Is the US Heading for a Trade War? With Robert Lighthizer

0:04Hello, I'm Anthony Scaramucci, and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know.

0:38Anyways, let's get to it.

0:48Robert Lighthizer joined the Trump administration with one mission, to reset American trade. He certainly did that with some outlets saying that he was the man to blow up 60 years of policy. His brand new book takes us through why no trade is free and the desperate need to change course to save American families and communities. Let's get to it.

1:17So joining us now is Robert Lighthizer. He's one of the world's most respected experts on international trade, not just America, but the world. He is the former United States trade representative during the Trump administration from 2017 to 2021. And a while back, he was Deputy Trade Representative under President Ronald Reagan. An amazing book, by the way. No Trade is Free, Changing Course, Taking on China and Helping America's Workers. And what I will say about your book, Bob, is that it is a treatise on trade. It is a very good historical analysis of what's happened to the United States over the years and how the United States ended up being arguably the most powerful economic force in the history of the civilization, global civilization.

2:04But we're also at a crossroads here. And I think that you're describing it beautifully in the book. But before we get into the book, if you're okay with it, I want to go into your background because I think like mine, your background is seminal to what you've done in your life. And you've had almost 40 years in government and private practice and law. But let's start there if you don't mind. Tell us where you grew up and tell us how that had an influence on you. So I grew up in a small town in Ohio, northeastern Ohio called Ashtabula. And Ashtabula was a classic, one of the small communities that kind of made America great in the way I think of it.

2:40You know, it was a port city. They brought in iron ore from Minnesota and then it offloaded in the port and sent it down to Pittsburgh to make steel. They made auto parts. They had a big agriculture component, a lot of railroad stuff, a lot of ship stuff. So it was kind of, it was a small community, but it had a lot of these various pieces to it. And it's kind of highlighted, you know, its best times were probably in the 60s. It kind of increased, got better and better. And then after the 60s, with the kind of trade pulse that we were following, which I would suggest was a mistake, it went the way of a lot of small towns and then ultimately big towns in the United States.

3:22And it was, you know, the workers lost their good jobs and started taking on not so good jobs. people couldn't organize their families. So now it's a city with, I don't know, a 30 % poverty rate, 15 or 20 % college graduates. You know, it's still good, hardworking people. I don't want to knock them in any way at all. But they were treated very poorly by this policy. And I think it's, you know, so my friends, I went to Catholic schools, you know, my friends were all those people that worked in those factories and worked on the ports. And their children, who were my friends are not, you know, don't have the same life that their parents had.

3:58And it's the worst life. And it's, in my opinion, it's a result of a lot of things, but primarily a bad trade policy, which wasn't their fault at all. So let's go into that because I think it's important. We developed this extraordinarily industrialized manufacturing culture in the United States. We do have a struggle with the unions. The capitalists are fighting with labor, but the wages seem to be quite fair. I speak for my dad. My dad was a blue collar worker. I was a member of a union, but I felt like the wages were quite fair because we lived in the middle class. Those very same wages today, Bob, are down about 26 % in real economic terms.

4:37So just for the benefit of our viewers and listeners, what happened? What were some of the seminal steps that hollowed out manufacturing and caused this offshoring of manufacturing and this dilemma? And again, I'm not blaming anybody, but I just want our viewers and listeners to understand how we went from these high-paying, middle-class, blue-collar jobs to where we are today? Well, I mean, let's sort of take a step back, because this is one of, I think, one of the big contributions of the Trump administration and one of the things that I've sort of spent my life worrying about. If you think of the long history of American trade policy, for most of that history, we used tariffs and other actions to build up our industry.

5:20After World War II, There was kind of a movement in the direction of kind of free trade. It made sense probably for a lot of reasons. We were the biggest economy in the world. We wanted to defeat communism. We wanted to rebuild Japan, rebuild Europe, and a lot of things like that. So you had a series of trade negotiations, and those trade negotiations very quickly got rid of the barriers to trade. And for a long time, that wasn't a big deal because trade was not that big a part of our GDP. And we were so much bigger than everyone else. it probably didn't make a lot of difference. You know, the notion of free trade is that there is that we make what we're real good and that someone else makes what they're real good and we trade it and we're both sort of better off in economic terms.

