian company.
Scott Miller: Tesla?
Bill Reinsch: Do we give it to Tesla?
Andrew Schwartz: Oh, like we'd that, give it to Tesla.
Bill Reinsch: The answer is we don't give it to anybody because then we would be picking and choosing winners and losers and we don't believe in that.
Andrew Schwartz: Right, so what do we do with that technology if we actually happen upon it?
Bill Reinsch: Well, we just hang onto it and save it for an appropriate moment.
Andrew Schwartz: So, like I'm envisioning like the scene, you know, in "Indiana Jones," where there's this vast, you know, trove of objects-
Bill Reinsch: The warehouse?
Andrew Schwartz: Yeah, the warehouse, where the United States ... Did you guys know that we have-
Scott Miller: We have the top people working on this.
Andrew Schwartz: All right, Scott, last weekend President Trump spoke at a rally in Grand Rapids, Michigan.
Scott Miller: Yes.
Andrew Schwartz: And he spoke for an hour and 22 minutes and he went through the Mueller Report, he talked about the Clintons, he talked about the election of 2016. No one said it could be done.
Scott Miller: All the new issues.
Andrew Schwartz: All the new issues and towards the end of his discussion, amongst himself, he started talking about China. He said, "China!" And he said, "We want to make them feel good. No, no, no, but we want to tear them down. We want to make them feel good. We want to tear them down." What the hell is he talking about?
Scott Miller: Well, look. First let me stipulate this.
Andrew Schwartz: Does he want to do both?
Scott Miller: I don't know. Well, nobody really knows, but I think the answer is yes, OK. And there are some reasons for it, but the most important thing is, and occasionally some of my relatives who are distant from Washington, you know, check in on my mental health, knowing that I work on trade policy and I tell them, look, the President's great for business. It's awesome. The great thing is the Trade Guys have another two to six years of entertainment ahead of us.
Andrew Schwartz: For sure.
Scott Miller: That doesn't mean he's always clear and, in this case, I think the President means both, that he has always said we need to be tougher on China and that was consistent with campaign themes, consistent with his policies and it's a policy that I think he has broad public support for. But, he also needs to cooperate with China.
Andrew Schwartz: He has broad public support.
Scott Miller: For being tough on China.
Andrew Schwartz: In theory, being tough on China, not for anything specific to do to China.
Scott Miller: That's right, because the American people and both Gallup and Pew have polled this issue.
Andrew Schwartz: Sure.
Scott Miller: They believe China is an unfair trader-
Andrew Schwartz: Yeah, okay.
Scott Miller: ... and so that's the one issue where he does have a lot of support on the trade agenda, at least. But also, given the delicacy of say, talks with North Korea, China's an important potential ally in settling those issues.
Andrew Schwartz: So this is the part where we want to make them feel good.
Scott Miller: I think that's probably what he was referring to, but we'll know soon.
Bill Reinsch: It's partly a legacy of his predecessors. He blames his predecessors for most everything.
Andrew Schwartz: I had no idea he blamed his predecessors.
Bill Reinsch: Well-
Andrew Schwartz: Are we talking about Obama?
Bill Reinsch: Mostly, but Clinton.
Andrew Schwartz: Clinton. I think we're even talking about George W. Bush?
Bill Reinsch: Yes, they're all guilty.
Andrew Schwartz: Yeah.
Scott Miller: They were all soft.
Bill Reinsch: It raises an important question.
Andrew Schwartz: They're all not as well-educated as him, either, apparently.
Scott Miller: He has the best words, you know?
Andrew Schwartz: Yes. Whatever you say about the man, the man knows how to communicate. He spends a lot of time thinking about how to communicate. Anyway, we digress.
Bill Reinsch: But Scott alluded to an important issue. I would argue that the trade problems with China have been building over a long period of time. The last two Presidents, Obama and W., I think basically felt that the U.S. China relationship was bigger than one thing. It was bigger than trade. And they wanted Chinese cooperation on priorities for them. For Bush, it was Iran and dealing with Iran and it was a variety of global issues. For Obama, it was Iran, it was climate change and for both of them, really, it was North Korea. And they didn't always get the level of cooperation they wanted, but they were the top priorities. For those two administrations, trade was a subordinate priority and they played it out that way. Trump doesn't care about climate change, pulled out of the Iran agreement and trade is his top priority, so it's not hard for him to say, "This is the most important thing," and to blame his predecessors for saying it wasn't the most important thing. But, that's why we have Presidents. They get to pick something like that.
