Distinguished Speakers in International Business Series: The Trade Guys
- So welcome everyone to this first event of the distinguished speakers and international business series of this new academic year, here at the Center for Global Business at the Robert H. Smith School of Business, at the university of Maryland College Park. This center here at Maryland Smith is the hub of global learning, global partnerships and global education at the Smith's school. And we are home to one of only 15 Title VI CIBE grants administered by the US Department of Education. I'm Rebecca Belinger, I'm the executive director of the center.
- And I'm Kislaya Prasad, academic director of the center and a faculty member here at the Smith school. - And we serving as your moderators this evening are excited to be here again with you and with our friends, from the Center for Strategic and International Studies, Bill Reinch and Scott Miller, perhaps better known as The Trade Guys, to talk about all things trade. This event is being recorded for the CSIS podcast by the same name, The Trade Guys, as well as in video format for the center's website. We'll start this evening by asking questions of The Trade Guys about what's happening in trade today. And then we'll take as many questions as we can directly from the audience via the Q and A function. Bill and Scott, welcome back to the center.
It's so wonderful to have you with us, even if we're not all together this evening in Van Munching Hall. - Great pleasure to be here. Thanks for having us back. - It's a pleasure to be here. And I was in Van Munching Hall two weeks ago, because I occasionally lecture and I'm looking forward to coming back.
I think the next time will be in October. So that'd be- - Fantastic. I hope to see you then in person and don't forget to bring your mask. (Bill laughs) - So yes, let me add my welcome to Rebecca. So welcome to the Smith's school.
So to get started, what in your opinion are the pressing trade topics of the day? - Well, our usual approach here is that Bill will start to talk about the Biden trade policies. And I'll talk about what we're going to do about that. So go ahead, Bill.
- Absolutely, please. - I think the big two are divided in administration and then China. And I think we'll probably get to China a little bit later. So I won't get to that in the beginning. What the White House has articulated about their trade policy is, to begin with that it's not a priority.
They said that in the campaign and they've kept their word. It's not a priority and they haven't done very much. When you ask them what policy is it's... We want to trade policy that helps workers. We want to trade policy for the middle class.
I think we're going to spend four years trying to figure out what that means. We, The Trade Guys think we know what it means and what we think it means is no new agreements, anytime soon, no current agreements, anytime soon, meaning the ones that are underway like the UK and Kenya, they're going to focus on domestic policy. They don't seem very interested in conventional market access issues. I think one of the reasons why is because they... And I think this is a mistake, I'll be honest with you, but they can flake creation of benefit with distribution of benefits. I think most people would say that what trade agreements do is create benefits.
They create more trade, more jobs, more growth. They don't have a lot to say about how you distribute the benefits. I mean, the trade agreement distributes the benefits between the parties, to the agreement, you know, what we got and what the other party gets or the parties get. But who inside the United States benefits, I think is really more a question for domestic tax policy, education policy, adjustment policy, and you know, other elements of what the government can do, regulatory policy, but the Biden people seem focused on how do we make sure that the benefits flow to workers? People have tried to point out to them that if they're not negotiating anything there aren't going to be any new benefits. And so who you're going to give them to is kind of moved, but they don't seem to connect the dots on that point.
They talk almost entirely about labor and environment. If you talk to the left wing of the party, that's really all they're interested in. I think labor has three components and the trade area environment has two.
And I'll do that and I'll stop talking. Labor, I think they're focused primarily on enforcement, enforcement, enforcement. The obvious place is Mexico because we have a good enforcement arrangement there. Thanks to what was negotiated in the last administration. And ambassador Tai was part of that because she was on the Ways and Means Committee staff at the time. So she's proud of it.
The Democrats are proud of it because it was a Nancy Pelosi thing and the Republicans were proud of it because it was a Trump and ambassador Lighthizer thing. So there was a lot of support for it. And now they're trying to make it work. And I think frankly, they're doing a pretty good job of on the labor side of making it work. But I think it's probably at the expense of other things.
The second labor element is distribution of benefits. And I already talked about that and I think that is going to sort of be left to other policy elements. And the third one is promoting domestic employment, which for the Biden folks means reshoring. Let's bring jobs back to the United States. And that means tighter rules of origin.
It means tighter rules by American rules. We government procurement and in the end I think what it will mean is let's have a... If you look at his campaign documents, let's have carrots and sticks for companies, get them to go where we want. Let's carrots for companies to come back here, sticks for companies that don't not everybody. I think companies that have gone overseas to serve overseas markets, are not in the target zone.
I think they're going to be focused on companies that have built foreign parts and components into their supply chain and ship them back here for assembly and then maybe re export or re match consumption. I think the administration would like to see more of those come back here. Parenthetically I'd say that probably, they probably won't succeed very much in that. I think to the extent you see movement in that area and supply chain adjustment, and you will, I think Scott will probably talk about that.
