Trade Guys on the Road: The State International Trade Development Organization Edition
February 28, 2019
Scott Miller: I'm Scott.
Bill Reinsch: I'm Bill.
Scott Miller: And we're the trade guys.
Bill Reinsch: 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 had the opportunity to record in front of an esteemed audience attending the State International Trade Development Organization or SIDO, they’re 2019 Washington forum. We did it up on Capitol Hill in the historic Russell Senate office building in a gorgeous, gorgeous room. Joining me and the Trade Guys were two State Trade Directors Gabrielle Gerbaud and Wade Merritt. Gabrielle is the executive director of the Minnesota Trade Office. Wade is the president of Maine's international trade center and a former SIDO president. We ask Gabrielle and Wade what they're hearing on the ground about USMCA about the U.S. China deal and about the section 232 tariffs. You'll get all that plus way more right here on this episode, live on Capitol Hill of the Trade Guys.
Andrew Schwartz: We're here at small business committee. The last time Bill and Scott here, they were testifying, they were indicted, there were subpoenaed. But we're having them here under good terms. So, we're here at small business committee speaking at the State International Development Organization or SIDO their Washington forum. SIDO is a nonpartisan organization that's part of the NGA and the council state governments. They are the organization that represents the international trade directors for the governor and state. I love this setup. I feel like we're kind of being judged on the one hand. That we're being ... we're going to have to wave to our audience out here on the other hand.
Scott Miller: In Portland, nobody has a gavel. We found that out. Yes. Right. So, we're safe for the moment [laughter].
Andrew Schwartz: Okay. We're safe for the moment. We're joined by a couple of really wonderful guests, couple of state trade directors, Wade Merritt from Maine and Gabrielle Gerbaud from Minnesota. Thank you both for joining us. Wade, you're a past president of SIDO and had been with the Maine Department of Economic and community development for over 20 years. Why don't you tell us a little bit about SIDO and what state trade offices do.
Wade Merritt: Well, thanks for having me on. Yeah, so it's been kind of a long strange trip. We were back in the early '90s. Found ourselves ... I think my first job in international trade development was photocopying lists of companies. That companies might be interested in doing business with and then faxing them. Things have changed quite a bit to find yourself on a podcast. But it's been a long trip. I started in the mid '90s. I was a frontline staff member, counseling companies. Have overtime worked my way up. Took the role as the state international trade director in June of 2017. Really our jobs I think are to do exactly ... to connect our business community and our states really to international opportunities that can be in the area of export development. In our case, it also includes some work on the import side. And also on investment attraction and also a little bit on student attraction. It's a big job with a very big mandate. It's a big world. So, it's the idea for us is to try to make it small.
Andrew Schwartz: And Gabrielle, you're the executive director of the Minnesota Trade Office, the state's official export development arm. Tell us what you do as director and what you're responsible for up there in Minnesota. And tell us how you brave the freezing cold. A couple of weeks ago I heard the people. I heard people's retinas were freezing and you had to go out with goggles on. If you were actually in public.
Gabrielle Gerbaud: I didn't go out.
Andrew Schwartz: Good, well your retinas look fantastic. [laughter]
Gabrielle Gerbaud: That's why you have a heated garage.
Andrew Schwartz: Yeah, I bet. [laughter]
Gabrielle Gerbaud: Okay, And you layer. So, that's for that. For the trade matter, every day we have small and medium companies to export and to find the next opportunity worldwide. We do it through our ... now not only phenomenal team of experts that we have at the office of 10 people. But also with our offices internationally. That help us just find those opportunities. Also, we attract foreign investment and we tried to be the 49th exceptional competence that we have with the other states. And finally we are the protocol office where we try to create those relationships at another level. That we facilitate at one point in time either trade or any memorandum or any future project.
Bill Reinsch: Since we're here in the Russell Senate office building, do you guys work with your congressional delegations? What kind of support do you get from your congressional delegations? Or do you bypass them and work with the executive branch?
Wade Merritt: Oh no, I think they're critical partners for us. I think, we have a very close relationship with all four of our congressional. We're a fairly small state with only four members. But which makes it easy for us to be able to talk with all of them. They've all been very supportive of us. We actually support each other pretty well in making sure that our voices are heard down here. But also in supporting the congressional offices as well. With some kind of on the ground intelligence about what's actually going on in the state with the business community.
