Coming up, a conversation on International Trade relations with chair Jared Bernstein. It is hosted by the council on Foreign Relations. , i am Matthew Goodman , the director of the greenberg i Matthew Goodman, director of studies and as of two seconds ago im the director of the real econ initiative that we are rolling out today here at cfl r. Welcome to those of you in the room and those of you online as we look at reimagining American Economic leadership. Brainchild of mike roman said he wanted to emphasize a number of costcutting and this is the first we are rolling out. Make will have a chance to explain this in his own words, but i think we would agree there were two fundamental premises. It matters for americans and advancing u. S. Interests, but second ramos is a lot of things have changed in the world after world war ii, and American Economic leadership is going to look different over the years and decades ahead. I think of really, as a platform about what the challenges are what approaches would best serve u. S. Interests. You hear more about the background in the short video. But let me just highlight three things were going to be doing. Were doing a listening tour, if we are going to move forward my colleague and i traveled were going to wisconsin were also planning and outside views hope to get some canadian tough love and the second thing you can see all this on our new website. Life is full of tradeoffs. Third, we are deepening and expanding on three key policy areas. Trade and investment, development, Economic Security that basically deals with hightechnology leakage. Let me explain the run of show. We will play a short introduction three video before introducing our keynote speaker, we will have a brief conversation and we will hopefully have time, and then mike will be joined on stage who will moderate a discussion and again you will take questions from the online we will end at 11 15 and for those in person who stay afterwards there will be coffee outside in the foyer. A personal note let me end by saying i feel i was kind of put on this earth to work on this project. It is a complicated point that those of you who know me understand why i said it and i am grateful to mike for giving me the opportunity and to my colleagues for their help. As you will hear mike say in the video, this is a huge undertaking that will not be done quickly, it is a multiyear, multidimensional project and we cannot do it alone. 19 cannot do it alone. We will need partners like all of you in the room and online so we very much want you to provide input and now i will give you the email address you can write to to give us input. Realecon cfr. Org. With that i look forward to working with you on this exciting project and please roll the videotape. Years ago emerging from the devastation of the Great Depression and world war ii, the u. S. Led the creation of a new International Economic order. Europe and japan were rebuilt. The Global Economy was remade with the intense of securing peace and prosperity. Billions were lifted out of poverty. Innovation flourished worldwide. In the past few decades seat the seams of the system have been beginning to fray. At home we see the disruption of industries and the impact it has on select communities. Rising income equality and weakening confidence in the promise of the american dream. We heard a growing skepticism about the theory and practice of global trade and investment. Not a good week for the wto, accused by critics of corporate greed. Worries about Economic Security have risen to the top of the agenda. There is a new rivalry between china and the united states. Around the world, new challenges from the specter of pandemics to the relentless march of Climate Change, all of which threaten to reverse the progress we have made. Many policies and institutions established 80 years ago seem in desperate need of reform. What we need is a rigorous look at the strength and limitation of the system, a factbased analysis of current challenges and generation of new approaches for the path ahead and we need to ensure the issues are addressed not just in the Conference Rooms in washington or new york, but in collaboration with people representing a broad range of perspectives from across the country and around the world because no u. S. International Economic Policy can be sustained without the strong enduring the support of the american people. Today the council on Foreign Relations is watching is launching realecon. We begin by focusing on the following issues. Trade and investment. How do we benefit from economic integration while ensuring the benefits are probably unfairly shared . Development. How do we ensure we make continuous progress on alleviating poverty, improving Human Development opportunities and addressing emerging challenges like Climate Change . Economic security. How to protect National Security and per position in the u. S. To compete with china and deal with other risks including the pursuit of industrial policy . In all of these areas, we will ask why it matters, what is at stake for americans, and one of the tradeoffs involved in pursuing alternative options . Reimagining American Economic leadership for the next 80 years is no easy or quick task and it will require ongoing engagement with an contribution from a wide range of partners. We hope you will join us on this journey. [applause] mike what a goodlooking guy that was. Thank you for being here. We have a full room here in washington and about 350 people online. Thank you, matt, matt has been the driving force behind the Initiative Since joining the council six months ago or so. I worked with him for years at the nsc and we are very lucky to have him here at cfr. The video laid out much of what the initiative is about and i thought i would take a couple of minutes this morning to give broader rationale behind the initiative before introducing our keynote speaker. We are collectively witnessing a remarkable period in world history. 