In short
Robert E. Lighthizer argues the post–Cold War “free trade” system is broken because it ignores industrial policy and incentivizes trade surpluses; he advocates replacing it with “balanced trade” using tariffs and other measures to protect sovereignty, transparency, and national security.
Guest background
Robert E. Lighthizer is a former U.S. Trade Representative in Donald Trump’s first term. He previously served as deputy U.S. trade representative in the Reagan era and helped shape trade policy during multiple protectionist episodes. He speaks at the Aspen Security Forum and wrote a Foreign Affairs piece outlining a new trade order.
Key claims
Tariffs are a small part of the problem; industrial policy (taxes, currency, banking, labor/health rules, closed markets) can’t be negotiated away. The “trifecta of stupid” (NAFTA, the WTO/Uruguay Round, and permanent MFN for China) enabled an “avalanche” of job losses (he cites ~5 million). China made a bad system “malignant” due to closed markets, spending, and geopolitical ambitions.
Notable examples
permanent MFN in 1999; Japan and Korea using industrial policy; critical-minerals “choke points” used by China; USMCA renegotiation and rules-of-origin/content changes for Mexico and Canada.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOThe Rise of Robert Lighthizer
0:45 to 1:23
Discussion on Robert Lighthizer's role in changing U.S. trade policy.
“Lighthizer recently laid out his vision for a new trade order in the pages of Foreign Affairs.”
Critique of the Trading System
1:23 to 2:10
Lighthizer critiques the previous trading system and its failures.
“That essay begins with a critique of the trading system as it existed before Donald Trump's first term and not coincidentally before your arrival in the job of U.S.”
Historical Context of Trade
2:10 to 3:35
Exploration of the historical context of trade policies in the U.S.
“And the reality is, if you look at the grand history of trade, he's very much in the norm.”
The Evolution of Trade Practices
3:35 to 6:32
Discussion on the evolution of trade practices and the role of tariffs.
“And even the Democratic presidents are not anti-tariff in the way that an anti-tariff person is today, but they would be for less tariffs.”
The Impact of Globalization
6:32 to 8:01
Insight into the impacts of globalization and significant trade agreements.
“And then you get to the 90s, the Berlin Wall has kind of fallen, and you get to the end of time, these crazy notions.”
China's Influence on Trade
8:01 to 10:56
Examination of China's role in the global trade system and its effects.
“And that sort of takes you through from about 2000, wherever you want to break the line, up to where we are in 2016.”
The Need for Balanced Trade
10:56 to 11:51
Lighthizer discusses the importance of balanced trade over free trade.
“think there were a lot of reasons for that.”
Trade Deficits and Economic Imbalances
11:51 to 14:03
Analysis of trade deficits and their implications for the U.S. economy.
“when we talk about fair trade, most people say, well, that's approximately equal tariffs.”
The Economic Consequences of Trade Deficits
14:03 to 28:25
Explore the implications of trade deficits on the U.S. economy and society.
“goods production as a percent of global GDP is way down.”
Shifts in U.S.-China Trade Policy
29:20 to 30:01
Discussion on the changes in trade policy towards China during Trump's presidency.
“One of the things that has been perplexing from the broader foreign policy debate, as well as in the trade debate in the second Trump term, is the apparent shift on China.”
Show all 15 chapters
Challenges of Trade Deficits and Tariffs
30:01 to 36:39
An exploration of the U.S. trade deficit issues and the effectiveness of tariffs.
“How do you understand, explain the China piece in this very, very broad-based tariff campaign that has characterized the last year or 15 months, I suppose?”
The U.S.-Mexico-Canada Agreement Insights
36:39 to 42:04
Evaluation of the USMCA, its successes and ongoing challenges.
“If you look at where they started, the numbers were quite good with respect to everyone.”
Analyzing Trade Deficits with Mexico and Canada
42:04 to 45:34
Explore the complexities of trade deficits with Mexico and Canada, including the need for tariffs and regional content.
“But at sort of the highest level, we still have a trade deficit with Mexico, which has grown substantially.”
The Impact of Uncertainty in Trade Policies
45:35 to 47:50
Discuss the consequences of uncertainty in tariffs and trade agreements on business investments.
“I mean, the most important thing we got right was we put in place a sunset so that we have a way to deal with this problem that has popped up.”
Export Controls and National Security
47:51 to 52:08
Delve into the complexities of export controls, national security, and the implications for trade with China.
“We lost some of that year that we were talking before about green shoots and how do we show that the system is working.”
Transcript
Automatic transcript. May contain errors.0:00Robert E. Lighthizer:I'm Dan Kurtz-Felan, and this is the Foreign Affairs Interview.
0:05Diana Villiers Negroponte:The system itself was broken, and I think there were a lot of reasons for that. The biggest one was nobody really believes in free trade, right? With the exception of, you know, the Harvard economics faculty and a few Anglophone politicians. But everyone else realizes that you talk free trade, but what you want is a surplus.
0:24Robert E. Lighthizer:Almost no one in the last several decades has done more to change the American approach to trade than Robert Lighthizer. Lighthizer was U.S. trade representative in Donald Trump's first term. In that role, he set out to reverse Washington's longstanding commitment to a global trading system, a crusade using tariffs, among other tools, that targeted China above all, but also any other country that, as he saw it, benefited from that system at the expense of the United States. Lighthizer recently laid out his vision for a new trade order in the pages of Foreign Affairs. With Trump levying tariffs and wielding American economic power against both allies and adversaries, Lighthizer argues that the free trade system should be thrown out, replaced with one that is more balanced, sovereign, and transparent.
1:08Robert E. Lighthizer:I spoke with Lighthizer on the sidelines of the Aspen Security Forum on Wednesday, July 15th.
1:22Robert E. Lighthizer:Ambassador Lighthizer, thank you for doing this, and thank you for your forceful piece on the new trade order and our May-June issue. Well, thank you, Dan. It's a pleasure to be here. That essay begins with a critique of the trading system as it existed before Donald Trump's first term and not coincidentally before your arrival in the job of U.S. trade representative. What struck me about that account is the sharp line you draw in the early 1990s in that post-Cold War period. What was right about the trading system? What was working about the trading system? before the early post-Cold War? And what was wrong with what came after in your view?
