Up to these electrical wires. So one statement might say guns should be allowed in school and some of the republicans, yes, and some of the democrats, no. Another statement said that roe v. Wade should be settled law, that kind of thing and they watched the center of the brain to see what activity had been activated. One amazing outcome of the study was that part sops on the left and right actually have brain and this was amazing outcome of the study but the second major outcome was in looking at the centers of the brain that are lit up when we look at the statements and lo and behold the centerses were not the centers of reason, it was the centers of em ohing which makes sense. I implore you to breath through your emotions or what i would like to try to do is look at policies from the poised view of outcomes. If a policy is intended to protect jobs, no matter how that policy may feel, the way we evaluate the policy is working is whether it protects jobs. Thats what i want to get to. I want to start with a little quiz which my kids at georgetown hate. You can remember mitt romneys Campaign Slogan . Believe in america. Yeah. So similar to make America Great again, trying to get at the same feeling that the sun has set on the american empire and that the next generation will not do as well as previous generations. And this is something that gets reflected back to us poll after poll after poll and we were moving into the obama and romney election, there was at least 80 million of advertising spent on negative china ads focused on trade in cleveland alone. You know, that would later be the site of the republican convention. Trade has been a contentious issue in elections but i would argue that in this election something more deep resinated in the electorate. If you look at the primaries, right, over 20 million voteers favorite and vote for the upstarts, over 20 million voters went for trump and went for sanders and a big reason why, i think, is trade. The two of them were very much aligned on trade and the thinking goes like this, the once great middle class of the United States has been hall lowed out by globalization and trade and the way to bring american jobs back from overseas is to start enforcing trade rules and raising tariffs, we heard that from Bernie Sanders and donald trump and we al heard frit both of the candidates, the desire to exit the transpacific partnership, the tpp. No matter whether you voted for President Trump or you voted for Hillary Clinton or Bernie Sanders, whoever, some of these arguments just hit home, right . I dont care if prices at walmart go up a little bit, these guys are stealing from america and are taking american jobs and darn, right, we should retaliate, if you look at the polling, very interesting polls, the pew poll that does the Attitude Survey, just a couple of years before the last election an Attitude Survey that looked at what is the worlds number one economic super power and they asked respondents from all over the world and the majority of americans said china because as World Economy super power and the majority of the brits said china, interesting, prebrexit and the majority of respondents from 26 countries at china, the only country that did not say china was china. Theres a reason for this. We can understand why we feel this potential about china bus all of the economists echo this point of view. Everyone who reads the newspaper you see china, the second largest economy, coma, now we have been told its the first largest economy. Anyone who is reading vanity fair in december 2015, january 2016, an article by renowned economist called the chinese century where he said china has surpassed the United States as the Worlds Largest economy. How could we not feel existential inks . How can you feel that the best days of america are behind us and try to make ourselves great again. China is the background to this desire. Where do we get this . Where does joseph say china is the number one economy, well, its based on numbers and this is why its difficult to get this across sound bites and bumper stickers but its important. Economies are sized and compared today using Gross Domestic Product and gdp was developed during the time of fdr. This was a metric developed as fdr was trying to calculate recovery. By adding up spending from across an economy, consumption, so how much did consumers spend, how much did the government spend, how much does businesses invest and assets. We add up the spending of the economy and then we add the value of exports, what we sell other countries and we subtract the value of import, we will get back to that in a second. But the notion of spending this is a metric that may have been applicable in 1930s but today in todays Global Economy is absurd and i will tell you why. If we were trying to compare our economic household size, for example, would we tally how much we spent last year and compare that . I had two girls and one of them had braces and summer camp and it was kind of a tough year, i spent 300,000 last year and you spent 400,000 therefore youre the larger household economically. Thats absurd. We would compare Balance Sheets just like in business. We compare our assets and our liabilities, how much do we own minus how much do we owe otherwise known as net worth. If we compare the National Wealth of the United States and china, we see that the u. S. Is 45 trillion wealthier than china. That includes our national debt, the famous 20 trilliondollar debt. By the way, china has a lot of debt too. So we subtract that from the Balance Sheet but all the United States is 45 trillion wealthier than china and if you look at the Household Level it is gap is even more. Federal