Scott Miller: And it just may be because the President sees economic issues first and foremost when he views foreign policy, but this actually isn't inconsistent with other actions. If you look at ... Every time NATO comes up, we wind up talking about how many German cars are here and how much we buy from Germany and how big our trade deficit is with Germany, so there's a sense that the President, because of his background or for whatever set of reasons, sees foreign policy principally through an economic lens.
Andrew Schwartz: So, you're arguing that he actually has a coherent foreign policy.
Scott Miller: I didn't say coherent.
Andrew Schwartz: Okay, but he has a foreign policy that's oriented around trade and China is the linchpin of it.
Bill Reinsch: It's a policy of victimization. His fundamental view is the United States has been taken advantage of by everybody else for a very long time and now we have to get even and it's the United States standing up and doing to other people what he says they've been doing to us for a long time. The interesting thing about China is it's probably the one area in this policy where he's got broad public support and the remarkable thing has been, to my mind, the erosion of support for China in public opinion over the last five years. It's not just Trump. This precedes him. And it's really due to changes in Chinese policy. It's not just the arrival of Donald Trump. You've got Chinese leadership now that is pursuing more market control, more non-market policies, more subsidies for state-owned enterprises and is pursuing a variety of policies of more intimidation of journalists, intimidation of students, intimidation of minorities in China, that has got the human rights community and the journalism community very agitated.
Bill Reinsch: And their economic policies, the ones that Trump is complaining about, have basically pushed the U.S. business community into a position of silence. Ten years ago, you'd find the U.S. China Business Council, which is the association of companies that do business in China, standing up, defending the Chinese every time there was a crisis and now that doesn't happen. You see the same thing happening in Europe, too.
Scott Miller: I think that's right. Look, from Nixon's visit to China, for 30 years, there was a single foreign policy goal shared by the United States and the west, which was to bring China into the institutional arrangements of the west, to bring them into these horizontal institutions so that China would develop in a way that adopted norms and standards, practice elsewhere. That was the project, right? That's what led from Nixon's first visit in the 70s to the '99 accession of China to the WTO. That was the agenda. The unspoken part of that agenda is if they come into the world order, they'll behave just like us. And that's the part that has changed for many American firms there for as Bill points out the journalists who are now beginning to be aware of the human rights concerns. So, this dynamic has changed, but it was a long story, sort of the soothing scenario that this is all going to work out. And so the President is now approaching this reality-based.
Andrew Schwartz: Let's go back to something specific on China. Okay, just the other day, China's State Council said ... This was on Sunday, that the country would, that China would continue to suspend additional tariffs on U.S. vehicles and auto parts after April 1st. This was a good will gesture following a U.S. decision to delay tariff hikes on China imports. So, how important is this particular extension? Is this a little thing? Is it a big thing? What does it signal about the negotiations right now and about China's posture?
Scott Miller: Basically, it says they're trying to find a landing zone. All negotiations wind up ... If you conclude a negotiation, you've got to have some elements. And as you're converging, what you don't want is sort of side issues to break that apart. So, look, Bill talked about there's a market access component. There is sort of a rules component about dealing with structural change in China. There's an enforcement component which is we've got to check to make sure you actually did what you promised, and those three things are fairly important and pretty complicated and it looks to me like deferring or continuing to waive tariffs that have been announced is a way to allow the convergence on those three important issues to happen.
Bill Reinsch: It's also a good will gesture and I think kind of a subtle message to this administration because the issue that will probably go down to the end and will probably be resolved by the two Presidents, alone, is what do we do about the U.S. tariffs?
Scott Miller: Yes.
Bill Reinsch: Because, what the Chinese are saying is that we can't agree to anything, unless you agree to get rid of them. The additional 200 billion beyond the original 50 that has been imposed at the 10 or 25% level and our President is saying, "No, no, no. We're not going to get rid of them right away. We have to wait and see if you're complying with the agreement first, and we'll get rid of them or not on a phased basis." I don't think that issue can be solved, short of the two Presidents. There's a precedent for this because the same issue occurred with respect to Canada and Mexico and the steel tariffs when we were negotiating that agreement and Ambassador Lighthizer told the Mexicans that if they signed the agreement, the United States would get rid of the tariffs and the President overruled him. So, the message to Lighthizer is, that's not a decision you get to make. It's a decision the President gets to make. I think what the Chinese are doing here are saying, "We can be the big person here. We will get rid of ours. Hint: Maybe you should get rid of yours."
PART 1 OF 3 ENDS [00:18:04]
Andrew Schwartz: One final thing on China before we move on to another topic, still staying in Asia, but I want to ask you this. At the heart of our deal and our talks is to encourage China to adopt a more market-oriented economy, as you guys have mentioned. Now, this might be, be careful what you wish for, right? Because what if this all works, and the deal ends up reinforcing China's economic power. Is that harmful to us? Is that a problem for us?
