The End of Free Trade: A Conversation With Robert E. Lighthizer

I'm Dan Kurtz-Falen and this is the Foreign Affairs interview. The system itself was broken and I think there were a lot of reasons for that. The makeupist one was nobody really believes in free trade, right? The exception of the Harvard Economics faculty and a few Anglephone politicians, but everyone else realizes that you talk free trade but what you want to surplus. Almost no one in the last several decades has done more to change the American oppressed to trade than Robert Lighthizer. Lighthizer was US trade representative in Donald Trump's first term. In that role, he set out to reverse Washington's long-standing commitment to a global trading system, a crusade using tariffs among other tools that targeted China above all, but also any other country that, as he saw it, benefited from that system at the expense of the United States. Lighthizer recently laid out his vision for a new trade order in the pages of Foreign Affairs. Both Trump-Leving tariffs and wielding American economic power against both allies and adversaries, Lighthizer argues that the free trade system should be thrown out, replaced with one that is more balanced, sovereign and transparent. I spoke with Lighthizer on the sidelines of the Aspen Security Forum on Wednesday, July 15th. Ambassador Lighthizer, thank you for doing this and thank you for your forceful piece on the new trade order and our major issue. Well, thank you. Dan, it's a pleasure being here. That essay begins with a critique of the trading system as it existed before Donald Trump's first term and not coincidentally before your arrival in the job of US trade representative. What struck me about that account is the sharp line you drawn the early 1990s in that post-cold war period. What was right about the trading system, what was working about the trading system before the early post-cold war and what was wrong with what came after in your view? Well, that's kind of the fundamental problem. Let's spend a second if we have just to talk about the history generally of trade because there's this kind of notion that a lot of people have, including a lot of economists, it's somehow the things that President Trump or Dr. somehow novel or new are breaking the norm and the reality is if you look at the grand history of trade, he's very much in the norm and this kind of more recent globalism is really the oddity. If you look at the history of the United States, there was always a debate back and forth on trade between the agricultural interests and those who wanted to build up manufacturing up in the very beginning. It's always important to remember that even the agricultural interests wanted higher tariffs than we have now. We were funding our government through tariffs. Something called the American system was kind of developed and under that we used tariffs to really build up American manufacturing. This was very contrary to the 18th century notion of Adam Smith who would have said, and at the time of his, well, the nations did say the United States we better off not building up manufacturing, we would be wealthier by just supplying the British and I think he actually believed that, but we followed that. We would be a very different country than we are right now. So he was sort of fundamentally wrong, I think, on that point. This American system in tariffs kind of prevailed in the United States used tariffs, not just the fund of government, but really to build up manufacturing and technology. And really in the way that term was used in those days. So that by the 1870s we're running surpluses and not deficits. And by the 1890s we're the biggest economy in the world. We've overtaken Great Britain as the biggest economy in the world. So it was very successful. If you look at from sort of Lincoln until Franklin Roosevelt, you have almost entirely Republican presidents who are pro-terrafe. And even the Democratic presidents are not anti-Tariff in the way that an anti-Tariff person is today, but they would be for less tariffs. So we used tariffs a lot. Tariffs were very important. And what we did in the United States was also what other countries in the world did. What happened over time is that tariffs became less and less important in the great scheme of things as a baritrade and as a hindrance to notional free trade. And what really took over was industrial policy. And industrial policy is a very broad term. But it refers to everything from your tax system where value-added taxes help exports and discourage imports. Your currency practices, obviously a weak currency does the same thing. Your banking system where you can give manufacturing, blow market interest rates, your health and welfare system, your labor laws, just everything. And countries started using all these things in tariffs were less and less important. As tariffs kind of shrunk, we get ourselves to the Second World War. Now we're kind of in what you would call a code of the modern period. We start the GAT, the General Agreement on tariffs and trade. We have a series of nine negotiations, almost all of which are focused on reducing tariffs around the world. And the United States and Europe basically bring other countries into the system by reducing their own tariffs more than other peoples. You could say it was a bad negotiation. On the other hand, it did help to win the Cold War and help Europe rebuild, help Asia rebuild. So there's a lot of repositive parts to it. That kind of continued up, I would say, the United States. By the time you got to the late 70s, was getting the short end of the stick, was doing relatively worse and worse and worse. And there are surplus that started to disappear. You had some Asian countries, but primarily Japan used industrial policies to become a very strong economic power. A lot of the same kinds of practices that China uses today and that other Asian countries use today, sort of economic powers. The beginning of that kind of loss of manufacturing, loss of power in America is what really in my judgment, at least contributed to Ronald Reagan being like the president of the so-called Reagan Democrats who are working class Democrats. And then the system gets progressively kind of worse in the 80s. Reagan takes a series of steps which would be considered protectionist, but we're necessary with respect to motorcycles and specialty steel and carbon steel and