Gabrielle Gerbaud: Every year we create an amount of reports that are important to the state on the trade matters that we always share with our congressional delegation. We should be more active in the future. It has just changed. So, we're trying to educate everybody on what is available to them through our office. But there are key factor and there are key partner for us too.
Bill Reinsch: Do you come to them for help? I mean, if you've got somebody who wants to export something somewhere and there was some obstacle, do you come to your senator or congressman and say, "Can you help us out with this?" Or can you go talk to the State Department or whoever it is in the executive branch? Or do you just go straight to the executive branch?
Gabrielle Gerbaud: Actually we could but normally in Minnesota, because we have such an amount of a headquarters for fortune 500, they've gone directly. They have a relationship directly with the senators. So, they really don't need us for that.
Bill Reinsch: Those are the big guys.
Gabrielle Gerbaud: Those are the big guys.
Bill Reinsch: But you're speaking for the small guy.
Gabrielle Gerbaud: For the smaller guys, normally we've noticed that is much more powerful when they do it directly. At the end of the day they are the ones that vote. And we can facilitate the relationship. But at the end of the day, I think it's great that they speak up directly and they go after. And they just you know...
Bill Reinsch: You can help do that.
Gabrielle Gerbaud: Exactly, yes, of course.
Bill Reinsch: Point them in the right direction.
Wade Merritt: We're much smaller state with much smaller business community. We have zero fortune 500 companies that are located in our state. So-
Andrew Schwartz: Great lobster rolls.
Wade Merritt: Great lobster rolls, excellent craft beer and join us in the summertime. We'll see Bill there in a couple of minutes.
Bill Reinsch: Coming in August. Yes.
Scott Miller: The small states have their advantages.
Wade Merritt: We do have our advantages and one of those is, easy access to our congressional delegation. In our case however, when we have a trade issue. We'll kind of judge whether the legislative route or the congressional route's the easier way to go. Or sometimes we'll bring in the executive through our work with our partner organization of the U.S. commercial service.
Scott Miller: In former life, I used to lobby Senator Collins and senator Snowe. Because we had a main presence and first senator Snowe knew where every company was in Maine. She knew every town and every company in exhaustive knowledge. And then luckily we stumbled on the fact that the plant manager of our plant was a high school classmate of Susan Collins. So, Senator Collins had a particularly fondness for what we doing. But that's the small state edge in terms of your particularly senate representation and their deep knowledge of your specific situations.
Wade Merritt: Well, I think that's right. And when senator Snowe retired and was replaced by former Governor King. Now Senator King was the governor that actually created our organization in the first place. He knew what we're doing. He knows what we're doing. And you're right. I mean, I think in Maine we're only a million and a half people, not even. The joke about the six degrees of separation in Maine it's about two. And I think you experience that when you ran into senator Collin's cousin.
Bill Reinsch: I think that's true I experienced from the other perspective. I spent 20 years on the Hill. And most of them in this building actually working first for the senator from Pennsylvania and then for the senator from West Virginia.
Andrew Schwartz: And senator Heinz and senator Rockefeller
Bill Reinsch: And senator Heinz and senator Rockefeller. Right. Pennsylvania is a big state. It's got a lot of issues and getting the senator's attention was more complicated than West Virginia. Because there were fewer people coming in I think. And it was a lot ... a way easier I think for Rockefeller to do what Scott just said and what you just said and relocation of all these places and things just mattered more. Because there were fewer of them. Pennsylvania had a whole panoply of trade issues. Because everything that was important then in this country competed with somebody in Pennsylvania.
Andrew Schwartz: You know what their biggest trade issue is right now. The Pittsburgh Steelers about to lose it. Antonio Brown and Le'Veon Bell they're the big trade issues. Am I right?
Scott Miller: That is correct.
Bill Reinsch: Heinz for a while on the Penguins.
Scott Miller: Meanwhile, all my relatives are the Cleveland Browns in fan base.
Andrew Schwartz: They're excited. I know.
Wade Merritt: I got some in the back room
Andrew Schwartz: But we digress. What are some of the biggest exports though from Maine?
Wade Merritt: We're still very natural resource based. I mean this is the backbone of the Maine economy comes from the ocean and it comes from the forests. The both of those have been ... well although lobster industry has been seeing a pretty substantial growth. The forest products industry, let's just say we're in transition from kind of more traditional pulp and paper based. Forest based economy to what are we going to do with all this pulp. It's a lot of really interesting and new technologies that are coming out there. But that tends to be what drives us.