1:53Diana Villiers Negroponte:Well, I mean, that's kind of the fundamental problem. Let's spend a second, if we have, just to sort of talk about the history generally of trade, because there's this kind of notion that a lot of people have, including a lot of economists, that somehow the things that President Trump are doing are somehow novel or new or breaking the norm. And the reality is, if you look at the grand history of trade, he's very much in the norm. and this kind of more recent globalism is really the oddity. If you look at the history of the United States, there was always a debate back and forth on trade between the agricultural interests and those who wanted to build up manufacturing from the very beginning.
2:30Diana Villiers Negroponte:It's always important to remember that even the agricultural interests wanted higher tariffs than we have now. So we were funding our government through tariffs. Something called the American system was kind of developed, and under that we used tariffs to really build up American manufacturing. This was very contrary to the 18th century notion of Adam Smith, who would have said, and at the time of his Wealth of Nations did say that, well, the United States would be better off not building up manufacturing. We would be wealthier by just supplying the British, and I think he actually believed that.
3:03Diana Villiers Negroponte:But had we followed that, we would be a very different country than we are right now. So he was sort of fundamentally wrong, I think, on that point. This American system and tariffs kind of prevailed, and the United States used tariffs, not just to fund the government, but really to build up manufacturing and technology, and really in the way that term was used in those days. So that by the 1870s, we're running surpluses and not deficits. And by the 1890s, we're the biggest economy in the world. We've overtaken Great Britain as the biggest economy in the world. So it was very successful. If you look at from sort of Lincoln until Franklin Roosevelt, you have almost entirely Republican presidents who are pro-tariff.
3:44Diana Villiers Negroponte:And even the Democratic presidents are not anti-tariff in the way that an anti-tariff person is today, but they would be for less tariffs. So we used tariffs a lot. Tariffs were very important. And what we did in the United States was also what other countries in the world did. What happened over time is that tariffs became less and less important in the great scheme of things as a barrier to trade and as a hindrance to notional free trade. And what really took over was industrial policy. And industrial policy is a very broad term, but it refers to everything from your tax system where value-added taxes help exports and discourage imports.
4:26Diana Villiers Negroponte:your currency practices. Obviously, a weak currency does the same thing. Your banking system, where you can give manufacturing below market interest rates, your health and welfare system, your labor laws, just everything. And countries started using all these things, and tariffs were less and less important. As tariffs kind of shrunk, we get ourselves to the Second World War. Now, We're kind of in what you would call sort of the modern period. We start the GATT, the General Agreement on Tariffs and Trade. We have a series of nine negotiations, almost all of which are focused on reducing tariffs around the world.
5:04Diana Villiers Negroponte:And the United States and Europe basically bring other countries into the system by reducing their own tariffs more than other people's. You could say it's a bad negotiation. On the other hand, it did help to win the Cold War and help Europe rebuild, help Asia rebuild. So there's a lot of very positive parts to it. That kind of continued up, I would say, the United States. By the time you got to the late 70s, was getting the short end of the stick, was doing relatively worse and worse and worse, and their surpluses started to disappear. you had some Asian countries, but primarily Japan use industrial policies to become a very strong economic power.
5:46Diana Villiers Negroponte:A lot of the same kinds of practices that China uses today and that other Asian countries use today, sort of economic powers. The beginning of that kind of loss of manufacturing, loss of power in America is what really, in my judgment, at least contributed to Ronald Reagan being elected president. These so-called Reagan Democrats were working class Democrats. And then, you know, the system gets progressively kind of worse. In the 80s, Reagan takes a series of steps which would be considered protectionist, but were necessary with respect to motorcycles and specialty steel and carbon steel and semiconductors and a variety of things.
6:26Diana Villiers Negroponte:And you were deputy US trade rep. I was deputy USTR trade during that time and had obviously the same views that I have now. And then you get to the 90s, the Berlin Wall has kind of fallen, and you get to the end of time, these crazy notions. And there's this view that globalization is the future, and that Marxist-Leninism is gone, and that totalitarianism is gone, and we're all going to live in a blissful world of free markets and one level or another of democracy. The only problem was it was just totally wrong. So then you saw what I call the sort of trifecta of stupid. In the 90s, you had NAFTA.
7:05Diana Villiers Negroponte:Then you had the Uruguay Round, which started the WTO. And then you had, obviously, the biggest mistake of all, which was giving most favored nation treatment to China. So if you think of China generally, in 1980, we kind of gave them most favored nation treatment, but it could be revoked every year. And when we got to 1999, we gave them basically permanent most favored nation treatment. And that basically got them in the WTO. It was not a consensus. It was the Clinton administration and the economists in his administration, along with a bunch of Republicans in the Congress. And they made this horrible mistake.
7:43Diana Villiers Negroponte:Up until that time, you wouldn't move a factory from America to China because you could lose the tariff advantage the next year. So no one would do it. But when that happened, then you saw this avalanche and you saw this, I say, 5 million jobs lost just on the raw numbers and all the rest of these very, very bad outcomes. And that sort of takes you through from about 2000, wherever you want to break the line, up to where we are in 2016. Donald Trump ran for president. Basically, this is one of his major issues. And so you saw a hiatus there. And then you saw the Trumpian policies more or less continue through the Biden years.
8:25Diana Villiers Negroponte:And then, of course, we are where we are presently.
8:27Robert E. Lighthizer:Can we linger on China for a moment? Because I think when you look at many elements of the rules-based order or whatever you call the system that started during the Cold War and then really became both more ambitious and more global in those post-Cold War years, China and the sheer size and speed of its rise and the ways it did not change and confounding expectations, I think is in many ways kind of at the core of the anxieties and frustrations of that order. Obviously, the counterfactual is hard to play out precisely, but how much of this is really just about China? You've called this when you write in our pages the kind of, you know, foremost existential threat.
