US Trade Rep Katherine Tai Describes the New Era of Globalization

30:20And that's a large part of what we've seen. So absolutely, what we are fundamentally trying to do through a worker-centered trade policy is to take a more holistic, comprehensive view of the primary beneficiary in terms of our economic policies, which is the human being, to take into effect that they are both a consumer and a producer, and to try to flip the script on trade and trade's contribution to globalization. The globalization that we're experiencing right now is just one version of versions of globalization that we've had before. In fact, if you go back far enough and you look at, say, the founding of the colonies that became the United States, you know that it was all about supply chains and trade.

31:06So the version of - They wouldn't let us process our own rum. It wouldn't. We were part of it. You know, the labor came from Africa to the United States. Talk about exploitation. Those labor that you did not have to pay, free labor, that's a tremendous unfair advantage. And you could talk about it as a subsidy, right? You pick up the sugar in the Caribbean. You have the labor force here in the United States producing tobacco, cotton, raw materials that then went back to England and the European countries for value addition. And then you had those high value products then sold back to the folks in these input economies.

31:47So just to get back to the point, the version of globalization that we have today is advanced from what we had before. We are in an inflection point right now where I think that we really are evolving into the next version of globalization. And the point of a worker-centered trade policy is to make sure that our goal is not just trade volumes. Our goal is not just the concept of free trade. Our goal is much more pragmatic to achieve, including through our trade policies, more sustainability, resilience, and more inclusiveness in our economic outcomes. That's for both us and for our trading partners so that we can evolve into a version of globalization that can start to realize what we call the race to the top.

32:36A version of globalization where incentives are over time to raise standards where you're rewarded for not exploiting, but you're rewarded for thinking three steps ahead to the sustainability of your business models, your economic models. And that's fundamentally the opportunity that we have today. How do you judge the potential for tit-for-tat retaliation when it comes to trade protections? So if Joe and I are running the odd lots republic and we're wildly populist and we want to appease, I don't know, our base of semiconductor workers, we could just erect, you know, massive tariffs or ban imports of semiconductors from somewhere else.

33:22But I imagine one of the things that would stop us from doing it is we would worry about retaliation. And just to take a recent example, I mean, Canada decided to tax EVs coming from China, and China has now launched an anti-dumping investigation into Canadian exports. How do you think about that particular risk? OK, I've got three points for you here, and I'm going to try to keep them all in my head. One is your use of the word to protect is very, very interesting. And so I want to come back to that as a separate matter. And I hope that we have time to do that. OK. The second piece is this. When you take trade actions, it is actually really important to explain what you're doing and why you're doing it and what your objectives are.

34:07And it is really important for you to be able to be understood by your trading partners. And those are trading partners who might be foreign policy allies and strategic partners and also trading partners with whom you have more tense relations. And so that's been a critical part of what we've been doing in the Biden-Harris administration, which is to build and rebuild our relationships and to ensure that our approach and our actions are well understood by our partners. So that gets to retaliation. If people don't understand what you're doing, right, tit for tat, you get a lot of that. We've seen some of that in our past.

34:50The third piece on tit-for-tat retaliation is this one, which is in your example of Canada taking steps on increasing tariffs on certain Chinese imports in some critical industries, including EVs, and China's response. Part of what we have seen in the last 12 years is an increasing willingness by the PRC to weaponize the dominance that they have achieved in the global marketplace. And there's two elements to this. There are dominance in terms of being a producer and a supplier. So, you know, a monopolistic kind of dominance. And then also there are dominance in terms of being a consumer in the global marketplace.

35:39And I think that the term that we use in economics there is a monopsony, monopsonistic dominance. We need the monopsony klaxon. Sorry. We always joke about having a sound effect whenever anyone says monopsony. And I didn't know about that. I'm so curious what the sound effect is going to be. We don't actually have one. Okay. So we have developed a vocabulary to call this phenomenon an exercise of economic coercion. It's a – if you want to break it down, it's basically bullying at the highest level in terms of a country taking its economic tools and bullying another one for exercising rights that are within its sovereign power to exercise.

36:27And the particular danger here, and this brings us back to the work that we're doing on supply chains to diversify them and make them more resilient, is the need for us to have more supply chains and more options so that we can insulate ourselves. Our partners can insulate themselves from this kind of economic bullying, economic coercion and weaponization of marketplace dominance. So that's the third point I wanted to make around the example you provided with respect to Canada, which is we've seen Canada take measures that actually align their economic defenses with ours. It's actually really important when you look at the North American economy, the U.S.