6:03And in some kind of petri dish laboratory situation, that's in fact true. The problem with it is, is that nobody really has free trade. Everyone is trying to cook the books to get themselves richer, like we all do in our personal lives, right? We're all trying to make more and consume less. So anyway, we sort of fast forward to the 90s. By the time we get to the 90s, and at this point, you've already seen a fall-off in manufacturing, right? Because remember, Ronald Reagan was elected in the 80s, largely at the margin with working class. They were called Reagan Democrats. They were working class people who had always voted Democratic, and now all of a sudden were voting for Republicans, because you could already see it happen.

6:41As I said, Ashtabula, my hometown, was already at its peak. It was already starting to head in the wrong direction. But by the time we got to the 90s, we had what I call like the trifecta of stupid, right? We thought at that point we defeated the Soviet Union. So we passed NAFTA, we passed the legislation to create the World Trade Organization, and we gave enormous trade concessions to China. And we did all those three things in the Clinton administration during a short period of time. But I don't want to be partisan because it was as much or more Republicans who are the problemist Democrats. It was by no means just Clinton, but he happened to be president and he supported it.

7:17So we did these three very stupid things. And then we saw this kind of trend that free trade was hurting us accelerate dramatically. So you saw, you could think of jobs, manufacturing jobs as going like this. And then we got to the 90s and they drop like this and you lose like 5 million jobs. And it was all because of bad policy. And it goes back to this this basic notion that, oh, we're going to be free traders in a world where no one else is free traders. And then you factor into that China, right, which is totalitarian and predatory, trying to build up their own strength, their own military, and they took advantage of the rules, and we never really reacted to it.

7:58And so you end up with all these workers slowly starting in the late 70s and 80s, but accelerating dramatically in the 90s. And you have all these workers who were sort of told they're stupid or lazy or it's unions are the problem or your management is dumb or, you know, we can't compete. And really what the problem was a faulty notion. We drifted away from the notion of America as producers and as workers. And we went to want a price optimization and globalization and corporate profits. And that was a fundamental break. America is great because American workers have communities and they take care of themselves and there's a dignity in work.

8:39You're proud of the fact that your father had a job. He was a foreman, right? He was a big guy, right? And you're proud of that. When you don't have those middle-class jobs, you lose that. And you get income inequality, which we've seen grow dramatically. You get these so-called deaths of despair. You see this enormous change between the life expectancy of college graduates and non-college graduates in a way that you don't see in other parts of the world. And part of the reason for that is, is that we are running enormous trade deficits, almost a trillion dollars last year. We're losing millions of jobs.

9:15And as you say, and your kind of principal point introduced me, it's not just the jobs, it's that the wages are relatively lower. So you get people doing jobs, not as steel workers, but working in a McDonald's. Nothing wrong with working in a McDonald's, but it's hard to support a family in one and it's easy with the other. So this has been a long process, it goes back to a failed economic policy that in the great history of the United States is a fairly recent policy. I would say a recent heresy, right, to put it in sort of Catholic terms. So I brought with me today, for purposes of your podcast, a coffee mug that I got from the Reagan Library.

9:59And on it, it says, trust but verify. And I want to talk about Reagan for a second, and I want to talk about his view of free trade. And then I want to talk about the transition from that into NAFTA and ultimately into the WTO, because I think you have the best explanation of that of anybody that I've ever seen. So let's go to Reagan, his view of free trade, and then how it transitioned. So this is really, really important, Anthony. There's this notion that Ronald Reagan was this pure free trader and that all the good things that came out of the Reagan administration were the result of this philosophy.