80 years ago the u. S. Led an effort to create an International System built on democracy, liberalism and marketbased economics accompanied by the advent of technology that spurred on global innovation. Now all elements are being questioned. Democracy at risk. Liberalism is under siege with the rise of authoritarianism. Globalization is subject to scrutiny and criticism. This reflects a challenge to u. S. Leadership or at least how the leadership has been exercised in the last 80 years. Today we are talking about economic will leadership, reimagining American Economic leadership but there is an assumption that American Leadership matters to the world and to americans and we should pressure test that assumption. Some argue the u. S. Does not need to lead or engage. They argue doing so runs the risk of embroiling us in other countries problems and at the expense of the interest of americans. It is not a new argument. Isolationism traces back to the founding of the republic. George washingtons farewell address and warning about entangling alliances. He was during world war i and world war ii and raised again after the second world war. It is perhaps the driving force behind the creation of the council of Foreign Relations 103 years ago and yet time and again it has become clear to the American Public that despite being protected by the oceans, the interest of the u. S. Cannot be separated from the rest of the world. It has never been more true than today. Take trade. Support for trade today is robust and bipartisan. 74 of americans say is good for the economy. 80 say it is good for every day consumers and the standard of living. 63 say trade is good for creating u. S. Jobs, up from 38 20 years ago. But you would not know that from the politics of trade. What they demonstrate is that whatever the broad economic merits of trade are, reality and perception of the acute cost, dislocation and wage competition are much more politically salient. Trade and is just one pillar of this initiative. Development and Economic Security are the others. We have very interesting and difficult questions ahead of us. How do we harvest the benefits of trade and investment will ensure the benefits are probably unfairly distributed . How do we address the distributional consequences of trade and investment and ensure society has the tools necessary to thrive in a rapidly changing economy, whether the changes driven by trade or technology . How do we most effectively address the challenges faced by developing countries which left unaddressed will most certainly become challenges for developed countries, whether it be through Climate Change, forced migration, or other challenges . How do we deal with the challenge of competing economically, politically, with china and ensure we retain the necessary dynamism and innovation to succeed in that competition . What role should the state play in that effort in terms of promoting industries, restricting exports, screening investments . The potential answers to the question all post tradeoffs. Ambassador lighthizer published a book last year called no trade is free. I think a better title might have been no trade policy is very. We dislike being so dependent on china for so many products but also hate the high cost of living and inflation. Both are politically unpopular. But the actions taken to reduce dependency on china will likely raise prices on goods. There is a tradeoff to be made. Arguments can be made on both sides but we should not pretend one approach or the other is free. There is a convergence, we see the convergence of National Security and economics and it is clear efficiency, low cost production on competition is not the only value to be sought from the organization of supply chains. There is redundancy, resilience, security. They are all objective legitimate laudable objectives to pursue but all come at a cost. There are tradeoffs to be made and we should have that discussion and help policymakers on the public way the costs and benefits of the various approaches. To be successful, the initiative needs input from a diverse range of voices from around the country and different political and Economic Perspectives and it is important to ground the discussion in a factbased analysis, not polemics. Debate and disagreement, not partisanship and nuance. These will all be virtuals virtues as we reimagine American Economic leadership for the rest of the century and that brings us to our program today. We are delighted to have Jared Bernstein. You are all familiar with his background. A fellow at multiple think tanks. An accomplished jazz musician and double bassist. I have had the privilege of knowing and working with jared for many years and i think it is fair to say we have not always agreed. When i published an article on the progressive case for trade, he felt the need to publish a rebuttal. And that is a good thing, although i am not sure i felt that way at the time. While disagree, he has never been disagreeable. I was grateful when he made the following notation in his article. Full disclosure, i have worked with mike over the years and know him to be an honest, knowledgeable person. [laughter] thank you, jared. To be successful, the initiative will require honest and knowledgeable dialogue and those are sentiments very much behind realecon, to encourage open, frank, constructive dialogue. The challenge we face now demands no less and with that i would like to invite jerry to the podium for some opening remarks. Jared to the podium for some opening remarks. [applause] Jared Bernstein thank you. I do not remember that back and forth. I have to go back and read it. I first of all would like to associate myself with mikes introductory comments. I thought they were spot on and it sounds like realecon is exactly what we need right now. So i personally would have called it inflationadjusted econ, but i like where you landed. Again, thank you to see you to the cfr for inviting me to speak. I would like to share a few thoughts about how we and the Biden Administration think about international Economic Leadership. The cfr has done some of the most thoughtful work in this space. I think one of the most valuable and consistent attributes of your work as i read it, and i have done so for decades, is no matter how deep you go into the policy reads, questions around International Leadership pervade the work so i am pleased to be in your company at this sensitive time in political economics when different approaches to leadership are on offer. A leadership agenda stems from the values of the present. It has been my privilege to work on Economic Policy with President Biden for many years and his values are shaped by the view that help that after helping to bake the economic pie, you deserve to have a fair slice. That carries through to our International Work as well. To be clear, building a strong inclusive economy that grows from the middle out and bottom up cannot occur in a global vacuum. The president s project to reestablish the u. S. Is Global Partner to our many friends in pursuit of our joint goals began day one and is ongoing. When it comes