Transcripts For CSPAN2 Georgetown University Hosts Discussion On Tax Policy And Trade 20170204

Of Foreign Trade policy i have been engaged working for a Senior Member during the night do not remember any time in trade policy when the foundations if it is so challenged such a clean the slate to make a number of controversial proposals as well as renegotiating trade agreements and acting new tax policies and with the tpp would that monumental achievement with that Bilateral Agreements to have the destabilization in europe. But today ravenous start with formal Opening Statements to pose a few questions to respond to that he chooses from his own perspective. As they take shape water the directions so with those retaining participants would be more useful by the major trade and investment challenge . Do we cns strategic leadership would is the implication of the border tax and death of one outcome is the implosion of it could withstand the disruption should Congress Take go look to be invaded more robust to market incentives down the road. What is the impact with the weakening of the u. S. . That is the broad question to comment briefly as is appropriate in the discussion. Every panel is distinguished this panel is particularly distinguished at the institute of economics and each persons battery is in front of you. But we have known each other for that long from the Carter Administration is a resident scholar and also very well known around town and the managing partner to say i knew his father next is my friend the director of the European Center for International Political economy in brussels. And the ppi that is wellestablished hear the the chief intellectual to modernize politics. So i will begin with the leadoff question would europeans your opinions quick. Everybody negative is listening the first point is that this is a period of opportunities lost. With no trade and services agreement. They are opportunities lost with the benefits that could have been had but losing something you might have had and trump has cedar miss power as the enormous power and he has to go back to congress with that unilateral power. However clear with the judiciary idol see any Court Challenges that are sustained there are checks and balances in the system the first is congress with respect to negotiating this and the second check is the Financial Market he will use these powers in the most draconian ways and to be a financial repercussions and the Financial Advisers would tell him that. And his desk would be overflowing with individually they are fairly small i dont see that as a macro problem but the fifth point is there is a is a conflict between trumps desire and decrease the trade deficit. With tax reform and infrastructure in defense spending. All of those pushup the deficit meanwhile the notion you can reduce the notion with the Bilateral Agreement but he can say it was because of trade negotiation items see any big implosion will lot of sound and light. Key made my task easy i agree with everything he said. [laughter] there is a much American Enterprise institute agreed with american obama a data speak with the institute but in my case he started pretty poorly running with the most protectionist rhetoric in modern times but he turned around within two years but that was because of the diplomatic and security situation as has happened with most of the credit president s whenever that Democratic Party was going in relation to trade they have read advised clinton and carter read a predisposition. So obama turned around but i dont think we will see that with this administration. For the first time republican president coming in with a group of economic pfizers peddling economic nonsense in my view. I have no hope so basically my view is that the direction i will not go over them individually and sectors of the tepee p. But it seems it is unfortunate with uh diplomatic and security future. Finally what will be fascinating to watch his what are the politics of trade . In the summer of 2015 the House Republicans voted we lost 50. Where does that stand now plaques in the number of geographic areas has delayed from a traditional support for more liberal trade agreements it is hard to know how that will play out but looking at the Republican Leadership in the house i dont think it has changed so the political dynamic is how that will play out or that radical change from mr. Trump or his advisers. I will stay stop there for as a slightly different angle you have to cut below the statements the underlying concerns. The river essays significant part of the American Public who have perceived trade policy over the last 50 years and has not focused enough on the implications. One camlet kathy trump agenda to get back from the extreme rhetoric to say they are looking for a time out search of a day are against multilateral deals so that flows from their perception they do from others in developing there is any thing wrong with the objective as it was done back in the 90s and obviously the administration used tpp to use nafta recently in canada. There are things there. I agree that trade is to segments and congress has their own views and the republican tax proposal which is poorly aimed at tax rates as with then its opportunities to eliminate what is controversial to come from the president. Many perceive to that there has been the focus of the jobs lost from the Worlds Largest trade deficit of 750 billion. We can search the Commerce Department records federal giving a figure to tout how they are created from 1 million of imports. And the atlanta scored two touchdowns figure you out if you figure out if they win or lose. But there are positive opportunities that the administration presumably has and to agree with the rhetoric. I have basked to provide a couple of comments on europes reaction. Push the button. The Trump Presidency is highly disruptive for european policy. There is a reason for that. I would even argue to say most it has not sunk in and i am pretty sure they think it is a bad dream able wake up and Michelle Obama is president. [laughter] but we have to start what is the nature of the partnership in europe . And if you think with of partnership of territory or conflict of economic values . Primarily it has been about values. We are friendly competitors