– It’s my great privilege and honor to welcome you this evening to this conversation in Public Policy presented by Dr. Anne O. Krueger, the Economic Impact of
Trump’s Trade Policy. I’m here standing in for
the Dean of the Bush School, and here to welcome you, represent you. My name is Lori Taylor. I am the head of Public Service and Administration Department
here at the Bush School, and look out at a sea
of enthusiastic faces. I’m terribly excited to have you here. There are a couple of
faces that I recognize that I want to draw to your attention, and let them know how very thankful that we are that they’re here. One of our distinguished
guests is Dr. Elsa Murano, the Director of the Borlaug Institute, and we’re very thankful that Dr. Murano is able to be with us today. Thank you, ma’am. (audience clapping) We have Chuck and Teddi Ellison here from the Bush School’s advisory board, and they have been
wonderful in their service in an advisory capacity to me throughout my career
here at the Bush School and I’m very thankful, so thank you much. (audience clapping) Warren Finch, the Director
of the George H. W. Bush Presidential Library and Museum is here, and we are always thrilled because it’s an illustration of how
closely tied the Bush School, the institutes affiliated
with the Bush School, and the Presidential Library are, and so it’s a wonder that
you’re able to be here. We’re very thankful, thank you very much. (audience clapping) I also would like to welcome a gentleman who has had an enormously
distinguished career, the high point of which I am sure was to serve as Dean of the Bush School, Mr. Andy Card. Thank you very much for being here. (audience clapping) So without further ado, I’d
like to introduce you to the Director of the Mosbacher Institute for Trade, Economics, and Public Policy, the person who is responsible for this lovely event this evening. Please welcome Raymond Robertson. (audience clapping) – Thank you very much, Lori, for that wonderful introduction. It’s such an honor to be here with the Mosbacher
Institute representing the George Bush School of
Government and Public Policy and it’s really an honor
for me to be here tonight. We have so many distinguished
guests and visitors, and especially our distinguished
guest Anne Krueger, who I’d like to introduce in a moment. But first of course we’d like to recognize our co-sponsors for the event, it wouldn’t have been
possible without the support of the Department of Economics and of course the Private
Enterprise Research Center, and Director Dennis Jansen, who’s here, I think, with us tonight. So thank you very much for your support. (audience clapping) I’m just so honored to have Anne Krueger here with us this evening. I was telling her that several years ago, I was in class and I raised
the idea of potentially bringing in Anne Krueger for a speaker for this kind of event, and the students went
as wild as if Texas A&M had just scored in the football game, and so it’s really exciting to
see this actually come about. I’d like to tell you
a little bit about her before we bring her up to stage. Anne Krueger, of course, is
the Senior Research Professor of International Economics at the School of Advanced International Studies at Johns Hopkins University. She’s also a senior fellow for the Center of International Development of which she was the founding director, and the Herald L. and Caroline Ritch Emeritus Professor of
Sciences and Humanities in the economics department
at Stanford University. Anne Krueger was first
deputy managing director of the International Monetary
Fund from 2001 to 2006. Prior to that she had taught at Stanford and Duke Universities. From 1982 to 1986, she
was the Vice President for Economics and Research
at the World Bank. She had earlier been
Professor of Economics at the University of Minnesota, which is one of our common ties. Professor Krueger’s celebrated career includes seven honorary doctorates, a paper listed among the
top 20 of all articles in the American Economic Reviews, the top economics
journal’s first 100 years, and the Robertson prize, no relation to me (audience laughing) from the National Academy of Science. She holds a bachelor’s
degree from Oberlin College and a PhD from the
University of Wisconsin. Professor Krueger’s a distinguished fellow and past president of the
American Economic Association, a senior research fellow at the National Bureau of Economic Research, and a member of the National
Academy of Sciences, the American Academy of Arts and Sciences, the Econometric Society, and the American Philosophical Society. Whenever I’m feeling a little
sluggish in my own research, I like to pick up her 41-page
curriculum vitae (laughing) and look through it and get motivated. It includes an extensive
list of publications, covering economic development,
international trade, international finance, and
economic policy reform. We are honored and
delighted to welcome her to the Bush School of
Government and Public Service at Texas A&M University. Please join me in welcoming
Professor Anne Krueger. (audience clapping) – Thank you for that overly
generous introduction, and thank many of you
here for your warm welcome and making such good
arrangements and all that, I really appreciate it, and I’m pleased to be here. I’ve known about Texas A&M for a long time but this is my first visit, and I’ve enjoyed it so far. Now I’m supposed to talk about the economic impact of Trump trade policies. Raymond, do we have a day or a week? (audience laughing) So I’m gonna go quickly through some stuff and I gather after we can have an exchange and we can at least talk somewhat about the things I skip over too fast. I guess I want to start
with two propositions, which I’ll make very quickly, the first of which is
that until 500 years ago, the world per capita income didn’t change. Living standards in Egypt in 500 B.C. are supposed to have been about the same as they were in 1900, et cetera et cetera. We had a revolution which
was partly technical, but it was also partly economic. It had to do with people like Adam Smith but it had to do also with
the opening up of trade. The opening up of trade
has been an important part of economic development,
the Industrial Revolution, and our high living standards ever since. It hasn’t stopped. In 1865 when Lincoln was assassinated, it took 165 days for
the news to reach Tokyo. (audience gasping) And that’s only 200 years ago. Steamships costs fell about
80% from 1775 to 1850, it’s continued. Where we are at as a world is a world that didn’t exist in any size, shape, or form, without it and could not
exist today without trade. The importance of that I
just cannot emphasize enough and I just don’t have time
enough to go into more detail or I would be happy to do so. The second thing, though, very quickly, about the same time is that we’d before that had mercantilism. And under mercantilism,