9:02Robert E. Lighthizer:But if you have everything else that you talked about, but you don't go to permanent MFN and WTO membership for China. Does that kind of change this equation here? Is that really the fundamental moment when this goes on? Well, I think that was a big,
9:15Diana Villiers Negroponte:big thing. But let me tell you that from the 70s forward, the United States was getting the shorter and shorter end of the stick. We were running trade deficits with China before China was China, right? I mean, we were running deficits with China, 15, 20 billion, which was a big enough number even before they had that. So it's important to kind of keep that in mind. I would say the problem is not just China, but the analogy I use in the piece is we went from being sort of stabbed to death to being slaughtered. So the magnitude changed dramatically. But Japan clearly took advantage of us. Now, I put Japan in a very different position because they are an American ally and they don't have any geopolitical ambitions to be number one in the world or anything, at least not since the 40s.
10:03Diana Villiers Negroponte:And in other countries too, Korea clearly has used industrial policy to build up. They have a world-class steel industry, but they don't have any comparative advantage in steel. It's entirely an industrial policy result. So I don't want to say that the system was fine until China came along. But I think what happened was you had a bad system that then became malignant with China because number one, they were spending vastly more money on the system. They had a closed market. They do have geopolitical ambitions. So there's a whole lot of reasons. And as I say, as an order of magnitude, China's GDP as a percent of US GDP is bigger than Germany and Japan compared to the US in the Second World War.
10:48Diana Villiers Negroponte:So I mean, they are, it's a major, major problem. But the system itself was broken and not working. And I think there were a lot of reasons for that. The biggest one was nobody really believes in free trade, right? With the exception of the Harvard economics faculty and a few Anglophone politicians. But everyone else realizes that you talk free trade, but what you want is a surplus. And if you have a surplus, you get richer. And the economists deny the analogy. But the truth is, if you in your life consume a lot more than you produce, you're going to get poorer. And at some point, you're going to be very poor.
11:27Diana Villiers Negroponte:And everyone wants to produce more and run a surplus. That's why, as I say in the piece, I think the ultimate answer isn't free trade and it's not so-called fair trade because you can never make fair. And I want to spend a second on that because this is the progression most people have. Well, I was a free trader and I'm a fair trader. The truth is what we need is balanced trade. That's what I believe the logic is. when we talk about fair trade, most people say, well, that's approximately equal tariffs. And the point I was making a minute ago is it's not about tariffs. It's about industrial policy.
12:05Diana Villiers Negroponte:Tariffs are a tiny, tiny fraction. If we had equal tariffs with China and they still had a currency that's very weak, tax laws, labor laws, which basically transfer wealth to producers away from consumers, if they have all the rest of the things, health and safety and all the other closed market activities they have, it still wouldn't be fair trades, right? And the important insight is that all of these things, which we identify as industrial policy, can't be negotiated. There's just too many of them. It goes to the core of what it means to have a society. So that's why I just kind of jumped to the end and said, okay, what's the result?
12:44Robert E. Lighthizer:I want to come back to the vision of balance trade, the framework that you lay out on the piece, I want to focus on, I think, as a sort of dissonance in the accounts you hear of those past few decades. On the one hand, you have the harms and dislocations from trade, which you've mentioned and cataloged in various ways. But on the other hand, it hasn't been a terrible period for U.S. economic growth relative to other developed economies, especially. I mean, people often point out on our pages and geopolitical analyses that you would have expected at the end of the Cold War, the US to start declining as a percentage of global GDP.
13:18Robert E. Lighthizer:That hasn't happened. We're much richer than Western Europe and Japan now. That was not the case even 20 years ago. Productivity has been higher than most other advanced economies. So on that level, the story looks pretty good. Some economists, I think of Adam Posen, who made this case on our podcast a while ago, would say, look, let's take the gains that he argues we get from trade and be much more aggressive about redistribution and place-based policies and retraining and all of that. What do you see is wrong about that other story, that kind of macro story, and the policy responses that flow from that?
13:54Diana Villiers Negroponte:Well, first of all, our GDP is smaller as a percent of global GDP. It has shrunk since the end of the Cold War. And our manufacturing or goods production as a percent of global GDP is way down. So let's look at the indictment across the board. One, we have these enormous imbalances. So we're really transferring wealth overseas in return for current consumption. And once again, not because of economics or because Americans are greedy, but because other countries have industrial policies that promote this. So I say a realistic trade deficit for the United States is not in goods a trillion and a quarter, which probably might make a trillion and a half, because there's a variety of ways that the numbers are not particularly accurate.
14:40Diana Villiers Negroponte:But even if it's a trillion and a quarter or a trillion dollars on a goods and services basis, that is a transfer of wealth overseas. What happens is that money eventually comes back to the United States in the form of foreigners buying U.S. equities, debt, real estate technology, and the like. There's a data point which I think is so important. If you look at the net international investment position of a country, which is how much Americans zone all over the world versus how much everyone else owns in America, that number for America is a negative$27 trillion. Now, when I was in the Reagan administration, in current dollars, it would be a positive probably$800 billion.
15:21Diana Villiers Negroponte:And 20 years ago, it was a negative$2 trillion. So it's an enormous transfer of wealth overseas. And it does matter who owns your country. There's a great piece that I always recommend by Warren Buffett that talks about Thriftville and Squanderville, And he kind of makes the analogy of a farmer who's got a big farm and he's selling his land in order to consume. And ultimately, he's going to have no ability to consume and no land. And in his case, he takes two islands, Thriftville and Squanderville, and he kind of makes this point that eventually Squanderville is working for Thriftville and doesn't own anything.
15:59Diana Villiers Negroponte:So it does matter who owns your country. So there's a transfer of wealth overseas. Secondly, we have seen substantially slower economic growth than is traditional for America. Now, somebody like Pozen or somebody like that would say, well, we're still doing better than Europe. Well, but our objective is not to do better than Europe. Our objective is to grow in America at a fast pace that helps Americans, right? And if you look at sort of since the war to about 2000, it's over 3 % GDP growth on average, with a bunch of years above 3%. If you look at since that period, we have had about 2 % GDP growth or a little less and three years of bigger than 3 % GDP growth, one of which was COVID, which doesn't really count.