reserve measures Household Wealth. The u. S. Household wealth is 82 trillion, china is 26 trillion. And the gap in National Wealth is growing not shrinking, okay, so america is becoming wealthier and wealthier while china stagnates. I would argue that this is a more relevant metric to size National Economies than gdp which not only is looking at, i think, arbitrary metric spending but we are also taking the chinese gdp numbers which all chinese officials know is absurd. Chinese officials dont even believe their own numbers. Its true. The last head of the Statistic Bureau was on trial for corruption and part of the reason is because Chinese Statistics are done at the local level, so imagine if all 50 states in america each had own statist call bureau and imagine if there was one party rule and if youre an official you get promoted based on how much gdp growth you have in your profits, so each province overstates and why do we know this, because you add up the numbers of the province in terms of gdp and that number is growing. The last job was a trillion dollar worth of delta between the national gdp and provinces and by the way, the provinces are growing faster than the National Poll as well which is a statist call impossibility. You cant grow faster than the whole. So its like the producers, you know, you cant sell more than a 100 more of anything and in china you you can. Officials dont believe that number and say its for reference only but the imf take this number as gospel and call collate with purchasing power parity, a unit of currency in beijing to a unit of currency in new york and thats how Joseph Stiglitz that somehow china is larger than us. Madeup books that are adjusted further with calculation that does not affect how economies really operate. Taking a step back if we look at National Wealth, the u. S. Is still far and away the worlds number one economic super power. No country is even close. Now, this whole debate about job s and trade is what is called the imbalance in trade. The fact that we buy more from china than we sell china has been labeled a huge crime against the u. S. In fact, it was called rape several times in the election. We also heard several surrogates like Jeff Sessions on the stump repeat this that trade imbalances kill jobs. Well, again, we go to the numbers. The amazing thing is that the world has accelerated so fast that very few of the products around us were made by one country. So if you look around the room, you know, this chandelier, those return air grills, the electrical high hats, the chair, the shoes, et cetera, in the old days when basic trade theory was aspoused by a by ricardo in 1830s, you make wine and i do clocks. We trade and we both benefit. These days the wine was probably made by country a, b, c and d and the cloth was made in collaboration by many, many countries. Yet our numbers have not kept up with globalization, so astoundingly we still count 100 of the value of the stuff we import from the last guy that shipped it to us. Thats wine for clothe but thats not how the world works today. Let me give you an example. You know, we all have Something Like this in our pockets. Now, because china was the last country that shipped this to us, this is counted 100 as a chinese value import to america, yet, if you break down the actual value added of the parts that go into this thing, you see that china actually represents about 10 of the value of one of these things, 10 for some noncritical comp components and assembly, our trade statistics distort chinas trade by making it look much bigger. Its called gross trade balances. And what we need to get to is something call value added trade balances. When you look at value added trade balances, you start to measure the value of the stuff that goes into products and when you do you start to see what a an important role, a vital role the United States has in the Global Supply chain and these valueadded numbers illuminate dynamic of regional trade and global trade, so we can see this in many, many things. If you look at, for example, the steel that went into these return air grills, chances are the steel came from a recycling plant probably in the rust belt. It could have been the plant that donald trump was speaking in front of on his speech on trade. You know, if you look at these shoes, chances are the hides came from america. So when you actually break down the value of our import, you see hidden inside the numbers is u. S. Value. The United States tends to add value at discreet parts of the global chain. Raw materials and finished goods and a smile those goods get sucked into china where theyre assembled and often reexported to us where we then support jobs on the other end to support transportation, retail, et cetera. You start to measure all of the jobs in the supply chain. You start to see that of every dollar we import in mexican goods, at least 40 cents is going to u. S. Firms that make the ingredients that went into the goods that do not get measured in the gross trade balance. And when you look at chinese import you see that at least 50 cents if not more goes to u. S. Companies for the inputs and also the firms that get these products to market. So that a dollar worth of goods that we import, in fact, a large share of that goes to supporting u. S. Jobs. Now, the whole basis of the trade imbalance argument, the trade imbalance that killed jobs is based on the notion that a dollar spent on import is not a dollar spent on u. S. Content and in fact, theres a single think tank in dc that specializes in the scholarship around trade imbalances and if you start to open your eyes, you will see that no matter where you follow in the political