Bush School of Government and Public Service

?Welcome to Bush School on Court. This is our first episode. I'm Justin Bullock and I'm here with Gregory Gause, and Raymond Robertson, who will be our guest today. This podcast is the podcast of the Bush School of Government, a Public Service. We're gonna be talking about number of current issues. Today, we're talking about free trade agreements, along with some other current issues in the news. Welcome Gentlemen.Great [crosstalk 00:00:35] to see you.I thought we would start by talking with Raymond about the new trade agreement. Not too long ago ... What was it, the first of October, USNCA was agreed to by Canada, and the US and Mexico. Give us a little, bit of background on this trade deal. I know it started out as a bilateral trade deal, and then kind of towards the end, Canada was worked in. It was just a little, bit of background on the agreement.Sure. Thank you very much for having me today. I think it's important to go back to the original agreement, which was, the United States, Canada Free Trade Agreement, that we saw in the 80s. It was actually this agreement between the United States and Canada, that led to the creation of the North American Free Trade Agreement, when they added Mexico, back in 1994, that agreement went into effect.Since them, of course, it's been very controversial. There's been some people have argued that it's been really effective and increasing trade investment. There's been others that have called it the worst trade agreement ever. It's been a political hot potato for the last 30 or so, almost 30 years or so. What the current president wanted to do was, make it better, maybe rebrand it and address some of, the shortcomings. That's what's brought us to where we are today.What's the evidence there? It has been a political hot button. Has it been good for the countries involved? What's the ... I know in the past election, President Trump was calling for full reforming it and calling it the worst deal in history. What's the evidence on the pros and cons of NAFTA.President Trump's claim that this was the worst trade agreement ever was really provocative, and really evoked a lot of emotion, especially amongst the communities that felt that they had been hit adversely by NAFTA. The academic evidence is not as supportive of that claim. The North American Free Trade Agreement was an agreement designed to increase both trade and investment. If you look at the changes in trade and investment that occurred, since NAFTA went into effect, it's been very successful, both trade and investment have increased tremendously.At the same time, what we've seen is a restructuring of production, within North America, into what's known now as global value chains, where now, United States for example, would produce parts and then send those parts to Mexico would assemble the parts and re-export the finished products. This type of integrations led to transformations within both counties. That hasn't been painless. There's been a number of communities that have lost jobs in the United States, which then fed into the anti-NAFTA rhetoric.The job loss in particular, sort of going back to the mid 90's. I mean, is the evidence that free trade was what was causing harm to these communities? I know in the US particularly in the Midwest, we were talking about the Free Trade Agreements or what had sent production and manufacturing jobs to other countries. I mean, is that really where the job loses were coming from, or were there other factors at play?Economists who have tried to answer that question, which is a good on Justin ...Oh, thanks.have found that most of the loss of jobs, particularly in manufacturing have come, due to automation. There's been a huge increase in productivity, and most people don't realize that manufacturing output in the United States is actually up, even though employment's way down. That's just a function of automation by and large. Of course, there's been a lot of other production shifting.United States has lost a lot of labor intensive types of jobs, not only to Mexico, but largely to China for example. China's now the largest apparel producer. We used to make a lot of clothing here in the United States, that we don't make anymore. That shifted to China. There's no trade agreement there. To make the argument that free trade agreements are responsible for job loss, is somewhat of an exaggeration.Do they have ... I know you've done some ... Some of your academic research is on this particularly as well. What are the free trade agreements in general, do for wages in both countries? If it's not causing a significant job loss over that time period, is it doing anything noteworthy or particular to their wages in both countries, say, United States and Mexico?Well, there's a number of ways to answer that question. You know, there's always a call for the one-handed economist. They ... Economists are always saying, "Well, on the other hand ..." Couple ways to think about that. Number one. If you look at aggregate wage levels in the two countries, the hope of NAFTA was that NAFTA would close this very large gap in wages between Mexico and the United States. It turns out that, that gap has not closed at all. If anything, the gap is now a little, bit wider, 30 years later, than it was before NAFTA. That's a little, bit of a puzzle.On the other hand, we have seen very significant reductions in inequity in Mexico, which is exactly what was predicted by Neo classical trade theories. As Mexico specialized in sort of, the lower end, more labor intensive manufacturing, that increases the demand for less skilled workers, and we've seen that their wages have gone up relative to the more skilled workers in Mexico, and led to a reduction in an inequality there. Of course, the flip thing happens in the United State, where the reduction demand for those skilled workers, lowers the wages of the least skilled in the United States, and possibly contributes to widening inequality in this country.Interesting. It depends on whether it's high skill or low skilled labor, in relative to one another within