but in terms of territory you could argue that they no longer see russia as a problem. This is the reason the number one reaction is primarily about the concern that it scares the living daylights out of Eastern Europe as a security guarantee that they cannot provide themselves. This is yet to see ken from china or japan but actually want the opposite that the United States must remain in europe rica not afford our programs because we have to spend money on defense. Also in terms of trade we have to bear in mind not only the u. S. Mission ship was completed at the end you could even argue there is no european trade it still looks for a narrative and also very much to find defined by tepee p. M. Although we dont know the exact window if what will take its place it is very clear that all negotiations with the Asian Pacific countries will come to a halt simply because every betty is waiting for the United States or the Trump Administration to react. How this has had an impact on the european, reaction on trumps presidency not only trade policy but also migration issues. We have braced for the worst and in a sense you could even say that we are starting to react to the United States trade policy a little bit like north korea. Its perfectly rational to be irrational and we as a power cannot deal with that kind of transactional policy because we will be asked to do things that we are not prepared to do and we dont have the power to do. And this basically i think leads to the last concern which we have seen now in the press is that the Trump Administration is now offering free trade negotiation with individual eu Member States. Thats legally technically and also politically impossible. Its based on the assumption that europe its better to divide and conquer and for the eu not exist but its also based on speculation. To think that the European Commission in brussels is europe , it is not. What is happening latest crisis is all that power has come back to the Member States and that means basically that europe is still actually united between the Member States. Divide and conquer with china and russia. Brexit is an anomaly. I could talk more about that but i think my time is up. Extremely provocative. Thank you very much. He happened to be in new york and contacted me and i said get down here and he did. We are very glad to have that perspective. Before we go to will cannot have someone close the doors, those doors there. Okay, going out too well will. Thanks bob and marshall is good to be here at the Georgetown Center again. I want to step back. We have so many titans of trade policy here across the transatlantic world at this table. Im not an economist even though ppi have advocated trade policys for a long time. I want to put Donald Trumps approach to trade into context. In his inaugural speech i learned something which is his worldview can be described as a coherent world and i dont agree with that at a Large National economic 70 years of internationalism predicated on trade liberalization, International Economic cooperation as a pillar of American Security and economic interests in the world. As part of our leadership strategy. Thats now being directly challenged by President Trump and mr. Bannon in favor of this America First idea which by the way used to be until trump resurrected it was a discredited idea in American History because it was connected with Charles Lindbergh on the eve of world war ii and it had a bad aura around it. Now mr. Trump, what is being proposed not just a radical change in trade policy. Its a radical change to our leadership world over seven decades since Franklin Roosevelt so this is huge. Now im not opposed to radical change necessarily if its based on sound empirical diagnosis of what is wrong with our economy. This is based on a misdiagnosis of the impact of trade and what is essential economic challenge facing our country but its also based on a canard that mr. Trump uses all the time that there has been a bipartisan conspiracy basically to negotiate bad trade agreements. We have had nothing but incompetent trade negotiators on both both sides republican and democrat who are dedicated to selling out america. This sounds like a great Conspiracy Theory that this is what i hear our president now saying. The third reason that this radical change doesnt make a lot of sense to me is that it is grounded in widespread popular support. So i think the first is that all of us who care about these issues have to defend objective reality against the assault that its under. Trade has not destroyed millions of manufacturing jobs. This comes straight out of the realm of alternative fact and we have to say that over and over again. Read delong has a great analysis out the shows since 1950 only 5 or less of manufacturing job loss in the United States reflect the big trade agreements mr. Trump talks about or chinas entry into the wto. Nonetheless theres acute stress on the country as jerry pointed out thats driving this change since again the distress israel but it is not really because of trade. It has more to do with technological change and the broad structural transformation of the economy and its much easier though instead of talking about these forces its easier to scapegoat for an trade and immigrants coming into the country. I do think its important to go to the heart of the problem which is in many ways to think about quality and how many ways to capture that i will talk about this great divergence that is basically demarcated by education attainment rate americans with College Degrees now account for 50 of household income. Thats up from 37 in 1991. Those were just a High School Degree or less that count for only 5 National Income down from 12 so it has been a calamity for people who work with their hands. This transformation away from the manufacturing and industrial economy to a postproduction analogy economy is a seismically traumatic for a lot of americans is to shift from an agrarian economy to an industrial economy over a century ago. That shift triggered the first populist revolt in American History. This shift is triggering a second part of the revolt not only United States but all across europe. In both cases elites and people in government have done a lousy job of helping people hit the hardest by