16:48Diana Villiers Negroponte:And it's simple to see why. I mean, GDP is consumption plus investment plus government spending plus net exports. So if net exports are a negative trillion dollars, it just takes a trillion dollars out of your economy. Now, economists would say, yeah, but a lot of Americans can have a seventh or eighth television. And my kind of reaction to that is how frivolous, how unimportant. So we have this huge transfer of wealth overseas of our assets and the future income of those assets that our children would have. We have slower economic growth. We have a fall off at innovation leadership. And there's just no question about that because we don't have manufacturing.
17:31Diana Villiers Negroponte:That isn't to say America doesn't lead the world in innovation. We do, but our leadership is shrinking. The Australian Strategic Policy Institute tracks 74 now. It used to be 64. 74 critical industries. The United States is behind China in 66 of them. 66. If you go back 20 years, 15 years, we were behind them in three. So we're transferring our wealth overseas. We're seeing slower economic growth. We're seeing a loss of innovation leadership, which is a natural outflow of losing the manufacturing leadership. But most importantly, we're seeing this very bad outcomes for our working class people.
18:10Diana Villiers Negroponte:After China got into the WTO, or at the end of the trifecta of stupid, as I call it, there were 15 years where working class people were basically flatlined. And they're not much better than that in the next 10 to take us up to where we are now. Now, you drive through the Midwest, you see these hollowed out cities, you see income disparity growing at a rate we never saw before. Now, I understand economists don't care about that. They say, well, if the country is richer, my view is you follow an economic policy which creates jobs for people so that you redistribute income in that way. What a liberal would say is, no, let's just tax the rich and give it to the other people.
18:49Diana Villiers Negroponte:The problem with that method is all these people that you're giving welfare to are losing the dignity of work. They're losing the thing that fundamentally makes them happy, the things that make the family stay together and the community strong. And the combination of all of that is what makes America strong. But back to the working class people, we have even seen dramatic health differences now grow up where if working class people, And by the way, this is, you know, two-thirds of our workforce doesn't have a college degree. So this is not some fringe group. This is who we are as a country. Those people now live eight years shorter lives.
19:30Diana Villiers Negroponte:And it's so-called deaths of despair, right? It's suicide and drugs and alcohol. So what we need is to reorient, you know, a lot of economists and a lot of business people who are getting rich have this sort of view that, Well, the most important thing is price optimization and kind of efficiency in the market. And that might make sense in the 18th century when there was not enough food people were starving to death. Now, by far, the purpose of economic policy is to, after national security, is to grow the economy and distribute the wealth in a way that makes families and workers stay together.
20:12Diana Villiers Negroponte:And I always say that make workers, parents hopeful for their children, and they lose that now, but also children proud of their parents for working. So I think the world that these economists want is not the world that I want, and it's just a fundamental difference. I don't think it's the most important thing is that my T-shirt is as cheap as it can be. That's not what I think is most important is when I drive through the Midwest and I see people being proud they're working and producing.
20:47Robert E. Lighthizer:If we go back to the moment when you became USTR in 2017, you articulated a few objectives, and I'm curious to hear how you reflect on those. But countering China was certainly one of them. Bringing back manufacturing jobs was another. Critics would look at the record of U.S. trade policy over the last decade or so, and this would, as you noted, apply to many Biden policies as well, which embrace some of the tariffs and industrial policies and other things. And they would say, look, manufacturing employment hasn't really come back in this country. They would note as an aside that in places like Germany and Japan and France, which have been very committed to maintaining a manufacturing sector that hasn't affected employment, hasn't saved employment.
21:28Robert E. Lighthizer:And they'd also note that the Chinese trade surplus is bigger than it's ever been globally. As you reflect on your goals going back to 2017, are there things you would do differently? How do you look at that record, especially on those priorities?
21:42Diana Villiers Negroponte:Well, we have to say, first of all, when we look back, you have to kind of put yourself in the position you were in at that time. How much of a mandate did you have? Had you convinced people that you were right? Imposing people like that will never understand that China is a threat. They just won't understand that. And it's true of a whole variety of people. But at that time, President Trump, and I was one of the people working with him, had to, one, convince people that trade deficits and these trade problems were a problem. And number two, that China was a threat, an existential threat. So it was a huge reversal.
22:18Diana Villiers Negroponte:And I think that the president gets enormous credit for turning that around to the point that you won't see anybody run as a free trader for national office in America. I mean, everybody realizes that, that that's a horrible mistake. If we go back to the first term, I think we did as much as we could do, given the mandate that we had and the fact that we had to convert people, including an awful lot of Republicans. The only group we probably didn't have to convert were Labor Democrats, which is unfortunately a shrinking group within the Democratic Party. The labor Democrats got it all along, and a bunch of Republicans now have come along and seen the fact that both we need to re-industrialize, but also that China is a threat, and it's become more and more clear.
23:05Diana Villiers Negroponte:So if you look at from the time President Trump was first elected in 16 and took office obviously in 17, up through like the end of 19, which is to say pre-COVID, the numbers are actually pretty good. The Chinese trade deficit is going down five straight quarters. The global trade deficit is down. Manufacturing production is up. Manufacturing jobs are up. Then you find yourself in the COVID situation, which not only taints the last year of the Trump administration, but also a good part of the beginning of the Biden administration. And so the numbers are kind of harder to follow. When you look at the beginning of where we are now, I think what we are looking at kind of green shoots, right?
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23:53Diana Villiers Negroponte:Nobody honestly thinks you're going to re-industrialize in two or three years.
23:59Robert E. Lighthizer:Can I press you on the manufacturing jobs? I think by most measures, as it's reported, manufacturing jobs, even in Trump's second term, are down by 70 ,000 or something like that. What's the alternate way of measuring it?
24:10Diana Villiers Negroponte:So, first of all, if you look at manufacturing jobs from the time he took office in the first term until the end of 2019, it was up 500 ,000 jobs, which is a substantial number of jobs. If you look at where we are in the first term, I would say, first of all, the numbers that he inherited were far worse than anyone thought. The numbers have been reevaluated. And like the last 11 or 12 months of the Biden administration, they lost 170 or 180 ,000 jobs, manufacturing jobs. In the Trump administration, that number has been turned around to it's still a small loss. But you're not going to reindustrialize in a year or two.