that country and what they're specializing in for the impact. It's pretty nuanced in that way.That's exactly right. I think that's exactly right. That's why it's important to understand the short term and the longterm, and the differences between average wages and measures of inequality.You touched on a few things there, that apply to what I understand some of, the reasoning is for some of, the changes in the new agreement. You mentioned the global supply chains. I know that there's some provision about the percentage of parts for automobiles, that will not be a part of tariffs or something, as part of the agreement. Obviously you mentioned the global supply chain, cause here's a piece of it saying, certain percentages ... The percentage, I think change compared to NAFTA. Is that right?Yeah. One of the most talked about changes, in the United States, Mexico, Canada agreement, the USMCA, was the increase of what's known as domestic content requirements. This is the percentages that were established in NAFTA and in all trade agreements, that determine how much of a product needs to be produced within the region to have it be called a NAFTA product, for example. How much of the production has to be done in North America, to qualify for the lower NAFTA tariffs?One of the big issues in the re-negotiation was raising the domestic content requirements in automobiles, from about ... It was like, 65% up to about 72% or something like that, which is a pretty significant increase, in terms of raising it to a much higher level. However, given that it was coming from a very high base already, it's not clear how much of an effect this will actually have.Another piece of it that I noticed, that you and I were actually talking about a little earlier today, is the wage requirements within the new agreement for the same industry, for automobile, as well. How does that play? I forget how much ... I think it was at 13, or 16 dollars an hour. How would that actually play out as a provision? What are the impacts of setting it at that wage?That's a great question. It's a great question, because there's no real simple answer. The truth of the matter is, is that this wage requirement is unprecedented in trade agreements. The closest thing we have to this type of provision are what's called labor standards, which traditionally have meant that countries would agree to enforcing their own labor laws, their own minimum wages. We've never actually seen a wage target per se in an agreement like this.It's further complicated by the fact that, we don't really know how it would be enforced, or exactly what the formula would be, for calculating this wage. Is it possible then, on the Mexican side, to hire another engineer at 20, 30 dollars an hour, that would raise the average wages up to that level, so that they could qualify? Does it mean that the Mexicans would then automate, right, in order to increase the productivity of their workers, to hopefully just employ those engineers or more engineers, coming out of Monterey. It's really unclear. It's gonna be very interesting to see how these are enforced going forward.What other pieces about the new deal, are noteworthy or interesting to you, or you expect it passed, or if approved, in all three countries that would be significantly different or have a significant impact, different from NAFTA.Well, there are a number of other contentious issues. Number one, was the dispute resolution mechanism, which Canada and United States fought over quite extensively. Mexico and the United States had agreed to get rid of it. That was basically a no-go with Canada. Canada said, "We have to have that." Eventually, Canada won out. Now, we have the dispute resolution mechanism, is back in there. That's been important, because Canada's used it a number of times against the United States anti-dumping measures.Another one has been to update the agreement to incorporate eCommerce, update intellectual property rights, which is an important step. Overall, I think if you take a step back and you look at the overall agreement and compare it side-by-side with NAFTA, most of these changes are pretty cosmetic. There's not a fundamental re-working of the agreement. Probably not something that justifies a new name. We'll see as we go forward.Those evil Canadian dairy farmers get it in the neck, right, because [crosstalk 00:11:16] now America's farmers can sell milk into the Canadian market and that's gonna have a major economic impact right?That seems pretty unlikely. As you'll see, our listeners unfortunately can't see the smirk on Professor Gause's face. It's a lot of hyperbole actually. I mean, the changes in the Canadian tariffs will help farmers a little, bit. Farmers actually are struggling with US laws, US restrictions on the dairy market domestically. That's a much bigger issue for them. Having basically incremental or very small increase in access to the Canadian market probably won't make that much of a difference to US dairy farmers.US dairy farmers, by the way, are among many sets of farmers in the United States, whether it's cattle or soy or a number, that have been really suffering from the increase in tariffs, that President has opposed, and then the retaliation that's come from other countries. There's, farmers, for example in Minnesota, who had specifically targeted their grains for China that are not unable to sell those. It's causing a lot of disruption among farmers. They're having a very tough time right now.It's all part of making America great again.That's what we hear. That's what we hear.There has to be some sacrifice. Let ask a more serious question. Some of, the commentary on the trade agreement said that it was, a lot of it was directed at China indirectly, that there were clauses in it, that said that, if either Canada or Mexico, make an agreement with a non-market economy that the United States can immediately leave the arrangements. There were clauses in the agreement about currency manipulation which, really isn't a factor in Canada, because the Canadian dollar floats, and doesn't seem to be a serious factor with the peso.Some