semi-conductors in a variety of things. And you were deputy US trader. I was deputy USTR trade during that time and had obviously the same views that I have now. And then you get to the 90s, the Berlin Wall, it's kind of fallen and you get to the end of time, these crazy notions. And there's this view that globalization is the future and that Marxist led anism is gone and that totalitarianism is gone and we're all going to live in a blissful world of free markets and one level or another or democracy. The only problem was it was just totally wrong. So then you saw what I call this sort of trifecta of stupid and the 90s you had naftum, then you had the Uruguay round which started up your TO. And then you had obviously the biggest mistake of all which was giving a most favorite nation treatment to China. So if you think of China generally in 1980 we kind of gave a most favorite nation treatment but it could be revoked every year. And when we got to 1999 we gave them basically permanent most favorite nation treatment and that basically got them in the WTO. It was not a consensus. It was the Clinton administration and the economists and his administration along with a bunch of Republicans in the Congress and they made this horrible mistake. Up until that time you wouldn't move a factory from America to China because you could lose the tariff advantage the next year. So no one would do it. But when that happened then you saw this avalanche and you saw this I say 5 million jobs lost just on the wrong numbers and all the rest of these very, very bad outcomes. And that sort of takes you through from about 2000 wherever you want to break the line up to where we are in 2016 Donald Trump or Amphor president. Basically this is one of his major issues. And so you saw a hiatus there and then you saw the Trumpian policies more or less continue through the Biden years and then of course we are where we are president. Can we linger on China for a moment? I think when you look at many elements of the rules based order or whatever you call the system that started during the Cold War and then really became both more ambitious and more global in those post-Cold War years. China and the sheer size and speed of its rise and the ways it did not change and confounding expectations because in many ways kind of at the core of the anxieties and frustrations of that order obviously the counterfactuals hard to play out precisely. But how much of this is really just about China when you've called this when you write on our pages the kind of you know former existential threat. But if you have everything else that you talked about but you don't go to permanent MFN and WTO membership for China does that kind of change this equation here is that is that really the fundamental moment when this. Well I think that was a big big thing but let me tell you that from the 70s forward the United States was getting the shorter or shorter rate of the stick. We were running trade deficits with China before China was China right. I mean when you know we were running deficits with China 15 20 billion which was a big enough number even before they had that so it's important to kind of keep that in mind. I would say the problem is not just China but in analogy I use in the pieces we went from being sort of stabbed to death to being slaughtered so that the magnitude changed dramatically. But Japan clearly took advantage of us now I put Japan in a very different position because they are an American ally and they don't have any geopolitical ambitions to be number one on the world or anything, at least not since the 40s. In other countries too, Korea clearly has used industrial policy to build up. They have a world-class deal industry, but they don't have any comparative advantage in steelists entirely, and industrial policy results. I don't want to say that the system was fine until China came along. I think what happened was you had a bad system that then became a lignit with China. With number one, they were spending vastly more money on the system. They had a closed market. They do have geopolitical ambitions. There's a whole lot of reasons. As I say, as an order of magnitude, China's GDP, as a percent of US GDP, is bigger than Germany and Japan compared to the US in the Second World War. They are, it's a major, major problem. The system itself was broken and not working. There were a lot of reasons for that. The biggest one was nobody really believes in free trade, right? With the exception of the Harvard Economics faculty and a few Anglophone politicians. Everyone else realizes that you talk free trade, but what you want is surplus. If you have a surplus, you get richer, and it's the economists deny the analogy. But the truth is, if you in your life consume a lot more than you produce, you're going to get poorer. In a sum point, you're going to be very poor. Everyone wants to produce more and run a surplus. That's why, as I say in the piece, I think the ultimate answer isn't free trade and it's not so-called fair trade because you can never make fair. I want to spend a second on that because this is the progression most people have. Well, I was a free trader now, I'm a fair trader. The truth is, what we need is a balanced trade. That's what I believe the logic is. When we talk about fair trade, most people say, "Well, that's approximately equal tariffs." As the point I was making a minute ago is, it's not about tariffs. It's about industrial policy. Tariffs are a tiny, tiny fraction. If we had equal tariffs with China and they still had a currency that's very weak, tax laws, labor laws which basically transfer wealth to producers away from consumers. If they have all the rest of the things of health and safety and all the other close market activities they have, it still wouldn't be fair trade. The important insight is that all of these things, which we identify as industrial policy, can't be negotiated. There's just too many of them. It goes to the core of what it means to have a society. That's why I just kind of jumped to the end and it's okay, what's the result? I want to come back to the vision of balanced trade. The framework that you lay out on the piece, focus on, I think it's a sort of dissonance in the accounts you hear of those past few decades. On the one hand, you have the harms and dislocations from trade, which you've mentioned and catalog in various ways. But neither has