Bill Reinsch: Well, I think the American philosophy has always been, if they're competitive and strong because they're a market economy and they're beating us in a fair fight, fine. You know, that's the way it goes. Now, there's always the question would we actually say that when that circumstance arrives? Right now, they're not beating us by using market principles, so it's easy for us to demand that they do.
Scott Miller: Yeah, the experience with the sort of American high-pressure capitalism is as long as markets are contestable, we'll come out fine. And we don't really worry about competition because we live with intense competition in our home market. Look, the US market is fully contestable for Chinese firms, as in firms from all over the world. They're guaranteed-
Bill Reinsch: Unless you're Huawei or ZTE.
Scott Miller: Well, unless you've got a specific problem. If you've got a law enforcement problem, like ZTE, then that's a problem with any company with a law enforcement problem domestic or foreign, but by and large, markets are contestable, and we welcome it, which is why we're the biggest recipient of foreign direct investment and why their economy's so [inaudible 00:19:38]. I think that would hold, you know, not because China's ... Ultimately, a market economy in China would be no different than a market economy in Europe.
Bill Reinsch: There are ironies here, though, because what we are asking them to do in this negotiation, we're asking them to make changes in their economy that if you look at it, they're really the same changes the Chinese economists are telling the Chinese leadership that they need to make, because they're changes that actually are in China's long-term economic interests. One of the problems that all governments have, including this one, is that the politicians don't listen to the economists, and it's the case in China. Xi Jinping is going in the opposite direction from what he should do, and growth is slowing down.
Bill Reinsch: Now, there was an interesting blurb yesterday... we were just talking about this before the program began ... that first quarter Chinese data shows a resumption of some growth and a resumption of positive indicators after a year, or two years really, of declining growth. As you read through the article, it turns out to be not quite as good as that sounds. The headline is Growth is Back. If you read through it, it appears the reason that growth is back, at least on a one-quarter basis, is that the Chinese have resorted to the same policy they resorted to for 20 years, which is stimulus, you know, which is the-
Scott Miller: Export-led growth, yeah.
Bill Reinsch: ... export-led growth. Throw more money at the economy. Extend credit. One analyst was quoted as saying, "Basically, in China right now, anyone who wants a loan can get one." Now, the good news is that Xi Jinping had been channeling credit in the past.
Andrew Schwartz: That might be good for President Trump.
Scott Miller: You get a loan. You get a loan. You get a loan.
Bill Reinsch: Staff off another bankruptcy, right. Xi Jinping had been channeling credit to state-owned enterprises, which is a reversal of what his predecessors had tried to do, which was to move the economy in more of a market direction. Apparently, this last quarter, now they're channeling credit to everybody, including private companies, but it's still just this kind of shot in the arm that does not do ... They're not doing any economic reform, so long-term, they're going to end up still being in the same declining shape that they've been in.
Andrew Schwartz: All right. I thought we were going to move on from China, but I got an amazing question from one of the students here. This is from Anya, who is class of '21. She asks, "What is China looking to accomplish through their increased investment in Russian Arctic infrastructure? What should the US response be to China's attempts to add the Arctic to their One Belt One Road initiative?" I think that's a great question.
Bill Reinsch: This is a very interesting thing to watch, because one of the things that I think is debated internally in China is do they aspire to be a regional power or a global power. And previous Chinese regimes have basically taken Deng Xiaoping's advice, which was to bide your time, and keep quiet, and don't aspire to any of those things. Take care of your own economy first. I think later set Chinese leaders clearly have tried to make clear that China wants to be the leading power in Asia, and this, by the way, was one of the rationales for TPP, was to reinforce the US presence in Asia and basically try to prevent that from happening.
Bill Reinsch: Their Arctic efforts, which involve sea routes, you know, around over the top of Russia, basically, I think you can argue are part of a larger strategy to become much more of a global force. In commercial terms, it's a way to get their stuff to Europe faster. Whether it's faster than the train is, I think, debatable, but it's certainly faster than going all the way down, around India, and up through the Suez Canal, and, you know, through the Mediterranean. It's also a way, though, to spread soft power, and they've got plenty of money, so if they're going to build facilities along the way ...
Bill Reinsch: People who've studied the Arctic issues make the point that, yeah, the ice is melting, so you can do things that you couldn't do 20 years ago, but the fact is that there's no infrastructure along the way if anything goes wrong. If what happens to you is what happened to that cruise ship off the coast of Norway, and your engines fail, and you're north of Siberia, there's no port you can just put in and get repairs. You know, you're just totally lost.