Wade Merritt: We do have some smallish technology firms. We're close to Boston so, we've got a decent life sciences sector of people who've kind of made their way up the main turnpike. But our technology based sector also kind of flows itself back to our kind of traditional strengths. We've got a composites industry at advanced materials that comes directly from boat building. A lot of those types of things. So, still very natural resource based and niche manufacturing as well.
Gabrielle Gerbaud: Well, we're not that poetic. I cannot talk about the forest and the ocean so badly-
Bill Reinsch: Or the lobsters.
Gabrielle Gerbaud: We've tried. We have ... Yeah. Try lobster from the lake. We have walleye. But it's of course, the medical industry, medical devices specifically for products, advanced manufacturing. Manufacturing's general. Vehicles, electric vehicles, plastics. We're very diverse economy. I think that that is one of our strengths. And also maybe you can always have the two sides of the coin. But a lot of agriculture and not only that but agrotechnology, the machinery that goes with it. Which is including manufacturing or the food … technology. So, we are very diverse in our industry.
Scott Miller: Medical technology is a fascinating one because medical devices seem to be an industry that it's small inventors who become astonishingly successful when they get to get a product approved for use and then quickly have global mindset. So, it doesn't look like a typical company that scales up or an industry that gets scale. And then thinks about the global market. The medical device, it's first about invention. But the lot of little companies with amazing innovation pipelines who think about patients all over the world for their product. And so, it's somewhat unique. And what I'm wondering if does that have any spillovers and the rest of what goes on in terms of the human capital of Minnesota. Are there startups and companies that come out of the medical device industry that are in allied fields? Or something else that makes that intellectual home unique?
Gabrielle Gerbaud: Yeah. That's an excellent question. Actually right now we have the commissioner of DEED, which is the Department of Employment Economic Development that is really focusing on startups right now because there is such a huge amount of startups in Minnesota devoted to those between many other things, Internet of things. Because I don't know if you've noticed, but right now instead of seeing verticals in terms of industry we're seeing almost diagonals. The industries are just crossing themselves. Internet of things is in the advanced manufacturing. They're not as clear as they used to be before. Before you belong to an industry and that's where you were stuck. Right now you're crossing industries one after the other. So, going to your-
Andrew Schwartz: Interesting point.
Wade Merritt: It's a very good point.
Gabrielle Gerbaud: Coming back to your question, I think there is that kind of cradle. Again of course from Minnesota, always unknown to the world. But there is that kind of cradle that they're really ... those startups they're becoming a more and more important. Because then they have those huge companies that Medtronic like Start Hearing. That they really ... either they use their products. They use the technology or they just purchased them. It's kind of a little bit of an ecosystem that is happening right now in Minnesota. Yes
Wade Merritt: Fascinating.
Andrew Schwartz: In both of your states, how important is NAFTA or the new USMCA to your state? And how has it affected your economy? How's it been a net positive or has it harmed your state? And this is something we've been talking on the Trade Guys for a long time. I know both of our trade guys want to weigh in on this.
Bill Reinsch: Well you're both border states actually.
Wade Merritt: Yeah.
Gabrielle Gerbaud: We are.
Bill Reinsch: So, largest trading partners is Canada and then the second largest probably Mexico at least for us.
Wade Merritt:So Yeah. Mexico is a top 10 market. But Canada definitely dominates the scene for us. It is 50% of what the state exports goes to Canada. If you break the provinces out individually, New Brunswick's number one. Quebec is number two. And then I think it's China number three.
Bill Reinsch: That’s a province of Canada right? [laughter]
Wade Merritt: Right that's a province of Canada. Yeah. No.
Andrew Schwartz: Are you implying that the Canadians want to annex Maine?
Bill Reinsch: No, they want to annex China.
Wade Merritt: Lets edit this part out. [laughter]
Scott Miller: Those border wars were contentious at one point. [laughter]
Wade Merritt: No, but that's an interesting point though. And one that I was going to make actually is that, in our case Maine, New Brunswick, Quebec existed before there was even a country. I mean, this was in a lot of ways, this was a line that was drawn through an existing economy. There are family ties, there are business connections, there are all sorts of ties that cross that border.
Scott Miller: That's a great point. When I speak to student groups, I have a question. When did free trade in North America began? And the grinders will say 1995 or 1994 when NAFTA went into force. And the clever ones will say, well, sometime before 1789.