it been a terrible period for US economic growth relative to other developed economies, especially. People often point out at our pages and geopolitical analyses that you would have expected at the end of the Cold War, the US to start declining as a percentage of global GDP. That hasn't happened. We're much richer than Western Europe in Japan now. That was not the case even 20 years ago. Productivity has been higher. You're the most other advanced economies. On that level, the story looks pretty good. Some economists, I think of Adam Posin, who made this case on our podcast a while ago, would say, "Look, let's take the gains that he argues we get from trade and be much more aggressive about redistribution and place-based policies and retraining." All of that. What do you see as wrong about that other story that kind of backer a story and the policy responses that flow from that? First of all, our GDP is smart. It's a percent of global GDP. It's already had strong since the end of the Cold War. Our manufacturing or goods production as a percent of global GDP is way down. Let's look at the indictment across the board. One, we have these enormous imbalances that will really transferring wealth overseas in return for current consumption. Once again, not because of economics or because Americans are greedy, but because other countries have industrial policies that promote this. I say a realistic trade deficit for the United States is not in goods, a trillion and a quarter is quite marketer in half because there are a variety of ways that other numbers are not particularly accurate. But even if it's a trillion and a quarter or a trillion dollars on a goods and services basis, that is a transfer of wealth overseas. What happens is that money eventually comes back to the United States in the form of foreigners buying US equities to real estate technology and the like. There's a data point which I think is so important. If you look at the net international investment position of a country, which is how much Americans own, all over the world, much of everyone else owns in America, that number for America is a negative 27 trillion dollars. Now when I was in the Reagan administration, in current dollars, it would be a positive probably 800 billion dollars. And 20 years ago, it was a negative 2 trillion dollars. So it's an enormous transfer of wealth overseas and it does matter who owns your country. There's a great piece that I always recommend by Warren Buffett that talks about thrift villains, wonder villain. He kind of makes the analogy of a farmer who's got a big farm and he's selling his land in order to consume. And ultimately he's going to have no ability to consume and no land. And in his case, he takes two islands, thrift villains, wonder villain. He kind of makes this point that eventually, Squanderville is working for thrift villain, doesn't own anything. So it does matter who owns your country. So there's a transfer of wealth overseas. Secondly, we have seen substantially slower economic growth than it's traditional for America. Now, now, somebody like Posen or somebody like that would say, well, we're still doing better than Europe. Well, but our objective is not to do better than Europe. Our objective is to grow in America at a fast pace that helps Americans, right? And if you look at sort of sense the war to about 2000, it's over 3% GDP growth on average. And with a bunch of years above 3%, if you look at sense that period, we have had about 2% GDP growth or a little less. And three years of bigger than 3% GDP growth, one of which was COVID, which doesn't really count. And it's in a simple to see why. I mean, GDP is consumption plus investment, plus government spending, plus net exports. So if net exports are a negative trillion dollars, it just takes a trillion dollars out of your economy. Now economists would say, yeah, but a lot of Americans can have a seventh or eighth television. And in my kind of reaction to that is how frivolous, how unimportant. So we have this huge transfer of wealth overseas of our assets and the future income of those assets that our children would have. We have slower economic growth. We have a fall off an innovation leadership. And there's just no question about that because we don't have manufacturing. That isn't say America doesn't lead the world in innovation. We do. But our leadership is shrinking. The Australian Strategic Policy Institute tracks 74 now. The United States is behind China in 66 of them. 66. If you go back 20 years or 15 years, we were behind them in three. So we're transferring wealth overseas. We're seeing slower economic growth. We're seeing a loss of innovation leadership, which is a natural outflow of losing the manufacturing leadership. But most importantly, we're seeing this very bad outcomes for our working class people. After China got into the WTO, or at the end of the trifect of stupid, as I call it, there were 15 years we're working class people. We're basically flatlines. And they're not much better than that in the next 10 to take us up to where we are now. You drive through the Midwest. You see these hollowed out cities. You see income disparity growing at a rate we never saw before. Now I understand economists don't care about that. They say, well, if the country's richer, my view is you follow an economic policy, which creates jobs for people so that you redistribute income in that way. What a liberal would say is, no, let's just tax the rich and give it to the other people. The problem with that method is all these people that you're giving welfare to are losing the dignity of work. They're losing the thing that fundamentally makes them happy. The things that make the family stay together and the community's strong. And the combination of all of that is what makes America strong. But back to the working class people, we have even seen dramatic health differences now grow up where if working class people, and by the way, this is, you know, two-thirds of our workforce doesn't have a college degree. So this is not some fringe group. This is who we are as a country. Because people now live eight years shorter lives and it's so-called desu despair, right? It's suicide and drugs and alcohol. So what we need is to reorient a lot of economists and then a lot of business people who are getting rich have this sort of view that, well, the most important thing is price optimization and