Scott Miller: But in this decision making, you can't lose sight of hydrocarbons. Look. Currently, China, and in fact the whole of factory Asia, is powered by the Middle East if you look at their current sources of hydrocarbon fuels. Russia's principal export is hydrocarbons: natural gas and oil.
Bill Reinsch: Good point.
Scott Miller: So there's a connection there, and in some ways, given the usual level of chaos in the Middle East, part of this strategy for Russia in the Arctic has got to be a hedging maneuver on the part of China-
Bill Reinsch: Diversify.
Scott Miller: ... by diversifying their energy sources.
Andrew Schwartz: Yeah. Aramco reported a small profit yesterday.
Scott Miller: Yes. Aramco's now more profitable than Apple, thank you very much, which is good for Aramco but maybe leads to stability but probably won't. And keep in mind, one of the unique things about North America is North America is powered by North America, and that we don't really in a position where we no longer neither have to hedge nor it's less of a central issue to our own economy that there's stability in the Middle East. So it's a complicated game, but I would ... Commercially, everybody's always got their eye on how you power your economy, and that's got to be a factor here.
Andrew Schwartz: Great question. Great question. Let's move on to Japan. My Japanese journalist friends tell me that President Trump's very popular in Japan. The relationship between Abe and Trump is very strong. Abe, of course, was the first foreign leader to visit Trump after his election. A golden golf club was given, but now there's troubled waters or no? President Trump seems to have his sight set on the Japanese, reported that trade talks were on the horizon. President Trump's about to visit there. What's going on with Japan, Bill?
Bill Reinsch: Well, it's heating up. When the President came in, his marker of how we're doing with the economy is trade deficits, and he immediately picked out the four countries with whom we, at the time, had large deficits, which were China, Japan, Canada-
Scott Miller: Mexico.
Bill Reinsch: ... Mexico. Well, and-
Scott Miller: Not Canada.
Bill Reinsch: ... Germany, too, but Japan is up there, and they became a target just like ... I mean, he discovered fairly quickly with Germany that you can't negotiate with Germany. You have to negotiate with the whole EU, but he seized on Japan and wants to have a bilateral negotiation with them to rectify the imbalance. Now, I think in his mind, that comes down mostly to car quotas, but occasionally he talks about agriculture, because basically, what he did to the American agricultural establishment was to screw them by pulling out of TPP, because TPP gave us a significant market access in Japan on pork and beef and some other commodities, all of which we lost when we pulled out of TPP and which the Japanese have now given to the other 10 members of CPTPP, the analog that's been created, and the concessions they made to the Europeans.
Andrew Schwartz: So this is basically TPP without us.
Bill Reinsch: Without us. The Japanese also negotiated a free trade agreement with the EU and made more agricultural concessions there, so our ag guys have taken a double hit. They've lost the access to Japan, and it's going to be hard to get it back, because the Japanese have given it away to other people. The President's remedy is let’s have a bilateral trade negotiation. He met with Abe last September, I think when Abe was at the UN, and they reached an agreement in which I think, you know, Abe got the better of us, frankly.
Bill Reinsch: Abe came in with two things he wanted. He wanted no more tariffs, because Trump was threatening car tariffs, and no agriculture concessions beyond the one's we've already made. What did he come out of? There was a piece of paper. What did he come out with? No more car tariffs while we're negotiating and no more ag concessions beyond what you've already made. What did we get? An agreement to negotiate. So now they're starting to negotiate. 15th and 16th is the first round.
Scott Miller: Correct.
Bill Reinsch: Abe may come here at the end of April. Trump is definitely going there at the end of May because of the new emperor's enthronement. He'll be there again for the G20 meeting at the end of June, so it's heating up. Trump being Trump, he probably wants a deal by the time he shows up.
Scott Miller: We're all students of foreign policy and international affairs, so what do you watch for? The thing I'm watching for is a definitional matter. What does the president mean when he says trade agreement? Because you walk onto Capitol Hill and talk to a member of Congress. When you say trade agreement, they see 800-page document and another 300 pages of exhibits that's comprehensive, that fits the Congress's standard which was expressed in 2015 in Trade Promotion Authority, a comprehensive agreement. That's what most of us who've been here for a while hear when someone says trade agreement.
Scott Miller: I think the president just wants a deal, okay. Now, why do I say that? Well, would that at least explain the behavior Bill mentioned earlier, but also, look, the president is now spending some time on Capitol Hill. I think he and his team now are aware that Article I, Section 8 of the Constitution gives the power to regulate international commerce to the Congress, not the White House, so he has to deal with the Congress. He also has recognized the fact that every state has two senators and at least two cows, so agriculture actually matters in these negotiations, big time.