It'll be out of China, but it will be into Vietnam, Malaysia, Mexico maybe, and other places. A lot of it won't be back here, but I think right now that's their policy. If you ask them about any specific thing, the answer's always the same, it's under review and everything has been under review for now nine months. And I think some of it, including China when we got there is going to continue to be under review for awhile. So Scott, over to you.
- Yeah, no, I would agree with that. And on a practical level, negotiating authority has expired. That what we call trade promotion authority, expired earlier this year. And there's no effort either from the administration or the Congress to renew it.
The committees in the house are concerned about trade adjustment assistance, which is a good thing to be concerned about it, a good program overall, but it's ordinarily coupled with advances in negotiating authority, which the subject is not come up. In addition, even the... Though many Democrats and many people heavily criticized the Trump administration's tariff policies. We're not unwinding any of those tariffs, the section 301 tariffs on China, the section 232 tariffs on steel and aluminum are all still in place. And, you know, unpacking those, at least in the mind of the administration would take some give and take, which is not happening.
Likewise, reshoring or deeper by America programs would also, at some point require negotiation. We are a signatory to become a procurement act to the PTO. So the company procurement agreement, excuse me, would, would have to be changed and we'd have to get our our trading partners agreement to do that. So that's the fix we're in, it's sort of a continuation of what I'd characterize as suspended animation in trade policy. The old issues are still the old issues.
And just as stuck as ever like farm subsidies, the new issues seem to be somewhat incoherent like digital trade and we're not making a lot of progress. I will point out that peak trade, in terms of trade as a share of world output, occurred in 2007, we are below that level today. 2007, I don't know how many are where people were in our, among our audience in 2007, but it seems a long time ago, but that was- - Probably in grade school. - Yes.
And, but that's where we stand so. - Well, a quick quick follow up, one of the things that president Trump would flirt with was the idea of a free trade agreement with the United Kingdom. Is that on the radar anywhere or no? - Well it's under review. - The negotiations were launched, they're still ongoing there, but there was no way to conclude them and bring them before the Congress in an expedited manner because negotiating authority is lapsed.
There were a couple of options out there with the UK. One of them is that the negotiators of the trans Pacific partnership, which became CBTPP, the non-memorable and unpronounceable acronym, but basically Japan, Australia, New Zealand, and the other 11 parties to the Trans-Pacific, left room for the UK to join and the UK has applied to join. So there's another way to deal with sort of Indo-Pacific region and deal with a preferential agreement with the UK, where we to reconsider a trade in Asia-Pacific in some form. So the UK is actually fairly ambitious about its longtime role as an open, free trading nation. And they're going after agreements with some vigor, but we're not making progress at the moment with them in either a bilateral or plurilateral setting. - It took me a long time to understand why we weren't going ahead with a trade agreement with a close friend and ally, where we have a lot in common.
And finally it dawned on me because somebody told me that for this administration, it has, I think more to do with Ireland than anything else. The president is Irish, Senator Schumer and speaker Pelosi think they're Irish. And they all are committed to a, the good Friday agreement that's maintained more or less peace in Ireland since its inception.
And they're very concerned that the, one of the consequences of Brexit and trying to settle the Northern Ireland border of question is this the only land side from Gibraltar, it's the only land border between EU and non EU members now that trying to resolve that and deal with it may end up compromising the good Friday agreement. And I think the administration, the US administration's disposition is probably not to move forward very fast with UK until that has worked out and it's not worked out. It keeps getting the temporary resolution, keeps getting extended, but they're not making a lot of progress trying to solve the problem that creates.
And I wouldn't expect a lot of US/UK action until that situation is stabilized. - So should we turn not to China policy, I guess, I mean, is there a grand China policy with this administration? And if so, what is it? - I think in the short run it's, you know, don't do anything you have to begin with... Once again with domestic politics, which always is a factor in these things. And I feel a little, sorry for the president, he has very little room to maneuver on China. There are four or five, depending on what week it is Republican senators already running for president in 2024.
I mean, they have to push Trump off the stage, which is a different problem. And not anything that I think we can talk about, but they're competing amongst themselves as well. They all have the same campaign platform on this issue.
And that is a Democrats in general and Biden in particular are soft on China and are compromising our national security and basically giving away the store to the Chinese. And the Democrats actually be well aware of the enormous drop in public support. Public sympathy for China have adopted a similar approach. If you listened to Senator Schumer, he sounds very much like the Republican candidate for president, except he doesn't criticize Biden. He just criticizes China. But if you look at poll data 10 years ago, public opinion about China in United States was 53% favorable, this year at 73% unfavorable.
That's remarkable change, you know, relatively short period. Most of it in the last three or four years. And most of it, I think, due to what the Chinese actions, not to do Trump in particular, but here we have a country that's unpopular with the American people.
You've got both political parties trying to capitalize on that and Biden in a situation of not being able to do very much without exposing themselves criticism. So the obvious question is what's going to happen to tariffs. And my view is probably nothing in the short run. I mean, the fundamental principle of trade negotiations is there's no free lunch. He's not gonna let him go away for nothing.