this transition to find a new role in a changing economy and that is the root of the problem but now we are offering folks hope. Somehow we will bring back the economy when the real discourse ought to be how to create a new social compact for the economy. Want to talk a little more later about the changing Political Landscape and about how we need to change the way we talk about it. I dont think the classic free trade arguments are going to happen for a couple of years the United States and we need to stand our ground on trade and globalization but we do need to change your language. That is very profound. I hesitate to turn the conversation to quote details like the future of nafta or our relationships with china. This is so global and a sentence overwhelming that we could stick with the overall big picture but maybe i should ask if anyone wants to respond to what anybody else has said in that regard. Okay im going to change the pattern and asked the audience if they have got any questions about any aspect of this and we can go into more detail. Yes maam please identify yourself. Colleen graduated from msp. Thank you very much. I guess my question is more about our elected officials particularly those in congress. 100 years ago the republicans have the north and the democrats had the south and the republicans were more antitrade and the democrats were more pro trade. You referenced losing 50 republicans. I am sort of curious about the democrats. We only have 28 to thats a voted for it although the Democratic Party across the country is increasingly pro trade. Millennials are pro trade, immigrants, latinos so im just wondering if you think there is a shift in that if the democrats on the hill will reflect the increasing the democrats across the country that are increasingly pro trade or if you see some sort of shift like that . Its a great question and one point i want to make at the outset is donald trump talked a lot about the people and what they are demanding in his inaugural address which is kind of scary. He only talked about some people who are now have turned hard against trade or have not benefited from the economic lit up will economy for the last 20 plus years that when you look at whats happening across the country picture is not so bad at what has changed is the republican view. There are really shocking numbers during his last campaign basic liaquat the divide is between the elites and the rankandfile and the elites in the dimmer radack party are against trade influenced by trade and other Interest Groups the rankandfile democrats are solid majority who continue to say that on balance they think trade is a good thing for the country even though they do worry about job effects and hillarys voters were more pro trade and anybody else in the campaign. The republican side were now you have the elites of the establishment have been strongly pro trade but they have turned against that. I want to say im not sure we can look republican voting anytime soon to put in effect to check on mr. Trumps ideas on trade because those members of the Republican Caucus and the house and senate are looking over their shoulders at strongly trump core voters. Theres an opportunity for democrats to make headway because mr. Trump is so strongly antitrade and some of my friends are rediscovering arguments in favor of trade and global integration they used to be on the other side of the dais. I dont want to exaggerate that as long as the Interest Groups that are so dominant in washington, its going to be hard to scare up votes for trade agreement not that its going to be a big issue. I agree with will and talking about democratic voters but the last point you made is key. You may know more in terms of the dimmer critics circles than i do certainly that i cant see any movement of the House Democrats and this is what we are really talking about. I think thats key in terms of trade, away from against new Free Trade Agreements. Its still tied very much to labor and environmental groups and i dont see much change in that. On the republican side i agree that its probably going to be tough because i think House Republicans and senators except for graham and mccain are scared to death of tweets so they dont want to get tweeted. So its hard to know how the republicans, your typical republican member will react but i still think if you look at the rhetoric and the Republican Leadership and look beyond trade you cannot go along with some of the nonsense that trump and his people are putting out in that traditional Republican Values about pro market positions and less government. So there is a clash there and i actually dont know how that will work. Gary, im sorry. Thanks. I just want to while i agree with everything that has been said from a small Historical Perspective on this. If you go back to the ears of a 19th century and early 20th century trade was a really big issue in the u. S. And we have these periodic tariffs which would be more protectionist or less protectionist under wilson and more protectionist under the three republican president s in the 1920s who were all quite protectionist. That was the central debate. After the Second World War the strength of opinion on trade as a political issue dropped way down. Up until the selection this president ial election it was number eight or nine. Now what trump has done has elevated this back to the position of the position it had been the 1920s and earlier. That is really very interesting. Maybe it will return to where it was but certainly not as long as trump is in office. The other anomalous thing about this whole relationship is that back in the 20s trade imports and exports as a percentage of gdp was about eight or 9 . Now its about 25 so you might say objectively theres more reason for trade to be important but the recent trade is important to trump and his team is the deficit. The 500 billiondollar deficit trait thats only 2. 