kind of efficiency in the market. And that might make sense in the 18th century when there was not enough food people starving you to. Now by far the purpose of economic policy is to after national security is to grow the economy and distribute the wealth in a way that makes families and workers stay together. And I always say that that that that that make workers parents hopeful for their children and they lose that now but also children proud of their parents for working. So I think the world that these economists want is not the world that I want and it's just a fundamental difference. I don't think it's the most important thing is that my t-shirt is cheap as it can be. That's not what I think is most important is when I drive through the Midwest and I see people being proud they're working and producing. If we go back to the moment when you became USTR in 2017, you articulated a few objectives and I'm curious to hear how you reflect on those but countering China was certainly one of them bringing back manufacturing jobs was was another critics would look at the record of US trade policy over the last decade or so and this would as you as you noted apply to many Biden policies as well which embrace some of the tariffs and industrial policies and other things. And they would say look manufacturing employment hasn't really come back in this country. They would note as an aside that in places like Germany and Japan and France which have been very committed to maintaining a manufacturing sector that hasn't affected employment hasn't saved employment and they'd also note that the Chinese trade surplus is bigger than it's ever been globally. As you reflect on your goals going back to 2017, are there things you would do differently? How do you look at that record especially on those priorities? Well, we have to say first of all when we when we look back, you have to kind of put yourself in position you ran out that time. How much of a mandate did you have? Had you convinced people that you were right, being posted in people like that will never understand the China's threat. They just won't understand that in this true of a whole variety of people. But at that time President Trump and I was one of the people working with him had to one convinced people that that trade deficits and these trade problems, the were a problem. And number two that China was a threat and an existential threat. So it was a huge reversal and I think that that the president gets enormous credit for turning that around to the point that you won't see anybody run as a free trader for national office in America. But everybody realizes that that's a horrible mistake. If we go back to the first term, I think we did as much as we could do giving the mandate that we had and the fact that we had to convert people including an awful lot of Republicans. The only group we probably didn't have to convert were labor Democrats, which is unfortunately a shrinking group within the Democratic Party. The labor Democrats got it all along and a bunch of Republicans now have come along and seen the fact that both we need to re-industrialize, but also that China is a threat and it's become more and more clear. So if you look at from the time President Trump was first elected in 2016 and took office obviously in 2017, up through like the end of 19, which is to say pre-COVID, the numbers are actually pretty good. The Chinese trade deficit is going down five trade quarters. The global trade deficit is down, manufacturing, production is up, manufacturing jobs are up. Then you find yourself in the COVID situation which not only taints the last year of the Trump administration, but also a good part of the beginning of the Biden administration. The numbers are harder to follow. When you look at the beginning of where we are now, I think what we are looking at green shoots, nobody honestly thinks you're going to re-industrialize in two or three years. Can I press you on the manufacturing jobs? I think by most measures as it's reported, manufacturing jobs even in Trump's second term are down by 70,000 or something like that. What's the alternate way of that? So first of all, if you look at manufacturing jobs from the time he took office in the first term until the end of 2019, it was up 500,000 jobs, which is a substantial number of jobs. If you look at where we are in the first term, I would say first of all, the numbers that he inherited were far worse than anyone thought. The numbers have been re-evaluated and like the last 11 or 12 months of the Biden administration, they lost 178,000 jobs, manufacturing jobs. In the Trump administration, that number has been turned around to it's still a small loss, but you're not going to re-industrialize in a year or two. It's a new policy. I always say, Dan, too, that I get this kind of nitpicking by these economists and I think, that none of you look at any data for the 30 years we did what you wanted. It was a disaster. My sort of view is, and I want to talk about the green shoots here and I will for a second, but my sort of overall view is, well, listen, give us a few years to see if we can re-industrialize. It is important, both the national security point of view, but for all the other reasons of articulated, we can always go back to their failed policies. That's not a difficult thing. But what they were doing was very demonstrably bad results. I mean, when you lose 5 million jobs and all the other things are slow economic growth and all the other things that I talked about. So, if you say, what are the green shoots now? I would say, one, the job situation is far better, two, if you look at manufacturing job openings, that number is substantially bigger now, but if you look at capital expenditures, I mean, there's a lot of things that are very, if you look at factory starts, if you look now at overall production, the production numbers, if you look at the PMI for the first time, so there's a lot of things indicating that things have turned around. And they've turned around, you know, in basically a year or a little over a year. So I would say there's a lot of things to point at. I think ultimately the system has to though create more jobs and it has to create better paying jobs and wages have to go faster than inflation, which they have under Trump in a way. And in the first term they did, you know, the way I see it, it's one, we need the manufacturing