analysts said, was a shot across, about China, that this was setting the standard for how the Chinese, if the Chinese wanted to trade with the United States, the limitations that would be put on their ability to use currency polices to affect their economy. Do you think that all of, the [inaudible 00:13:46] around this and the threats against Canada, that the president level, really were directed at Beijing?You know, that's a great point Greg. I gotta tell you, that is a very serious thing to think about. I think ... I'm gonna offer a different perspective on a lot of those provisions. It turns out that a lot of the provisions in the rest of the agreement, beyond what we talked about including the issues that we brought up, basically were lifted straight from the Transpacific Partnership. The TransPacific, TPP agreement, which the president had left, was very much designed as a way to contain China. It was designed to try, and bring China into the modern trading regime, the Western point of view of it anyway.It kept trying to ... I mean, the original TPP membership didn't include China, right?That's exactly right, but the idea was, to isolate China by [crosstalk 00:14:39] getting all the other neighboring countries that China trades with, to agree to the set of rules, so that China would then modernize, if we may use that term, and try, and change their rules, in order to become in line with the way we envision trade. What happened was, Trump came in. He said, "You know, I don't like TPP," because that was something the Obama administration was negotiating. We're gonna get out of that," and then basically realized that China was going to be contained through this agreement, and that we're trying to bring provisions from that, into our other agreements, because those things actually turned out to be quite valuable, from the point of view of containing China of course. Yes.Right. This is something that I think we might get into in the round table as well. It wasn't just President Trump who was against TPP. All three of the leading presidential candidates in 2016, vowed to take the United States out of TPP. President Trump vowed that and did it. Bernie Sanders, who gave an unexpectedly strong run on the Democratic side for the nomination, is vehemently, was vehemently opposed to TPP, much as President Trump, was also opposed to NAFTA, much as President Trump.In fact, the Sanders rhetoric on trade agreements, is very similar to the Trump ... Even Mrs. Clinton, I think reluctantly came around, and publicly said she would withdraw the US from the TPP, even though she was Secretary Of State, when TPP was negotiating. It does bespeak a sense in public opinion, a sense among politicians who wanna appeal to public opinion, that trade is bad, that trade is a loser for the United States. Where did that come from?Well, that's another great question. If I may reshape it just a little, bit. I think there was definitely a very deep current of anti-trade agreement sentiment that people believe that the trade agreements were not doing well by the United States, whether it was in Korea, or Jordan or Mexico, or the TPP. It wasn't necessarily so much the trade, maybe the trade was bad as a whole, as much it was that these agreements were not being negotiated in ways that would help the American worker.I think appealing to the American worker, was a very successful strategy, that Hillary Clinton eventually picked up on, and eventually came around at that very late in the game. I think that this new agreement ... I think you hit the nail right on the head by pointing out that Bernie Sanders and Donald Trump were opposed to TPP, they're opposing NAFTA, they have this anti-trade sentiment. Most people are not aware that the new NAFTA revision, the US embassy A, has ...Whose mecca? Whose mecca?which I'm sure is rolling off the tongue for politicians in Washington now, actually has everything that organized labor wanted. They wanted the wage agreements. They wanted the heightened domestic content requirements. Thy wanted the labor standards that were actually not the NAFTA side agreement, which ... They actually were updated through TPP.TP had the most advanced labor standards of any, of the US agreements that we've had in the last 20 years or so. This is everything. I think that it's gonna be very interesting, coming into congress, to see how the Republicans respond to this agreement, which in very many ways, is very much the product of Democratic politics.The new agreement, the US, Mexico, Canada, America trade agreement does have to go through Congress.Absolutely.Until that point, NAFTA or the agreement previously known as NAFTA, still obtains. There are som politics here, without a doubt. Is it your, understanding that the administrations gonna bring up this new agreement in the lame duck session, or are they gonna wait until the new congress? I guess much of that will depend on what the new congress looks like.I think ... Yes. Everything that I've heard says that they're not gonna be considering it, until maybe February at the earliest, right?That's the new congress.Right. They're gonna be bringing it up with the new congress. It won't be after the election, before the new congress comes in.Right. It won't be in the ...PART 1 OF 3 ENDS [00:19:04]After the election, before the new Congress comes in.Right. So it won't be in the lame duck session?Correct.So how does all this kind of lead into the even bigger question ... not that it's the bigger question. America's biggest trading partners are North America.That's right.I mean, right?Absolutely.But China-Then China.Is kind of next on the agenda. For an administration that has been as vociferous in its, shall we say anti-trade rhetoric, as the Trump administration, but one that needs to sustain the economic boom that we're living in now. How does a trade agreement with China fit into that, do you think?A trade agreement with China?Well, that's going to be next on the agenda, right? The Trump administration wants to have a negotiation. The reason that they're putting these tariffs on China is to bring them to the