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U.S. Trade Representative Katherine Tai: Globalization 1.0 was “fragile.” Will 2.0 be more resilient?

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U.S. Trade Representative Katherine Tai in conversation with Kai Ryssdal at the Milken Institute Global Conference on May 2.

U.S. Trade Representative Katherine Tai in conversation with Kai Ryssdal at the Milken Institute Global Conference on May 2. Milken Institute

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In the year since U.S. Trade Representative Katherine Tai was sworn in, the global economy has been through a lot, including: Russia’s invasion of Ukraine, inflation, COVID-19 lockdowns in China. At the same time, plenty of trade issues loom on the horizon — not least of which are U.S. tariffs on over $300 billion of Chinese imports, set to expire this year.

“Marketplace” host Kai Ryssdal spoke with Tai about the future of U.S. trade policy at the Milken Institute Global Conference on Monday. In the far-ranging interview, Tai touched on tariffs, Indo-Pacific trade policy to what the future of globalization will look like.

“We have globalization 1.0, [which] is built on catering to a human element that we have only conceptualized as the consumer, right? So a lot of the arguments around the benefits of trade are you’re going to have low prices and lots of variety at the marketplace. And yeah, no, I mean there’s a … luxury to that and something that we’ve enjoyed for a long time,” Tai said.

But with globalization 2.0 comes a new way of thinking about how the American people are impacted by U.S. trade policy, Tai said.

“People are not just consumers. They are also workers. They’re also earning money, and they’re also having to compete in a global marketplace for talent, where globalization 1.0 has really eroded opportunities and wages for your average American. So the point that I have to make is, I get this. From now going forward as we devise our trade policies, we’re going to be thinking about the human component of our economies centrally — it’s the worker-center trade policies — and we’re going to be thinking about how we justify our policies to benefit our people. And if the policies we’re thinking about don’t benefit our people, then those cannot be the policies that we pursue,” Tai explained.

Watch the full interview from the Milken Institute and read an edited transcript of the broadcast below.

Kai Ryssdal: About a month ago, you said to the Senate that the version of globalization that we have right now is fragile, right? And it feeds on our insecurities. What does that mean, and why do you think that? 

Katherine Tai: All right, so let’s talk about globalization. Lots of people talk about it, but it is important to try to define it. So the version of globalization that we have right now, let’s just call it “globalization 1.0,” it is one, through the trade lens, that is built on a set of assumptions. And they were very reasonable assumptions, I think, that we had coming out of World War II, which is the more that we trade with each other, the more trade that you can facilitate and liberalize, the better off we all will be. You may have heard people say countries that trade with each other don’t go to war with each other.

Ryssdal: I have heard that.

Tai: OK. Now, I think that in the last two months we’ve seen that that’s not necessarily true. So, you know, I think that that’s one data point I would highlight. Another one is around the pandemic, and the supply chain struggles that we have had, starting with the scramble for PPE [personal protective equipment], to today with the global economic trading system that just remains discombobulated. Shanghai and certain parts of China are under lockdown again. We know that these are going to ripple out across the global economy. So this is globalization 1.0, built on the notion that trade liberalization leads to the promised land. And where we find ourselves is not the promised land, today, in 2022, but in a state of feeling a global fragility and heightened sense of insecurity.

Ryssdal: So look, you mentioned Russia, and that’s the obvious one. But let’s get to a trade war, which has to take us to China, and the efforts we’ve had for two generations in this country to get them into the global trading system and, by doing that, get them to change their behavior. And certainly we have the Trump tariffs, which we’ll get to in a minute. I wonder what your sense is of how we’re doing with the Chinese. You’ve said it’s dysfunctional, it doesn’t work. Our relationship with the Chinese doesn’t work.

Tai: I don’t know that that’s the word that I mean. “Dysfunctional” I will reserve for my description of the World Trade Organization.

Ryssdal: That’s a whole different thing, but OK.

Tai: I choose my words very carefully when I talk about China and the U.S.-China relationship.

Ryssdal: Sorry, let me get the quote right. “Unduly difficult.” Is that how you describe our relationship with the Chinese?

Tai: It is very difficult, especially right now.

Ryssdal: Unduly difficult?

Tai: Sure.

Ryssdal: Explain that.

Tai: I think that our relationship, on a bilateral basis, has become more complicated over time. And as I experience it through the trade lens … I’ll take [China’s trade obligations] as an example, because I think that you’re gonna take me here anyway, so let me just preemptively get there.

Ryssdal: That’s like cheating. I don’t know if you’re allowed to do that. 

Tai: [laughs] It’s called taking control of the conversation. So, back in October, I announced the administration’s approach to the U.S.-China bilateral trade relationship, and that we would be beginning our direct engagement on it with a focus on China’s performance under the set of commitments it had made to the U.S. government in what we call, by shorthand, the “Phase One” agreement, but it’s the U.S.-China Trade and Economic Agreement that was signed back in early in 2020.