37:18economy, and the level of integrations with both Canada and Mexico. And the need for us actually to think about not just taking individual defensive measures, which these tariffs, I would characterize them as defensive measures, but to coordinate our defensive measures in order to – I'm not going to call it protectionism, right? But in order to protect our North American economy from the distortive effects of this unbridled, non-market-based Chinese excess production impacts on our competitiveness and, frankly, our ability to continue to produce, to be able to thrive, to have our producers in terms of EVs, in terms of steel and aluminum, to be able to grow but to survive in the first place.

38:07We have seen time and time again industries that China has identified as strategic for, not just domination within their own market, but domination in the global markets, wipe out industries and very, very open market-based economies like ours. And so that is in large part why you see the steel and aluminum industries in the United States. You see us taking new kinds of measures to ensure that we can continue to produce steel and aluminum, which is critical to our economic security and our national security. But also with respect to solar panels and now also in terms of EVs, the ability for us to coordinate those defenses also helps to insulate us from those coercive effects of China's economic dominance.

38:58Trade defensism. Is that a word? Trade defense, absolutely. In fact, we have a whole system of trade measures that we call trade remedies. The Europeans call them trade defense instruments. They're the anti-dumping duties, the countervailing duties. They're to level the playing field. What we've discovered, though, is that set of tools, they're really industry-specific. They are country-specific. They are – people have compared them to scalpels or kind of specialized tools for defending against unfair trade practices. With respect to China's footprint in the global economy and the result of these decades of very, very powerful industrial targeting policies, and what we mean by that is industrial policies targeting market dominance, international market dominance, we are needing to develop an entirely new set of tools to defend, to defend on our part, to have coordinated defenses.

39:55And then let me just say one more word about what we're doing here. We need to be playing a new game on defense. That's where the tariffs come in. But we also know that you can't just rely on defense. You need to have an offensive game too. And from our perspective then, what are your tools for mounting an economic, industrial, and competitive offense? Those are the investments that we are making. The investments that we are making in our people, the investments that we are making in our infrastructure, the investments that you see us starting to make in critical industries like semiconductors, but also the clean energy industries.

40:37And you have to take these suite of tools together in order to be able to continue to compete against a very, very strong competitor whose economy and whose theory of their place in the world economy is quite different from yours. I'll just share with you an analogy that a former colleague of mine has made publicly also, and I'll give him credit for it. It's Tim Stratford, who had in earlier administrations been the assistant U.S. trade representative for our China Affairs Office. And he's worked in and near and around China economic issues for, I think, most of his career. And his analogy is this.

41:22When you're looking at the U.S.-China trade relationship, but that could include other economies that are built on the same foundations as ours, which are open market-based economies. What you see is two teams that are on a playing field, but they're fundamentally playing two different games. And in his analogy, it's like one team is out there playing American-style football and the other team is out there prepared to play what the Europeans and the rest of the world call football but what we call soccer, right? In his analogy, if you play it out a little bit more, I think it's a very interesting analogy.

41:58His analogy is that it's actually the PRC's economy is on the field as the American football players. They've got the padding. They have more players. They are out there kind of doing this kind of brutalistic kind of competition. And it's our market-based economies that are out there playing the more European-style football and the playing soccer, where it's more agile. You have fewer players. You're fundamentally playing two different games. And the issue is that we've gotten to the point in our relationship and in accepting the reality of the trajectory of our economies and understanding the fundamental policy goals of each economy where we're starting to realize we can't keep playing soccer on an American NFL football field.

42:46We have to fundamentally change the way that we approach competing. And we're going to need new defensive strategies and we're going to need new offensive strategies and goals.

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44:58Learn more at chase.com forward slash business card. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. So I guess I just have one last question about this sort of the new version of globalization that we're pursuing as you've characterized it. What are the limiting principles? Because there's always more steps you could take to sort of boost the position of American workers. And, you know, I've said before, jokingly, but also kind of like I think if there's one country in the world that could like truly do autarky, it's probably the United States, given our incredible resources here.

45:41I know that's not what's being pursued. But, you know, obviously there's a range of different approaches to worker safety. There's a range of different approaches to the degree to which government supports private industry and every country does it to some extent, some further, some less. What are the limiting principles of the new version of globalization? How do you know what's too far? What are the constraints? Great. So what I would say is let's have this conversation about limiting principles when we have made more progress in terms of reversing the trend of the downward spiral and the race to the bottom.

46:17We are so significantly on one side of the balance. So let me give you a little bit more texture here. And this gets us into the U.S.-Mexico trade relationship and a lot of the scars that we bear from the original negotiation and passage of NAFTA to then the reason why there was a renegotiation of the NAFTA and the birth of the U.S.-Mexico-Canada agreement. The concern early on in the 1980s when NAFTA was being negotiated in the first place was we already had a trade agreement with Canada. There was a US-Canada bilateral and we in Canada are very, very close. Canada I think today is one-tenth the size in population of our economy.