Wade Merritt: Yeah. I mean, it kind of gets into our mindset and our psyche a little bit. I mean, I think that there's certainly a picture from our Maine perspective that the folks in Atlanta, Canada and Quebec are more of our cousins and our business partners. The disputes that happen between those jurisdictions tend to be more familial. They tend to be kind of small. Access to that market whether it's you're going over there to do business. Or in some cases when we were talking about instituting passport control for the northern border. You were talking about people having to have their passport to go to church in the neighboring community in New Brunswick. This is almost a birthright for access across that border. That's how it's viewed in a lot of those border communities. And it's largely because they've existed for so long.
Andrew Schwartz: So, this is why I didn't understand why during all these negotiations, the United States seem to be like arguing and fighting with Canada. Trudeau and Trump are trading fighting words. I mean, how can you fight with Canadians? They're nice people. They're our cousins like you just said so.
Bill Reinsch: Well, but like Trudeau said, we're nice people but we can't be pushed around.
Andrew Schwartz: Right. And Christina Freeland, the foreign minister absolutely can't be pushed around.
Scott Miller: Well, Wade makes the very important point. That NAFTA was really about working together. We call it trade agreement. But it was really about making things together and then selling them to each other and the rest of the world. And that making things together and doing things together is particularly prominent in the Atlantic region, where these ties are deeper than the nationhood in some ways.
Wade Merritt: Right. And I think, we run into issues when we're asked questions, particularly at the national level about how do you interact with Canada? Because it is very different than it is in other parts just because of that.
Bill Reinsch: Fancy term for that is marketing and aggression.
Wade Merritt: Yes.
Bill Reinsch: And the whole point of NAFTA was to create an integrated North American market.
Wade Merritt: Which it basically succeeded in. In many ways.
Bill Reinsch: Yes. But the president doesn't like that. And so, that's why we've had gone through this whole exercise. We may probably end up still with an integrated market despite what he's trying to do.
Andrew Schwartz: But do we have a better agreement now?
Gabrielle Gerbaud: Well, we don't have an agreement yet.
Andrew Schwartz: Yeah . . .Yeah. In your view, do we have a better agreement once it's signed?
Gabrielle Gerbaud: I think so. We will have to see what happens. I mean if it's really what we think that is going to be. Because whatever result on the table right now, we don't know if it's going to be the final. So, for us whatever is been said until we don't see it the final version. Then we will be able to analyze it better. Right now we see it really as a modernization of the old, we need an agreement. That's for sure. And the uncertainty of not having one or working on a one that we know is going to end that's not helping us either. We're seeing the uncertainty is really bothering the business and the business community. People are not making choices. And businesses are just stopped and they're not making the decision and their plan for the next five and 10 years.
Scott Miller: Well that's so, so important. I'm glad you brought it up. Because we were talking earlier about how trade is now prominent issue. Bill and I spent our whole careers on the back page of the business section and now we're front page above the fold. And that feels pretty good. That's a lot of fun. But the lack of predictability is insidious and it's hard to measure. Because nobody keeps track of the decisions that were made, okay? No-
Bill Reinsch: Or the investment that was not made.
Scott Miller: Or the investment was not made. Those decisions don't get tracked anywhere. They just disappear. So, even living in this sort of suspended animation for a little while here. How has that been? What has it done to your day to day jobs?
Wade Merritt: Well, it's been interesting. I guess would probably be the best word for it. I mean, when it came to the USMCA you kind of came over as a tidal wave. I think as far as the state media, what's going to happen next and what's going on here. I mean, our-
Andrew Schwartz: And by the way, what was wrong with the previous agreement?
Wade Merritt: Right. All of that. And we could go down the list of things that people had issues with. Things like softwood lumber and that were not addressed in the earlier agreements. Still aren't addressed in this-
Scott Miller: We call them the US Canada greatest hits. [laughter]
Wade Merritt: Yes. It's the greatest hits. The ones that we bypass and don't [crosstalk 00:18:13].
Bill Reinsch: A lot of them are our main lumber paper.
Andrew Schwartz: Trade is not only front page now but it has greatest hits. [laughter]
Wade Merritt: Yes. It's amazing, isn't it?
Bill Reinsch: Yes. [crosstalk 00:18:22].