He'll only let them go away, if he can get something that you can characterize as Chinese concessions that he can wave around. And that would require a negotiation. And I don't think either side wants to do that. For the Chinese it's, you know, why do we want to listen to the Biden people come in and demand the same thing that Trump demands and then the subsidies, you know, an end of forced technology transfer an end to all the things that we wanted to keep on doing, and that we wouldn't agree with Trump on. Why do we want to spend time doing that and for Biden it's why do I want to engage in a negotiation it's going to fail. No matter what I bring back, it won't be good enough for the Republicans.
So anything he brings back will be inadequate and we'll be giving away our national security. The safe thing to do for that right now is nothing. And my take on this, this announcement where there's rumor that they're going to initiate another 301 investigation, and Scott May disagree with me on this. We haven't talked about it, but my take on it is that basically that kicks the can you know, the 301 investigations take a year or up to a year. It allows him to say, we are actually looking at this problem and implicitly say, we're not going to do anything about it until the investigation is over and we bought some time. So I think the next action forcing event, well, there are two, if Biden and Xi Jinping actually have a meeting at the end of October, if he goes to the G20 that may produce something.
More likely the next action forcing event is when phase one expires, which is next Valentine's day, I believe. And the administration will have to say something at that point, but right now I'm not looking for anything of significance. Aside from restarting, the one by one tariff exclusion process.
So companies come in and they apply to get off the book. I think they'll start that again, John. - Well, look, I agree with Bill that this is a, there's not much room for negotiation. Partly neither party sees a benefit in it. I think China's views of the United States have hardened.
They're much more confident with basically a China first policy. They do not want to combine issues. I think John Kerry, the... I'm not sure what secretary Kerry's title is these days, but he's the climate envoy got very rude treatment and there's a pressure against the linking anything with exchange, but it's clearly a China first policy from the Chinese side and they see no reason to do anything different. Meantime, Bill's absolutely right by US public opinion, which has moved from suspicion, to belief that China's an unfair trader to belief China's a menace, which is sort of where opinion is now.
So I think usually can't be quite as cynical as Bill, but in this case I agree the 301 is basically a way to avoid talking about anything, but the investigation that it would be ongoing for about a year. - I see there's a question in the Q and A that maybe we can deal with now, which was, "Has China been mean in its commitments under phase one?" And my answer is yes and no. If you talk to the US business community about the non purchase commitments, the areas where they agreed to adopt internationally accept the standards and stopped doing some things that we asked them to stop doing.
The business community tells me that with a couple of conspicuous exceptions, the two most good to us is credit card issue and the poly silicon issue. That aside from them, by and large, the Chinese have done what they said they would. On the purchase commitments. They are behind in some areas like energy purchases.
They are so far behind that. It's probably impossible for them to catch up. In other areas, it's a closer call. Agriculture I think they were at, I don't know, something like 60% of what they had promised.
And it's really too soon to tell because in aggregate, if you look at agriculture, the agriculture relationship, most of their purchases historically are in the fourth quarter. So we are just now heading into the time when we can expect large purchases. I don't know that they'll get to 100%, but they'll get closer to it than they are today. So in some areas they're not gonna make it, in some areas I think they'll come close. - I wanted to stick with China here for a little bit more.
There a question in the Q and A that gets to the, you know, my point of view is, is China actually a threat? So if we go back to some of the legislation that both the Senate and the house passed over the summer, aimed at competing, bringing the US closer to competing with China on tech, on research and telecom, semiconductor production, et cetera. And if you look inside that legislation, some of the finer points include things like blocking TikTok from US government devices and allowing Taiwanese military and diplomatic officials to wear their uniforms on US solar in official capacities. Do those finer points of that legislation... Are we with those finer points? Are we just poking and prodding China here? Or is there a real threat that we're trying to address? - I guess I'd say there's a real threat.
Those particular things don't have anything to do with it. I'd say including on TikTok, I mean you have to. With TikTok, you can invent a threat. And people have, the threats frets are the, the data that TikTok amasses, if it falls into the hands of the Chinese government, which TikTok says it does not, we can debate that, might be used for some unstated nefarious purposes. And the other argument is that, that it might become ultimately a propaganda machine for Chinese disinformation to in fact, the people that watch or listen to TikTok, which means young people. I think those are not the biggest security challenges we have, you know, the biggest security challenge we have are Chinese theft or critical technology that they can use to enhance their military capabilities and that's a serious problem.
And one of the things that has happened over the last four or five years, it's not just Trump, but preceding Trump is the national security element of the Chinese US relay frayed relationship has gotten much larger and we've attempted to deal with it through export controls and controls on inbound investment. But I think it's a serious issue. - Yes, it's likely to continue to be one.