10:34Nothing could be further from the truth. I agree with the Reagan revolution. I agree with the Reagan miracle. I agree with the tax cuts. I was, as you know, I was Bob Dole's chief of staff and he was chairman of the finance. When we did all that stuff, I was working on the Hill. But when it comes to trade, Reagan talked about free trade, but he was a pragmatic, patriotic American. So what did he do? All right, he talked about free trade. He put in place restraints on carbon steel from around the world. I negotiated those agreements, but he had me do it. The same with specialty steel. He put in place a semiconductor agreement when he saw the Japanese were running us out of the semiconductor industry.

11:15He put in place restraints on imports of automobiles from Japan that lasted for years and years and years to give our industry a chance to respond. Otherwise, we would have been wiped out by him in semiconductors, steel, all these things. Harley Davidson famously, right, he put in place tariffs on Harley Davidson to save that industry. There would be no Harley Davidson there, there'd be no motorcycle industry. So Ronald Reagan liked the idea of free trade, but he was a pragmatic, patriotic American, and his actions were quite the contrary. And when he left, one of the libertarian organizations that was particularly purely free trade said he was the most protectionist president since Hoover.

11:55That was their exact quote. And I kind of wore that as a badge of honor. I said, wonderful. If you people, we have followed your free trade philosophy and it has hurt our working people and it's hurt the integration of our country. And if we're doing something different and you don't like it, then I think that's probably a pretty big plus. So we had Reagan. Reagan had a different reaction to things. As you say, we sort of fast forward that takes us to 88. Among the things that, so we had a really good economy once we got out of 82 and Reagan's program was fully in effect. And in fairness, we had, you know, then we had Herbert Walker Bush and then we had Clinton.

12:36And in fairness, the economy was largely doing well in Clinton. But there was this sort of hubris that they had, you know, the Soviet Union had fallen. There was this kind of hubris. There were these books about the end of history and that everything was going to be this free market, democratic principles. It was all going to be perfect. And this was really what the smart people thought. And I always say the only thing they didn't factor in was human nature, because human nature is not like that. People want to get ahead. They want to do better. And the Chinese and others were out there trying to figure out a way to take advantage of us, and ultimately did.

13:13And then this hubris led in the 90s to, as I say, this trifecta how stupid. In fairness, the NAFTA really started under George Herbert Walker Bush, and it was largely a Republican thing. But Clinton, you know, being a free trader and being influenced by free traders in his administration, ended up pushing it through with a lot of Republican help. And then they finished this Uruguay round, which set up the WTO. And then right on the way out the door, and this is like an interesting story, I'll let people read into what they want, right out on the way out the door, the guy literally is putting furniture in the in the back of the pickup truck, and he pushes through this provision called basically giving most favored nation treatment to China, literally out the door.

13:55So his economic numbers don't reflect how horrendous that was for the American people. Now, you can ask yourself, why would he do it on the way out? I wrote an article in the New York Times in 1996, where I suggested that the money coming into his campaign in 96, which was called Indonesian money, was actually Chinese money. And the Chinese wanted to get the WTO and they wanted most favored nation treatment and that Clinton was going to give it to them. And then I said, if they do, there won't be a working class job in America that's safe. And that turned out, unfortunately, to be prophetic. So on the way out, he puts in place this permanent gift of low tariffs to the Chinese.

14:35And then you basically don't see any improvement in working class wages for a generation until Trump. And after a year or So Trump, when we put our plan in place, you saw medium family income increase 6.8 percent, the most in American history. And that was from 18 to 19. And then, of course, in 20, we ended up with COVID. And so the whole thing got screwed up. But anyway, that's kind of the notion of it. I think of it as kind of hubris. I'm sort of an anti-elitist kind of a person. And I thought the elites were sort of selling us down the river. And that's more or less what happened. And a lot of rich people got really rich, but middle class people fell out of the middle class and and communities disintegrated and all the bad things that flow from that happened.

15:24And there were other things going on. But the biggest factor, I think, was this policy that they had. You've already you've already you've already done a really good job of explaining this, Bob. But I want to emphasize something that you write in the book. in the book you say, and I'm going to quote you, China remains the largest geopolitical threat the United States has faced, perhaps since the American Revolution. And I want you to go back, put your hat on as trade representative. You're in the Oval Office explaining to the president why you believe this and give us that briefing. So I would say, first of all, it was a fairly easy sell because the president, the president, he and I were not friends before the election, right before I went to the administration.