of national security for global power, but we also need more jobs. We need more wages given more of our national wealth should go to labor rather than to capital as a percent. And the way to do that is to have it go more to each, but disproportionately more towards labor so that we get the kind of outcomes. And if we don't see that in, you know, 10 or 11 years, then you have to ask yourself, is it still better than it would have been or not? And then you make your policy decision. My point is the other system is demonstrably a failure on all of these counts. And we stuck with it for, it's a generation if you want to go from the 90s, you know, for generation, if you want to go from this from the end of the Second World War, which is when this kind of new thing started. So it's give us a chance to run. Well, yeah, I mean, I do think there's a lot of green shoots. There's a lot of things that indicate things are better than they were. But for sure we were on a catastrophe. It was a absolute catastrophe, the system we were on. And I would suggest it didn't even really have any intellectual undertaking of, you know, value either. It was based on a lot of myths and then a lot of people jamming data to try to defend the myths. Or return to my conversation with Robert Lighthizer after a short break. One of the things that has been perplexing from a, you know, the broader foreign policy debate as well as in the trade debate and the second Trump term is the apparent shift on China. As you noted, Trump had really helped drive this new hardline consensus on China in his first term, the atmosphere of that has certainly changed the second term. Also in the way that he's rolled out tariffs making, you know, trade surplus, the kind of ultimate standard going after allies and friends, often as aggressively as he's gone after China. And in many cases, leaving them with similar or, or in some cases, higher tariff rates doesn't seem to have advanced the cause that I think you supported in the first term and do in the piece of building this kind of coalition of like-minded, mostly democratic countries to counter that existential threat of China. How do you understand, explain the China piece in this very, very broad-based tariff campaign that it characterized last year or 15 months, as opposed? Well, Dan, we have two fundamental problems and it would be great if we only had one. If we only had one, it would be a lot simpler. But we have both this failure of the trading system transferring wealth over a trillion dollars a year overseas and all the bad outcomes. We have that. And part of that is China, but a lot of it's not China. We have a trade deficit with a lot of countries because of industrial policy that we have encountered. A lot of them, we have a lot of countries that have weak currencies. We have a lot of countries that have labor systems and banking systems and the like. All of which are designed to increase exports to the United States. And basically I would say take our jobs and our ultimately our national wealth. So we have that problem. The president has to deal with that problem and he's been worried about that problem since he was 35 years old, right? And it's a lie, by the way, since he was 35 years old because I was about 35. five resolve at the same time. But there was a period when it was Japan that was doing this, and it nothing could do with China. So he has to deal with that problem. You don't deal with a trade deficit problem by putting tariffs on one country. You have to basically take a position that we're going to put tariffs in the most sensible thing. First of all, let's talk about this in a minute. If you want what are the tools that are used that you could use. But he's chosen tariffs, I believe that's the best tool. You have to put tariffs on everyone to offset those industrial policies or change your own system to offset them, right? Which has a lot of societal cohesion questions that are probably not easy to answer. And then you put higher tariffs on the people that are the bigger predators. In addition to that, the president has a problem with China. China is part of the first problem, but it is independently a geopolitical adversary on the United States. An existential threat. It is a country that views itself as being number one in the world. It views its system of totalitarianism and Marxist-Lenemism as being the system of the future. It views the United States and the West as being in the Wayne as kind of in decline. And they have a whole whole litany. And this is not my interpretation. This is what they officially say. So the president has to deal with both of them. Now, it would be nice if other countries, if we didn't have the first problem, you could get other countries together in form of coalition. You have to figure out a way to deal with that in the context of solving the first problem. Now, I think you've seen a lot more countries realize that free trade doesn't work and that China is a problem. Now, the biggest ally we have in convincing people around the world of that is Xi Jinping and the Chinese Communist Party. You have a first China shock, which basically hit us. The second one, because we are defending ourselves, I just say Donald J. Trump gets credit for this, although a lot of people in Congress would agree with them. Joe Biden would probably agree with this. For sure, Joe Biden followed the same policy. And when I was there, I worked with Nancy Pelosi, I worked with Chuck Schumer, they get it, but Trump implemented the policies for the first time. And he's doing the same thing. Now, other countries are starting to realize what's going on. For a variety of reasons, Europe was shielded from the first shock. Now, the second shock is directly right at them. They're just starting to come together to try to figure out what to do. It's not easy for them to coalesce around anything. But then the second question is, are we hard enough on China now? The problem that we discovered in kind of new was these choke points that have been created by China intentionally by spending hundreds of billions of dollars over a 30 year period or more, at least 30 year period, to create choke points with respect to these many of these 60 critical minerals. Now, we have some choke points on China too. We both have them, but China has operated in a way that has nothing to do with economics. They've operated like a monopolist, basically