what happened was that every king was out to get as much gold or whatever as he could to
have ready in his war chest for whatever he was going to do, and so he wanted to export, not import. And Adam Smith turned it on its head, and said no, the purpose is consumption. We want to produce and trade in order to get more to consume. And turning it on its head and getting the government out of the way was a very important part of this. Eli Heckscher, a Swedish
economic historian, and very distinguished, made his name by tracing what
happened on the Rhine River, where if my memory is correct, and I tried to look this
up and didn’t have time, there were 156 tolls that ships paid as they had to stop each
time to pay those tolls as they went up or down the Rhine. Getting rid of those
tolls was maybe as big, if not a bigger advancement than getting the steamships going. It was important. And in the 19th century it is estimated that 1/3 of the cost of reduced shipping, and the cost to reduce shipping is huge, was because we got rid of piracy. It took the heavy weight
of the guns off the decks and it enabled them to carry more cargo, et cetera et cetera et cetera. So we’ve done a lot to
integrate the world, and it’s important. The second thing I wanna
say at the beginning and I will come back to it at the end, and if I don’t please
Raymond, ask me more about it, is the importance of multilateralism. Trade is something that does not work terribly well bilaterally. I’m gonna give you an
example which will illustrate but there are many, many more. Until the 1930s, the US
signed bilateral treaties of commerce, friendship, and trade, navigation was in there
too, I think, in the title, with each country individually. So we would negotiate, for example, a treaty with let’s say England, which would cover our
commercial relations. And we would have tariff rates that we bestowed on English goods and
they’d give tariff rates to us and they’d be bilaterally negotiated. And then we’d do one with
France, et cetera et cetera, but after we’d done the one with England, England might do one with France, and negotiate lower
tariff rates with France than we’d gotten, because it was a different thing. Now the Europeans by and
large had sense enough to do most favored nation treaties, which said in the treaty
that we will treat you at least as well as we treat
the most favored nation. Now if you do that with everybody, you say you’ll treat them all alike. And that’s what multilateralism is, you treat the rest of the
world pretty much alike. You don’t discriminate, you
don’t try and do things. And that’s incredibly important. I’m very proud of my country
because after World War II, we devised and established
some multilateral institutions which served
the world very well, one of which, and I’ll just call it the World Trade Organization,
it was originally the GATT, was the World Trade Organization, which has as binding principles the most favored nation clause. There was gonna be no discrimination with the exception of
preferential trading arrangements which had to be complete, zero
tariffs, zero trade barriers. Other than that through
the WTO you had to have tariffs only, no
quantitative restrictions. Tariffs were gonna be
the main thing on trade, and no other trade barriers. There was also to be national treatment. If I had a dispute with somebody in Mexico and I was a trader and was
taken to Mexican court, Mexican courts had to treat me the same way as they would
treat a Mexican national. Those three principles
were the guiding principles of the WTO since World War II, which has served the world wonderfully. The WTO also served as a platform for multilateral tariff negotiations because now they had to be multilateral. They were done multilaterally, there were approximately eight rounds. Tariffs at the end of the World War II were about 50% on manufactured goods for most European countries,
United States, most countries, and not necessarily developing countries, which were even higher. But for those countries, 2000 they were on average about 3%. WTO tariff negotiations
really cut tariffs. As of 1950 the average
tariff was 50% as I said. Average shipping costs were about 20%, so the price of something
here was about 1.7 times the price it was in the country of export, because of the tariff
and the trade barrier. Today tariffs have gone down from 50 to 2, and meanwhile transport costs
have gone from about 20 to 4. So now instead of being 1.7 times, it’s about 1.06 times. We have become a closer world. A three minute phone call
between New York and London in 2000, not 220, but
2000 prices, was $300. Not many people called. There was only one line,
cable under the ocean, to go between London and
Chicago, and so on and so forth. We have connected the world and we have benefited enormously
both because of culture and other benefits, but
also because of trade and it’s helped us a lot. What happened was that
we got the best 25 years of economic growth in
world economic history right after the second World
War until about 1970, 75. Absolutely fantastic. We got other important agreements
with GATT, which helped. Government procurement agreement. We will not buy our own stuff if it costs more than 10% more than anybody else’s. The IT agreement, which was important. Zero tariffs on IT goods. We got a start finally on agriculture in the year going round,
that needs to continue. We got agreement to have common papers, so that everybody has the
same forms they fill out when they’re going to export to Japan, for every country. Every country exporting
to us has the same forms, there’s no more having
to fill out a separate customs declaration for each country to which you were shipping. All kinds of other things
which make common sense, which make the world a better place. Countries traded off
concessions and they did well, and they bound their tariffs so that once they’d agreed to something, they were not to raise
it above the bound rate, and that’s important. World trade grew at 8%
per year in real terms on average from 1950 to 2000. 8%. World GDP grew the
fastest it had ever grown at about 3.5 to 4%. Trade growth was about double GDP growth as we continued integrating. Multilateralism had won big time. But interestingly enough, in the 1950s, as a result of World War
II and all kinds of things that I can’t go into, the Europeans decided
to have a customs union. First it was called the EEC, then it became the European
Union and what have you, and basically what they did is they said, okay, we’re gonna integrate. And so after World War II, they first had post-war reconstruction, but instead of slowing down
their growth afterward, they grew more quickly as they cut tariffs between themselves, which was obviously a very good thing, and obviously the US Marshall Plan and lots of other things went into it that I can’t talk about. But unfortunately for the world, many people took the wrong lesson. They said look, they