Scott Miller: And so what he hears, what the president and his people hear when they talk to members of Congress, especially the Senate, is, "You're killing us with these steel tariffs, by the way. Our constituents are complaining hourly on this matter." The second thing he hears is, "You geniuses tore up TPP, which gave us a lot of agriculture market access. Now, go get it back, all right?" Those two messages actually combine in what I think's going to happen. I think that despite what people around town and all the policy people are hearing, which is, "Oh, boy. A trade agreement with Japan. Won't that be fun? That'll take 19 years, all right."
Scott Miller: What the president is actually say ... What he's thinking when he says that is, "I want to use the settlement of steel and aluminum tariffs to get my farmers something and kill two birds with one stone." We'll see how this plays out, but my guess is the president has about as much interest in a long negotiation with Japan as, say, Andrew does.
Andrew Schwartz: My longest negotiation with Japan might be my Raku order at Raku Sushi. Here's a great question from Claire, who's a senior. She asks along the lines of what you were just talking about, Scott. She says, "How will the Trump administration work with members of his own party in Congress who disagree with him on trade?” I think that's a great question.
Scott Miller: Sure. Yeah, look. It's been true for a while. Now, a couple things to think about. Well, first, Republican members of Congress have been sort of pro-market and pro-trade for a long time and often not completely aligned with their constituents. Republicans in the country, voters, Republican voters, tend to be older and more rural than Democratic voters, and that cohort of people, older and rural, tend to be more skeptical about trade agreements than younger and urban people who tend to be Democrats. But Republican members of Congress have been supportive of open markets just as a general philosophy of pro-market. Now, that's fact one.
Scott Miller: Fact two is President Trump currently has about a 92% approval rating among Republican voters, all right, and that's important, because if you're a member of Congress-
Andrew Schwartz: That's extraordinarily high.
Scott Miller: That's very high. Now, first of all, it's why, in my view, there will never be, there will not be a primary challenger to President Trump for reelection. He won't face a primary challenge. There's simply no votes out there to get oxygen from, so he has very high support. But also Republican members will need Trump voters to get reelected. Remember, you face up the voters every two years when you're a member of the House. In 2020, Donald J. Trump's going to be on the ballot with strong support. You want to be on the side with Donald J. Trump, so a lot of the conversations for Republican members who view trade differently than the president, they're happening in the kitchen. They're not happening in the parlor. We're not talking about that with company. We're expressing our concerns privately.
Scott Miller: So you will see some members of Congress, particularly Senators, take issue with auto tariffs, take issue with the national security, quality of national security, use of national security to stop trade without the permission of Congress, so there's some things going on in the background, but I think as long as you have this particular political alignment where Republicans in Congress need the same voters where Trump is very popular. The conversation is going to be not in public.
Bill Reinsch: There are other factors. He's vindictive. He goes after people personally.
Scott Miller: Yeah. He settles score.
Bill Reinsch: People are afraid to stand up to him. In a way, he also provides some cover for some parts of the party. I think there have been some signs of unrest on the tariffs, because you've got Republican elected officials who are basically pro-trade and pro-free trade who are nervous because of the tariffs, particularly those that represent agriculture states for all the reasons Scott said. When it comes to agreements, however, and USMCA is the pending one, you see it slightly differently, because in essence, I think he'll get massive Republican support for the agreement.
Bill Reinsch: Why? Because the pro-trade Republicans are going to vote for it, because it's an agreement. It's arguably marginally better than NAFTA, so why not? The trade-skeptical Republicans, you know, his base really, he's telling them it's the greatest agreement that ever happened. Nobody is going to be more protectionist than Donald Trump. He gives them cover, so all the Republicans, virtually, are going to be able to vote for a trade agreement.
Scott Miller: Yes.
Bill Reinsch: The tariffs have been the sticking point for some of the members.
Andrew Schwartz: Along the same lines, while we're talking about politics, I have another really important question. This is from Varsha. My wife's been telling me I need reading glasses, and I think Varsha proves this. Now, you have excellent handwriting, but it's very small, and my eyes are ... so if I mess up your name-
Bill Reinsch: You want my glasses?
Andrew Schwartz: No, no. I'm good. If I mess up your name, I apologize, but it believe it's Varsha, who's class of '21. Varsha asks, with the upcoming 2020 elections, how will contending presidential candidates view change on trade policies in Asia?
Bill Reinsch: Well, let me do the Democrats for the moment, since I-
Andrew Schwartz: Okay. All 30 of them, yeah.