putting other people out of business, spending hundreds of billions of dollars in order to create choke points on these products. And then, of course, they're willing to use them. I mean, they've used them against the United States. They've used them against Japan, Lithuania, Norway. It almost seems surprising that we were surprised at how aggressively they hit back on critical minerals in June of last year. I think we were a little surprised. And you can say, maybe we shouldn't have been. I don't know. I would say it's less a surprise that they would use the weapon and more supplies at how significant the weapon was. And the president and his team are doing a very good job of trying to take us out from this, right? But so you say, are we doing enough on China? I think given, until we can get ourselves out of this problem, we have to try to change things. We've got to get the balance down. We have to protect our own technology and the like. But we have to at least be careful because they have the ability to shut down our war making, our diplomacy and our economy. Now, you could say, well, but we have the same with them, but that doesn't make it any better. They're spending hundreds of billions of dollars to get out from under our choke points. And we have to do the same to get off into theirs. If we don't quite frankly, if we allow ourselves to maintain the same vulnerability, and I mean, it was predictable, but then not predictable, right? There are some things that you have to really see to believe. And now we've seen it. And I think we believe it. And the president is doing a lot on that front. But I think that explains a little more of how we got to where we are. If you look at where they started, the numbers were quite good with respect to everyone. And then I think there was just kind of realization that until we dig our way out, we have to be more careful. And as I say, the reverse side of this, and I think it's always important for people to say, I'm for something I call strategic decoupling. But China's policy is to create choke points, to get out from under our choke points, to become independent. And once again, this is not light hiser interpreting. This is what they flat say. They want to get rid of all these dependence. So that so that then they can do the kinds of things they want to do without having to worry about anybody else thinks. One of the other tools that people often focus on is currency manipulation. And I believe at this point, China's current accounts are pluses as high as it's ever been. There's a ton of pressure on China's currency, the R&B. Why hasn't more been done on currency? And what would you be doing if you were in a policy make position right now to try to address that? Well, I mean, the first thing is, I don't know if it's their biggest single industrial policy advantage, but it is certainly one of the top two or three. It's the fact that they have a wildly manipulated and under bad currency. So when you say, what would you do about it? Now you're talking about tools. And for me, the most important tool, the most useful tool is tariff, as I say, is the simplest tool to use. But now you're up against your previous question, the choke point question, right? So the question is how aggressive can you be? You've got to be as aggressive as you can. The one thing you have to do is you have to stop transferring your wealth to them in return for current consumption. That's like the first thing you've got to start doing. And then the question is, how do you do that? And you do it as much as you can within the context of this vulnerability that the United States has in these choke points. And I think the president is generally doing that, right? But currency manipulation, the only way you're going to deal with currency manipulation is to put tariffs on them, right? To offset the advantage. I said the only way that's not quite true. The other way you could do it is you could you could put taxes on their capital coming back to the United States. I mean, there's a variety of other tools that you could have. But all of those activities have to be kind of lined up against your choke point vulnerability. So you should do it as much as you can to that point until you can work your way out of that. I want to talk a bit about North America and about the US-Mexico Canada agreement, which you negotiate as the kind of update or reform of NAFTA in the first term. You wrote a piece in a a few years ago in foreign affairs where you noted that it assured in a new era in trade policy. And when folks don't bring in jobs back to the United States as well as helping the North American region, you also noted, I think it's interesting that you saw this as kind of bipartisan framework that that could be sustained across administrations. We're now in a period of some uncertainty about what's going to happen with the US-MCA. You see some complaints from numbers of Trump too of the current administration about continuing deficits with Mexico and Canada about the amount of American content and North American cars and other things. As you look back on US-MCA, what do you think it got right and wrong? I mean, what should be on the agenda now in renegotiation? And what would be the cost if it came apart? How is it important is that to the vision of the kind of system you lay out in the piece? Well, I mean, first of all, when you think of US-MCA or NAFTA for that reason, it really is too trade agreements. Right? It's not one trade agreement. Because Mexico and Canada don't trade much. They don't trade much into these, they do. They've already got the TPP that set the rule. So, I mean, the United States has to sort it out. If you think kind of the history of all of this, you would say, one, the United States, let me just take you through the history of it a little bit. In '65, we did this kind of auto agreement with Canada. And basically, it was US auto companies wanting to take advantage of Fieber Labor in Canada in Windsor and they kind of pushed this through. And it really, that agreement kind of created the Canadian auto industry. Then you fast forward to Brian Mulroney, who I'm a great fan of and Ronald Reagan, who obviously I'm a great fan of. And they put in place that-- More only Canadian Prime Minister. Yeah, the terms of the Canadian Prime Minister. But they did the US-Canada agreement in '88. And then you fast forward in the Bush