integrated among themselves, they got a preferential
trading arrangement, a PTA, and so now they have zero
tariffs between them, and look how they’ve grown. We outta have preferential
trading arrangements. Well there were two troubles with that. One, at the same time as Europe was lowering its tariffs internally,
which it was to zero, it was lowering them
externally to 3 and 4% from 50. So the external liberalization
was as important as the liberalization within Europe, and yet everybody thought the EU grew because of its internal changes
when that was only a part, and probably not the
bigger part of the story. The United States stayed
fully multilateral with the very minor exception
of a free trade agreement with Israel and something, and a unilateral arrangement with the Caribbean Basin Initiative,
until the late 1980s. Until then we were totally multilateral, we were having nothing to do with it. Most of the efforts at customs union or preferential trade arrangements failed. I can go into why later on. But mainly it’s because
they kept tide tariffs on the external accounts
and they did too much keeping just a few things behind in ways that made it a very unmeaningful union. Anyway, now we have the
Trump administration. The World Trade Organization
has been very important. It set the rules internationally. All countries abide by them, an exporter can know what
treatment he will get anywhere under the WTO treaties
and so on and so forth. And along comes Donald Trump and no more. He wants to do things bilaterally. He’s trying to demolish
the multilateral structure, and doesn’t understand that you can’t do things very well that way. And let me illustrate
with the case of steel. I could illustrate with
others, but I won’t have time. Trump says that his
objectives are American jobs, and to cut the trade deficits, and to protect US industry. Well, protecting US industry, why? The history of our advance is that we grow by having industries that are better, and we have comparative advantage, and the ones that are not doing as well, we let somebody else do that
and we do better things, and have higher value added
and higher real wages. When everybody in the world
does it, it works fine. The trade deficit argument is nonsense, and that is something
that will be told to you by 99.9% of people who
call themselves economists and I would have said 100%
of people who are economists, because by definition the
current account deficit is a difference between
current expenditures and current value of production. That’s what it is. And you can’t change that by
putting a tariff on something. You can’t do that, it doesn’t work. I’ll give you a few figures
on steel in a minute to illustrate the case, but the argument that the trade deficit would be cured at all that way is wrong. It would be cured either
by cutting expenditures or by increasing the value of output, increasing productivity would work. But in any event, that’s the first one. It’s current account by the
way and not just simply goods, and Trump looks only at
goods which is a problem. The Canadians have more
of current account surplus but it’s services that
do it and not goods, but he doesn’t like that
because it’s not enough. Anyway, services should be
included, they’re important. He doesn’t recognize that. Services are growing faster domestically and internationally traded than goods. Gary Cohn in his report when
he was in the White House and trying to persuade some
reason on this subject, several times said to the President, well now look, what’s that solving? Why do you want manufacturing? This is silly. Would you rather work in a hot steel mill or in an auto assembly plant, or would you rather sit
at an air conditioned desk and sell insurance? Well, obviously the message
did not get through, but it’s still a meaningful tale, and I at least would rather
sell insurance but anyway. Macroeconomics balance trade. It is not something you
can deal with with tariffs, and as I said, I’ll illustrate. He’s gone and done the steel tariffs and so I will give you some
information on that in detail ’cause a lot of what goes
wrong in these things is that the devil is in the details, and that’s where we
have to get down to why I’m not gonna go through and
list all the things he’s done. Now right now we have of course
the replacement for NAFTA, which I’m gonna continue calling NAFTA, which is what it still is until Congress passes the change if it does. And right now our tariffs
on steel and aluminum remain on Canada and Mexico despite
the fact that we have a preferential trade agreement with them which promises zero tariffs. That Canada is something that
we have to have protection, because national defense
argument, what is the argument? In times of war, we
couldn’t use cheap steel? It makes no sense, and yet that is the countries that we are discriminating against, in this 25% tariff. National defense argument, I don’t think it makes any sense at all. China’s supposedly did supply
3% of our imported steel last year and our imported
steel was 20% of total steel, which says that China supplied 1/5 of 3%, which is less than 1% of the total steel production in this country. What’s wrong with steel, if anything, is, well first off, it’s always
been a cyclical industry, but on top of that China did greatly over-expand its steel production. Steel capacity in the world is more than half in China right now, and of that a lot of it of
course went into exports when they couldn’t use it domestically and the Chinese themselves
were beginning to try and correct that last year. Now the problem with that is that there is excess capacity in steel
production in the world. So now how are we gonna cure it? We’re gonna put a tariff on it so the United States
can produce more steel. Again, how does this make sense? Worse yet, how does putting
a tariff on steel help us? I’m now going to be sort
of very selfish about this, which I don’t think is
right but nonetheless, just talk in terms of these national arguments that are made. And let me start with Korea, where we do have a free trade agreement when it was negotiated which was agreed and he re-negotiated it. And so we gave the Koreans opportunities to have zero tariffs on steel but only up to the level of steels
that they exported to us on average between 2015 and 2017. Sound simple enough? Well, we put the tariffs on separately for 54 different types of steel. 54. And on top of that we
then said that first off, Korea could export this
70% over three years, but on top of that the steel company, or steel using companies,
could apply for exceptions to the tariff if they
needed a kind of steel that wasn’t produced in the United States. There were 30,000