Scott Miller: There's a mayor of Miramar, Florida, who's announced his candidacy-
Andrew Schwartz: Oh, my.
Scott Miller: ... so the list is growing.
Bill Reinsch: Make all the fun you want.
Scott Miller: You'll find somebody.
Bill Reinsch: A year from now, your tone will be different. That's all I have to say.
Andrew Schwartz: It's a serious question, though. With the upcoming 2020 elections, which a lot of people are watching very, very closely, it's already begun. Trade's going to be a big issue. As Scott said, we're in business for ... The trade guys are in business for not just the next two years, because even if Donald Trump loses, Donald Trump's still going to be talking about trade, and people are still going to be covering what Donald Trump has to say about trade whether he's in office or out of office. Trade is here to stay. Trade used to be something that the Undersecretary of Commerce talked about quietly with trade experts and trade lawyers and members of Congress.
Scott Miller: It was a nerd's issue.
Andrew Schwartz: Yeah, it was a quiet issue. Now, you know, we've got a podcast. Who has a podcast on trade? We've got a podcast on trade. It's a front-page issue every day, and in the 2020 campaign, it's going to be an issue.
PART 2 OF 3 ENDS [00:36:04]
Bill Reinsch: Side note of career advice here. Those of you that think you're going to make a living doing foreign policy, not a chance.
Scott Miller: Pick trade.
Bill Reinsch: Pick economics. Pick trade. No problems are ever solved with permanent employment.
Andrew Schwartz: Foreign policy is kind of the same thing.
Bill Reinsch: Well, if you went to the Middle East, sure. But when I was on the Hill, working for a member of the Finance Committee…
Andrew Schwartz: He's kidding, by the way. Going into foreign policy and international affairs is a fine calling, and you should absolutely do it.
Bill Reinsch: I'm not kidding. I remember being on the Hill, working for a member of the Finance Committee in the Senate, and having the people who worked for the Senate Foreign Relations Committee sort of looking down their noses at us, weedy people who work with money and grubby little things like cars and airplanes and potatoes, soy beans, yes. But then, think of the career opportunities. And think of what happens when you get a BA in Foreign Policy.
Andrew Schwartz: He's now getting his revenge.
Scott Miller: Well, life changes, except on trade. We've been fighting with Germany on chlorinated chicken since 1965.
Andrew Schwartz: Chicken tax.
Scott Miller: Okay?
Andrew Schwartz: Right?
Scott Miller: The reason there's a tariff on light trucks of 25% in the United States is the chicken tax. The chicken tax was imposed on West Germany. There was no EU, there was West Germany. And because they blocked exports of American chicken. And Lyndon Johnson got fed up with it and tried to get their attention by blocking shipments of Volkswagen light trucks. That's where it started. It exists today.
Bill Reinsch: And we're still talking about it.
Scott Miller: We're still talking about it. And so, this is a problem that started when I was 11 years old. Okay? I'm still making my career in that business. So, consider that. Sometimes, foreign policy problems get solved.
Andrew Schwartz: The Kentucky Fried Chicken lobby was hot back then.
Scott Miller: That's right. Some trade problems actually never get solved.
Bill Reinsch: No. Can I answer the question?
Scott Miller: Sure.
Andrew Schwartz: Please. By all means!
Bill Reinsch: I think the way ... The Democrats have got divisions on trade, as well. It's different. But they're also divided. If you look at poll data, they have historically been a more pro-trade party. If you look at really historical data going back 150 years, the Republicans, historically, have been the party of protection. Abraham Lincoln was a great protectionist, and proud of it, actually, if you read some of the things that he said. Because the Republican Party was the party of Northern manufacturers who wanted protection from British imports. The Democratic party was the party of the South at the time, and they wanted to be able to export cotton and other agricultural products. That was true until, really, the 60s and 70s, when things began to flip as trade began to cause more job losses in industrial products, organized labor became less pro-trade. They have always been an important organizational and financial element of the Democratic party. And the Republican party became more multinational as big companies began to export more and began to grow outside the United States more. And the parties evolved.
Bill Reinsch: I would argue from a political science point of view, over the next 20 years, you're going to see both parties going back in the direction of where they began, partly because their demographic makeup is changing. The Democratic base is young people and minorities. And if you look at poll data, those are the two parts of our population that are most pro-trade, most pro-globalization in the country. There is this huge overhang of organized labor, which is an important element in party structure and party organization, and all elected officials pay a lot of attention to it.