5 of gdp so if that goes away through some combination of policies it becomes an issue. Anybody else in the audience want to comment now . Go ahead. First you and then you. Trump got elected. Im sorry where you say your name quite. Trump got elected in a large part because he was able to switch the midwestern states that traditionally go for the democrats and make them vote for republicans of pennsylvania and michigan etc. And i think a big piece of that messaging their was saying tpp is a and nafta is a disaster and do you think future republicans can follow that . I know we have been talking about trump specifically but do you think other republicans will say the states that historically gone for the democrat democrats is to give up on trade and walk away from it and that will be the minority to 270 . Im glad you brought that up. Is going to be a great temptation. Republicans are worried about tweets nobody wants to get hit by one. The president ial one you sure dont. Right. But i just want to make this point. You know, what really moves and members motivate members is the polarization of american politics is such that most the most likely way anybody democrat or republican is going to lose their seat is not in a partisan battle. Its being a primary in their own party and right now 87 of republicans who have district carried by donald trump strongly approve a donald trump. Im really worried that the only way, the way, the likely way out of this dilemma is that we are going to have bad policies and we are going to have protectionist policies. We will go back and explode our relationship with mexico and nafta. We could get into trade war with china sandwich may have a bigger effect on our economy and we may have to relearn what we thought we knew about protectionism and work untilism and economic nationalism before we can change the political dynamic is happening. I would comment perhaps on the earlier question. I think that the reason labor has been actively opposed to trade agreements and trade policy is the concerns they have had that is essentially not been addressed. And i think in the context of the way ustr historically has operated they have typically looked to the interest of the companys which they are negotiating with which makes perfect sense. Companies are much more national and so oftentimes the soul Standing Party with an interest of what happens in america is not the company that the workers in the state or the local community and i know with tpp the reason there was such strong opposition was the fact on an issue that dealt with the auto sector where the Auto Companies had a few that was understandable for their global footprint and the unions had a few that was understandable for trying to keep jobs in america. Their view was as long as you have a situation where workers feel that their views are not incorporated into the policy that i think the democrats will completely have problems getting their members to come out in support of globalization. Id like to point out though that this administration, the Obama Administration was highly prolabor and it certainly took into account advancing the labor enforcement provisions of tpp which could come close i think to pushing republicans away from it. This prolabor administration as you are as likely to get and trade policy. Theres a point of view and i will come back to the gentleman in just a minute expressed by very distinguished writer and columnist now on the council of Foreign Relations who has published recently a book and i regret that i cant think of a title that the thesis is that this crisis, has been building for decades. In fact he cites a movement, a bill that was draconian in all its aspects. It was introduced in the 60s. Maybe the early 70s. It was a very serious attack on trade utilization movement and on legislation. And so his point is we have ignored this building catharsis, this populous dissent at our own peril and now it is on us, it is ascended upon us and you look for why that was. Is it the fault of the Business Community for not being more aggressive and helping funds trade adjustment assistance . Which in fact is underfunded and has been overlooked. It is quite a serious charge i think and im wondering if i could ask my colleagues whether they have an opinion on that point of view. I have to leave in on this one. Its been neglected with glee. We wrote a lot about it and im sure brookings did and im sure aei did and im sure all institutes would have written on this issue of the dislocated American Worker. Heres the core issue. Well gave a figure that is a little higher than what he gave but a very small percentage of workers are dislocated because of trade. A very large percentage, the dislocation as 4 million workers a year. A very large percentage like 80 or 85 or 90 . Now the problem with trade adjustment assistance in such programs that we have which are the least generous and the most of any advanced country is that they have been targeted in their own special stinginess on workers who are impacted by trade and come up with some petition which is about 70,000 workers a year. All of these millions of workers are getting really very little out of the government system feel neglected and someone like trump comes along or sanders basically saying hey blame it all on trade and create this irrational hatred but the core issue goes right back, i work for secretary shultz way, way back, a great person and a great statesman but its just too expensive he said at the time, just too expensive to have a program that covers all the dislocated workers on such a scale that any other advanced country does. That would be the uk and france etc. Etc. I think that was a mistake that we had a buoyant economy so you could kind of go with it. Youve got to talk about multiple billions of dollars to deal with all of these dislocated people and until you do that you are going to have this golden opportunity for a populist politician. We shall see if congress rises to the problem of the moment. Do you want to comment . Just very briefly. I looked as well as gary on the u. S. Manufacturing and the thing is a truther its not automation. If you look at productivity, i speak like an economist because i am one but if you look at the productivity like you have seen in the United States is no well as many oecd countries the last 10 years automation is peony compared to the pc revolution. Nothing compared to a manufacturing revolution that took place when real heavy machinery replaced workers. So if you start to plot trade and especially china verses manufacturing jobs actually the effect is to reverse, its actually the other way around. The