applications for exceptions in the first several months. Only steel companies seem
to have gotten them so far. The Department of Commerce
has not been very forthcoming to say the least with any data. I, in fact, looked yesterday just to see what I could find
recently and I can’t. An applicant must show that
domestic steel producers cannot make the quality or
type of steel that they need. There are delays in issuance,
even when they are given. You’re given an annual license but you may import it only quarterly. So if you’re making
snow plows in the fall, you better start importing nine
months in advance at least, because you can’t get
the steel all at once even though you need it all at once. You cannot sell unused parts and requote it to somebody else. If you’ve imported it it’s
yours, not up for resale. The Department of Commerce hired 30 people and gave them two days training in order to determine when
exceptions should be granted and when they should not. Applicants must list the
type of steel to be imported, meaning its chemical composition, the dimensions of the
steel, its tensile strength, the chemical composition of the steel, the shape of the steel, the
coating composition and more. And there must be a separate application for each type even if the only difference is one square inch in size. Then they must also submit
letters from U.S. steel producers saying that they can’t make it. If you were a steel producer
would you be willing to say, okay, they can import that,
I won’t try and produce it? Even if your quality
wasn’t quite up to standard and even if they’d been importing before, because they couldn’t get the
quality, or would you buy? Would you say no they can’t? The Department of Commerce
promised that within 90 days, they would publish what was happening, they would say how many
applications they’d had, how many had been accepted,
how many rejected, and stuff, and it didn’t work. Injunctions were sent back. Can you imagine having
had two days of training and then getting an
application from a producer of nuts and bolts in
New Jersey telling you that you need to import a steel of such and such a tensile
strength, et cetera et cetera, and you cannot get it
from domestic producers, and then U.S. Steel has
sent in one saying they can, and then the producer
wanting it says no they can’t because of the following flaws, would you be able to sort it out? I don’t think I could, and I don’t think those guys can, either. The delays are backing up. There are producers who have
applied and not found why. There are producers who
have been turned down and can’t find out why. The Department of Commerce finally decided that they’d give a 30
day period for objections from people who’ve had their
application turned down, but people don’t know why it’s turned down so they don’t know what to do, and it is to say the least, a mess. Worse yet, we have a bureaucracy. How can these people know enough? But now let me turn to
some of the other costs. First off, remember we’re
cutting down competition for our steel producers which in
my view is not a good thing. I like competition, I think it’s part of what makes the system work. And those producers when they
can say we can produce this basically cut off foreign competition, at least for the time being. But now there are users of steel and let me give you a
bottom line number first ’cause I’m sure I’m running short of time, and that is that the
best estimate I’ve seen is that steel users are estimated within a year will have
laid off 800,000 workers from jobs because the reduced
demand for steel products in this country because the
steel users will have to compete with foreigners who can
get the steel more cheaply because demand here will go down because the price has gone up and so on. So with that 800,000 are gonna be lost, and maybe 35,000 steel jobs will be added. So we’re putting on tariffs on steel, we say it’s for national defense and so we’re protecting ourselves
against Canada and Mexico, and then we’re gonna do that so we can save 35,000 jobs and lose 800,000. And on top of that, we’re
creating a huge bureaucracy, which I think is gonna
get worse and not better. The report in today’s newspaper
was that steel employment so far since they put in
the tariff is down 1,000. Now 1,000 isn’t a big number
but it is not an increase. It’s a loss. Why did we do this to
protect and all that? The point is that technology is what has cut steel employment, and technology keeps
improving so that when U.S. Steel producers do
expand steel production, they don’t hire back workers, they’ve bought better and newer and more modern capital equipment. U.S. Steel announced
today that it is going to build a new plant, I’ve forgotten where, and it’s going to produce so many tons, 800 million or whatever,
of steel per year, and it will hire 150 workers. That same capacity 20
years ago would have taken 10 times as many workers because of course they didn’t have the
technology they do now. So for all that we put on tariffs. Now, I haven’t even mentioned that all of that doesn’t leave our trading partners very happy with us. They’re never gonna trust us again, at least not for a long time. And meanwhile, it’s against WTO rules. We violated the rules of
the institution we set up, and so on and so forth. This is what Trump has started
to do to our trading system. And there’s much more,
I could have mentioned washing machines, solar
panels, and on and on and on. WTO reached a procurement agreement which would save everybody a lot and especially the US because
the procurement agreement was the governments will not buy local unless it’s not more than 10%
more than the foreign price. So you can give your domestic
producers a 10% margin was the agreement, but not more. Trump is scraping that. We’re gonna pay much more. So you and I as taxpayers
can pay more taxes so that we can pay more for
domestically produced stuff than we would for imports and so the cost of government will go up, but we will have buy
American and all of that. And meanwhile other countries
will then do the same thing and since we on procurement
gained more than we lost because in general we were
cheaper on many of these things, we will lose exports to
the other governments that no longer buy from us
because they’ll retaliate as they’ve already done on some things. This makes absolutely no sense in anything I know about the world. On top of that, there’s uncertainty. If you were a steel producer today, would you be confident
enough that the steel tariff would remain so that you’d invest in new capacity for that
higher priced steel? I doubt it. Meanwhile we have other things. We have the users of steel, all of them are waiting
to see what happens. Many of them are cutting back production, some have actually closed already. The steel producers have been for years seeking protection at every downturn, so now they’re gonna expand capacity. In the next recession