people and others and then ultimately Clinton wanted to add Mexico. And so you get NAFTA. there was a complaint that Ross Perot basically ran for president twice, kind of complaining about this and other things, but this primarily and talked about the giant talking sound of US jobs going south. It turned out that it was in fact, he was more right than he was wrong and that the game was terrible and everybody interestingly who ran for president afterwards talked about renegotiating it but nobody ever did, right? I mean, you had to Republican and the Democrat, both it was, it was very unpopular and it had a lot of very negative consequences. So when president Trump got in, he ran on this also, he decided that we would renegotiate it and then he, unlike all of his predecessors in both parties, he actually did the renegotiation. And I think that we made a lot of improvements, but at the sort of the highest level, we still have a trade deficit with Mexico which has grown substantially. The Canadian trade situation is in my judgment a little bit differently. We have a trade deficit, but if you take out energy, which is a little sued generis, we actually have a surplus on the good side, the services side who knows. So you would go easier on Canada than I think that the problem is bigger on the Mexican side and we have a trade deficit with Mexico which has become quite large. And if you're going to deal with America's trade deficit problem, obviously that's a global problem and bilateral trade deficits in my analysis in a way I think are not really that important, but you can't deal with a global deficit if you don't deal with some of the larger bilateral deficits. So you're going to have to put tariffs in place in some way to get us back to balance. You're going to have to make sure that we have higher, higher regional content and higher American content. When I think of Mexico, Mexico has to get back, at least moving the direction of balance with the United States. Some of the trade imbalance is not necessarily bad, right? In the way I think of things. If you take a plant from China and put it in Mexico, then the Mexican trade deficit looks bigger than the Chinese trade deficit. It looks smaller, but that's in the interest of the United States. Unlike most other countries in the world, the way I analyze things, we have a stake in Mexican prosperity. And they have a stake in our prosperity, right? I mean, there's a link there that we don't have with a lot of other countries. And this easy was cultural. It's the people. It's the border. It's just a lot of reasons. Immigration is a lot of reasons why we have this kind of interest in it. So I think we need more Mexico, buy more from the United States. I think we need more Mexican content in things we get from Mexico, because we don't, in many cases, we don't have enough Mexican content in it. It's one of the two much Chinese content. Chinese, but could be other countries too, but, you know, let's say primarily Chinese. So I think it's going to have to have two new agreements. They can call them one agreement if they like. That's fine. I think getting rid of a whole thing would be a mistake. And probably not politically, it's too politically costly and not worth the benefit. I think the parties will come to some agreement. I think with respect to Mexico, we have to figure out a variety of ways and tariffs are going to be part of it, that we can reduce that trade deficit without crippling their economy. Because crippling their economy is, as I say, a very bad thing to say, they are a huge trading partner of ours, but we can't run these kinds of deficits with them. And I think using rules of origin, changing substantial transformation, you know, as I say, more content from Mexico and Mexican products, I think they're a variety of ways that you can do that. And it'll take some imagination. And I think you're going to have some imagination. You've got, you know, James McGress, Super, and the Mexican negotiator, Everard, you know, is a very, very talented guy. And in my judgment, at least, President Shenmueb is one of the smarter world leaders that's on the scene right now. So it's hard for me to believe they're not going to be able to work that out, but there has to be a change. I mean, the most important thing we got right was we put in place a sunset so that we have a way to deal with this problem that has popped up. And that's why we're having this renegotiations. One thing you often hear from people in the private sector is that they can, you know, they'll figure out how to operate in whatever system emerges, but that the uncertainty that has characterized the Trump approach to tariffs and trade agreements in the second term, which was not true to knew this same degree in the first term in a variety of ways. But, you know, you've seen obviously the use of creative legal tools, creative legal explanations for tariffs that have then been subsequently reversed by the Supreme Court, you know, being the main one you've seen, you know, Trump kind of slapping tariffs on people because of non-trade issues as a foreign policy tool. There's the uncertainty over USMCA. Do you worry about the costs of that uncertainty over time? Well, yeah, I mean, it's funny when I think of uncertainty. The uncertainty that worries me is the uncertainty that the tariffs will stay in place. In other words, a business man or woman will build in the United States if they think the tariffs will stay in place. But what business people are thinking, well, we want it predictable, but no tariffs. That's what they mean. And I'm thinking, I agree with you on the predictability of what I want it with tariffs. That's what's going to motivate you to move here. In terms of the statute, the president chose Aiepa. You know, I didn't choose to use that statute. I thought there was a risk. I think the president's analysis was right. I think his interpretation was right in. It was agreed to by three members of the court, but unfortunately six didn't. You saw that it's too risky to ask. I just didn't. I wanted to be, but now it's far more complicated to do it the way they're doing it now. But it's also more certain. We were sued more than 4,000 times and we won the cases. So to me, I want business people to have certainty that the tariffs will be in place. And so I think there was a cost to using that tool. I think it was a rational approach. It was