chinese demand american goods. They needed in order to grow their economy and if you look at google shares verses unemployment in the United States you will see a reverse relation as well. The main jobkilling in manufacturing is actually service. Most jobs were never lost. They were just upgraded to get a think about it look at the previous generation. You are maybe working on a factory floor but suddenly you are an assistant Service Manager and thats actually most of how Service Manufacturing jobs were lost in the United States and europe. They were never really lost and i think its an important point to remember. That goes to the first question we are hearing about the merits of trade so with a record low unemployment that we see now in most of western europe as well as the United States in the Historical Context its relatively low. Why is this an issue now exi think its a narrative problem and i think as will was pointing out its a question about communication and its a question about tweets. One thing that i would say which is quite unique with a debate that we have now here in the United States because this debate around trade and inequality happens globally. Theres one thing thats unique with the debate in the United States. The income inequality in the rest of the world we are talking about a dynamic economy. How are we going to get ahead click some people say we never will but its only the United States where we can say we dont want to have income increases like tpp because we cant redistribute it fairly. Its like saying okay we cannot have any kind of income increase because it will not be fair to manufacturing and and the working people. Its almost like a lost cause and i think that was a surprising element from the other countrys point of view. The immigration speech of donald trump was for us marxist. If you are placed the American Worker you have a template for a socialist and extreme left speech in china as well as europe. So its only in those corners you will find that narrative. Thats the main difference. Jerry. Now surprisingly this causes consternation. One of the reasons i think nasa has been in the eye of a lot of people who supported trump is an issue that most economists who dont either recognize or acknowledge. All that is however many jobs have been lost to mexico you would be hard pressed to find and manufacturing job that hasnt been threatened to be moved to mexico for purposes of keeping wages down to mexico or china or other countries. I used to be in business before he became a lawyer and i can tell you it happened all the time. The Tipping Point that happen in this election was basically you had 40 years of basically flat income for working men and women in the country and there are lots of pictures that say this is trade. Whether or not economists can agree that trade costs jobs it certainly cost wages. The ability to move jobs or the ability to threaten jobs cost wages to a lot of people and that is a factor. I dont agree with gary that we have done a poor job in the country in terms of having a social safety net and an Education System to help people move on if they lose their jobs forward ever reason. It sounds like i will come back to you just to be fair. Im from washington state. We are very trade dependent. Can you hear me . You have to hold it up. We also have views on. Wto had the unique welcome to but we are one of the most trade friendly states in the union and we benefit from Exportimport Bank quite a bit not just bullying but also from suppliers further down on the supply chain. So im curious and i hear a lot of resignation and some doom and gloom in what you are saying right now. For the benefit. You are very perceptive. For the benefit of the greatest state of the union what can we do to advocate and not just react to some of these policies that we dont know yet . Im thinking about particular exim bank. How do we make sure that doesnt suffer like ttip and all of the other things that we liked quite i dont want to get too lost in the exim bank. I understand its important you but its pretty marginal in terms of things that have been discussed here. If we have the best worker adjustment programs in the world but we still have been able to withstand the lure of cheap labor from mexico . I began work at the u. S. Chamber of commerce decades ago in the 60s and then we were beginning to deal with the problem. The chambers position was well look its trade. Its the operation of the free market and so they are paying people a dollar an hour or whatever it is and we cant stand in the way of that. Thats the way business is conducted and it makes sense because we can make Cheaper Products for the market etc. And we are all familiar with that but that is is that part of the problem . Was that the wrong policy but should we have allowed those manufacturing facilities . Was that a way to maintain american jobs or does it come down secretary shultz bad decision or an appropriate decision or the position of the Business Leadership which i understand has not wanted like shultz not wanted to appropriate the money necessary for a comprehensive serious trade adjustment system program. Would cost billions of dollars but when i talk, just a half a second longer when i talked to representatives in washington senior representatives at ge and ibm and others, they say, and i ask about this issue their response all their response all of them is to say what they do, what ibm does and what ge does to retrain. We spend more money on that and then they will cite they do spend a huge amount of money in training and retraining workers new ones and existing ones for jobs that they need and i can certainly understand that but thats not the response of the national. I dont hear anything in the foreign policies assisted Labor Department we want to gas up your programs really a pat on this panel a woman very able assistant secretary depp reedy assistant secretary trade assistance from the Labor Department. They are very serious folks and they have 49,000 cases last year of individuals, 49,000 cases but as gary says thats a drop in the bucket. Their very serious people but thats not going to do it. Im wondering and i dont know what the question is here will suggested its not the same kind but do we have to face a catastrophe