Andrew Schwartz: [inaudible 00:18:22] Trade guys on Spotify by the way.
Bill Reinsch: If we live long enough, we're going to get to golden oldies. Is that what you're saying?
Andrew Schwartz: Yeah. We're getting to golden oldies pretty quick.
Scott Miller: Because three generations of lawyers, children that have gone to college on the soft wood lumber dispute. So, longer it lasts.
Andrew Schwartz: By the way am not kidding. Trade guys is on Spotify. It's on Apple podcasts. It's wherever you get your podcasts. And Yumi is going to tell me if I don't mention to this amazing audience and this very handsome audience by the way. To say-
Scott Miller: Sounded like Trump, wow. Flatter them [laughter]
Andrew Schwartz: It's a very gorgeous audience.
Scott Miller: Luxurious.
Andrew Schwartz: Yeah. You need to leave us a review. You did like us. Thank us. Leave us a review the whole deal. Anyway, I'm sorry.
Bill Reinsch: So, I was interested in what you said. It probably is better if you're a state where there's a lot of automobile production or automobile parts production-
Gabrielle Gerbaud: Which is
Bill Reinsch: Which is not you. I suspect. It raises a whole bunch of other issues-
Scott Miller: The digital economy sections might be good for the Internet of things and the other activities.
Gabrielle Gerbaud: Transparency in the service area.
Bill Reinsch: One issue that may make a difference. I mean despite the fact that the Canadians are inherently nice people, I could say my mother was Canadian, so she was nice. There is …
Andrew Schwartz: She did a great job with raising Bill [laughter].
Bill Reinsch: But that doesn't alter the fact that we've had a lot of fairly bitter trade disputes with them. A number of which involve Maine or actually the Northeast. There was lumber, there was paper, there've been lobster issues. There was Bombardier Boeing case that's Vermont-
Scott Miller: Poultry.
Bill Reinsch: Poultry. So, there's a lot of issues there. And one of the things this agreement does is it gets rid of the dispute settlement process with Canada. So, that your companies in both Minnesota and Maine are no longer going to be able to sue the Canadian government for anything it does is unfair. Does anybody care? Does that matter?
Gabrielle Gerbaud: I don't think people are getting into the nitty, gritty yet. They just want something. And then once they understand that something ... once they have something, they will try to understand that something. And then they'll be able to complain or not.
Andrew Schwartz: When do we expect we're going to get something?
Bill Reinsch: I just had that question showed up on my phone this morning from somebody else. Seems to be going, getting … dragging out a bit. The shutdown slowed things down. We didn't have Q and A for Meredith. But the obvious question for Meredith was-
Andrew Schwartz: This is Meredith Broadbent
Bill Reinsch: Who was just here.
Andrew Schwartz: the ITC commissioner who was just here. For those of you can't see and can't hear Meredith.
Bill Reinsch: Well-
Andrew Schwartz: That's right. Because this a podcast.
Bill Reinsch: That's right. She was here immediately before us. And one of the timing factors here is that the international trade commission is charged with producing a report on the economic impact of the agreement. And they had 105 days to do that. Which had there not been a government shutdown would have been March 15th. And with the government shutdown, it's now been put off till April 17th. There's probably not a lot of visible things that are going to happen before then. Because most of the members of Congress will say, "How can we vote on something when we don't know if it's any good? We're going to wait for this independent body to give us an evaluation." What is going on right now and we've talked about this before, is the negotiation between the congress. Both sides of the Congress and both parties and the administration of what's going to be in it.
Bill Reinsch: Because under the law, once the president formerly submits the implementing bill it cannot be changed. So, there's this elaborate pre submission game in which Congress attempts to tell the president “Here's what you should submit. And if you don't submit this then maybe we're not going to pass it.” The immediate issue ... I mean several issues would come up. The drug prices is one. There's a rather odd LBGTQ issue that has come up. The big one is labor and enforcement of labor has come up. But also the steel and aluminum tariffs which I think we want to ask the two of you about it.
Andrew Schwartz: Yeah we want to talk about section 232 for sure
Bill Reinsch: We've got a number of the members of Congress beginning with the chairman of the finance committee who has something to say about this. Say we really need to get rid of those. If this bill is going to move forward.
Wade Merritt: Now to kind of put a point on this, tomorrow the public will get an idea tomorrow Wednesday. The public will get its first clue about how this dynamic is playing out. Because Ambassador Lighthizer will testify before the House Ways and Means Committee about the general trade agenda. So, I'm going to listen carefully for the questions and the answers about USMCA.