24:50Diana Villiers Negroponte:It's a new policy. I always kind of say, Dan, too, that I get this kind of nitpicking by these economists. And I think, but none of you look at any data for the 30 years we did what you wanted. And it was a disaster, right? I mean, my sort of view is, and I want to talk about the green shoots here, and I will for a second, but my sort of overall view is, well, listen, give us a few years to see if we can re-industrialize. It is important, both from a national security point of view, but for all the other reasons I've articulated. We can always go back to their failed policies, right? That's not a difficult thing.
25:27Diana Villiers Negroponte:But what they were doing had demonstrably bad results. I mean, when you lose 5 million jobs and all the other things, the slow economic growth and all the other things that I talked about. So if you say, what are the green shoots now? I would say, one, the job situation is far better. too. If you look at manufacturing job openings, that number is substantially bigger now. But if you look at capital expenditures, I mean, there's a lot of things that are very, if you look at factory starts, if you look now at overall production, the production numbers, if you look at the PMI, right, for the first time.
26:07Diana Villiers Negroponte:So there's a lot of things indicating that things have turned around. And they've turned around, you know, in basically a year or a little over a year. So I would say there's a lot of things to point at. I think ultimately, the system has to, though, create more jobs, and it has to create better paying jobs, and wages have to grow faster than inflation, which they have under Trump in a way. And in the first term, they did. The way I see it, it's, one, we need the manufacturing for national security for global power, but we also need more jobs. We need more wages given, And more of our national wealth should go to labor rather than to capital as a percent.
26:48Diana Villiers Negroponte:And the way to do that is to have it go more to each, but disproportionately more towards labor so that we get the kind of outcomes. And if we look at if we don't see that in 10 or 11 years, then you have to ask yourself, is it still better than it would have been or not? And then you make your policy decision. My point is the other system is demonstrably a failure on all of these counts. And we stuck with it for – it's a generation if you want to go from the 90s, you know, four generations if you want to go from the end of the Second World War, which is when this kind of new thing started.
27:21Robert E. Lighthizer:So it gives us a chance to run the – Well, yeah.
27:23Diana Villiers Negroponte:I mean, I do think there's a lot of green shoots. There's a lot of things that indicate things are better than they were. But for sure, we were on a catastrophe. It was an absolute catastrophe, the system we were on. And I would suggest it didn't even really have any intellectual undertaking value either. It was based on a lot of myths and then a lot of people jamming data to try to defend the myths.
27:50Robert E. Lighthizer:We'll return to my conversation with Robert Lighthizer after a short break.
28:00Robert E. Lighthizer:What if you could explore places in the news like a reporter does? I'm Nicholas Wood, a former journalist with the New York Times and BBC. And 16 years ago, I created the travel company Political Tours. Our small groups are led by top correspondents around the world. In the next few months, we're off to Mexico, followed by South Africa, Japan and the French presidential elections. Come and join us. Go to politicaltours.com. That's politicaltours.com. This September, Independent 20th Century presents more than 130 artists at the legendary Broyu building at 945 Madison Avenue. The show will fill four floors of the modernist landmark on Museum Mile.
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29:25Robert E. Lighthizer:One of the things that has been perplexing from the broader foreign policy debate, as well as in the trade debate in the second Trump term, is the apparent shift on China. As you noted, Trump had really helped drive this new hardline consensus on China in his first term. The atmospherics of that have certainly changed in the second term. Also, in the way that he's rolled out tariffs, making trade surplus the kind of ultimate standard, going after allies and friends, often as aggressively as he's gone after China, and in many cases, leaving them with similar or in some cases, higher tariff rates, doesn't seem to have advanced the cause that I think you support in the first term and do in the piece of building this kind of coalition of like-minded, mostly democratic countries to counter that existential threat of China.
30:13Robert E. Lighthizer:How do you understand, explain the China piece in this very, very broad-based tariff campaign that has characterized the last year or 15 months, I suppose?
30:23Diana Villiers Negroponte:Well, Dan, we have two fundamental problems, and it would be great if we only had one. If we only had one, it would be a lot simpler. But we have both this failure of the trading system transferring wealth over a trillion dollars a year overseas and all the bad outcomes. We have that. And part of that is China, but a lot of it's not China. We have a trade deficit with a lot of countries because of industrial policy that we have encountered, a lot of them. We have a lot of countries that have weak currencies. We have a lot of countries that have labor systems and banking systems and the like, all of which are designed to increase exports to the United States and basically, I would say, take our jobs and ultimately our national wealth.
31:11Diana Villiers Negroponte:So we have that problem. The president has to deal with that problem. And he's been worried about that problem since he was 35 years old, right? And so have I, by the way, since he was 35 years old, because I was about 35 years old at the same time. But there was a period when it was Japan that was doing this, and it had nothing to do with China. So he has to deal with that problem. You don't deal with a trade deficit problem by putting tariffs on one country. You have to basically take a position that we're going to put tariffs in. The most sensible thing, first of all, let's talk about this in a minute if you want.
31:45Diana Villiers Negroponte:What are the tools that you could use? But he's chosen tariffs, and I believe that's the best tool. You have to put tariffs on everyone to offset those industrial policies or change your own system to offset them, right, which has a lot of societal cohesion questions that are probably not easy to answer. And then you put higher tariffs on the people that are the bigger predators. In addition to that, the president has a problem with China. China is part of the first problem, but it is independently a geopolitical adversary of the United States, an existential threat. It is a country that views itself as being number one in the world.
32:24Diana Villiers Negroponte:It views its system of totalitarianism and Marxist-Lenism as being the system of the future. It views the United States and the West as being in the wane, as kind of in decline, and they have a whole litany. And this is not my interpretation. This is what they officially say. So the president has to deal with both of them. Now, it would be nice if other countries, if we didn't have the first problem, you could get other countries together and form a coalition. You have to figure out a way to deal with that in the context of solving the first problem. Now, I think you've seen a lot more countries realize that free trade doesn't work and that China is a problem.
33:12Diana Villiers Negroponte:Now, the biggest ally we have in convincing people around the world of that is Xi Jinping and the Chinese Communist Party. You have a first China shock, which basically hit us. The second one, because we are defending ourselves, that is to say Donald J. Trump gets credit for this, although a lot of people in Congress would agree with him.