that this is all going to come down to the disadvantage the huge disadvantage of the American Worker and the consumer and we just have to learn a lesson like we learned it earlier. Its a down to that . I dont think theres response to that. Im going to turn to gary. What is the way we are talking about . What is the proposition . The point of the implosion was we get the trade if i understand it but thats one thing that you are talking about the more general question of trade on income inequality and the ways to separate those. The first one i can pick up after you but go ahead. The kind of wandered in all kinds of directions. Just to come back to your question let me say a word for the exim bank. Im associated with that. Its absolutely ridiculous that we face it out. I agree with bob that its marginal but its an important margin and every other advanced country is a much larger bank and we have and now the bank is basically a business. If you are pro export you should told Jeff Sessions because hes inured administration to get in the exim bank as opposed to the senate. So maybe we could do something about that. I agree its marginal. The big thing is the Exchange Rate. We have had an overvalued Exchange Rate in the u. S. Dollar for 20 years or more and that is the biggest single reason that within our control thats why we have this continuing deficit of 500 billion which is led to all this political of people. Who controls the Exchange Rate . It was mentioned in the campaign. The Federal Reserve and the Exchange Rate is in the humphreyhawkins bill. Nobody notices it when its there. Those two agencies together have everything to say about the Exchange Rate and they have not said it was about it right under the Obama Administration in the george w. Bush administration, just let it go. We have these persistence trade deficits which is quite unfortunate. Maybe just to put a final number on what bob said the actual expenditure on trade adjustment assistance is a tiny program is less than half a billion dollars. This is ridiculous. On the xm, very briefly on the xm. I think xm is the measure that most people use. Its one of those permissive things. There is one complication. Washington actually went after the european xm bank over boeing thats number one. And number two is europe and the United States together. It is one of the major irritants of national trade. Im not advocating and im not a big fan of political loans in europe. I think everyone on this panel will vouch for that but overall i think its a doubleedged sword and we would need to think about what kind of implications that would have. I think will is next. I think we need to change the language we talk about these policies. I think trade adjustment is something we ought to throw in the trash can for a wild because its marginal. Nobody cares about it. It doesnt move the dial at all and both terry and gary are both right. Both parties have unconscionably ignored since 2000 nonworking on workingclass and quite frankly white workingclass people of structural economic transformation. Its nothing against trade policy. They been feeling the results of policies since 2000 and that has done nothing, you bring them downward mobility stagnant wages and the sense of being culturally and golf store displaced. They have totally withdrawn confidence in Government Policies on trade but also trade adjustment. I believe in any of that. We needed 10 times bigger offer than that. Its got to be a new social contract where we actually steer dollars to the stricken areas of the United States. We know where they are. They are places where people voted in rural areas and smalltown areas where the economy was doing the worst. Hillary clinton swept the big cities where the new economy is doing pretty well. So we know the geography of distress here and we know the demography. We need largescale policy intervention to Steer Economic Development dollars, Human Capital development dollars. We are even thinking about Community Stabilization funds that help her serve existing Production Capacity to at least slow down the rush of a Production Capacity that these communities have as they make adjustments. We need to go a lot farther on the trade adjustment thinking about largescale intervention at the level of a social contract its going to insurer that people with lower levels of education can still get middle income jobs and not have this perennial fear of not getting into or falling out of the middle class. Claude wanted to comment and. I would like to shift to looking at somebody the questions we havent gotten to. That is looking at what is the administration going to be doing in the next month in terms of trade and you asked the question one of the things i id must say that did surprise me a new that they were going to change trade but i thought trade as opposed to other areas they might move more slowly. They are really right outofthebox ready to go with a lot of things and we all have our opinions of where exactly they are going to go but i think its probably not surprising because in a sense a lot of the things that trump is dealing with that he doesnt have a lot of background and whether dealing with iran or iraq or the things, record of 20 years and if you subsidize this substitute china for japan you can see the same things. So he is ready to go. It looks as if for instance as a lot of you probably argue no they have party notified canada and mexico. They have already gone out of the tpp and they are thinking about but before you get to tpp i should say you have heard this week within the white house they are looking at all of the Free Trade Agreements that the United States have. At least five iraqi had the idea that they need to upgrade their view. Any of the trade agreements that are already on the table so this is already working and i should say we forget most of the trump people are not in place yet but with the secretary of commerce and mr. Dove bar in the white house they can move forward in use the ustr staff to do that. So youve got that. Another couple of points about the tpp, theres the question of whether you could replace it. You cannot replace the tpp with bilaterals. You can certainly go back and build up and here is a guy who is talked about the art of the deal. It is a very good