I think we're past the stage where our friend Joyce Chang of JP Morgan used to call it coopetition where things we cooperated with China on there were areas where we were competitors with China or sort of a frenemies relationship. I think we're moving beyond that into rivals. And I don't know if it leads to conflict or not, but it leads to more tension in the relationship. And certainly at the technological frontier IP theft of our best technology is a huge concern and something that I think there's a good reason to be concerned. - Oh, well, I'll move us on to climate. So the storms and fires this summer have reminded us again, of the urgency of climate problem and the need to do something about climate change.
But what are the ways in which the climate and the trade agendas intersect and maybe should they intersect? And if so, how? - I think there are two, subsidies and border adjustment measures. On subsidies, the issue is getting rid of "bad subsidies", which would mean fossil fuel subsidies. And on the other side, it would be creating or enhancing good subsidies, which would be green check subsidies. The administration has proposed both. And most of what the administration has proposed in general on climate can best be characterized as carrots not sticks. They're very big on incentives, particularly for new technologies and green technologies, some of which would be characterized as subsidies, some of which would not.
The latest development which we would have yesterday was it appears that the house Ways and Means Committee is not going to go along with proposals to eliminate fossil fuel subsidies or even to reduce them. So the stick part of the administration's agenda is not going to be well, well at least as of yesterday may not be advanced. I mean, Congress is always happier voting carrots than they are voting sticks.
And that seems to be manifest this time around. So getting rid of subsidies doesn't really raise WTO issues. They're always happy if you get rid of subsidies, creating new ones might raise those issues. It depends on how you do it. And it depends on...
Well, at first, it depends on how you do it. If you link it to exports, then you have a real problem because those subsidies are prohibited. If you don't look at the exports and most of these are not linked to exports, probably all of them are not. It really would be a question of whether they're an or not, where they harm anybody else. And that would get litigated down the road.
The other issue is more complicated, which are border adjustment measures and I think there we're not there yet. In public opinion, the Europeans are moving forward, they've made a proposal. For those of you that are not in the weeds on this border adjustment measures means essentially taxing imports, based on their carbon content or based on the amount of carbon use in their production. You there's different ways to do it in order to deal with what is known as a carbon leakage problem, which would be countries set out high standards, being put in a position to having to accept the imports of high carbon products from countries that have low standards and the countries with high standards there, producers have been disadvantaged because they have to meet all these higher standards, which is expensive, and that jumps them to move overseas to, you know, countries with low standards.
And this CBAMs carbon border adjustment measures are designed to offset that. The EU is moving ahead. At CSIS we've been having a lot of discussions about this. We've undertaken a process where we try to get basically the environmental nerds and the trade walks together to talk about it.
And the main thing we've discovered is they don't speak the same language, which makes communication kind of hard. But there's sort of two scenarios here, and I don't know what the right answer is. There's the death spiral scenario in which the Europeans will do what they're going to do. That seems pretty clear.
We denounce it as protectionist, lots of recrimination, lots of lawsuits. We sue them here. We sue them there. We see them in a WTO and everything gets worse. The other scenario, which I personally am fond of is the virtuous circle scenario, which is they do what they're gonna do and our companies that will be disadvantaged by that.
And that may not be very many in short run, actually. So this may take a long time to play out, but the companies that will be disadvantaged come to the US government and say, "Hey, we're getting hosed by the Europeans. We need to do the same thing to them." And that's not a very noble motive, but nobility, it doesn't really matter very much. It may change the political equation here and may create a business constituency or having our own boarder. And so if they do it and we do it, and then the Chinese do it, then you've got a critical mass and maybe we're all doing it for the wrong reasons.
Maybe we're all doing it for protectious reasons, but the point is, at the end of the day, we've done something that may have some private mitigation effect. So you guys all can take your PIP, you know, go for the deaths of viral. Well, for the virtual circle, I don't know what the answer is. - Yeah, look, I'm a free trader at heart and border taxes restrict trade. So let's just start with that, that the things get more expensive, living standards decline.
But having said that you've... I think we've got to get to the point where we actually tell the voters what's about to happen to them, because most of the US climate policy, as such as it is to date, happened at the industrial level or the industry level. A lot of the renewable fuel standards happens at the industry level. Fuel economy standards are corporate average they're industry standards. A lot of the subsidies for renewables are given to electric utilities, not to consumers.
There are some for EV purchases and there are some consumer subsidies, but those are all the carrots Bill talked about. And in the meantime, you know, gasoline per gallon is about two and a half times as much in Europe as it is here. And so Europeans have face step to the fact that if you actually want to reduce carbon, you probably ought to put it at a higher price.
That's been really tough for US politicians. I would note earlier this year, the one White House red line in the infrastructure Bill, in terms of pay for us was an increase in the gasoline tax, which hasn't been increased since the '90s. So these things are pretty sensitive with voters. They noticed the higher gas prices, and now we've got to talk them into more expensive 11 X.
Now I'm all for transparency. I'm all for doing that. But there was a BTU tax that passed the house in 1994, failed in the Senate and the house Democrats lost the majority.