33:35Robert E. Lighthizer:Joe Biden would probably agree with this.
33:36Diana Villiers Negroponte:For sure Joe Biden followed the same policy. And when I was there, you know, I worked with Nancy Pelosi. I worked with Chuck Schumer. They get it. But Trump implemented the policies for the first time. And he's doing the same thing. Now other countries are starting to realize what's going on. For a variety of reasons, Europe was shielded from the first shock. Now the second shock is directly right at them. They're just starting to come together to try to figure out what to do. It's not easy for them to coalesce around anything. But then the second question is, are we hard enough on China now? Now, the problem that we discovered and kind of knew was these choke points that have been created by China intentionally by spending hundreds of billions of dollars over a 30-year period or more, at least 30-year period, to create choke points with respect to many of these 60 critical minerals.
34:37Diana Villiers Negroponte:Now, we have some choke points on China, too. We both have them. But China has operated in a way that has nothing to do with economics. They've operated like a monopolist, basically putting other people out of business, spending hundreds of billions of dollars in order to create choke points on these products. And then, of course, they're willing to use them. They've used them against the United States. They've used them against Japan, Lithuania, Norway.
35:05Robert E. Lighthizer:It almost seems surprising that we were surprised at how aggressively they hit back on critical minerals in June of last year after our tariffs.
35:14Diana Villiers Negroponte:I think we were a little surprised, and you can say maybe we shouldn't have been. I don't know. I would say it's less a surprise that they would use the weapon and more surprised at how significant the weapon was. and the president and his team are doing a very good job of trying to take us out from this, right? But so you say, are we doing enough on China? I think given, until we can get ourselves out of this problem, we have to try to change things. We've got to get the balance down. We have to protect our own technology and the like, but we have to at least be careful because they have the ability to shut down our war-making, our diplomacy, and our economy.
36:02Diana Villiers Negroponte:Now, you could say, well, but we have the same with them, but that doesn't make it any better. They're spending hundreds of billions of dollars to get out from under our choke points, and we have to do the same to get out from under theirs. If we don't, quite frankly, if we allow ourselves to maintain this same vulnerability, and it was predictable, but then not predictable, right? There are some things that you have to really see to believe. And now we've seen it, and I think we believe it, and the president is doing a lot on that front. But I think that explains a little more of how we got to where we are.
36:39Diana Villiers Negroponte:If you look at where they started, the numbers were quite good with respect to everyone. And then I think there was this kind of realization that until we dig our way out, we have to be more careful. And as I say, the reverse side of this, and I think it's always important for people to say, I'm for something I call strategic decoupling. But China's policy is to create choke points, to get out from under our choke points, to become independent. And once again, this is not Lighthizer interpreting. This is what they flat say. They want to get rid of all these dependents so that then they can do the kinds of things they want to do without having to worry about what anybody else thinks.
37:18Robert E. Lighthizer:One of the other tools that people often focus on is currency manipulation. And I believe at this point, China's current account surplus is as high as it's ever been. There's a ton of pressure on China's currency, the RMB. Why hasn't more been done on currency? And what would you be doing if you were in a policymaking position right now to try to address that?
37:39Diana Villiers Negroponte:Well, I mean, the first thing is, I don't know if it's their biggest single industrial policy advantage, but it is certainly one of the top two or three. is the fact that they have a wildly manipulated and undervalued currency, right? So when you say, what would you do about it? Now you're talking about tools. And for me, the most important tool, the most useful tool is tariffs, as I say. It's the simplest tool to use. But now you're up against your previous question, the choke point question, right? So the question is, how aggressive can you be? You've got to be as aggressive as you can. The one thing you have to do is you have to stop transferring your wealth to them in return for current consumption.
38:25Diana Villiers Negroponte:That's like the first thing you've got to start doing. And then the question is, how do you do that? And you do it as much as you can within the context of this vulnerability that the United States has in these choke points. And I think the president is generally doing that, right? But currency manipulation, the only way you're going to deal with currency manipulation is to put tariffs on them, right? To offset the advantage. I said the only way. That's not quite true. The other way you could do it is you could put taxes on their capital coming back to the United States. I mean, there's a variety of other tools that you could have.
39:05Diana Villiers Negroponte:But all of those activities have to be kind of lined up against your choke point vulnerability. So you should do as much as you can to that point until you work your way out of that.
39:16Robert E. Lighthizer:I want to talk a bit about North America and about the U.S.-Mexico-Canada agreement, which you negotiated as the kind of update or reform of NAFTA in the first term. you wrote a piece a few years ago in Foreign Affairs where you noted that it ushered in a new era in trade policy and one focused on bringing jobs back to the United States, as well as helping the North American region. You also noted, I think it's interesting that you saw this as kind of bipartisan framework that could be sustained across administrations. We're now in a period of some uncertainty about what's going to happen with the USMCA.
39:48Robert E. Lighthizer:You see some complaints from members of Trump, too, of the current administration about continuing deficits with Mexico and Canada, about the amount of American content in North American cars and other things. As you look back on USMCA, what do you think it got right and wrong? I mean, what should be on the agenda now in renegotiation? And what would be the cost if it came apart? How important is that to the vision of the kind of system you lay out in the piece?
40:13Diana Villiers Negroponte:Well, I mean, first of all, when you think of USMCA or NAFTA for that reason, it really is two trade agreements, right? It's not one trade agreement.
40:23Robert E. Lighthizer:Because Mexico and Canada don't trade much. They don't trade much.
40:26Diana Villiers Negroponte:And to the extent they do, they've already got the TPP that set the rule. So, I mean, the United States has to sort it out. If you think kind of the history of all of this, you would say, one, the United States, I mean, let me just take you through the history of it a little bit. In 1965, we did this kind of auto agreement with Canada. And basically, it was U.S. auto companies wanting to take advantage of cheaper labor in Canada, in Windsor, and they kind of pushed this through. And it really, that agreement kind of created the Canadian auto industry. Then you fast forward to Brian Mulroney, who I'm a great fan of, and Ronald Reagan, who obviously I'm a great fan of.