deal with some 11 other countries. They scrapped it so now they have to go back and swath through whether they want to do this in order to rebuild it. From an economists point of view i should point out that Bilateral Agreement while they are sometimes necessary if you cant get beyond that are the worst at second or third best. What you are doing is there was this debate in the 1990s about the spaghetti bowl. Thats great for the two countries was not great for the countries on the outside and for the system because you are getting all kinds of rules. This is a retrograde step. I had hoped and wrote about this a month ago that the tpp countries outside of the noneu countries would see the benefits going on in putting together a tpp without the United States. They couldnt do it under those terms but the reason i argue this if you are japan or malaysia or australia or whatever, whichever country you have party taking the political hate or whatever you gave up for whatever sensitive issue you had with the tpp and you have the potential benefits of that to. A country like vietnam took a lot of flak for some of the things it did internally. It made sense. I doubt thats going to happen. Youve got australia and chilly back talking about what only do this . I think its going to be japan and the pressure on japan is going to go in the other direction i think its the administration as already signaled that it wants to begin talking with japan about a Bilateral Agreement. They will move forward and they talk about they want something positive to drop in her their lap which is not important economically. The United Kingdom they certainly would say it will be two years at least before the uk is ready to sign anything. So let me me that they are and talk about whats actually going to happen. What is going to happen . To follow up on the point on japan i would say it i agree with you fully on every point. If your primary interest of tpp was lets say not to build in the asiapacific alliance not get rid of the rules of origin but to a usjapan fta pickup is they there were some voices and their conspiracy theories and alternative theories and alternative facts but regardless of what you think if you think there is merit in trying to open with japan and whatever means possible its inevitable that the United States is in the canada and mexico and australia to open up japan. You can do it bilaterally. You might even run the risk of diluting your interest because canada and australia visavis japan is going to be very different from the United States. This is also something we have seen now when europe tried to negotiate with japan with zero overlap in terms of interests of tpp doesnt help us. There were certainly voices in the Republican Party who were opposing tpp that said we should do it bilaterally with japan first. That i think is very important. I have two further questions. One is in terms of the trade agenda and of course if you drum up so much leverage against china now as the Trump Administration has seemed to do if you follow the template on what happens during the 80s with japan, we landed into a grand bargain. It wasnt a Free Trade Agreement that there were a number of exchange that led to the ver etc. So the question is are we heading toward a grand bargain with china. You could say the only person that would have the credibility to do a trade deal with china would be trump. I dont think any other president person would get away with it. The second question is the problem is we are running out the clock. If we are trying to look into the europe hobbling again europe will probably strike an alliance with china not today and not within three years but its inevitable question because europe and the United States have run a Major Trading Packer Packer factor. Just a simple fact. Wow. Terry first. Ostensibly i think japan is an interesting upside. The row question i guess is how much of the innovation from tpp are incorporated in a bilateral from. Nafta i think will be more difficult simply because of the atmospherics around it. And around china take a look at the 2006 ustr reporter and wto compliance. There is Something Like 35 or 40 areas of problem with china. In my view what they really says is we lost the ability that we had before to do the kind of big allegro deal because er 80s are supposedly off the table if we are going to be compliant with the wto which obviously is a major problem. But i think if one is going to have a positive relationship with china that addresses the underlying concern are all the barriers that continue to make a 31 or 41 trade relationship between us and them that really requires you to kind of step away from the traditional model and whether that be a managed trade situation which obviously is not desirable that maybe the one that would create the least friction in terms of their relationship. Coming back to japan senator hatch has been very keen on a usjapan bilateral trade and hes a very powerful voice in the country and in the Congress However there are a couple of difficulties i would emphasize. One in a bilateral the u. S. Would want more than what was negotiated in the transpacific partnership. It means substantially more reduction of barriers on agriculture, which is very politically difficult in japan and substantially greater opening up of services which service in japan is quite restricted. So that is what the u. S. Would want but what would the u. S. Give . How could the u. S. Under trump give greater access in the auto market than in tpp . Or greater access than any other manufacturing area . Its a complete contradiction in terms of the standard. You both give and get in mercantilist terms and approximate amount andt terms oe kind of negotiation which President Trump seems to be aiming for in bilaterals. So i dont see that kind of a marriage made in heaven. What i can see, what i can see is you know one of these Economic Hardship agreements which has very little economic substance that is basically a coverup for the military alliance which is quite important for japan and that might he be outcome. A brief word on china and the suggestion that was kind of a nixon to china at trump to china. That is provocative than it does open the mind for sure but it comes to the reality which is with china in the