46:57I think that that was a 1985 agreement. The big push then over the course of that next 10 years was, well, think about North America. Let's combine this U.S.-Canada trade relationship and bring Mexico into it. And the concern there was Mexico was then and continues to be just at a different level of development than the U.S. and Canada. It is a lower cost country, lower labor cost country. It is a country where rule of law is also at a different level of development. And the concern was that if you took away all the barriers between all three economies, what was going to happen? And there's a very famous quote by Ross Perot that I'm not going to repeat here.

47:40But I'm going to talk about it in more kind of objective terms. The concern was that – Is that the giant flushing sound? Your words, not mine. Ross's words. Ross's words. It's that logic then that as you take away the barriers and in that push for efficiency and, you know, bottom line, the incentives would allow everything in terms of production to flow into Mexico, right? And, you know, the goal has never been in our trade agreement negotiations to ensure that we have wage parity with Mexico. That's not the goal because they're at a different stage of development. The goal has been how do we help Mexico build its middle class?

48:24That's what we used to talk about, which is, oh, well, you know, the NAFTA will allow growth in the Mexican middle class, growth in the number of consumers in Mexico who will then buy more things from the United States. Right. OK. The issue is that when you look at industrial relations in Mexico, what you see is Mexico is a democracy. Mexico has labor unions. But the tradition has been that, and they have some truly independent unions, but by and large for most of this period of NAFTA, actually it's true even today, most Mexican worker organizations and unions are what we called corporatist. They're extensions of the employers, that they don't actually represent the interests of the workers, that they will often negotiate collective bargaining agreements before a single worker is hired at a facility.

49:18And the workers come in not knowing what's in the agreement. And obviously, they haven't voted on it. They haven't voted on the union. And those agreements are not working to empower those workers or they're not looking after the worker's safety or their working conditions and their wages and their rights, right? So over the 20 years, 25 years of the NAFTA, you saw so much production leave the United States, go to Mexico on the backs of an entirely exploitative model with respect to Mexican workers. And the way that American workers experience this in all the industries that went south was the loss of jobs, the hollowing out of communities.

50:01And for the jobs that we retained in some of our industries, a constant pressure from management to say, well, you know, the collective bargaining agreement is up for renegotiation. Here are terms. These are the best terms we're able to offer you. And frankly, if these don't work for you, we're just going to close up shop and we're going to move this south to a place where your compatriots on the Mexican side of the border have no rights to negotiate agreements that actually reflect their interests, right? So that fundamental mismatch has been across that we have borne as part of NAFTA. You get to the renegotiation of the NAFTA and some people will say, well, you know, it was time.

50:41It was over 20 years and, you know, we needed to modernize and update it. That's true. But the real opportunity in the renegotiation of the NAFTA was to address some of these original sins of the NAFTA, to address the fact that we didn't adequately provide for mechanisms to counterbalance the race to the bottom. And so what you have in the USMCA, which is this very, very interesting product of the Trump administration and congressional Democrats, was among our existing trade agreements, the USMCA is the one that has the highest standards for labor and worker protections. It has, in particular, a labor and worker-specific enforcement mechanism that was the key to the renewal of the NAFTA in the form of the USMCA that won it 89 % support in the House and Senate and even won it the endorsement of key labor unions like the AFL-CIO and like the steel workers.

51:45And this mechanism then, which is so key and novel in the USMCA to worker centrism, is a facility-specific labor enforcement mechanism that allows for anybody to petition the US government, the Canadians have their version with Mexico or the Canadian government, to take up with Mexico concerns that there are specific facilities in Mexico that are not affording the right to freedom of association or collaboration. bargaining to its workers as required, not just by the treaty, but as required by Mexican law. We have invoked this mechanism, which is very, very novel, almost 30 times now. We have settled and resolved about 24 or 25 of the cases.

52:33In every single one of the cases that we have resolved to date. We have allowed for workers at specific facilities to have a free and fair election of an independent union of their choosing, to be able to negotiate new collective bargaining agreements that reflect their interests, to increase their wages, to get back pay. We have directly benefited over about 30 ,000 Mexican workers. Five to 10, I think, is the number of million dollars in improved benefits and wages. And people will say, this feels like a drop in the bucket in terms of addressing that race to the bottom. But what I need for you to know is this is the beginning of the flip to a race to the top.