41:06Diana Villiers Negroponte:And they put in place - Mulroney, Canadian prime minister. The Canadian prime minister. But they did the U.S.-Canada agreement in 88. And then you You fast forward and the Bush people and others, and then ultimately Clinton want to add Mexico, and so you get NAFTA. There was a complaint that Ross Perot basically ran for president twice, kind of complaining about this and other things, but this primarily, and talked about the giant stockings down of U.S. jobs going south. It turned out that it was, in fact, he was more right than he was wrong and that the agreement was terrible. And everybody, interestingly, who ran for president afterwards talked about renegotiating it, but nobody ever did, right?
41:44Diana Villiers Negroponte:I mean, you had the Republican and the Democrat. It was very unpopular, and it had a lot of very negative consequences. So when President Trump got in, he ran on this. Also, he decided that we would renegotiate it. And then he, unlike all of his predecessors in both parties, he actually did do the renegotiation. And I think that we made a lot of improvements. But at sort of the highest level, we still have a trade deficit with Mexico, which has grown substantially. The Canadian trade situation is, in my judgment, a little bit differently. We have a trade deficit. But if you take out energy, which is a little sui generis, we actually have a surplus on the good side.
42:28Diana Villiers Negroponte:The services side, who knows?
42:30Robert E. Lighthizer:So you would go easier on Canada than Trump does at this point?
42:34Diana Villiers Negroponte:I think that the problem is bigger on the Mexican side. And we have a trade deficit with Mexico, which has become quite large. And if you're going to deal with America's trade deficit problem, obviously, that's a global problem. And bilateral trade deficits, in my analysis and where I think are not really that important. But you can't deal with a global deficit if you don't deal with some of the larger bilateral deficits. So you're going to have to put tariffs in place in some way to get us back to balance. you're going to have to make sure that we have higher regional content and higher American content.
43:15Diana Villiers Negroponte:When I think of Mexico, Mexico has to get back, at least move in the direction of balance with the United States. Some of the trade imbalance is not necessarily bad, right, in the way I think of things. If you took a plant from China and put it in Mexico, then the Mexican trade deficit looks bigger, the China trade deficit looks smaller, but that's in the interest of the United States. Unlike most other countries in the world, the way I analyze things, we have a stake in Mexican prosperity, and they have a stake in our prosperity, right? I mean, there's a link there that we don't have with a lot of other countries, and it's easy.
43:51Diana Villiers Negroponte:It's cultural. It's the people. It's the border. It's just a lot of reasons. Immigration is a lot of reasons why we have this kind of interest in it. So I think we need more Mexico buying more from the United States. I think we need more Mexican content in things we get from Mexico because we don't, in many cases, we don't have enough Mexican content in what's coming up.
44:15Robert E. Lighthizer:We need too much Chinese content.
44:16Diana Villiers Negroponte:Yeah, Chinese, but could be other countries too, but let's say primarily Chinese. So I think you're going to have to have two new agreements. They can call them one agreement if they like, that's fine. And I think getting rid of the whole thing would be a mistake and probably not politically. It's too politically costly and not worth the benefit. I think the parties will come to some agreement. I think with respect to Mexico, we have to figure out a variety of ways, and tariffs are going to be part of it, that we can reduce that trade deficit without crippling their economy because crippling their economy is, as I say, a very bad thing for the United States, too.
44:54Diana Villiers Negroponte:They are a huge trading partner of ours. But we can't run these kinds of deficits with them. And I think using rules of origin, changing substantial transformation, you know, as I say, more content from Mexico and Mexican products, I think there are a variety of ways that you can do that. And it'll take some imagination. And I think you're going to have some imagination. You've got Jameson Guerrero Super and the Mexican negotiator. Everard is a very, very talented guy. And in my judgment, at least, President Shinbom is one of the smarter world leaders that's on the scene right now. So it's hard for me to believe they're not going to be able to work that out.
45:33Diana Villiers Negroponte:But there has to be a change. I mean, the most important thing we got right was we put in place a sunset so that we have a way to deal with this problem that has popped up. And that's why we're having this renegotiation.
45:46Robert E. Lighthizer:One thing you often hear from people in the private sector is that they can, you know, they'll figure out how to operate in whatever system emerges, but that the uncertainty that has characterized the Trump approach to tariffs and trade agreements in the second term, which was not true to nearly the same degree in the first term in a variety of ways. But, you know, you've seen obviously the use of creative legal tools, creative legal explanations for tariffs that have then been subsequently reversed by the Supreme Court. I put being the main one, you've seen, you know, Trump kind of slapping tariffs on people because of non-trade issues as a foreign policy tool.
46:22Robert E. Lighthizer:There's the uncertainty over USMCA. Do you worry about the costs of that uncertainty over time?
46:26Diana Villiers Negroponte:Well, I mean, it's funny when I think of uncertainty. The uncertainty that worries me is the uncertainty that the tariffs will stay in place. In other words, a businessman or woman will build in the United States if they think the tariffs will stay in place. But what business people are thinking, well, we want it predictable, but no tariffs. That's what they mean. And I'm thinking, I agree with you on the predictability, but I want it with tariffs. That's what's going to motivate you to move here. In terms of the statute the president chose, IEPA, you know, I didn't choose to use that statute.
47:05Diana Villiers Negroponte:I thought there was a risk. I think the president's analysis was right. I think his interpretation was right, and it was agreed to by three members of the court. but unfortunately six didn't.
47:18Robert E. Lighthizer:You saw that it's too risky last time. Well, I just didn't.
47:21Diana Villiers Negroponte:I wanted to be able to, now it's far more complicated to do it the way they're doing it now, but it's also more certain. We were sued more than 4 ,000 times and we won the cases. So to me, I want business people to have certainty that the tariffs will be in place. And so I think there was a cost to using that tool. I think it was a rational approach. It was the right approach. I mean, it made sense. But obviously, it was talking about the Supreme Court. And so we lost some of that advantage. We lost some of that year that we were talking before about green shoots and how do we show that the system is working.