table, right?Yeah, sure. I wouldn't disagree with you on that. I think there's lots of other potential explanations to why they're imposing tariffs on China. I think that we, as academics, have had a very difficult time explaining a lot of the decisions and actions of this administration-Tell me about it.And we're trying to find a reasonable explanation, and it's not always clear that there is one. So I think pursuing an agreement with China would be a very, very big step for a number of reasons. First of all, I think modern trade agreements, even the NAFTA, even going back to NAFTA, NAFTA was 1,000 pages long, and from an economist's ... I'm an economist, you're political science, but ... from an economist's point of view, how many pages do you need to say free trade, no tariffs, no quotas, right?If it were really a free trade agreement, it would have been one page long.One page would've taken care of it. But the thing is that lawyers write these agreements and not economists-And not political scientists.And not political scientists, exactly.We'll blame the lawyers.We can always blame the lawyers. And the issue there is that they are very carefully specifying rules and regulations for a large number of areas, and China has state-owned enterprises. They have the currency, as you mentioned before, and they have a whole ... their range of issues is so long that even to initiate an agreement with China would take so long in a negotiation that it would be unlikely to see it end by the time the Trump administration leaves office.So what currently governs our trade with China is the WTO, right? The World Trade Organization?Yes. Yes, absolutely.Could you tell us a little bit about what the difference between, say, a trade agreement like the USMCA, the agreement previously known as NAFTA, how's that different from the more general rules in the WTO?Well, there's a couple things. Number one, just starting with tariffs and working our way down, tariff levels are going to be a little bit lower. Right now in the World Trade Organization, to be a member, you have to agree to give everybody else the most favored nation status, which already commits you to a series of tariff reductions and relatively low tariffs. United States, I think we're very proud of saying we have the most open markets in the world, and generally, we have the lowest tariffs already. So it really-Until this administration.Until this administration. Exactly. So it really is about these other rules. So, then, what does these particular agreements for these other rules? They're going to negotiate things that are particular to country pairs, and in this case, it would open up the possibility of including currency manipulation. It opens up the possibility of dealing with Canada's dairy, for example. It allows you to deal with things that are bilateral in nature, rather than multi-lateral. The other advantage of the bilateral agreements or the trilateral or the regional trade agreements is that they are often considered to be a way forward for trade negotiations. Unfortunately, the WTO has been really bogged down. They haven't been able to make a lot of progress, and there's been a lot of people I've known at the WTO who, in secret, will throw up their hands and say this is very frustrating on a day-to-day basis, because it doesn't seem like we're making a lot of progress.Well, it's been a couple of decades since there's been a major-Exactly.A major agreement within the WTO framework.Exactly, and I think that's the reason why, in particular, President Trump's strategy of pursuing bilateral agreements is a way, ironically, to move forward towards freer trade.Brought it all back home. I'll put this to maybe both of you. Is part of the reason we're not making more progress in free trade is just, other than sort of entrenched interests, it also seems like there's just a losing of faith in markets and free trade. We were just talking about how in the last U.S. election, all of the major candidates were coming out against the TPP, and at least Bernie Sanders and Donald Trump were both pretty ... had elements that were fairly anti-market. And so is some of this just a culmination of distrust of markets and distrust of free trade broadly, maybe?I think it's a little bit more subtle than that. I think, if you go back to neo-classical trade theory, back in the 50s, these two guys, Stopler and Sameulson, predicted that if we start trading with these low-wage countries, the wealthy people in the United States are going to gain and the poor people, the workers, are going to lose. And that was a prediction way back from their seminal article Protection of Real Wages. And I think it's very interesting that this anti-trade current, I think it's trade agreements, but it's also anti-trade, is coming from the fact that we've seen it play out. It's not that people aren't benefiting from trade. Corporations are doing great. CEOs are doing great. I would even argue that the more educated, closer to elites have been doing quite well.But you get the bottom half, 60%, the production workers, they have not seen increases in real wages. And so is trade the culprit? Probably, not the culprit. Is it one of the culprits? It probably is one of the culprits, and I think that that's been realized coming out more and more, and I think a big issue that people have not anticipated and that I think deserves a lot of attention from policy makers is the fact that trade induces all this re-shuffling within a country. You see some regions gain and some regions lose, and the thing that we've learned now in the last 10 years, having done a lot of research on this topic, is people hate to move, and people don't want to move and they don't want to leave their communities, and so they don't.And when they don't, the wages just keep dropping, and their housing prices keep dropping, and their assets sort of evaporate. Whereas if they moved, maybe things wouldn't be so bad. They might be able to find a job or something, but they don't like to move, which tells us that the cost to people from this adjustment is astronomical, that the cost