to International Trade, we have been explicit about ways in which our trade policy differs from those of previous administrations, a point i will unpack in a moment, but any idea that we favor are unfounded. Domestically it elevates the importance of worker empowerment and Bargaining Power which in policy terms translates into full employment as a central macroeconomic role supporting unions and ensuring workers from all walks of life will have the opportunity to achieve their economic potential. In one of his first economic speeches, the president stressed the importance of getting the job market back to full employment, mentioning the phrase five times in an early speech. My guess is you have to go back decades to find another president with that much and fittest, one that is so fundamental to inclusive growth agenda and anyone who tracks the numbers knows it is not just rhetoric, not only has the Unemployment Rate been below 4 for over two years amidst historically strong job creation, but we have seen inflation come down two thirds from the peak over the same period. Our work on lower prices is far from done. We have a costcutting agenda i am happy to discuss. Prominent economist assured us we could achieve this much disinflation without giving up numerous points of unemployment and growth but worker policy implies we do not lower inflation on the backs of working people, instead we help build out the economy supplyside. It is a joint project with the private sector. Ca analysis of the last nearly two years of disinflation found supplyside improvements, supply chain, labor supply, was the crucial ingredient to bringing down price pressures by maintaining above trend growth and full Employment Labor markets. Another key ingredient meant, the president does not just talk the talk on unions, he walks the walk and he does so on the picket line. Of interest to this audience is how we map our agenda up to International Trade. Americans are not just consumers, they are also workers and our communities are centered around and identify with productive work. In this regard communities get hollowed out due to competition with lowwage lowprice exporters is a huge body blow to our politics. And the old economist adage, dont worry, people can just relocate to places with more Economic Activity, is now being seen as the insult it is. That is one reason for our intention to make sure the Domestic Industries we help stand up are geographically dispersed. Archery deals and trade framework should embody Worker Centers values and promote International Labor rights. Consider the usmca Rapid Response labor mechanism. Since 2021 the u. S. Has invoked to the mechanism 18 times at different work bases. As a result the u. S. Has achieved improved outcomes for thousands of mexican workers, millions have been paid to them, more workers are represented by independent unions, there have been more free and Fair Union Elections and unions have successfully negotiated for higher wages and improved font improve policies at facilities. They are key areas where we must work with International Friends to achieve more resilient supply chains and mount a joint force attack on Climate Change. The pandemic taught anyone who was paying attention of the need to achieve far better supply chain resilience, a goal that requires domestic investment and global cooperation. Given the risk posed by china of the ongoing reallocation of trade away from china more toward mexico and vietnam has been welcome but we must be mindful of chinas increased production in those countries. The fight against Climate Change is an important area of global competition and our administration has frameworks to promote climate goals between the u. S. And partner countries. The minerals in agreement with japan enables the countries to strengthen critical mineral supply chains using best practices in labor and environmental standards. The Australia United States compact is designed to coordinate on several issues vital to clean energy and critical mineral supply chains. And the partnership with 13 countries targets financial and diplomatic support for projects along the mineral supply chain. In closing these comments, let me stress one last area where global Economic Leadership is so important to the president and the nation. Whether or not we face the task of defending democracy against the growing threat of authoritarianism. While the threat engendered by the conflict has long played out often in violent ways, let me say a few words about why present preserving democratic rights and values and institutions is so important to just and fair economic outcomes. There is a compelling literature documenting the negative relationship between rising threats to civil liberties, rule of law, fair elections, peaceful transfer of power and on the other hand, economic outcome. Democracies tend to have Political Institutions that credibly commit to access promise that enables stronger enforcement of basic ownership rights that in no that enhance innovation and risktaking. Because of the checks and balances on the governments ability our institutions are growth enhancing because they make it safer to invest. Another important Risk Institution at risk is an independent central bank. History is replete with examples of economies brought to their needs because the independence of the central bank was violated without regard for longerterm damages. Democratic governance yields progrowth social outcomes. Under authoritarian regimes democracies are more likely to invest in Human Capital with positive longterm effects of accountability. Policies improve broad placed growth outcomes. With that brief overview of what Economic Leadership means to our administration, i look forward to our discussion. Thank you. [applause] thank you, jared. I really appreciate you coming here, notwithstanding notwithstanding our disagreements in the past. Let me start with the macro picture. The last couple of years have been remarkable. Inflation came down by two thirds. Unemployment down under 4 your job growth was strong. It is the phillips curve dead . Did economist get it wrong . Is there Something Else going on in the economy that has not generally been accounted for . How do you explain . This could take up all of our time but i will try to be brief because this is something macroeconomists think about all the time these days. I think pandemic and postpandemic economics are unique. Global pandemic. I would not say the phillips curve is dead, i would say the simple linear phillips curve is comatose and