In 2010, there was a cap and trade Bill, that passed the house, narrowly failed in the Senate. And Democrats lost the house in 2010. There're not unaware of these things. So we've got to find a way to manage the politics and all of it.
We'll have some sticker shock associated with it, but like I said, transparency ultimately will be the universal solvent in this, make it clear what the ensued, what will you want to happen? Create the incentives you can get to a lower carbon future. - My environmentalist friends are gloomy about that. I mean, I agree with Scott, but my kind of environmental colleagues are gloomy because they think that that, basically this is an over-simplification, basically they would say the Biden approach is mostly carrots. That's not going to be good enough to deal with the amount of climate mitigations necessary. We're going to have to get the sticks.
There's not a political constituency to do that. So the United States is in the uncomfortable position of not doing enough, knowing that it's not doing enough and not being able to do more. And that's, I think that's what had everybody worried. And there is a lack of transparency, which you can see, not only in this area, you see it on by America too. I've been frustrated, fair work.
You know, the administration basically wants to take the line of, we can, you know, we can reshore, we can increase domestic procurement and it won't cost anymore, you know, and that's just wrong. It's going to cost more. I think it's will be better to be honest with the American people and say, "Look, you know, there are some values here. Other values should the report and it's worth paying more because we're going to get these other benefits along the way."
I mean, you can agree with that or not, but at least that would be an honest conversation. And I think sooner or later on climate, somebody's got to bite the bullet and say, "Look, if you want to meet prices, meet the challenge with the crisis demands." It's going to cost more and people are going to have to change their behaviour. Europe is getting to that point now.
I just was reading something yesterday about that because they're starting to ration up the price of carbon and they're starting to therefore kind of put the screws on people to change their behavior. And we'll see what happens to public opinion in the EU about that. They have the public so far in Europe has been, I think, significantly more accepting of the need to do something about climate than the public in the United States has been. And now as as that begins to tighten up in Europe, we'll see if that changes. Here, I think somebody ought to begin by having an honest conversation owners about it.
We haven't had that yet. - Yeah. If I could switch topics a little bit here and move us away from the doom and gloom of climate change and out of politics, and instead talk about holiday shopping. I know it's only September everybody, and I know pumpkin spice latte season is just getting under way right now. But I did notice that "The Guardian" carried a headline last week that said, or was really warning Australian specifically to buy early, to make sure that their gifts were delivered on time for a holiday that's four months away. And they've called this global supply chain crisis dramatically bad direct quotes.
So what's going on here? Is it really that bad? And should we be buying holiday gifts today? - I think the answer to question two is yes, because you were talking to somebody who placed orders for furniture four months ago and doesn't have it, so yes. Get your Christmas gift sorted now, but more in a broader sense, I think here is that the COVID related shutdowns had the following macro impact. First in general, services were suppressed. Now, some of them more than others, but obviously things like restaurants, people stopped eating out. The carry out business was much smaller. There was a so-called beach industries, B-E-A-C-H, which is booking, entertainment, airlines and depending on your pleasure the C is for casinos or cruises and the H is for hotels.
Those shares cratered and the businesses shrank dramatically. Now that happened on the services side because workers mostly remain whole in, or at least at park remain whole sometimes due to federal transfers, sometimes due to continuing work from home. Goods purchase has actually increased dramatically. So worldwide goods demand, oddly increased, and we probably all were a part of that, okay. You bought some stuff in the first three or four months of your COVID shutdown to fix up your home office, okay.
To make your life more convenient, you couldn't spend money on services. So you either saved it. And savings is at about a 20 year high for American households who never save anything, but goods demand went up.
Now what people miss in that is that there is a very important service that's associated with goods. It is transportation and distribution, and that's the fragile... In my view, that's the fragile part of the chain right now. There are some seriously deep supply chain problems. Integrated circuits are one would they they're just too much demand for the existing capacity. And it takes too long to build capacity.
There are some shallow supply chain problems that will resolve themselves. toilet paper, well, in the early days, ketchup packets, things like that. Those will...
Life takes care of itself. You buy a machine, you get over it, but what's happening is what I'd really watch carefully are the people who move stuff. The people who work at ports, the people who drive long haul trucks, those are that service is one that's essential.
And frankly, if you get an outbreak among a trucking company, or something like that, you get people who aren't engaged in the work. And those are frankly, skilled jobs, often requiring licensing and a lot of... You can't just hire off the street for somebody who runs, you know, a crane operator at a container port. That is the place that I in my view is most fragile. Now the caution is all supply chain problems are at the firm level and they all, both are created and sold at the firm level.
But if I look aggregate across the economy while services, as a whole are down, I've watched those distribution and transportation services as the fragile part. And that's why I'd buy early. - Phil, any thoughts on this? Should I go shopping today? - I haven't started my shopping yet, and now it's got me scared. So I guess I better do it.