Andrew Schwartz: Is he testifying-
Scott Miller: No you not. Because you'll going to be spending all day with me. [laughter]
Wade Merritt: [crosstalk 00:23:02] with Bill. But I've several hours left well I'm awake after we finish our conference.
Andrew Schwartz: Is Lighthizer testifying at the same time as Michael Cohen.
Wade Merritt: Well, that would [crosstalk 00:23:12] wouldn't it. I think it may be-
Andrew Schwartz: Because of [inaudible 00:23:14]. I don't know if anybody's going to hear him. Because this town's waiting for that.
Wade Merritt: I'm a trade guy. I only care about Ambassador Lighthizer.
Andrew Schwartz: I hear. Well these guys ... yeah. By the way, tune in on Wednesday there's an amazing panel at CSIS and it's being streamed live, streamed all day long. Hank Paulson, Fred Smith, the CEO of FedEx, the Trade Guys and more.
Bill Reinsch: Sue Schwab who was mentioned earlier.
Andrew Schwartz: Sue Schwab. Yes.
Bill Reinsch: But let's go back to [inaudible 00:23:35]. What about the tariffs. The steel and Aluminum tariffs-
Andrew Schwartz: Sections 232.
Bill Reinsch: Does this matter?
Andrew Schwartz: First of all, Bill, explain what is section 232?
Bill Reinsch: It's a provision of the trade expansion of 1962 that gives the president authority to limit imports if they threaten national security. And in the case of steel and aluminum, he determined following up a commerce study that recommended ... that found that there was a threat and recommend the President act. He acted. What is on the table right now is the same question, the same statute with respect to cars. And the Commerce Department has submitted its recommendation to the president which has not been made public. To my total astonishment there've been no leaks. I'm very disappointed. And the president has 90 days from last Sunday to act. Well actually the 17th, whenever that was … a week ago. To act and so, we may not know anything for quite a while.
Scott Miller: Now on steel and aluminum the 25% tariff on steel and the 10% tariff on aluminum had been in place for roughly speaking a year. And there was a report yesterday from the American Iron and Steel Institute that indicated that the steel industry as a whole in the United States had reached the capacity utilization figure that was agreed to be the sustainable level. And they were not at before the tariffs. They are at after a year of tariffs-
Bill Reinsch: Which is what, 80%?
Scott Miller: 80% utilization of existing capacity. So, that may or may not factor into this. But certainly when it comes to Congress approving or working on USMCA, it appears that steel aluminum tariffs with Canada and Mexico are a threshold issue. How has that played out in your states?
Wade Merritt: Well, I think, the first time that all of this started to kind of wash over our state was in June actually. The first media hits I think that I started getting from all of this was around July 6th. I think when the third round of retaliatory tariffs came in and lobster was on the list. And so, it was all about lobster, lobster, lobster. Because our lobster companies spends a lot of time and money trying to get into the lobster market. It quickly-
Andrew Schwartz: Lobster's a national security issue.
Wade Merritt: For the Chinese [laughter]. But then it quickly became ... we quickly ended up pivoting into what we still feel as the larger story. Which is the steel and aluminum tariffs and the effects on pretty much every small manufacturer in the state that needs to use it.
Scott Miller: Prices went up.
Wade Merritt: Prices went up. What's been interesting is that the companies have been talking a lot about it in private. But they have as yet been unwilling to kind of stand up and say, this is a problem for us. So, we kind of know that it's a problem from talking to them about it. They've somehow ... they've been able to kind of stay the course through this. But I think I would be surprised if you found anybody out there that was particularly happy about it.
Scott Miller: Why aren’t they standing up complaining?
Wade Merritt: For us, they just don't do that. Small companies don't do that for a lot of different reasons. Either they don't want to make themselves a target or they just frankly don't the time. I mean, if you're the president of a machine shop that has 25 employees, I'm not going to worry about going after national trade policy.
Scott Miller: You got too busy day to do a PR campaign.
Wade Merritt: Yeah. I’m too busy for that. Yeah.
Scott Miller: Yeah. All right.
Andrew Schwartz: Gabrielle, how about you? How's it impacting your state?