Ryssdal: Of which they have completed how much?

Tai: Well, the picture is also varied and complicated. There are a number of different types of commitments that China took on, many of them related to their intellectual property protections and their forced tech transfer. That is a set of commitments that we’ve been tracking, and you look at whether or not they’ve passed the laws and regulations that they promised to. In large part, they have. But then you also have to assess for all the companies that are on the ground in China. Are they seeing an improved environment in China? And that’s going to be up to the experiences of our companies and what they share with us. It’s going to be a little harder to measure than, for example, the purchase commitments that the Chinese made. And those everybody is following. We get lots of questions about it, because the trade data are public. You can look at the numbers, in terms of their commitments on paper, and you can see where there are gaps.

Ryssdal: Do you think that the Trump-era tariffs have changed China’s behavior?

Tai: In certain ways, yes. I think that another question would be whether or not those tariffs have changed firm behavior. And again, I think that, in a way, you also see changed behavior.

Ryssdal: Explain that a little bit, “firm behavior.” American firms?

Tai: Sure, American firms, yes, or anybody who is trying to source from China and bring that product into the U.S. [who] has got to contend with this set of tariffs that was built up, starting in 2018. What stakeholders have told me is that, increasingly, firms are engaging in what in the industry is called a “China Plus One” strategy, where, you know, if you’re going to be making things in China, and you’re going to be selling to the Chinese market, you continue to do that in China. But if you are making things in China, and you are going to try to sell that either back to the U.S., or to other places, firms have seen this situation and have been incentivized to find other bases of operation and manufacturing, where they feel that there might be more confidence in terms of the trading relationship, to getting that product out of China and into the U.S.

Ryssdal: Firms tell you that. Business people that I speak with express incredible frustration with having to actually go through that after having built up their supply chains over decades, now. And they also wonder why it is that the Biden administration has not decided to get rid of the Trump-era tariffs and save those import taxes on $300 billion worth of Chinese goods. What’s your answer?

Tai: So I think that frustration comes from a couple different places. One is a sense of inconvenience. One may be a sense that, in a way, maybe we all wish that we could go back to the way the world was in 2015. That was a version of globalization 1.0, where we were not worried about putting in an order for a piece of furniture or a pair of pants and having to wait six months for it to arrive, right? And I think that what I would say to all of our firms, who, understandably, are sentimental, is that the reason why we are where we are today is that this world was not built for resilience.

And so, you know, I think that the issue that we’re dealing with right now is, we want to transition from globalization 1.0 to globalization 2.0. And I think that, you know, the really interesting conversation is around, what does globalization 2.0 look like?

Ryssdal: Well, so that’s the question right? Let me stop you there and say: You’ve described 1.0 and what it looks like, and the fragilities. What is 2.0? And more importantly, does it spare us the fragilities?

Tai: That would be the idea. In the new version of globalization, our firms, our governments need to be focused on decision-making and behaviors that are not just focused on efficiency [and] chasing the lowest cost, right? But where we’re all incentivized to reward and build towards resilience. And what does resilience mean? Resilience means more choices, more options, less vulnerability and, ultimately, being better prepared because you don’t know where that next crisis is going to come. You don’t know its nature, so you just need to be prepared.

Ryssdal: I can’t see the screens, but when we were walking in, I noticed your Twitter handle was up there and mine was up there as well. I’m going to assume your staff tweeted at me this morning and said: “Can’t wait to join Kai Ryssdal at Milken to talk about the Biden-Harris administration’s worker-focused trade policies.” You have to convince the American public that trade is a good thing. Go. You have 90 seconds, by the way.

Tai: Let’s let’s start with this. I think that a lot of the American public either isn’t thinking about trade or, if they think about it, have a sense that people in this job are not thinking about them and, frankly, haven’t thought about them in decades and haven’t designed globalization 1.0 for them.

Ryssdal: You want to know why? And we talked about this last time you were on “Marketplace,” right? Because we could go out on Wilshire Boulevard and stop 10 people. And if we said global trade, they would say: ‘Oh, God, tariffs. I hate trade.’

Tai: Kai, I think that we really need to go out and do it, we really need to test it out. Because I take your point but I question your numbers.

Ryssdal: It would be nine-and-a-half out of 10, I promise you.

Tai: And I don’t know how to define half a person. But let’s take your point that people are associating trade with tariffs right now. Well, there are a ton of people out there who associate trade with offshoring and outsourcing and the loss of jobs and the loss of a significant amount of America’s manufacturing industrial base. Globalization 1.0 is built on catering to a human element that we have only conceptualized as the consumer, right? So a lot of the arguments around the benefits of trade are “you’re gonna have low prices and lots of variety at the marketplace.” And yeah, there’s a luxury to that, and it’s something that we’ve enjoyed for a long time.