Bill Reinsch: The party has squared that circle on trade largely by not criticizing the President's objectives, but by criticizing his implementation, and saying, basically, "You've got the right idea, but you've screwed up the implementation. You've caused all this collateral damage. Tariffs, you know, maybe they were a good idea, maybe they were a bad idea. But they've ended up hurting a lot more people than they've helped, and you haven't implemented them right. Your process for exclusions ..." The Democrats have really focused on the exclusion process that the Commerce Department has built in to try to provide for exemptions on a case by case basis on tariffs, and the Democrats are making a lot of points by saying, "You haven't handled that transparently. You haven't handled it efficiently." And they're right, by the way. "You haven't done this very well." So, their argument has been not to take him on philosophically so much as to say, "You haven't done it right." And I think you will find all 30 candidates ... there is a spectrum, but all 30 candidates will make that criticism of Trump. Some of them will stop there.
Andrew Schwartz: So you're saying, "You haven't done it right. And you haven't been transparent about it."
Bill Reinsch: "And I'm a Democratic candidate, will do it right."
Andrew Schwartz: And he's going to say, "Well, you don't know what you're talking about and I'm not going to telegraph my moves." And then it's going to go back and forth that way?
Bill Reinsch: And then they're going to say two things. They're going to say, number one, "You think uncertainty is good. Uncertainty is an economic disaster."
Andrew Schwartz: And he's going to say, "Look at the market. It's great. It's beautiful. It's a beautiful market."
Bill Reinsch: Well, he'll say that today. But we'll see what he's going to say a year from now.
Andrew Schwartz: Right.
Bill Reinsch: The other thing they'll say, which they're all beginning to say, is, "Your biggest mistake, Donald Trump, is you're trying to do everything unilaterally and you're not building coalitions." And particularly-
Andrew Schwartz: Right. You're retreating from the world. We don't have any leverage on anything.
Bill Reinsch: Well, "And you're not trying to enlist any support. And you've got ..." Particularly on China ...
Scott Miller: Yes.
Bill Reinsch: ... you've got a situation where, number one, they don't like to be outliers. Past Presidents, Obama in particular, was able to get them to change their policy when he got everybody else lined up to convey the same message. You've got people in Europe who have now begun to realize they face the same challenge, economically, with China, that we do, saying, "We need to work together on this." And this particular President is not really interested in that. He thinks we can do it ourselves.
Scott Miller: That's a fair criticism. And, look. On the Republican side I think it's fairly straightforward, because the purpose of a political party is to win elections. And I think the Republican Party is going to decide, given the popularity of President Trump among the base, that they're going to stick with the guy. They're going to run with his reelection campaign. He is going to do his best to declare victory on the trade agenda. Now, that is not exactly straightforward. A couple things have to work out, like he has to be able to get the USMCA through the Congress, the implementing bill passed and implemented. So he has to actually deliver something there. And on China, it's also an open question. It's a question that you all should follow, because it's one thing to have handshakes and smiles and pop the champagne corks in April of 2019. It's another thing in 2020 to be able to show that China has actually kept its word. Okay?
Scott Miller: So he'll either have a winning hand, the economy will be great, and he'll cruise to reelection. Or he's going to have some controversy in that space and there will be a specific criticism that Andrew just mentioned, which is, "You screwed up with China, buddy. They broke the promises to you. And it's because you didn't work with allies to do it. So, your policy is wrong."
Andrew Schwartz: But even then, Scott, couldn't he say, "I'm the only one who's holding China accountable"?
Scott Miller: He probably will say that.
Andrew Schwartz: And that's a simple message that, like you said at the beginning of this podcast, people in America support. And on the other hand, is there a Democrat out there right now and maybe, you know, looking a little bit ahead that could counter that argument with anything as clear cut and simple on trade as, "I'm holding China and the rest of the world to account"? Is there a Democrat in the field that could argue something as simple on trade and as powerful as Trump has made his arguments?
Scott Miller: We don't know yet. But I'm actually hoping for that kind of contest. A year from now, this will basically be a binary contest. The Democratic Party process, given proportional representation, tends to have two candidates by next April, whereas the Republican, because of winner take all rules in states, Republican Party converges faster than the Democratic Party. But what I'm hoping for is that a year from now you have clarity about, at least, who's not the candidate, and that they're beginning to make arguments and test them out against their general election opponent. So that's when we'll actually know whether these messages are resonating.
Bill Reinsch: The one that could have done that was Sherrod Brown ...
Andrew Schwartz: Yeah.
Bill Reinsch: ... Senator from Ohio, who chose not to run.
Andrew Schwartz: Has a command of trade issues.
Bill Reinsch: But he has ... yes. And I think he is able to articulate a Trump-like message ...
Scott Miller: Yes.