here, demand will be down, they’ll want even more protection. And it has nothing to do
with national security. It has nothing to do with anything else. It does have to do with
us paying more for less, reduced productivity,
and reducing the system, and I could do the same
thing with many others. Now the rule of law is basic
to any functioning economy. WTO is the international rule of law. One of the successes of the
WTO has been to cut down trade disputes
internationally by setting up a dispute settlement mechanism. Very quickly, it works
so that when a country thinks that somebody else
is violating WTO rules, they can go and they can complain. The WTO opines a panel, three judges. Three judges listen to the
dispute and then they rule on it. If they find that the
defendant was guilty, they say okay, here’s what you
pay by way of compensation. The defendant has a right under WTO rules, to appeal to an appellate
court if they want to. The U.S. has won many more
cases than it has lost. Remember that because the appellate court, which is necessary for
appeals, has seven members, three of whom are assigned
to any given case. So when the U.S. complains
that the Mexicans are cheating on some agreement or other, they go and if they get a
negative ruling in the first round they can go and they appeal
to the appellate court and again, the U.S. has
done very well on this. The U.S. has vetoed every nominee to be a judge of that court since 2016. Trump came into office 2017 I suppose. We are now down to three
of the seven judges only who can hear a case at
the appellate level. If any one of those judges
must recuse himself, which judges do when they’ve
got a conflict of interest, or it’s from their country
or something like that. If anyone gets sick, the court can’t function. Meanwhile one of those three
is to retire the end of 2019 and so far the Trump administration has vetoed the replacement, the nominee. What does that mean? It means the dispute settlement mechanism, arguably the most
successful part of the WTO, is already closing down because if there’s a dispute filed now, it won’t be heard in time
for there to be an appellate ruling in time for that last judge to go and so that’s almost the end of that unless something happens. The Canadians have convened a lot of other members of the WTO trying to get a proposal that satisfies
the Trump administration, they have not done so so far. To my surprise yesterday
the Koreans filed a case against the U.S., I don’t
know what will happen to that, but nonetheless basically destroying the dispute settlement mechanism means that the WTO rules have no force. If they have no force we
have no international order and no rule of law in the
international economic system. It won’t go away all at once, but it certainly will
deteriorate over time unless something can be done about that. Now Trump also overthrew the
TPP the day he took office. This is interesting among other things, it’s tragic but it’s interesting because TPP had things in it on
intellectual property, and on some other things that he is now complaining about the Chinese, that would have been addressed
in most people’s judgment quite satisfactorily in the TTP. China wasn’t in the TTP but it was hoped it would join later on. But now he’s scraped that agreement so even for other countries, what Trump is complaining
about the Chinese doing is perfectly legal because
there’s no WTO law about it. He scraped it. So there we are. The destruction of the
system that the U.S. so built of which I was so proud and
which we should all be so proud is gonna harm the U.S. I said 800,000 jobs versus 35,000 jobs if that’s what’s important. Higher priced steel, lack of competition, all of these things. It’s also meaning more and more, going to mean more and more, that businesses run to
Washington for protection, and less going about their
business and cutting their costs and increasing productivity
and doing things businesses should do. It’s gonna make our foreign competitors more leery of doing anything with us, and it’s basically going to
undermine much of what we built up and what we should have been proud of since World War II. What’s it gonna do to us? Well, if he keeps it up,
productivity growth will go down, other things are going to happen here, and it basically is going
to undermine the system that has made us as prosperous as we are. Thank you very much. (audience clapping) – [Raymond] Thank you
very much (mumbling). To digest all of that information. (audience laughing) – That happy news. – All that happy news. Thanks. – Fortunately here we’re
no stranger to controversy. So thank you very much for those very, very stimulating remarks. It’s such a pleasure to have you here and to really get a wake up call. One of our big missions
here of course is education and I think I have a sense
that most Americans are not really aware of the dispute
resolution system in the WTO or its importance or the
importance of multilateralism. If we could begin, may we just
take a step back a little bit because I’m teaching a class
on trade policy right now and we’ve assigned one of
your books for our students and it’s from the 1990s,
Was American Trade Policy a Tragedy in the Making? And you were very
concerned at the time about the growth of administrative protection and these type of rules
that were being applied discriminately to different trade partners and different products. So I was wondering if
you’d be willing to draw some parallels between some
of the concerns you had about this administrative protection and the type of things you’re seeing now in the Trump administration. – Well the difference
is that there are rules. Administrative protection is overdone, don’t think I like it, but at our insistence within
the WTO there is provision for countries having anti-dumping and countervailing duty
processes where they can complain about underpricing
of commodities abroad. Now why we should worry if something else is sold to us at a loss, I don’t know, but that’s a different issue. So in any event, we have those processes, it is consistent with WTO rules, it is overdone, but it’s within the system. This is breaking the system, so it’s the difference between going in and dropping a glass on the floor and destroying the whole kitchen. (audience laughing) – Which is pretty grim. I’m kind of interested in the idea of who might be benefiting from this. Obviously the Trump
administration had some ideas, but for example let’s look at China. We’ve tried to bring
China into maybe a world of rules with the TPP
and the laws in the TPP lets China maybe not be subject
to as many of those rules, does China benefit from
the destruction of the WTO in this sense or does Russia or are there some other players that might benefit? – It’s ironic in fact
that, was it last year at Davos already? I think not this year, I