last couple of years has become very much more restricted than it was before. Its become more restrictive and that seems to fit with the internal chinese dynamic. So maybe going onto one of your other questions the notion that china would take leadership, well in Infrastructure Spending they might take leadership in parts of asia but leadership the way the u. S. Plated in the postwar. Back which was open our market very generously to other countries that doesnt seem to be in the chinese. At the moment. So im pretty skeptical of substandard trade leadership though given the rhetoric and so forth i think it would be a nominal trade. In the last few minutes, lets talk briefly if we can about the border tax from the standpoint of maybe nafta and mexico and the wall. What do you think is going to happen . Im going to address this to gary because he has spent a lot of time on it. Do we need a border adjustment tax . I will try to be brief but it could be a couple of hours. A couple of days. The most important thing about tax reform, this is the first time in 30 years that the congress has had the political political with the white house to do Business Tax Reform so i surely hope the opportunity is not lost. The two most important things on tax reform in the business field are to get the corporate rate down so we are on par and hopefully more competitive than all of our trading partners and all the rest of the world and secondly to adopt a territorial system which has now become the norm in the world. We are again the outlier. The business on from the outliers are the two most important issues. The u. S. Has all sorts of wonderful teachers and advantages but taxes are not one of them. Thats the inversion and the transfer pricing and all of this kind of other stuff is a payment for a terrible Corporate Tax system. Those are the two important features. The border tax adjustment and what the leaders in the house came up with as a way to square the circle and the lynchpin to get these other two things. Maybe it is the lynchpin and maybe it isnt. Theres a Big Coalition against it. What i would urge the house advocates of this to do is come out fairly quickly with a readable template which deals with a couple of issues. One is the wto consistency. There are arguments for consistency but they have to be explained in plain language. Secondly the possibility of retaliation and what is the realistic chance of retaliation by china and by europe and other countries if we take this into effect. Do we slide into trade war that we didnt really want or is the retaliation very low and the retaliation, there are two main forms that it could take probably a large number of forms but one is u. S. Exports and the other would be a mirror image of nonproduction of u. S. Exports to business in destination countries which was predicated on u. S. Nondeducting imports of that country in its Business Access in other words a possibility today think those are two realistic things that have to be thought about as we go forward. Does anyone else want to comment on that . Lets start with well and then down the table. Press your button. There are two big tax proposals on the table. There is trump sender is ryans and they are not the same. Trump thinks ryans border tax adjustment was very complicated and what he wants to do is get the rates down dramatically but you know who knows im not a republican. Maybe they will find a way to reconcile these differences and do something about it but i want to back up to the previous discussion because i think its relative here. Trump is doing exactly what he said he was going to do and his top trade targets were mexico and china. Hes going to go after them first. Now the question is what is he thinking . He says nafta is the worst trade agreement ever written in Human History and the tpp is the worst one. The iran agreement is the worst agreement. In any case what is it that really bugs them . Wilbur ross has been more precise and he is targeted attacks deductibility of mexican exports to the United States and the opposite going from u. S. Exports to mexico. That suggests that it could be drawn to a border adjustment tax disguised by some other name as a trade measure and that is to even the Playing Field with mexico but clearly he or wilbur ross are looking at the tax issue as a way in which countries like texaco get a competitive advantage over the United States. I will say if you look at, well i think, you have covered it very well so ill look at the additional three entities japan, china and europe and what will they do . Japan is not a big issue per se, the reason being its not and exporting country. Theyre running a trade deficit. And i applied the house for coming up with the concept back and that this to be found and i think that is quite the remarkable remarkable but not unexpected but in fact, the combination of tariffs are comparable to what they wirth at the end of world war two. With those same barriers to entry. But to make the political point clearly the House Republican speaker ryan listening again and again put this forward in part as then attempt to defend deflect from the unilateral actions. It will not work. The trump demonstration is Going Forward now with action and it will take a while. We have not even heard from the senate yet. By pointing is at least that theory from the Trump Administration whiff those unilateral actions will not work. We will see this one where the other. You will not deflect them from doing what theyre going to do unilaterally with the tax debate. I thought you were going to call time. The points made by others are totally irrelevant relevant and when the leading cases came up like the emphysema case and we tried to do something to end taxes and that was shot down both times with the border tax adjustment. That was a long time ago and they will adjust. Fin day exchangerate has not adjusted. So we will comeback to this concept and i just hope in the battle because the Business Community is lining up for and against with the tremendous pitch aho for and against that we do want to look over that getting our rates down and the territorial system. What a wonderful panel. We are clear and have some ideas but it is so complex and fascinating in its complexity. [applause] [inaudible conversations]