the nonlinear phillips curve, meaning what happens in the relationship between unemployment or Economic Activity inflation looks pretty different when economies are bumping up against the full capacity. What happens what happened in the pandemic was you have Strong Demand both because people had boosted their savings considerably from not interacting within person services, going on vacations, restaurants, that along with fiscal and monetary support colliding headon with Global Supply constraints when Consumer Preferences were shifting directly to that part of the supply chain boast constrained. It led to a nonlinearity in the phillips curve, which is bad and good. As inflation goes up very quickly, the good part is you can slide down the curve with out giving up much in terms of demand destruction and that is what we have seen. One reason why people say the last mile is the hardest is because you are moving from the vertical part of the curve where the sacrifice ratio is very low to the flatter part where it is higher. That is something i think people reasonably put forth. That suggest it really was a temporary set of events. You could even say transitory. Not a significant change in productivity being captured by normal economic theory. If anything, productivity seems to have accelerated but i need to see years of that before i believe it. Lets talk about industrial policy. It is one of the areas by the administration. State intervention in the economy has had a mixed reaction. Chips act, ira, Financial Security based on market failures, export controls in foreign investments, what and so far the chips act in particular, early days, generally successful at least as of now. How do you think about, what are the parameters of industrial policy Going Forward if we can focus on a few specific sectors now are there likely to be more or where does one draw the line between what should be the promise . I think the most important couple of words in your question is market failures. There are areas where markets have failed to sufficiently invest. Obviously clean energy is the default i think most people would recognize. But as you stated in your comments, nonresilient supply chains represent another. And the fact that we used to produce 40 of the worlds chips and now we are down to 10 in an area that looks of crucial importance for national and Economic Security is a motivator for chips and geopolitical conflict that both of us alluded to particularly with china in the International Trade space also suggests two reasons for an International Policy that i think looks more like our own. So the question is, i was at the Economic Policy institute for years, probably writing the articles that you had room for improvement. [laughter] seeing more market failures than other people around more corners, i think it is part of your question and the answer to your question or another way of reframing your question is do you think your administration is going to see more market failures than you have seen thus far . I do not know the answer but it is not obvious to me and i think the places we have hit are the most obvious ones that kind of jumped out at you if you have our framework which i tried to describe so i would not think they would necessarily be a bunch of expansions but i think another dimension of the question is to what extent does this have to be ongoing . To what extent does it plant seeds that allow it to then dial back and Public Investment because you have handed them the broad sector . They are all good chapters but one that speaks to this is on this very point in the Climate Change states that it analyzes what it takes for these types of investments to plant the seed such that the baton gets handed off to the private sector. It is an interesting model and when i think you might want to look at. We heard it about ppe in the middle of the pandemic, being on dependent on china for ppe, you can use pharmaceuticals and compounds that go into drugs, Critical Minerals is another, supply chain dependency is a market failure. Is it much of our existing market trading system for restoring and industrial policy . That is what i meant when i said we still very much appreciate the value of robust trade flows. I do think there is a dividing line hi wall to that of act. If you are asking me exactly where that line falls, thats a tough question that i dont know anyone has answer to. Powell is on one side of the line and advanced chips are on the others, but i dont know how far that gets you. The way i think of it, and it doesnt necessarily clarify it but something you said earlier in your comments is that we are happy to have other countries including china export disinflation. We dont want them to export industrialization. Finding out where that line goes is a dynamic project but ill feel pretty comfortable with where weve been thus far. In 2019 you publish and article in a well respected magazine called foreign affairs, where you called trumps trade war kurt clearly hurting tradable sectors of the u. S. Economy, especially manufacturing. The producers were suffering because of costly and complicated supply chain shifts in the trade war might induce a self inflicted recession. What happened, weve seen continuity and policy, the facts change, the situation change, or did we just change our minds . I think that the policy has very much changed. We are now actively spending both significant public and way were significantly private dollars, clean energy and chips and battery production. You can go back to hamiltons essay on manufacturers to understand the rationale for tariffs in that context. I was testifying the other day on the hill with secretary ellen , the question did not come to me but they were very sharp and pointed questions, it looks like some of the resources and the ira are going to foreign companies, we very much applaud someone coming over here, one of our friends, i should say, building factories here, that is the political and economic reality of the moment we are in. I think we have to be flexible and adjust our policies to meet industrial policy that was in the at all in place when i wrote that article. Last question before open it up to the floor here. Your address worker centric policies worker centered policies in your remarks. As we look back, there has been a particular lack of domestic policy over the course of decades focused on ensuring that workers can thrive in a rapidly changing economy whether its lifelong learning, transition assistance, we havent done very well as a government. If