But people are not just consumers. They’re also workers. They’re also earning money, and they’re also having to compete in a global marketplace for talent where globalization 1.0 has really eroded opportunities and wages for your average American. So the point that I have to make is, I get this. Going forward, as we devise our trade policies, we’re going to be thinking about the human component of our economies centrally, and we’re going to be thinking about how we justify our policies to benefit our people. And if the policies we’re thinking about don’t benefit our people, then those cannot be the policies that we pursue.

Ryssdal: So let me back up for a second. The idea that that low prices are a luxury, right? I would submit that the American consumer, certainly, thinks it’s their right. “I’ve always had low prices. And now we’re going to change that? What are you gonna give me in return?”

Tai: I’m gonna give you a sense of security and confidence that clearly have been broken in this moment, which is, and I wish I’d looked this up, because I’ve been thinking about this part of “The Great Gatsby” near the very, very, very end.

Ryssdal: “… ceaselessly into the past?”

Tai: Not that part. Nick Carraway says something like, you know … the revelation that “the rock of the world was founded on a fairy’s wing.” So there is a sense of confidence and strength that we had and, you know, this right to low prices that was built on something that was very fragile. I think, going forward, in terms of globalization 2.0, we need to have those hard conversations.

A more resilient, a stronger, more sustainable future is one that is going to look different and feel different, but the focus that we have is on ensuring that the rock of the world is actually founded on a rock, one that is better prepared for the next challenge. And one that has a kind of an insurance that is built into it to make sure that the next time there’s a crisis, we don’t have that panic and sense of desperation that we have been experiencing for the last couple of years.

Ryssdal: Do you think we can do it?

Tai: I absolutely think that we can do it.

Ryssdal: Back to China for one second, and the tariffs. I’m sure you’re aware of the research out of the Peterson Institute for International Economics, talking about how there could be a calculated way to reduce inflation if we get rid of some of those tariffs. I don’t want to discuss the methodology, but is it unrealistic to think that maybe tariffs have to be on the table if we’re worried about inflation? White House press secretary Jen Psaki has said it, Treasury Secretary Janet Yellen has said they’re on the table. You have not said anything.

Tai: I have to engage in the methodology because that’s where you started your question, which is the Peterson Institute study. And when you describe it that way, you’re bringing the Peterson Institute’s credibility into the conversation and the premise. The issue is that if you look at their methodology, and you look at how they think that, you know, inflation can be addressed through using trade tools, they are assuming a world, and U.S. economy, that has zero tariffs. So here’s the thing: For as long as we have been regulating commerce, we’ve had tariffs in some form, right? Every country still has tariffs. We haven’t always had inflation. And so I really have to challenge the premise of that study. And I think it’s either something between fiction or an interesting academic exercise. But with respect to the real pain that Americans, but [also] people in large swaths of the world right now are confronting with rising prices, what I would say is this, which is yes, we need to be looking at our economic policy tools across the board. You want to look at tariffs, sure, let’s look at tariffs, but also let’s look at monetary policy, fiscal policy, all of these tools you need to look at. In terms of our trading relationships, and in terms of our relationship with China, redesigning globalization 1.0 to take us to 2.0., that is a medium-term challenge that we have. Whatever sets of tools that we deployed to address the challenge we have right now, we have to deploy with a view to the medium term. And we need to make sure that whatever we do right now, first of all is effective and, second of all, doesn’t undermine the medium-term design and strategy that we know we need to pursue.

Ryssdal: I want to be clear here, right? You mentioned monetary policy. The Fed meets this week, and [interest] rates are going up. So monetary policy has been taken care of. The fiscal boost from the pandemic, all that money is running its way through, right? There’s no more money coming from Congress.

Tai: There’s always more money from Congress, but OK.

Ryssdal: Says the politician. I want to make sure I understand you: Trade policy is on the table with inflation. Tariffs are on the table.

Tai: OK.

Ryssdal: I’m asking you a question. Are they?

Tai: I thought you were telling me.

Ryssdal: Well, look, you said “OK,” so I’m gonna say yes. Ambassador Tai says yes, they’re on the table.

Tai: I mean, you know, tariffs are the traditional trade tool. They’re a revenue raiser, they’re a traditional way of regulating trade, right.? So, sure, we can look at those tariffs, right? But I’m giving you the lens, the strategic lens through which we need to be looking at it.

Ryssdal: I appreciate the lens. You’re not answering the question. Are they on the table or not?

Tai: Are they on the table or not? All tools are on the table. The question is what do you do with them.

Ryssdal: That’s not my job, that’s your job.

Tai: That is my job. 

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