Bill Reinsch: ... in a Democratic way. And draw the contrast-
Andrew Schwartz: Coming from a state that will respond to it and carry that message, state of Ohio.
Bill Reinsch: I think if other candidates pay attention to what he had been saying when he was thinking about running, that's a good path for them to follow in the campaign.
Andrew Schwartz: Interesting. We're about out of time. I want to wrap up with one final question, and it brings us back to Asia. This is from Max, who's a sophomore. And Max says, "How do you see Trump's trade policy affecting our trade partners with the South Asia nations, like India, Pakistan, and Bangladesh?"
Bill Reinsch: Oh. I thought you were going to say Southeast Asia.
Scott Miller: Yeah. Southeast Asia, we've already left them standing at the altar by tearing up TPP. Okay. So all the disappointments baked into the cake there. And yet in Southeast Asia, like most of the world that trades with China, wants to hedge. They want a relationship with the U.S., as well. Goes well beyond our treaty allies. The India-Pakistan one is interesting, because that's been a prickly relationship for a long time. There is actually not a huge volume of trade. These aren't important trading partners today. But they're big, growing economies.
Scott Miller: So, India presents a number of problems. Always has. And has made life difficult for not just the U.S. but other major industrial democracies by being a founding member of the GATT. They were at the Havana conference in 1947. But always resistant to opening their own market, and the Indian market is very difficult for foreigners to do business in for a lot of reasons that have been there since Gandhi. And they have very little incentive to reform among leaders in India. Now, reform is something we'd like. It's not a criticism of India. It's democracy. All right? And if you want to win an election in India, you have to put together 300 million voters that like your views. So, they've come to a different decision. But that's a relationship where there's ... Many Presidents have thought there were big opportunity there. It's very difficult to realize.
Scott Miller: Pakistan's another story. Pakistan has a very close relationship with China. It's almost the same relationship that the U.S. has to Israel. The China-Pakistan relationship is very close for a lot of not obvious reasons, but it is. But also, once again, there's not much trade there. Trade is still affected by geography. It's just the distance from the U.S. versus the distance to Europe or China or other trading partners for both India and Pakistan are huge.
Bill Reinsch: I don't see a lot of change. George W. Bush and then Obama, I think, were successful in putting the bilateral relationship between us and India, in particular, on a more positive track after a long period of frustration for a lot of reasons, most of them having nothing to do with trade. And Bush was successful in getting over a lot of that. There were also changes in the Indian government that changed a lot of domestic policies that made it easier for the relationship to develop. They still seem, however, as Scott said, to have difficulty getting over the hump of a whole range of policies that are built into their culture, really, to protect the small businessman, the small retailer, the small manufacturer.
Bill Reinsch: And there's a pervasive view, I think, particularly in India, that opening up their economy to the Americans really means allowing Walmart and Amazon to come in and destroy everybody. And it's not that simple. But that's what a lot of people think. And the Indians have consistently taken steps to prevent that from happening. And the result is that we have periodic trade talks. We go round and round and round, and never accomplish anything. And then this Administration, there was supposed to be a big gathering in the fall. It was called off because there was no sign it was going to be any progress. Right now, nothing's happening because they're about to have an election in the next few weeks. I think everybody will go back and recalculate after they see who wins the election. And once the cabinet is established, we'll probably start the whole thing up again.
Bill Reinsch: But the reality is I think the parties are not that far apart on fundamentals, here. And we'll probably continue to go round and round with them without major change for the next four or five years, at least.
Andrew Schwartz: I'm sorry we couldn't get to all your questions, but don't worry. Don't have fear! I'm taking all these cards with me, and we're going to be asking a lot of these questions over the course of our next bunch of podcasts. And we'll give you full credit for them. So, this means that you'll have to subscribe. You'll have to listen.
Bill Reinsch: He's an evil genius.
Andrew Schwartz: You'll have to leave us a review. And you'll have to like us on whatever social media, you know, you subscribe to. I really want to thank you all for being such great hosts, today.
Scott Miller: Thank you, Dr. Cha.
Andrew Schwartz: Let's give it up for The Trade Guys.
Bill Reinsch: For Dr. Cha. For Victor.
Andrew Schwartz: For Dr. Cha. And let's give it up for Patrick Ewing and the Hoyas! All right.
Andrew Schwartz: To our listeners, next week, The Trade Guys will be on hiatus. Some of us will be on spring break. Some of us will just be here in the office, working. In any case, we'll catch you all the following week right here on The Trade Guys. If you have a question for The Trade Guys, write us 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. 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!
Scott and Bill: Thanks, Andrew.
Andrew Schwartz: You've been listening to The Trade Guys, a CSIS podcast.