16:08But we had had similar kind of intellectual development over time. In the 80s, we were both worried about Japan. You put in the book the very famous Donald Trump advertisement. Tell us about that. Yeah, yeah. No, no. Donald Trump in I think it was 87 spent one hundred and fifty thousand dollars of his own money and put an ad in there. So to say, what the hell is going on with America? And he put it in the New York Times, the Washington Post and the major papers across the country. And it was sort of fear of what was happening with Japan, right? But the whole process of it. And then we both sort of morphed into less concern about that because the Japanese, we reacted to the Japanese and the Reagan did the things that I talked about.

16:49But then it became obvious that China was the great threat. So why do I say it's the biggest threat since the American Revolution? Look, when we fought Germany and Japan in the Second World War, our GDP was substantially bigger than theirs. Theirs combined was maybe 60 or 65 % of ours. Right now, China's is approaching 70 % of ours. And then the question is, why do I think they're a problem? Let me go down kind of a litany. They have the biggest army in the world and they're increasing it. They have the biggest navy in the world. They have expansionist designs all over their perimeters. I mean, on Vietnam, we just saw recently they're taking over parts of the China Sea from the Philippines.

17:32You know, they have land disputes with India. So they're trying to create problems for the United States all over the world. Their diplomats, or so-called wolf warriors, are very, very anti-American. There's no question that Xi Jinping and Putin met and approved the invasion of Ukraine, right? I mean, it was literally, they met before the Olympics, they have the Olympics the next day, he moves in. There's no question, in my mind at least, that they are the bank roller and behind this whole attack on Gaza, the whole attack on Israel, the whole Hamas thing, the whole Iranian thing. There's no question that they're the source of all of that.

18:10And then I would say they have this intimidation of American military. I was reading that almost every day now, there is some kind of an incident of a Chinese vessel or airplane doing something to an American vessel in international waters or international spots. So they're accelerating. They're doing everything they can. They're getting more and more aggressive. They believe that as a matter of history, they should be the dominant party in the world. And if you go back 2 ,000 years, you could make a case that they were most of that time. They view us as being in the way they think our free democratic system is the wrong system.

18:48And they literally view us as an adversary. And then if you put on top of that, the fact that they are waging an economic war against the United States, they are stealing our technology. We really are responsible for the growth of the Chinese economy. It's grown from like$1.2 trillion economy when Clinton and the Republicans and Democrats gave them this favored nation treatment. They've grown from that to almost, it's over$17 trillion now. And most of that transfer of wealth, I could make a case, is basically taking advantage of the United States market in terms of trade deficits, in terms of theft of technology, in terms of fentanyl sales, and a variety of other things that are fairly tactical that I can get into.

19:33And, you know, none of your listeners should deceive themselves when I bring up fentanyl. Almost 100 % of the fentanyl comes from Mexico. It is almost 100 % precursors from China. And it's not like it's coming from a bunch of banditos on the street. It's coming from the biggest companies in China that are well connected to the Chinese Communist Party. So it's all part of what they're trying to do. And Anthony, if you read carefully and look at what they do, they don't even hide it. They talk about when Putin met last time with Xi, she talked about there are changes not seen in 100 years and we are creating those changes.

20:11is that's very clear language that says we're taking over the world. The United States is on the descent, and we're going to supplant them. Totalitarian communist countries are going to be the system of the future, and places like America with freedom and democracy are going to be the past. So in any event, it's quite clear if you look at the picture. My view, and I really believe this, is that anyone who studies this and doesn't conclude that they are a mortal threat and a lethal adversary is literally influenced by China. They have some other state going on, right? Their business there, there's something else going on there.