think last year at Davos, I think President Xi was
saying that China believes in the multilateral
system and was complaining about US destruction of
it. (Raymond laughing) Now the Chinese are not totally innocent, I don’t want to be misunderstood. On the other hand the degree to which the things that the Trump
administration is doing has anything to do with
what I would think of as playing against the rules, is very small. No, the Chinese are apparently
hurting from this 25% tariff. Of course their business
must be completely uncertain as to what to do in that regard and so on, and in the short run they’re
hurt more than we are by these tariffs. In the long run, I
don’t think that’s true. In fact given the track
record of state enterprises and government managed
businesses in other countries, if the Trump administration
is really worried about China, instead of criticizing the
state economic enterprises, they oughta be encouraging them. – ‘Cause they’re so
inefficient that they’ll be– – Well, the history of countries that are trying to do it that way
is not a successful one. – That was one of the points actually that came out in your
early work from the 1980s about trade and employment
in developing countries. The movement from ISI, or import substitution industrialization, the closed economy model to a
much more open economy model and I believe that you argued that opening up the economy was important for economic development broadly
for the developing world. – I don’t think there’s
any developing country that has succeeded in getting
a sustained longer term, I mean some people discover
oil for a few years or something but except for that, the countries that have
really developed their own productive capacity
and so on have all been ones that have removed the protection and done it in a much more opened system. – Are there other examples of countries that have tried to restrict
trade with a lot of rules? Does this harken back to those days of import substitution
when these governments have many, many rules and
there was a lot of bureaucracy? – Sure. In fact, a lot of what I learned about, all this I learned and why it’s so bad, I learned from developing countries. I did a lot of work in India, and they had it down to a fine art and it was the abandonment of that system that has led to India, and they still got too much
going there, as they know, and they need more reform
but they’ve done enough so they’ve gotten quite
a bit of growth out of just removing some of the
restrictions they had. But oh, no, a lot of developing countries, even the Koreans in the 1950s
were highly restrictionist, so removal of that starting in 1960, that their economic policy
started turning around or their economic growth
started turning around. – And that actually led to
a lot of success, right? Reducing those regulations in Korea and promoting exports led
to some phenomenal growth. – Well promoting a level playing field. Promoting exports can be as disastrous when you choose the
wrong things as imports and I know nothing that says
the government bureaucrats are the best at figuring
what should be next. – What was it that made Korea for example so successful with its economic policies? It wasn’t just the
export promotion, right? – Well no, they didn’t promote exports is what I’m trying to say. They basically took off the
things that encouraged imports. We all think that you should build roads and stuff like that and they did, they had good infrastructure. The ports they made were
better and that kind of thing. They made sure the telephones
and all that stuff. They did open for example an
exporters office in New York. Any exporter from Korea could come in or he could go ahead of
time and I’m a producer of I don’t know, ladies’
shirts and ladies’ blouses, and I’m gonna come to New
York and I wanna sell some, can you please arrange
for contacts with me to the following people? And they would do it for anybody. I mean it was not for an
industry or something. It was not certainly for firms specific. And as long as it was a genuine legitimate export industry it was fine. – So would you suggest that
it was the minimization of the rules and the
government involvement letting the free market
basically produce and to thrive that led to Korea’s success? – Well you have to have rules. One of the rules I
firmly believe in is that we should all drive on
the right, you know? (audience laughing) And there are things like
that that really matter, and there’s a lot of that that
government can and should do. The trouble is when it
gets off into these things that it needn’t do that
has nothing to do with it. Then it seems to me that
we get into trouble. I’m amazed that the
Trump administration said we’re gonna cut regulations in half. I would not make a good
bureaucrat, I promise you, but if I were the head of an agency that had to cut regulation in half, it would take me about
one morning to figure out that I just combine every two into one. (Raymond laughing) Any bureaucrat can figure it,
that’s not even hard work. And a good Indian bureaucrat can combine all of them into one. They’re good at this kinda stuff. So yes, you could do
that, but the question is, you do want some health and
safety regulations, I think, and by the way under WTO law, if you’re going to have a
health and safety regulation, it must apply to your own producers as well as to anything
coming into the country, and in addition to that there
must be a scientific basis for finding that there’s
something unhealthy about this to prevent it. What makes that interesting
is that the big argument between the U.S. and Europe is that we permit GMO and they do not. We say there’s no scientific
evidence that it harms, Europeans say there’s not enough scientific evidence that it’s good. Now there you can get a legal argument, but at least you agree
that if you have GMO stuff and if it’s healthy it could be exported the same as it could be
produced domestically. The thing that makes
American negotiators mad is that then the Europeans
cheat and some of the stuff comes in from North Africa and so on and gets into the cows
and what have you anyway, but that’s a different issue. You have to have these regulations but the point is you don’t
want to allow the regulations to become a mechanism
so that you’re imposing high costs on your own producers and imposing monopoly positions because you’re not letting the imports in. And we’ve done that with several things where we’ve tried or our
industries have tried to get this. For example, the emissions
standards in cars, you can have the same emissions standard and it makes a great deal of difference whether you have it per model
per factory or per company. And of course our companies want it the way that help them the most. – So I’d like to count myself
among those 99 economists that you listed earlier.