in terms of lost wages or whatever is just huge. That's a real big policy issue.Yeah, I don't think that we can discount the effect of the financial crisis in 2007 and 2008. I think we're seeing the waves of secondary and tertiary effects of the financial crisis in the politics in Europe. We're seeing it in the politics here in the United States. It is, to some extent, a loss of confidence in what had been the varieties of our economic boom, and I think trade has suffered, not because people have done ... that the average voter has done the careful econometric analysis of what actually is the reason that unemployment went up in the Midwest, I think it's a very convenient scapegoat. It's a very convenient silver bullet, single cause explanation that politicians on both sides of the aisle have been talking about for ages.But I also think that it speaks something about the power of the people and the interest groups that pushed for freer trade over the decades, that perhaps their political clout ... and I wouldn't say it's just the big business in the United States. It's also the agricultural community. There's no sector in the American economy that's more tied to international trade than the agricultural sector, which makes it so puzzling that the political results of 2016, with all these agricultural states, and particularly rural areas in states with mixed economies were so strongly supportive of President Trump, who was extremely open about the fact that he thought tariffs were a great thing, that he was going to use American economic power against our traditional trading partners and allies to try to open them up more in his perspective.I find the politics of this fascinating. We'll have to see how it works out in the 2018 election, but there's a lot of cognitive dissidence among American voters on this, I think.I agree with you 100%. I think that's an excellent point about how it's a convenient scapegoat, trade is a convenient scapegoat, because that way you can blame the other. You can point somewhere else, and you don't have to look inside. You don't have to look at education. You don't have to look at how people are voting. You don't have to look at your own decisions. It's China's fault that you guys are suffering. It's not anything we're doing here. We don't have to change. It's that we have to change them, and I agree with you 100% in that the cognitive dissidence is an excellent point, I think, because they were expecting this. It's exactly what Trump said he would do, and people in those communities are now saying, "We're so glad ... are saying, "We're not voting our economic interests. We're sacrificing for the good of the country by supporting the president."And they still support the president, even though it's costing them money and it's hurting their own livelihoods, because they're taking the sacrifice for the country, is the way they view it.Exactly. I think that there's one other issue, maybe before we transition out of this. I don't think it came up so much in the new trade agreement, but the nature of trade has changed dramatically, even since the negotiation of NAFTA. The intellectual property issues, e-trade, kind of intangibles that get traded across borders, which have always been there. Trade in services has always been a major element of the American economy. I always like to tell my students that all of the students in this classroom who are not American citizens come up as an export on America's trade balance, because the tuition that they pay to Texas A&M University comes up on our national accounts of an export of a service.So the whole idea of what you need to manage in a trade agreement has changed. Do we have any sense from the USMCA of how the United States and other countries are looking at those new areas?Yeah, that's another great question. I think you're exactly right, that this really gave an opportunity ... the re-negotiation gave a great opportunity for countries to revisit a lot of these issues and come up with some new ideas, and they targeted exactly as you suggested. They targeted the e-commerce. They looked at services. They looked at the intellectual property provisions, and so this was a great opportunity to update those provisions. And I think that that's a very important point to be made.Right, and I think that, as you said, this was necessary. NAFTA was a treaty that was basically negotiated by the George Herbert Walker Bush administration, the namesake of the Bush school, and ratified by the Clinton administration, not the presumptive Hilary Clinton administration, the Bill Clinton administration. So we're talking about back when dinosaurs roamed the earth, in the late 80s, early 90s, when all of this was done. Can you imagine using an electronic device that you bought in the late 1980s now? So the nature of trade has changed. So it's not as if these agreements don't need updating. It's a question of to what end.No, that's exactly right. And one of the other fun provisions, or interesting provisions, in the new agreement was we're going to revisit it again in a number of years and try and continuously update it and make sure that we're up to date and current because technology's changing so quickly, and it's a good idea to update that. So that's another positive result, I think, that comes out of the negotiations.Is there anything about the changing nature of labor, for example? Not just the changing nature of trade but how different types of work people are doing, the different types of work contracts? Is there anything ... I know we talked about there being the wage mount for the automobile industry. But in any of these discussions, are we starting to have a conversation not just about the changing nature of trade but how labor is done?Yeah, I think that it's very important to emphasize the increased demand for skills. There's been other research that suggested that the opening up to trade to Mexico, for example through NAFTA, actually increased the demand for skill in both of these countries, which is another interpretation. And so, not a lot of subsequent work's been done on that. So I