Gabrielle Gerbaud: We are on analyzing the counter measures and how they're affecting the export of the state. And we've seen ... they were very amazing figures. Because if you imagined that this year it will be 2017 exports. For example, the exports to China were affected 90% with the counter measures. So, that's a huge deal. But then for example, Canada, Mexico and EU were like 5%, 3.5% and 3%. Which, okay, it is important because from the moment it affects one business and one family we're all worried because those are the ones we're taking care of. However, in the scheme of things versus the 89% but 90% of the Chinese exports to the others. Well there is a big gap and a big difference between one and the others.
Andrew Schwartz: So, is there a state level action to lobby the administration or Congress on these issues on your part?
Gabrielle Gerbaud: We are listening but again they're not talking [laughter]. So, we're there to listen and we will be able to take action if we knew what action needed to be taken. I mean, we know, unfortunately it's not official. So, we cannot bring a list of companies saying this is the issues we're having. Let's do it. They can go directly to their representatives. But at the same time we don't have the official version of it. They don't want to talk.
Andrew Schwartz: So, Trade Guys react to that. What does that make you think about?
Scott Miller: Well, it's putting basically salespeople in a position of disadvantage. I mean, basically every state development director is a salesperson. They're selling their state to foreign investors, to companies purchasing exports, those kinds of things. And you're trying to accomplish that mission. And now life just got more complicated and your competitiveness drop maybe a scoch. And the companies you're trying to represent are little less happy with the circumstances. So, it seems like it's a headache you really didn't need. You seem to be bearing up well but-
Wade Merritt: We've always kind of taken the approach in Maine of ... we've tried to meet the companies where they're at. And of course we will weigh and the congressional delegation will call us and ask us why we're feeling about things. And we'll pass along messages that we're hearing from the business community if they don't feel that they're in a position to kind of speak for themselves. But really our approach to all of this has been our jobs are to help the companies navigate the global trade policy no matter what it is, right? So, a lot of these, like I took a bunch of calls of people saying, "What am I going to do next?" Well, okay, let's figure this out together. It's counseling. I mean it's just [crosstalk 00:29:28].
Scott Miller: So, at the end of the day, it doesn't matter who put the barrier there? You're trying to get rid of it or overcome it.
Wade Merritt: We're trying to figure out a way to get over it. Yeah.
Andrew Schwartz: What about the US/China trade tensions and what do we think's happening? Trade Guy, Bill? What do we think is happening?
Bill Reinsch: Well, it's beginning to look more and more like allegedly happy ending. We'll see. I mean the president has been sending signals. He keeps saying we're very close to an agreement and he eliminated the tariff bump that was scheduled for this Friday. He didn't eliminate it. He postponed it to no specific date. He sending all these signals that he wants to sign an agreement. I think the argument will be whether it's a good agreement or not. And it's hard to say. I think the current speculation, keep in mind that those of us on the outside basically know nothing despite what people may claim from time to time. But it looks like this will be a package of four things. One, they're going to buy a bunch of stuff.
Scott Miller: Market access.
Bill Reinsch: And it'll be a big number and they'll arrive at a big number by having a whole bunch of years. So, I think the president has got to be over $1 trillion. Well, if you have enough years it's easy to get to a trillion. It'll probably be more than 10 years. So, and that's the Chinese have got no shortage of dollars right now. That's not a hard commitment for them to make. The hard commitment will be, what are we going to do on the so called structural issues? I think they'll be able to do some things on intellectual property protection and some things on some discrimination against American companies operating in China. Because they're in their interest to do it and because they've lost WTO cases. Or they're clearly under pressure from a lot of people. They're not going to do the fundamental things that the President wants them to do. In terms of eliminating subsidies, dropping their support for state owned enterprises basically turning our economy into a real market economy.
Bill Reinsch: I think Xi Jinping has decided that they have two goals in China. Maintaining the party's control over the society and economic growth. And I think for him the priority is control first, growth second. And he believes in contrast to some of his predecessors that one of the ways to ensure that control is by increasing the party's control over the economy not decreasing it which is what he's doing. Credit private companies, small companies have been starved to credit than China. The SOEs are getting all that they want. This is not the way to grow and you can see it in their declining growth rate. But that's their policy. They're not going to do anything that is going to ... in his judgment, reduced control.