spectrum, if youre a proponent of tariffs, chances are you will be using this think Tank Research to support your conclusions that tariffs will protect jobs. This think tank is called the epi, Economic Policy instate and you will see it referred to numerous times in trump speeches on the stump and sanders speeches and also the graham bill, epi tends to be the think tank that is referred to. The reason why this is interesting is because epis numbers have been discredited by the bureau of labor statistics, so bls said, its never intended to use this way and the methodology assumes that for every dollar spent on imported goods is a dollar not spent on u. S. Value. So epi is based on gross trade and balances an therefore gives a false picture of trade balances and jobs. Where this really gets us into trouble is in bad policy decisions, so if youre looking at gross trade numbers, you say, well, we are getting barraged by solar panels. They raised tariffs on imported solar panels and if we were looking at the gross trade numbers between china and the u. S. We are getting creamed by solar paneled but panels but if we take a step back, you realize that theres a lot of u. S. Content in there. In fact, america is a net exporter to china in solar. Not in the panels, right, but if we go upstream, america does a design, an engineering, we also produce an export, the Raw Materials that goes into the panels, its made here. Its made in Washington State and other mining states. And the Capital Equipment that the chinese use to make the solar panels is made here so we ship the Raw Materials to china, we ship the Capital Equipment to china and then the panels are fabricated back here. So when we raise tariffs on those solar panels, you decrease the demand for the solar panels because they become more expensive and you therefore decrease the demand for the upstream american value. Less orders for Raw Materials this year, less order for Capital Equipment this year and thats why the Solar Panel Tariffs were a net job loss for the solar industry. But this is not unique to solar. Every industry that you look at, tires, steel, its the same dynamic. Every one job protected by tariff kills at least three other american jobs in other parts of the supply chain. It is no longer wine for cloth. We participate and you wind up inadvertently killing a whole bunch of other jobs. Why is this relevant for today . We are talking about tariffs, we are also talking about a border adjustment tax. So bored adjustment tax would be a tax on import at the border, but not a tax on exports. So we hear this is great for exports, it would stimulate exports and tax import as they should be, the problem goes back to the solar panel case. Look at cars, look at the auto industry. A typical car cross it is nafta border six or seven times in its manufacturing and a typical car thats imported from canada or mexico, usually canada has at least 60 auto parts in it. At least 60 of the content is u. S. Made. If you raise the prices on autos, right, by using that border adjustment tax to tax the import, youre going to depress the demand for the auto parts that go into those cars from u. S. Companies. Guess where those firms are . Mostly the rust belt, mostly michigan and pennsylvania. So we need to think about these policies less in terms of does it feel good, are we getting back at quote, unquote bad trading partners or are we actually doing what we say we are doing which is protecting jobs . I would argue that these protective tariffs do the opposite of what they say they are going to do. Now, briefly as we wrap up, what are we to think of china . If the United States is the World Economic super power by a long shot, what are we to make of this power that is militarizing on the South China Sea and that seems to be the key to many Foreign Policy puzzles around the world so the way we think about china needs to be on the ground and it needs to put aside the notions, the myths of the chinese manufacturing miracle. What you have in china is not so much a boom economy or a bust economy, all indicators point to a stagnating economy, stagnating economy, so we have three aspects of that economy that make it stagnating and is stagnating now and one is bad demographics, so youve got decades of the one child policy that have tipped the balance of demographics and now china has more elderly than workingage population which is what happened in japan and which was one of the drivers of the last decade. Folks who do business on the ground in china are saying that labor prices are going up and up and up and part of that because the labor pool is shrinking and the qualified labor pool is smaller than that. The second aspect of stagnating economy is chinas manufacturing platform. Its very different from ours and when we read tom freedman we assume that its a flat world adder we can push a button and china can make anything more cheaply. Thats not the case. Tell that to the people that bought the San Francisco bay bridge from the chinese. When you look at the actual value chain, the way that china makes things you see that china has a highly risky production platform. So what might take us three or four players to make a product from beginning to end will still take china 15, 16, 17 players and this is why over the past few years you have seen thousands of Safety Scandals coming out of china. Thousands, in the paper every day in beijing and shanghai, food, drugs, toys. We have seen some of the scandals too but china much more so. The reason is because risk is bake intoed chinas manufacturing platform and in order for them to fix this, they need 400 years of evolving cooperation law as we have had, really, you