think it's very interesting to try and figure out if people are changing their fields of study, if you're getting more engineers, if more young people are going into that field. I think that's a really interesting area for research.Excellent. Well, thank you so much. We'll take a little break and open up to some broader discussion topics.We're back with what will become a recurring feature of TheBushSchool Uncorked podcast. We're going to take the issues that we talked about, specifically with our special guest, Professor Raymond Robertson, broaden them a bit to the general political atmosphere, and things on the political agenda, and then let that conversation go for a bit and see what's on everybody's mind, reacting to the headlines of the day.So what strikes me, broadening out our discussion of trade and the Trump administration's approach to trade, is that this administration has captured what I think is an unsavory but accurate notion about bargaining, which is it's a heck of a lot more effective to threaten and bully your friends than it is to threaten and bully your enemies. Because your friends need you more. Your allies need you more. It's easier for President Trump to go to Canada and Mexico, who are incredibly dependent on the American economy and access to the American market and say, "We're going to cut you off unless you do X, Y and Z, and we don't care about you, and you're evil, and you've been cheating us forever."It's a lot easier to say that than to do that with China, which has a much more, if you will, equal relationship. No economic relationship is completely equal, even though the president would like it to be so. Absolutely zero in the trade balance. But, Raymond, you're an economist. You know a little something about bargaining theory. Has President Trump's lizard brain kind of set on something that really is true?Yeah, I think that you raise a really wonderful points, and it's wonderful for a number of reasons. I think, number one, one of the issues that we're wrestling with in society today is this extreme polarization and an unwillingness of people to consider the other side and give any sort of credit to the other side as it were. And so I think that there's a lot of people maybe listening who are really anti-Trump and are not interested in giving Trump any credit whatsoever. But I think your point is that that might not be fair. That might actually be some method to this madness, and this theory about negotiating might actually provide a lot of light, in terms of what's going on.I think it's very fair to point out that if Trump has any strengths at all, you've got to list bargaining as one of them. And sees his strength as a negotiator, as a bargainer, and I think it would be very short-sighted and unfair to say, "Well, he doesn't even make any sense when he's doing this kind of bargaining." He probably does know what he's doing, based on what you're saying.Although it doesn't seem like he got a great deal from the Canadians, some concessions, but things that the Canadians had already given in TPP. I think about this more in terms of China. Justin, you're a public administration scholar. You know a little bit about bargaining as well. Do these kinds of tactics, kind of the threat, "We're going to walk away. You're going to really suffer if you cross us." Does that work with people who are roughly your equals in power?That's a good question. I think it certainly, to your point earlier, it works better when you're holding the power cards. And I think it works less well with equals, and to that degree, Trump's taken a different line of ... I was just thinking about how, in some ways, I was going to disagree with you and say that Trump was maybe able to bully Mexico and Canada into forging a new deal. Even if there wasn't a lot of changes made, the point was, in some ways, showing that he could do it and re-name it so that it was his. And the way that he did that in lots of ways was by attacking Canada and Mexico.And the stuff with China, he's definitely taking both tacts to China. He's tried to use strong rhetoric with.PART 2 OF 3 ENDS [00:38:04]He's tried to use strong rhetoric with China in sort of, maybe, a bullying fashion at least with just rhetoric, doesn't seem to work in the same kind of way. And maybe that's because the power imbalance isn't there. Its kind of like picking on your little brother versus your dad kind of thing, right?Part of it is, I don't think, from what I can understand, China doesn't seem intimidated in the same way because they know they're closer to an equal. The tact of then just raising tariffs seems to be an interesting departure from just rhetoric to, 'Okay, trying to figure out, what is it that can get China's attention?'And as a quote-unquote non-market economy, maybe by messing with tariffs and messing things wouldn't be as flexible in other places, maybe the administration believes that's as better way. But I think, to your point, you can't bully equals in the same way. And you can't even bully people who are willing to play dirtier, I think, in some ways.Mexico and Canada may be trying to play by some more decorum. You try to bully other ... Kim Jung-un for example, maybe that's less effective. I don't know.Well one thing that I can ....... and you asked about that in particular does tell us is that, bargaining gains have very different, if not opposite outcomes, depending on the time it arrives. If you have a very short, one shot game, you're going to get one result, but if you play the game repeatedly, you get another result entirely. As bullying, I think is an effective short term strategy, in the long run though, you're sowing seeds of discontent that often just come back to bite you later.You threw out a little bit of erudition in the first part of the pod when you talked about the Stopler Samuelson theory and I think here we have to talk about iterated gains versus one shot gains. If you're going to be playing with the same character across the table from you numerous times, you might actually want to build us a relationship of trust. And not just squeeze them until they