I think in the beach case, which is cool acronym. We've been sort of thinking about what's going to come back. This is less a shopping issue than a prevalent vacation issue. And I think our projection is... I think personal travel, recreational travel is coming back and it's going to continue to come back.
People are in tourists, the Grand Canyon is not going to go away. People are still going to want to see it. And they're still, gonna want to take their kids to see it.
I think what may not come back, certainly not to the previous extent and maybe not very much is, business travel. Which is not good news for the airlines because that's where they make a lot of their money. And, you know, I think what people have discovered is that, you know, Zoom, they only be 80% as good, as in person. But when you factor in the price of airline tickets, business class airline tickets, factor in hotels, you factor in all the downtime, on the flight, at the airport, you factor in your ground transportation, you know, 80% may be good enough.
There seems to be some expectation that to, if you know where business travel may come back as if it's necessary to close the deal. And if it's necessary to network, meet new customers and- - Develop clients. - Develop client development, which means go to trade shows, that's fine. And you'll see some of that come back.
Well, what won't come back probably are training sessions, intra company meetings, things that are not outward facing. I think a lot of that is gone. And I think, frankly, you're going to see, you're not going to see all of this disappear from academic institutions either. I mean, you guys probably have opinions about that, but my sense is that, you know, not just universities, but schools of all levels have built up, you know, significant digital infrastructure for better or for worse. And they're not going to abandon them.
I mean, they won't be able to short run, but I think people are going to, this is going to be with us for a long time. And it's going to change the way that we do business in some significant ways. - Yeah, definitely agree with that. Kislaya do you want to go back to Europe? Do you want to go to questions from the audience? - Oh we can go to questions from the audience and if there's a lull, I'll jump in with my question. - All right, sounds good.
So we did receive a number of questions from the audience at the time of registration. So I have a couple of questions that I've pulled out from there that I'm just gonna throw out to our experts, Scott and Bill. And the first question comes from Rowan Bouschet, the question is, "What is your recommendation on how US companies can compete in international markets where countries subsidize public companies?" - Well, look going international is tough. Anytime you leave your home market is tough, but the first condition has gotta be, you've got to have a technical basis to expect success in the market.
You've got a product, you've got a service, you've got something that is a winner, and you believe you can make it work. And there is a rationale for doing it. Now, anytime you enter a foreign market, there are likely local competitors and whether or not there are explicit subsidies, you often have pretty cozy relationships between the government and the local suppliers, depending on the country. And in some cases.
Well, the ideal example was the former Soviet union in 1989. The local companies were complete disasters. They produced awful products.
They had employees who were geniuses at being able to run '50s East German equipment. So that the employees were gold. But the products they produced were lousy compared to what any sort of international product, no, that those opportunities come along once in a blue moon. The more likely one is you're renting a market where you have local competition, that's pretty sophisticated. And this here's where an active negotiating agenda helps because if you entered the market, you'd probably had a way to win without the subsidies, because you make that assumption that your competition subsidized. But your competition may also have some local protections that you'd like to try to weed out.
And occasionally when you have an active negotiating agenda, you could do that with enough creativity, an example of just one example of both, and to make a quick. In central and south America, in the '70s and '80s, there were sort of bunch of anti gringo laws passed, that restricted the actions of foreign enterprises in terms of the distributors they could use. And basically what it meant is rather than having a distributor, your products and operating with them on commercial terms. Once you agreed to distribute through a certain individual or firm, you almost couldn't fire them. It was impossible to get rid of them. There was one place I worked for Procter and Gamble.
We had four distributors in the Dominican Republic. One of them sold Metamucil period. It turned out he'd signed an agreement with G.D. Searle & Company in the 1980s. And the old guy just refused to die. And there was no way out of that agreement until his funeral.
So one of the things that the negotiators did is they tried to create a better level playing field in the DR CAFTA agreement. And so there's a provision on these dealer laws in DR CAFTA. And that's the kind of negotiating creativity that if you've got an active agenda, you can use.
But look, have a basis to succeed and a basis to overcome the locals, and then make sure home governments that are active in the region are important to business. - Yeah, may I just add a lot of due diligence upfront is critical. It depends a little bit on what your product is and what you're doing. And if you're a company like Proctor and Gamble, you have a choice, you know, you can locate where you think it's probable for you to do that. If, for example, you're in the natural resource business, it's a little bit different. You have to locate where the resources is and the resource might be in a country where there's, you know, state owned natural resource, often are in countries where there are state of enterprise, you're going up against the state owned enterprise.
I mean, in a bizarre way, that the good news might be that at least in the resource sector, they probably won't let you in any way, which would make a good decision a little bit easier, but mostly a lot of due diligence. A lot of figuring out what your advantage is, and your advantage might be a product quality. Your advantage might be a better service and maintenance. Your advantage advantage might be a better delivery.