– 99.5. – 99.5 economists who
believe in free trade, but I think it’d be interesting
to have a discussion– – I didn’t say that, I said
they believe they would agree that the trade deficit is
not a function of tariffs. – Yes, definitely. But also I think most economists
would agree in free trade as well, definitely.
– Oh, sure. – Definitely, I think that’s– – But I think that would be 98%. – 98, well. (Anne laughing) I’m one of those 98 for sure. I think it’d be interesting,
especially for this audience, to kind of think about
in a kind of serious way, Trump is just kind of in a
way a reflection of America, so I think there’s a lot
of anti-trade sentiment and a lot of suspicion about WTO. Where do you think Trump’s
support is coming from? What arguments are they making? – What always impresses
me is the jobs argument. It seems to be the one
that persuades people. And what I find so amazing
about that right now is of course that we’re at full employment and if we’re gonna get more jobs somewhere somebody’s gonna have to hire
them from somewhere else, and so on and so forth. But the jobs argument even historically has been the one that
mostly seems to sell. Again, what determines
the level of employment is aggregate demand and aggregate supply and productivity and the real wage. Those are the things that decline. Not anything to do with trade. I suppose that the margin
a little bit could happen for some reason or other
but as a serious matter, no. And right now we are at 4% unemployment. Ten years ago economists
thought that you couldn’t get below about 5.5 without inflation. Now we’re down to four
and we’re pouring fuel on the fire, why? – Concern about jobs, you’d think, right? – So jobs are the big thing. Now Trump’s off on this
trade deficit thing, and most self-respecting
protectionists even won’t use that argument. (Raymond laughing) It’s so far away from anything. It is not hard to understand that the only way that you can have foreigners getting more from you
than you gave to them is if indeed you are spending
more than you produced. There’s no other way. It’s as obvious as that. It is not any deep science
to get into that one and especially to say
that services don’t count, just manufacturing, is just beyond belief. In a country where indeed
manufacturing has been diminishing by employment, not in output, and services have been the
most rapidly growing sector, and those are good
services, business services. Everybody hears service
and they think maybe dishwashers in restaurant kitchens, but that’s a small part of services. All the business services are huge. – Right. Well, talking about this jobs argument, I know that the jobs
argument has been applied in many cases to an agreement
that’s very important here in Texas which is the NAFTA and you said we’re gonna
keep calling it the NAFTA. Have you looked at some
of the changes in NAFTA that have been proposed for the US MCA, and what do you think about that and what the implications might be for Mexico and maybe even Texas? – Well it’s very hard to tell for sure because we haven’t even seen
the text of the agreement. Believe it or not. We haven’t seen the text
and he has to give Congress, I forgot, 90 days after
he’s seen it and stuff, and he’s thinking I guess
about showing it to them, but there’s some things
they haven’t worked out yet, so I don’t know. A lot of this is done
unfortunately I’m afraid by the seat of the pants
without anybody knowing what they’re doing which is a big problem. The biggest success, most
visible success, not the biggest, but the most visible and
important success of NAFTA has been the value chain
in autos and auto parts. Everybody says oh, it’s terrible when some of these low wage jobs go overseas. What they forget is that
if those low wage jobs had to be done here at American wages, the whole company would lose. What if the auto companies
if they had to pay American wages for some of
the unskilled labor parts, would be paying so much more that the Japanese could
out-compete them in a minute as could the Koreans as could
the Vietnamese and so on, Germans with eastern Europe. So the fact that we can send abroad some of the jobs and
things that we do badly, or that we are not suited to do very well, means that we can remain competitive in things like autos, same as auto parts. There’s some of the auto
parts that apparently cross the border, components
that cross the border 15 times and stuff before
they’re finally into the good that will get assembled into the car. GM has something like
40,000 overseas suppliers. Now you know that what
those guys are doing is not the research and development. They’re not doing all that high end stuff. They’re doing the stuff
that takes a lot of unskilled labor, a lot of
manual work or what have you, and where there’s no advantage
for the US in doing it and where it doesn’t pay us to do it, which is part of what trade tells you. The auto value chain in North America has integrated and
saved the auto industry. You can’t prove that it would
have gone under otherwise but probably the only way it
could have survived otherwise would have been high protection and I doubt if Americans
would have stood for that. On the other hand it’s really
the foreigners coming in that got us a decent quality. I can remember very well
when you bought a new car, you knew you were gonna take
it back for quality repairs at least once a month for six months. And the Japanese taught
us how to do it otherwise once they could compete, and that took opening some trade. Something very good
they did for all of us, I’m very thankful to them for that. I can remember some of the flaws in some of my cars early on. So that has been a huge success. There’s some value chains
that are not quite as visible that have also been important. A lot of companies FDI in Mexico, okay? And then what? That means they get their
components or whatever it is more cheaply so they can keep on being competitive with
their foreign producers who can do the same
thing in Asia or Europe. We say oh my goodness, if
they’d only done that here, it would be jobs. Not necessarily. They forget not only that
it wouldn’t necessarily be jobs that way but if the