pop. As if you would if you just were having a one shot deal.To me, the case that's kind of in between, the weakness of Mexico and Canada and having to submit, as it were, to pressure, and China, which is maybe not a pure competitor politically or economically, but certainly getting there, is the European Union. Right?Here President Trump has gone after traditional American allies because almost every member of the EU is also a member of NATO. The President has devalued NATO and criticized NATO. It seems like he really wants to break up the EU because he wants to do individual trade agreements. We know that he's told Theresa May in Britain, 'Get out of the EU, and come and do a bilateral trade agreement with us.'And I think that it's his negotiating strategy to kind of break the EU apart so he can actually bully individual members. Whereas, the EU as a whole, is an economy as big as the United States.Divide and conquer basically.That had me thinking about exactly that Raymond, which was it also weakens ... this is the thought I've had recently ... about trying to understand why you would attack so many allies. And I didn't think about it from the trade angle. But, you have less external to your country accountability if your allies are usually the ones that would provide some external shaming or external, 'Hey, we all play by these rules, respect these types of situations, behave this way.'And if you, as the leader of the U.S., spend a lot of times attacking those norms, in part by attacking your friends and your allies ... I kind of think about it from this political norm ... so then, there's on one strong enough, or no one that you feel obligated enough when they say, 'Hey, quit doing that,' they all hate you already anyways. So the external accountability of that I think it feels like it softening up an opponent by punching them in the gut repeatedly over and over.Right, I think that there were presidents in the past who would have felt that criticism from the European allies would have been something that would be a negative for them. But I don't think that President Trump thinks that way.It's also interesting, and this changes the topic a bit, that when he's dealing with countries that aren't allies, whether it's North Korea once he got his meeting with Kim Jung-un or whether it's Saudi Arabia now in the wake of the killing of the Saudi journalist Jamal Khashoggi in the Turkish consulate, the president seems to bend over backwards to avoid using those kinds of bullying tactics.He criticized Kim Jung-un and then once Kim Jung-un came to the table, the president has been extremely complimentary to him. Vis-a-vis the Saudis, in this current imbroglio, the president has bent over backwards not to criticizes them. In fact, has kind of anticipated their talking points on a number of these things.I find that his negotiating strategy is tough to figure out. It's not like North Korea is the equal of the United States, not like Saudi Arabia, doesn't need the United States. You pick on Canada and Mexico, but you put on the kid gloves when dealing with North Korea and Saudi Arabia.It's a classic bullying technic, is knowing who you can bully and who you can't, for sure. The stuff in Saudi Arabia, I think, is a nice transition since we have Middle Eastern expert here with us.That would me.It's not me or Raymond, is it? There's a clip of as the president's learning about the case as it's evolving and then kind of [inaudible 00:44:44] says essentially, There's this amount in trade dollars and then there's this one life.' He kind of makes it explicitly about trade and that in no way does he want to do anything to endanger the amount of money being exchanged between the U.S. and Saudi Arabia.That sends some interesting or troubling symbols or signals to how the ... what's acceptable on the international stage in terms of behavior to be able to participate in commerce. In some ways, there's a point there that you have to figure out what the value of one life is and we do that in a lot of context. This is much more symbolic than that.This is deliberately flaunting, in some ways, the disregard for the killing of journalists, which fits awkwardly into a narrative of a general line of attack on journalists.And the rules of diplomacy. This killing took place in a diplomatic space, in a Saudi consulate, which is supposed to be immune from the law enforcement regulations of the country in which it sits. But, in exchange for that, you're supposed to obey certain rules. And one of them is you don't kill people in the middle of your consulate.It's an interesting conundrum here. I think that the president is looking at Saudi Arabia, and Raymond should weigh in on this because oil is so central to the world economy, he's looking at Saudi Arabia in a couple of ways. One of which is, we need the Saudis, if we're gonna pressure Iran. And the president's policy in the Middle East is very much about pressuring Iran.And how do the Saudis fit in to that? The Saudis are the ones who, if you can limit the amount of oil that people buy from Iran by threatening them with secondary sanctions if they buy from Iran, they're gonna need that oil from somewhere else. It's the Saudis who have the capacity to actually raise their oil production in the short term.If you're going to sanction Saudi oil, as some people in Congress have talked to, you're under cutting your Iran strategy. I'm a little cynical about this. I think that it's a shame that the president hasn't been more forthright in condemning the Saudis for violating the basic norms of diplomatic interchange and the use of their diplomatic institutions in foreign countries. And for this brazen killing of someone who was no threat to this regime at all. None.I can't imagine three or four years from now that the relationship between Saudi Arabia and the United States will be significantly different than it was before the killing of Jamal Khashoggi. To some extent, I think President Trump is just getting there faster than other people. It's not nice and it's not pretty and it might forfeit our chance to have a more serious talk