47:58Diana Villiers Negroponte:We lost some of that because people were uncertain that the tariffs would stay in place and they therefore didn't make the investments they otherwise would have made. So obviously, hindsight is 20-20. We should have done it the way we're doing it now. The president's always flexible about these kinds of things. He's a business person. And if one thing doesn't work, he'll try whatever.
48:20Robert E. Lighthizer:And he'll do whatever he needs to figure out how to get the tariffs he wants.
48:23Diana Villiers Negroponte:He has diagnosed the problem exactly right. This trade system, these trade imbalances are killing our country. And I believe he's picked the right tool. That's a debate we can have, which is in tariffs. And I think he's proportionally about the right, right? In other words, Britain should have lower tariffs than China or Vietnam or the like. So I think he's got to kind of diagnose the right tool, kind of proportionate. It was complicated how we got there. It would have been better if we'd gotten there sooner, but it is what it is.
48:59Robert E. Lighthizer:There's one other element in your piece that I want to draw you out on, and this gets to an issue that has come up in a discussion on this podcast with people in the Biden administration, Lael Brainard, who's head of the National Economic Council, Jake Sullivan. When you talk about a system and you talk about rules and agreements with friends and allies and then have carve-outs for national security or political and social cohesion is one that you focus on in the piece, that creates a lot of room for ambiguity or abuse, right? And you saw this in the Biden administration with export controls, for example, when more and more things were grouped under that national security label.
49:34Robert E. Lighthizer:As you envision the system that you would like to see, how do you put kind of limiting principles on both the national security side and the political and social cohesion side so this doesn't become a kind of endless arena for special pleading by business interests here that would like to be considered part of those categories?
49:51Diana Villiers Negroponte:Well, you see, to me, remember, I saw it from a whole different point of view. I think if you have what you call the rules-based system and you don't have any rules with respect to 90 % of industrial policy, you're always going to have that special pleading. To me, if you say we are going to have high tariffs on people that have trade surpluses with us, or the best scenario would be people who have high global trade surpluses, to force those people back towards balance, you don't have this kind of special trade. I kind of, rather than say, here's 9 ,000 rules, and only the imagination of man limits whether or not there's some other thing they can come up with that'll tilt the scales in their favor.
50:36Diana Villiers Negroponte:Rather than do that, which means you're going to end up with a lot of special pleading, what we ought to have is just the objectives, which we can more or less measure whether or not you're global, you have a global balance. So I kind of get around that in my scheme. And by the way, this is not that different than what John Maynard Keynes talked about at Brenton Woods, right, where he wanted a kind of a clearinghouse and to be able to force people to balance through a currency clearinghouse or a trade clearinghouse. In the area of export controls and the like, I would make nearly no exceptions.
51:10Diana Villiers Negroponte:But I think that the point that Jake Sullivan and others make that it does set up for special pleading, I don't know what you do about that, right? To me, I wouldn't give in, right? I would just say no.
51:20Robert E. Lighthizer:So when NVIDIA comes and says, we should be able to sell, just say.
51:24Diana Villiers Negroponte:I can't even imagine it, right? I mean, the problem with these companies is that their leadership seems to still think the 90s was right, that China is a market economy and that somehow they'll become Switzerland if you transfer enough wealth to them. Now, I don't know whether they really believe that or they're motivated more by just the fact that it gets rich personally and their company gets more powerful that way. But it strikes me as if anything has been proven. It's that that's not true. So you have to conclude that China is an adversary and has objectives that are very different than the United States and that are not in the interest of the United States or the West.
52:02Diana Villiers Negroponte:And if you don't cross that line, then why do you have export controls or any other kind of defense controls?
52:08Robert E. Lighthizer:And if advanced semiconductors are our choke point, we should know when the world.
52:12Diana Villiers Negroponte:Now, they would respond, oh, but we want China to become hooked on ours, and therefore their infrastructure will be dependent on us. It's hard to believe anyone's that naive that they still believe that. China itself says it's policy not to do it. So I don't know whether these two actually believe that, and they just haven't learned anything from the last 30 years, or whether it's a convenient argument because it happens to align with their company making more money. I don't know which it is. I don't know these people well enough. But the notion that somehow China is going to let us create another choke point through their not investing enough money to overcome it is just completely ridiculous.
52:52Robert E. Lighthizer:There's a lot more to unpack on the piece. It's called The New Trade Order, and people can go read it in Foreign Affairs. But for now, thank you so much for doing the essay and for doing this today.
52:59Diana Villiers Negroponte:Thank you very much, Dan. It's a pleasure to be with you.
53:07Robert E. Lighthizer:Thank you for listening. You can find the articles that we discussed on today's show at foreignaffairs.com. This episode of the Foreign Affairs Interview was produced by Mary-Kate Godfrey and Kanesh Therroer. Our audio engineer is Todd Yeager, with audio help from Christopher Cook. Original music is by Robin Hilton. Special thanks as well to Irina Hogan. Make sure you subscribe to the show wherever you listen to podcasts. And if you like what you heard, please take a minute to rate and review it. We release a new show every Thursday. Thanks again for tuning in.
54:01Robert E. Lighthizer:dot com slash spotlight to sign up for Dan Kurtz-Valen's free weekly newsletter featuring more of the clear-headed analysis that you enjoy here on the podcast. Sign up today at foreignaffairs.com slash spotlight.
From the publisher
Almost no one in the last several decades has done more to change the American approach to trade than Robert Lighthizer. Lighthizer was the U.S. trade representative in President Donald Trump’s first term. In that role, he set out to reverse Washington’s long-standing commitment to a global trading system. It was a crusade—using tariffs, among other tools—that targeted China above all but also any other country that, as he saw it, benefited from that system at the expense of the United States.
Lighthizer recently laid out his vision for a new trade order in Foreign Affairs. With Trump levying tariffs and wielding American economic power against both allies and adversaries, Lighthizer argues that the free trade system should be thrown out, replaced with one that is more balanced, sovereign, and transparent.
Dan Kurtz-Phelan spoke with Lighthizer on the sidelines of the Aspen Security Forum on Wednesday, July 15.
You can find sources, transcripts, and more episodes of The Foreign Affairs Interview at https://www.foreignaffairs.com/podcasts/foreign-affairs-interview.