Your advantage might be mobility or the ability to move quickly. One of the things that has happened to me at curl sector, for example, is importers or well, US companies prize foreign company's ability to basically, to switch directions very quickly. So, you know, if you're in the fashion business and you've developed a line of Christmas sweaters that are all green and you've ordered thousands of dozens of green sweaters and they arrive and you've discovered the green is not the fashionable color this year, and you want red ones. Well, some companies will say, "Well, you know, it'll take me three weeks to retool and gear up." And by then Christmas will be over with, and you're toast. But if you find a company that says, "Well, you know, 48 hours, I can do that."
That's an advantage. And if you're one of those companies, you know, it's knowing what your advantage is, and then exploiting on it. - Sure, sure. But Bill, going back to what you said, it sounds like just being barred entry is the strongest non-tariff trade barrier I've ever heard of.
And let's hope that this, this person asking the questions, not experiencing that. Our next question is about ocean exports. So the question is from Elaine Hall, she asks, "With US ocean exports facing difficulties in obtaining transportation to reach international markets, will government intervention occur?" What do you think? - Well, first look, we're about to spend a trillion dollars or so on infrastructure. We might consider some of that putting port container ports, because, you know, you could look at, for instance, the world banks, logistics, performance index, or the work that the world economic forum does on shipping and logistics. And for instance, look at the top 50 ports in the world, container ports, ocean container ports, and look at the throughput of the top 50 ports.
How many US ports are in the top 50? Zero. All right, so start with that. Start with what investments would it take to make our container ports get them into the top 50 worldwide? It seems like America ought to be able to at least, you know, we want to be number one with I'll take top 50.
Okay, but, so I think there's, I think that's someplace where the government is inclined to ought to act and it would be highly beneficial. The second issue is a lot of the disruption that's in containers themselves, right at the moment has to do with kind of the initial months of panic on COVID where a lot of orders were canceled and then immediately demand picked up, nobody expected it to. If you look at any of the charts on consumer demand, even on either on income levels, it's one of the sharpest downturns, and then an upturn, so shortest bear market in history was in March, 2020.
It lasted a week all. And the bounce back is what caught a lot of producers and transporters exposed. And there's been a lot of catch-up since then. But look, one of the, one of the COVID effects is a change in the patterns of where things are made and where they're sold, where they moved.
There was a slow trend toward regionalization, as you know, long haul globalization lost it's arbitrage value. Labor rates went up in the developing world. And more importantly, those developing world producers became consumers.
And so that was happening, that all got accelerated in COVID. And so there's a lot to capture that, but I think throughput efficiency at ports is the thing I'd focus on first and while we're spending some money. - And I just say right answer, but not a short-term remedy. - No. - Takes a while. - Our next question comes from David Lemus and he asks, "We're seeing potentially inflationary pressures in developed and emerging market economies.
Will there be any impacts on US international trade accounts?" - Yes, most importantly, that the import prices will go up, hardly, you know, during, during Donald Trump's days, as tariff man, the first year of the Trump administration, the average import price actually declined into the United States overall. So ample prices will go up and look, the classic definition of inflation is too much money chasing too few goods. So the inflation always is accompanied by shortages.
That will sort of reinforce it and increase the difficulty. So yeah, it's a problem. We've got to find a way to have fewer dollars chasing the goods we have and the easy monetary policy of a long period of time is affecting us. And well, I guess QE started in what, 2009.
And so it's still going on and we have zero interest rates since 2009. We'll see when the Punchbowl gets taken away, but this is this a problem that could compound. So I'm a little worried. - I got nothing to add on that.
- Okay. I will say, I was wondering if we'd get through this podcast without talking about tariff, man, I was wrong. So there'll be no tariff man- - Well, I dunno what the over-under was on tariff man. (both laugh) - Our next question comes from Jeff Mund.
Who's a faculty member here at this school and he runs our supply chain management center. So you can guess this question is about supply chain. He asks, "How will 2022 CFO," so next year, "think about the trade-off between just in time and supply chain resilience?" - Well, he's correctly identified that all supply chain problems and solution happens at the firm level, but because of that, nothing's for free, you can buy resilience, but you ought to have better pricing power to do it. In other words when it comes to developing a more resilient supply base for a firm, that means qualifying new suppliers, that is often a multi-year task.
And you keep in mind, your current incumbent supplier is probably best price quality and is a proven performer. So you've got an investment already made in your existing network, but I think there will be moves to search out different ways to increase resilience, to protect against downside. And I do think that one of them is going to be the decline in long haul globalization. I think you're going to have a lot more suppliers nearby and now that's good, it's good for Mexico. It's good for Turkey.
It's good for places that are reasonable alternatives to the kind of supply basis that at least represent today's long haul. But it's tough to do and it's almost impossible to do at any aggregate level. - I think it, I wouldn't say it means the end of just in time, just in time make mean makes too much sense in a lot of cases. But I think what we learned from COVID is that sometimes it makes sense to stockpile. So I think you'll see some returns in inventory and inventory management and in selected sectors.