with the Saudis about what the limits are.The crown prince of Saudi Arabia has been on a losing streak in terms of foreign policy since he became crown prince in 2017. The boycott of Qatar hasn't worked, the war in Yemen completely bogged down. In effect, the kidnapping of the Lebanese Prime Minister and getting him to resign at a speech from Riyadh back in November of last year, completely backfired.It's not as if the killing of Jamal Khashoggi in Istanbul is a strange deviation from what was a very prudent and successful foreign policy. I think that this should be an occasion for the United States to talk to the Saudis very seriously about the rules of the game and the limits of their power. And I'll get off my soap box on that one.So can we do without Saudi oil Raymond?I actually think that the situation today is a lot different than it was 20 years ago or even 45 years ago in the 1970s when we were highly dependent on Middle Eastern oil. I think the situation's changed dramatically. I think now with the fracking and there's been a huge increase in the U.S. supply of oil, and natural gas, and at the same time there's been this big push for alternative energy sources. And, the president's been a big fan of coal. I think all of these different avenues suggest that our dependence upon Saudi oil in 2018, 2019, is if not greatly reduced, entirely puzzling. Quite frankly.It's never been our reliance on Saudi oil right? It's the world's reliance on Saudi oil. We've never been a big importer of Saudi oil and when we began our strategic relationship with them, we didn't import oil for anybody. We were exporting oil back in 40s and 50s. And now we're exporting again.The world of oil market is a single market. And so disruptions anywhere. The collapse of the Venezuelan government, the collapse of oil production in Venezuela is going to drive up prices everywhere. Our neighbors here in Texas who are fracking Brazos county where we live, aren't going to give us a discount on the price just because we're their neighbors.if the world price of oil is going up, the price of oil here is gonna go up.Right, but if may be somewhat unusual in the next couple comments, I think number one, as a resident of Texas the rising price of oil ain't so bad. Ain't so bad for us [crosstalk 00:51:10]The rest of you people listening out there who don't live in Texas, sorry.On the one hand right? I think on the other hand, a more serious issue, again this is only going to get me ... now that I've alienated everyone outside of Texas, I'm alienated everyone inside of Texas ... and that is, the rising prices of oil make alternatives much more attractive, right? Rising price of oil and these disruptions, in the longer run, might not actually be so bad.But wouldn't be a lot better if we just put a tax on this to raise the price of it so the Saudis didn't get the money?Sure.So we kept it at home?Let's talk carbon tax. I think the recent Nobel Prize winning economist has been an advocate for the carbon tax and says this is one of the ways, if not the best way, to try to address global warming and a lot of these threats. If you look at Stephen Hawking, one of his last pronouncements was, aside from the genetic manipulation to make super heroes, like the number two thing was we gotta be really concerned about climate change.I know that it's not so popular everywhere but-We're recording this just days after the United Nations came out with a quite drastic assessment of the effects of climate change. For somebody as old as me, I always figured that I'd be dead and I wouldn't have to worry about it. But if you're talking about effects showing up in the next ten years ...Well, we've had several hurricanes already that are larger in scope and frequency and I think that there's lots of evidence that suggest we're already experiencing lots of the preliminary effects of it. Coral reefs are disappearing and so on. Those poor polar bears are having a hard time. I think there's lot of evidence ... the North Pole was open to shipping right? There's been lots of evidence so I think maybe a disruption of Saudi oil I'm not so worried about, breaking the worlds reliance on Saudi oil.I would much rather do it through taxes than through political upheaval and short term spikes in prices and things like that.Absolutely, I'm not saying that. I am less worried about these kinds of disruptions in the global market. I don't have as much sympathy as perhaps you've cultivated over the years.I don't know if I'm sympathetic to Saudi Arabia in particular but living in Texas, we're sympathetic to anybody who produces oil.That's definitely true and we appreciate you if you're an oil producer.We certainly appreciate you if you're an oil producer.We definitely appreciate you.I think that might be a nice wrap for today's round table. We want to thank our hosts here at Downtown [inaudible 00:54:01] in Bryan, Texas. You might even have heard one of the trains that goes through Bryan. Bryan is the county seat of Brazos county and for decades a major cotton port, as it were. The farmers in the Brazos Valley brought their cotton into Bryan and loaded up on the trains to take it to the world. So, we always enjoy it when the trains come through Bryan cause it reminds us of our history down here.We thank Downtown [inaudible 00:54:29] for their hospitality and hosting us and we thank our colleague, Professor Raymond Robertson from the Department of International Affairs at the Bush School of Government and Public Service at Texas A&M University of sharing his expertise with us.Thanks for having me, it's always a pleasure.Justin do you want to say goodbye?I think so, yeah. It was a great first episode so I'm looking forward to doing more of them. The hope is after we have this one published, a week or two following, we'll have another episode published as well. Same format. And definitely feel free to share on your social media platforms or anywhere that you think it will help people listen and thanks for paying attention today.PART 3 OF 3 ENDS [00:55:23] ................
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