20:47So that's how strongly I feel about it. I think it's impossible to survey and see what they do and what they say and not conclude that they are a threat. And what we have to do, obviously, is build up our military. We've got to do all the technology things we've got to do, but we have to start a process of strategic decoupling. We've got to get back to balanced trade with them. We can't be literally paying for their army and paying for the Navy and paying for all their weapons. That's what we are doing. We've got to stop the transfer of technology. We've got to disentangle technology, and we've got to stop the outgoing investment and the incoming investment.

21:22We have to not decouple, but strategically decouple. Start changing the relationship so that it favors American workers, not so that it favors the Chinese Communist Party. Well, you've made a brilliant exposition in the book, but I think your contribution has been extraordinary because I actually think that you've moved the bell curve of political discourse in Washington. There's not too many things that the Republicans and the Democrats agree on, Bob. I think you and I both know that, but they seem to be conjoined on this one issue. The Biden administration, with a few important exceptions has continued the path that you've laid out.

22:01So I guess my central question is, do you believe that the tide has changed? Obviously, it'll take 10 to 15 years to really see the economic improvement. But do you think we're now on course, at least, laying out the right policies? So I guess when I hear that, I think of Churchill. It's not the beginning of the end, but it may be the end of the beginning. Do I think that people, Do I think that most voters in Republican and Democratic parties agree with me, not only intellectually but viscerally? Absolutely. Do I think we've changed the way politicians think about it? Yes. Now, some of those politicians change because of politics.

22:40But do I think we finally won the battle for American policy, for American workers and this whole China thing? I think that we are winning, but we haven't won. If you think of the other side, there are millions and millions of dollars of lobbying by big corporations, all of whom benefit from this. If you think of how many ways China influences American college campuses, American technology, big American companies, the Chamber of Commerce and others, they're all fighting this. They're all on China's side. They don't view themselves as such, but that's really where they are. They're all lobbying Washington coming in.

23:25So you say to Europe, give me a good example. Anthony, there's no reason in the world why tomorrow morning at nine o 'clock they don't stand up and have a vote to get rid of TikTok in the United States. None. It's just there's no positive aspect to it. And we know it's a source of propaganda and data mining that's hurting our people. Even right now, almost all the stuff on it is anti-Israeli. So why isn't that happening? Every, you know, American people agree. It's because you have a few rich people who are getting richer on TikTok and they're stopping it. So, and I could go down 25 more examples.

23:57I got things that every American worker, if you explained it to them and, you know, thoughtful people across the spectrum, both parties would say, of course we should do that. But why aren't we doing them? is because there's so much money and so many rich people and China, you know, in its propaganda war, waging a battle in Washington. And, you know, I think we have to be forever vigilant. I don't want to diminish what we did. What we did, I think, I agree with you. I think it was historic. It had to be done. The fact that we've kept it more or less with Biden, although I'm worried there, you see this more and more, this weakness with their various secretaries, you know, coming over to China and Boeing and all this other thing.

24:37But for now, we have it, for sure. We're only going to finish if every American worker makes his voice heard and everyone else forces this policy change. Okay. So I'm at the point in our podcast, we try to keep these things about 30 minutes. I come up with five words after reading the author's book, and then I get the author to react to those five words. You can give me a sentence, a word, you can give me a paragraph. I'm going to say these words and you tell me what comes to mind. Manufacturing. To me, it is essential. It's how a country becomes great and it's how a country has a middle class that, remember, almost 70 % of Americans are not college graduates.

25:19And that 70 % have to be in the middle class if we're going to be a great country. So manufacturing, if I had to say one word, essential. Okay. But when I hear it, I hear reshoring, meaning we have to reshore a lot of this manufacturing. Is that correct? Absolutely for sure. We have basically given up our edge because of a theology, not because of sound policy. Okay. All right. And I think that that's very clear from your book. Okay. Ready? My second word. Ready? Price. So to me, prices is less important than production. Price optimization is what got it where it does. would I rather have that sweater that I'm sure is a great sweater that you're wearing, would you rather have that cost another$40 and have there be communities in America where families stay together and people don't have opioids and children have hope?