53:27If you think about what we have made possible through this mechanism in the USMCA for the first time in our history, maybe for the first time in history, there is a mechanism that is uniquely available in a trade agreement that is empowering workers in Mexico and therefore also empowering workers in America. We have demonstrated that trade is not inherently inimicable to the interests of working people, but that trade can be a part of the solution. And so what I wanted to do with your question is really to flip it and to say, we are just getting started. We are very, very far from the conversation around what are the limits and have we gotten to excess?

54:08The balance is so far weighted in favor of the race to the bottom that we are still in the process of innovating how we can do trade to benefit more segments of our economy and society. And it's actually a very, very exciting time for us to be doing trade and is requiring a lot of the spirit of innovation and advancement and to keep our eye on the ball that the race to the top is possible. Speaking of just getting started, we began this conversation talking about bipartisan consensus when it comes to China trade and to some extent the continuity between the Trump administration and the Biden administration on this particular policy aspect.

54:52I have to ask, do you anticipate at all that maybe Kamala Harris's trade policy would differ in any way to Biden's? And then secondly, you've been in this role since I think 2021. Do you have any interest in perhaps continuing it under a Harris administration? So you've asked that question very artfully, and this is how I'm going to answer your question. In your framing of the question, you're still focused where we started on the continuity of, say, the tariff actions with respect to China. And what I've tried to do is to paint for you the picture of the reality of the U.S.-China trade relationship, China's role in the global economy, China's own pivots away from reform economically and politically to put all of that in context.

55:38But what I really, really want you and your listeners to take away is that a very important aspect of the Biden-Harris administration's approach to trade and economic policy is that you have to combine defensive tools with offensive tools. You have to combine trade measures with all of the other policies that make up your economic toolkit. Those are policies of the U.S. Treasury. Those are policies of advancing competition and opportunity. And all of this is trained on the America of today and how we get from today to the America of tomorrow and to prepare ourselves to be the strongest economy for American workers and American consumers.

56:27You have very artfully deflected that question, I got to say. But that was a fantastic conversation. Ambassador Tai, thank you so much for coming on Outlaw. Thank you so much.

56:51Tracy, I really enjoyed that conversation. I feel like there were a number of just sort of like, I guess, big ideas to pull out of that that sort of inform the new globalization. In fact, I'd probably start with that, that it's like this idea that globalization can take many forms. We sort of got used to one, perhaps maybe starting in the early 80s or maybe you could market to when China entered the WTO or whatever else. But this idea like there doesn't only have to be one regime. And as Ambassador Tai noted, there is truly no such thing as free trade anywhere, which I thought was an interesting line.

57:30So at any given moment, what free trade or what we call trade or what we call globalization can change. I think that's my takeaway as well. I also thought the throwback to the sort of 1940s, 1950s Bretton Woods era of trade was really interesting because, as you mentioned, we are very used to thinking about globalization in sort of 1990s, early 2000s terms. Yeah. Trade liberalization, bring down the barriers and all of that. But there have been instances throughout history where trade meant something slightly different. And the sort of 1950s analogy of, I guess, using that word again, trade defensism or perhaps more like activist, maybe trade management is an interesting one.

58:22Totally. And she made that point about how it's important, like, okay, if we're going to erect these trade barriers, particularly on things like the high-tech areas, then it only makes sense to do it in conjunction with sort of offensive strategies and the domestic investments, which we're, of course, seeing with things like the CHIPS Act or on the energy front in the Inflation Reduction Act, and so that it has to be sort of this coherence. I do think it's interesting. She talked about the China shock, right? And China shock 1.0. But that was, and we know about sort of various textile areas or other low-end manufacturing that just got completely decimated the moment that companies were able to move overseas and build the exact same thing with cheaper labor costs, lower environmental standards, lower labor rights, and so forth.

59:18It's interesting, though. And so we've seen that playbook before and we don't want to repeat it. And I get that. It's interesting, though, to think about it in the context of some more of these high end areas where it really is about like, no, we are catching up. Yes. And also, I have to say, she was very skilled at deflecting that last question. So I guess we'll have to see what happens. Where we're going. Yeah. Post-November, we'll find out. But in the meantime, shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

59:54And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our guest, Ambassador Catherine Tai. She's at Ambassador Tai. Follow our producers, Carmen Rodriguez at Carmen Herman. Dashiell Bennett at Dashbot and Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com slash Odd Lots. We have transcripts, a blog, and a newsletter. And you can chat about all of these topics, including trade and China and domestic investment, 24-7 in our Discord with fellow listeners, discord.gg. And if you enjoy Odd Thoughts, if you like it when we talk about trade with China and other policy issues, then please leave us a positive review on your favorite podcast platform.

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