price of these things went up, we’d buy fewer of them. Everybody talks about the number of cars, they forget that small cars mean that families have three or four
cars and not one or two. And three or four cars
mean more service stations and more jobs as mechanics
and everything else, which are all part of what that does, and yet that doesn’t
come into the calculus, it’s simply we had some
foreign investment overseas and that cheap labor did something. Now the worst thing in U.S. MCA, and I don’t know how it’s gonna work out for a variety of reasons is that there is a requirement that it used to be 62.5% of
the value of anything made in the United States had to
be produced in North America. They’ve raised that to 75
which is already going to trouble some but probably
might have been manageable, but they also said that of that 75% at least 40% must be
made with Mexican workers earning more than $16 an hour. Right now you know the number,
what’s the number for– – $2 an hour was what you pointed out in the Economist article that cited me. – Yeah. (Anne laughing) You’re now paying workers $2 an hour and you gotta pay them $16 an hour? Why I’m puzzled by all of this is that our tariff on automobiles is 2.5%. Nobody is required to send something in duty free to the United
States like an auto part. They could send the auto
in with a 2.5% duty. I’m sure but I haven’t done the arithmetic that $16 an hour on
half the parts, say 40%, is gonna be more than the 2.5% duty, in which case why is
anybody going to pay it? In which case why did they ever do this? Now the reason I fear is
that the Trump administration has been talking and he has even requested the required investigation
into what the impact of the 25% duty on automobiles would be. And my guess is that
what they are thinking is that they could impose that duty which then they could take off the tariffs for Canada and Mexico, because the auto companies
here would not then be that, which is a very scary thought, because it would be
tariffs on European cars and Japanese cars and Korean cars too, and if you’re buying a
$20,000 car next year you’re talking right here about at least a $5,000 increase in
the price of your car. Even if it’s American made. This is big, it’s not small, but I’m afraid and he’s
even talked about it enough and it looks to me like
that’s how that will sort out because $16 and 2.5%
tariff do not make sense. – No, that’s right. And one of the things that
I’ve seen in my research is that the Mexican jobs
and the American jobs actually move together. They’re not moving in opposite directions. It’s not like there’s substitutes. They’re actually compliments
as they go forward, so it would be breaking
up this North American economic integration that
we’ve formed over the past. – Well, but he says that’s
what he wants to do. – Which would have economic implications for consumers but also I
think for workers, right? – And also for poor Mexicans. – And the Mexicans as well. – It’s bad all the way around. – And how have the Canadians been reacting to some of these tariffs? – The Canadians are caught. I mean, they’re 30 million
people just north of our border, this big 300 million giant. And so they’re doing their best to try and minimize the damage. But under the surface they
are furious, of course. They are furious. I’m glad they can’t state it publicly, ’cause it wouldn’t be
polite. (Anne laughing) – So looking forward I’m
wondering if you have a sense, the other big macroeconomic issue that one of our audience members asked us, it was a question
submitted by the audience, was how do you feel
about the national debt? And now the national debt’s
over 22 trillion almost now. – It is 22. – The total national debt’s
over 100% of U.S. GDP, the public gets a little
bit lower than that. Are you worried about this? Is this something we
should be concerned about? – Of course. Unfortunately in most of
our democracies today, the voters want more public expenditures, fewer taxes and balanced budgets. And it can’t be done. Politicians seem to
like this more spending, and tax cutting more than they
like balancing the budget. It’s already a problem but it’s
gonna be more of a problem. As you said it’s 22.1, I think is the official number
announced yesterday. And real GDP’s just over 20 so
it’s already well over 100%. But the thing is that we
have an aging population. And that is going to
increase social security and Medicare expenses. Relative to GDP on present
projections and numbers other people have done on the order of one percentage point of GDP
every four or five years for the next at least
30 years foreseeably. We already have a 5%
deficit which is too large for a country at full employment. We have no slack in case of recession to increase it without
difficulty or without problems. And at 3% deficit just about debt to GDP could remain approximately constant. So we’re gonna go up one
percentage point a year and we’re already in trouble. We’ve got to do something at some point. And the bottom line is
the sooner we do it, the less painful it will be. So am I worried? Yes. But I’m worried that we’ll postpone it and the pain will be more. I’m not worried about next year in the sense of if it goes up, except that then we’re postponing more difficulty for the future. – Well, I’ll tell you, on that
happy note (Anne laughing) I would like to ask you
just one more question. I hope you’ve had good day. Have you had a good day with
us here today at Texas A&M? – Indeed I have. – If you’ve had a good day
I’d like to especially thank Jennifer Moore for doing all
the wonderful arrangements and Cindy Gause for all
of her wonderful help. Thank you very much, Cindy,
who really make this happen. I just would like to
ask everyone to join me in thanking Anne Krueger.
(audience clapping) – Well thank you, I enjoyed it. – Thank you very much. We have a special token. As a token of our appreciation tonight, we’d like to also present
you with this plaque. – Oh my goodness, thank you very much. – So thank you very much. – Thank you. I’m still trying to get my microphone. – Thank you all for coming. (audience clapping)

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