Bill Reinsch: So, there'll be a smaller package. There'll be a bunch of enforcement. Item three, the bunch of enforcement provisions. Because Ambassador Lighthizer really believes in his heart of hearts that they're not going to do what they say they do and what they're going to do anyway. There'll be compliance issues. So, we need deadlines. We need from his perspective the United States needs to be able to unilaterally determine whether China is complying, no consultation, arbitration. We get to decide. And then if we decide they're not, then we get to unilaterally do things. Like put the tariffs back on or raise them depending on whether or not they go away.
Bill Reinsch: Chinese not going to like that. That's one reason why we're not at the end yet. These are contentious issues. And then the fourth issue, bunch of cats and dogs. I think every time we have trade agreement people try to clean up outstanding issues. So, Huawei on the table, CTE is on the table. There is an issue well with Fujian Xinhua and Micron is on the table. There's a bunch of little things, beef, chickens.
Bill Reinsch: The Chinese have some demands too and don't try to wrap maybe all that stuff up. The president I think wants a short term bump. If he reaches an agreement, the market is going to go crazy. Everybody's going to be very happy. Business will say, “ah the trade war is over.” Everybody's reassured. The real question is what's going to happen a year from now? Because for the President, the only path to real success is a good agreement. And one that Chinese comply with. And if a year later it turns out that neither of those conditions was met. We're right back where we started from. Which is the Chinese not compliant with not so good agreement. Nothing has changed for American business. And it's a lot closer to the election than it is now. People will have forgotten March of 2019. They're going to be thinking about March of 2020. And if you starts putting tariffs back on then because the Chinese haven't complied or bite back where we are now. So, I think it's very risky for him in the long term.
Scott Miller: I agree. So, but at the moment with the president traveling to Vietnam to meet with Kim Jong Un. We have sort of have a brief intermission between act two and act three. But it's probably going to be a year before we know whether it's a self-farce or a comedy or whether it has a happy ending.
Andrew Schwartz: Has the uncertainty affected your states? I mean, you've alluded to this a little bit that the uncertainty and other areas, how would the uncertainty with China? That's the big one.
Gabrielle Gerbaud: First of all, you know, there are all these small companies that are asking questions and they are asking questions that they're very difficult to answer. But then they don't want to act upon it. Because they don't want to be visible. Because they are a little bit, I don't want to say scared. Scared is maybe a strong word. But they don't want to be [crosstalk 00:34:46] singled out. Exactly. They don't want to be singled out in the state. So, now they're just waiting. And as I said before, uncertainty, waiting, business doesn't go together. It just doesn't grow.
Wade Merritt: For us, the big issue for China was the lobster industry. I can't continue to beat on that. I mean, the impact of the retaliatory tariffs were broad in Minnesota. In Maine they were very narrow but they were very deep. 99% of the impact of the Chinese retaliatory tariffs on the Maine economy were on the lobster industry. It was all lobster mostly. There was a couple of other smaller lines that were in there. This is again an investment that those companies had made over probably five or 10 years to access the market. 18% of our lobster exports were going to China at the time. So, it was a big deal for them. They found other ways to do it. They're looking at other Asian markets for places that they can put that. But that's not something that you can easily and quickly replace.
Scott Miller: Have they repealed the state regulation which requires a maximum number of meals to inmates that are lobster? I think that's still on the books. They only feed the inmates lobsters so many times in the state prisons in Maine. [laughter]
Wade Merritt: Yeah. It's a colonialist regulation. You are absolutely true.
Bill Reinsch: Scott has an inexhaustible supply of facts [laughter].
Andrew Schwartz: It's unbelievable, right? [laughter]
Wade Merritt: Scott is absolutely right though. I mean this was a colonial era of regulation. You could only feed lobsters to inmates on a certain number of days.
Andrew Schwartz: You might be the only person who really knows that stuff.
Scott Miller: Well here we are. [laughter]
Andrew Schwartz: I'm proud too. I'm proud to listen. Thank you all so much for being here with us for the trade guys. Thanks to our guests Gabrielle, Wade. It's been wonderful having you here. This Trade Guys episode will be posted within a day or so. Don't forget to listen to it. It'll be on Spotify. It'll be on Apple. It will be on SoundCloud anywhere you get your podcasts. Thanks for having us. This has been the Trade Guys.
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. When you're listening to Tom Petty or whatever you're listening to. Thank you, Trade Tuys.
Scott Miller: Thank you.
Bill Reinsch: Thank you.
Andrew Schwartz: You've been listening to the trade guys, a CSIS podcast.