I mean, Scott's right. This is fundamentally, these are fundamentally firm level decisions and the government is going to intrude in one respect. And if you saw this in the supply chain studies, they put out in June in four critical sectors, what batteries, chips, critical minerals and pharmaceuticals and other medical products. I don't know, there was a lot of controversy about that those are critical sectors, but at some point, you know, the administration really has to decide what is a national security issue and what is not. My favorite story is when we were doing, when I was on the investment side, not on the inventory side, but when Shuanghui, when was going to buy Smithfield, the ham and pork company, a number of years ago, we had a number of senators in particular from agricultural states, arguing against permitting that transaction on national security grounds, which meant essentially they were saying that bacon was a national security item. They didn't prevail in that argument and probably shouldn't have, but it does suggest that, you know, national security is a very elastic concept.
And the government has demonstrated through its studies in June, that in some selected sectors, it may be prepared to intervene and encourage the development of supply chains that are emphasized resilience and redundancy over either, you know, long chains are over just in time delivery schedules. I don't think anybody would complain too much if we're talking about pharmaceuticals, but as the definition gets larger and larger, I mean, if you listen to Peter Navarro in the Trump administration, everything was a national security issue. And I think the current guys will have a more constrained definition, but they haven't articulated that yet. They've got six more studies coming out in February on bigger sectors, agriculture, transportation, defense industrial base, energy, collectively those studies are going to cover 60% of our GDP. If they recommend a lot of supply chain resiliency measures for those, that's going to have very significant impact on the way companies structure, their production process.
- I have to say, I never thought of bacon as being a national security issue. So you heard it here first, at the center for global business. - Probably a good number of people in the audience who say, yeah. - Yes. Yes. It's not just the candy of meats (all laugh) - All right gentlemen, this will be in the interest of time, our final question and it has come in from Kelly Tang. "What is the best way for someone to prepare for a career in global trade?" - Well, look Bill can talk about why global trade is a great place for continuity of employment and a demand for good trade people.
Let me just put in a pitch. I think it's a great place for happy warriors. The happy warriors find a home in trade because at its heart trade is a voluntary exchange between two parties from mutual benefit. It improves lives on both sides of the equation, and it's not just does it lift living standards. Lot of creativity and innovation comes through trade. We have a phrase called the meeting of the minds, that is when cultures and people interact at the frontier and both come away better and come away with new ways of solving problems.
So it's a great human endeavor and there are enough frustrations and difficulties and entrenched interests to do battle with. But there's a lot to be happy about as a trade happy warrior. - I'm not the best person to talk about that. My arrival in this area was accidental. I was actually hired do other things in one of my jobs on the hill. And then as time went on, both my boss and I discovered that his contribution in international affairs was going to be in economics because those were the committees that he was on.
And it also was his personal interest. And it also was a good reflection of his estates, interests and issues. So I sort of became a trade guy if you will, unplanned. So it wasn't like I was mesmerized by this from the beginning.
But to me, the things that are attractive about it, it's one which is true economics in general, you really learn about how things work and it's fascinating how they work. And it's fascinating, all these things that happen that you don't understand trade teaches you how to understand. Scott, didn't get into it.
And I won't, we don't have time, but you know, if to get to talk to you, we'll do the schedule and get Scott to explain the toilet paper prices and why we had a shortage. It's a very interesting story. It turns out there's two different supply chain, one for industrial and one for supermarket use. And it's...
You know, you'll learn all that stuff in trade and that makes it fascinating. The other thing from an employment perspective that makes it attractive and this is an appropriate note to end on, is no problems are ever solved. They're managed, maybe, but they always go on and you always live to fight another day. So this is permanent employment.
- That's fantastic, as an educator, I'm going to answer this question myself too. So Kelly, study abroad, study a foreign language or two or three, and make sure that you are taking classes in logistics and export management, because to be in global trade, you need to know how things get from one place to another. And with that, that's all the time that we have today. Dr. Prasad, I'm going to turn it back over to you.
- Well, what I have to say is thank you to Scott Bill, thank you so much. It's been a real pleasure listening to you today and hope you'll come back to the Smith school again. - Thanks for having us. - Yes thank you, glad to be here with you.
- Fantastic and I'd also like to reiterate my thanks to Bill, to Scott for being here with us again. I'd also like to thank our audience for being with us, joining us via Zoom. If you're interested in learning more about global affairs, please do join us again at the Center for Global Business at 6:00 PM on October 12 for another installment of the distinguished speaker series, when we will tackle disparities in the global south. And for those of you who are participating in the ice Smith program, you'll see the QR code on the screen in front of you now. So go ahead and take a photo of that to get your participation points. And for everyone, please do take a moment to provide us with feedback on this event and give us ideas of what else you'd like to hear at future events.
You'll see the link to the evaluation, both in the chat. So Marina is going to share that with us now, and you'll see it in a pop-up window when you close out of Zoom. And with that, it's a wrap here at the Center for Global Business at Maryland Smith.
2021-09-20 17:15