the right approach. You mean it made sense. But obviously it was actually my experience. So we lost some of that advantage. We lost some of that year that we that we were talking before about green shoes and how do we show that the system is working. We lost some of that because people were uncertain that the tariffs would stay in place and they therefore didn't make the investments. They otherwise would have made. So obviously, you know, hindsight is 2020. We should have done it the way we're doing it now. The president's always, you know, flexible about these kinds of things. He's a business person. And if one thing doesn't work, he'll try whatever. And he's told you whatever he needs to figure out how to get the jersey on. Look at he has the, he has diagnosed the problem exactly right. This trade system, these trade imbalances are killing our country. And I believe he's picked the right tool. That's a debate we can have, which is in tariffs. And I think he's proportionally about the right, right? In other words, Britain should have lower tariffs than, you know, China or Vietnam or the like. So I think he's got it kind of diagnosed the right tool, kind of proportionate. You know, it was complicated how we got there. It would have been better if we'd gotten there sooner, but you know, it is what it is. Yeah. There's one other element in your piece that I want to draw you out on. And this gets to an issue that has come up in a discussion with its podcast with people in the Biden administration, Lail Brainer, who's head of the National Economic Council, Jake Sullivan. You know, when you, when you talk about a system and you talk about rules and agreements with, with friends and allies and then have car bouts for national security or political and social withhesion is one that you focus on in the piece that creates a lot of room for ambiguity or abuse, right? And, and you saw this in the Biden administration with, with expert controls, for example, when more and more things were grouped under that, that national security label, as you envision the system that you would like to see, how do you put kind of limiting principles on both the national security side and, and the political and social, hegean sides. So this doesn't become a kind of endless arena for special pleading by this interest here that would like to be considered part of those, those categories. Well, you see, to me, remember I saw from a whole different point of view. I, I think if you have what you call the rules-based system and you don't have any rules with respect to 90% of industrial policy, you're always going to have that special pleading. To me, if you say we are going to have high tariffs on people that have trade surpluses with us, or the best scenario would be people who have high global trade surpluses that, to force those people back towards balance, you don't have this kind of special trade. I, I kind of rather than say, here's 9,000 rules and, and only the imagination of man limits whether or not there's some other thing they can go up with that little tilt of the scales in their favor, rather than do that, which, which means you're going to end up with a lot of special pleading. What we ought to have is just the objectives, which we can more or less measure, whether or not you're global, you, you have a global balance. So I kind of get around that in, in my scheme. And by the way, this is not that different than what John Major Kane talked about at Bretton Woods, right, where he wanted a kind of a clearinghouse and to be able to, to force people to balance through a, through a currency clearinghouse or a trade clearinghouse. In the area of export controls and the like, I would make, in early, no exceptions, but I think that, with the point that Jack Sullivan, all this make that, it, it, it does set up for special pleading. I don't know what you do about that, right? To me, I wouldn't give in, right? I would just say no. So when Nvidia comes and says that we should be able to. I can't even imagine it, right? I mean, the problem with these companies is that their leadership seems to still think the '90s was right. That China is a market economy and that somehow they'll become Switzerland if you transfer enough wealth to them. Now I don't know whether they really believe that or they're motivated more by just, you know, the fact that it gets rich personally and their company gets more powerful that way. But it strikes me as if anything has been proven. It's that that's not true. So you have to conclude that China is an adversary. It is, you know, has objectives that are very different than the United States and that are not in the interest of the United States or the West. And if you don't cross that line, then why do you have export controls or any other, you know, kind of defense controls? And if advanced semiconductors are our choke point, we should know where the world. Now they would respond, oh, but we want China to become hooked on ours. And therefore their infrastructure will be dependent on us. It's hard to believe anyone's that naive that they still believe that. China itself says it's not its policy not to do it. So I don't whether these two actually believe that and they just haven't learned anything from the last 30 years or whether it's a convenient argument because it happens to align with their company making more money. I don't know what she is. I don't know these people well enough. But the notion that somehow China is going to let us create another choke point through there not investing enough money to overcome it is just completely ridiculous. There's a lot more to unpack in the piece. It's called the new trade order and people can go read it in foreign affairs. But for now, thank you so much for doing the essay and for doing this today. Thank you very much. It's pleasure to be with you. Thank you for listening. You can find the articles that we discussed on today's show at foreignaffairs.com. This episode of the Foreign Affairs interview was produced by Mary Kate Godfrey and Konoshkarur. Our audio engineer is Todd Yeager with audio help from Christopher Cook. Original music is by Robin Hilton. Special thanks as well to Arena Hogan. Make sure you subscribe to the show wherever you listen to podcasts. If you like what you heard, please take a minute to rate and review it. We release a new show every Thursday. Thanks again for tuning in. [Music]