However improvisational President Donald Trump’s daily machinations on trade — presenting publicly as motivated by a random mix of mood and twitches of the news cycle, including the latest threat of tariffs against Mexico — Trump and his team are acting on a well-developed theory of the case, one that has been decades in the making.
This method to the apparent madness helps explain why the Trump administration has made such a break from the strategy of previous administrations.
“I and many others had deceived ourselves that China wanted to be just like us,” said Michael Pillsbury, an influential adviser to the Trump administration on China.
“I finally woke up,” he said. “But I would not say everybody's awakened even at this point.”
A transcript of the episode, edited for clarity, follows:
Dan Ujzco [00:01:58] We all have that person in our life that we know is really bad for us but is kind of a lot of fun to spend time with, and you can't help but making that phone call every once in a while or whatever and starting that relationship over again. To me that's China.
Luiza Savage [00:02:18] We are in a pivotal moment. Perhaps a once in a generation moment where the U.S. is attempting a great rebalancing of its relationship with China and frankly its role in the world.
News and archival clips [00:02:31] This morning he is doubling down in a tweet. We have to be damn fools if we don't think we haven't been in a trade war for decades. Don't call the leaders of other countries names. We're a piggy bank that they like to take from.
We literally are living sort of tweet to tweet.Luiza Savage [00:02:46] And if you're distracted by some crazy tweets and the shouting on cable news you might be missing it. Why are we fighting this trade war? One of the best answers I've heard comes from Dan Ujzco.
Dan Ujzco [00:03:00] I'm Dan Ujzco. I'm an international trade and customs attorney with Dickinson Wright.
Luiza Savage [00:03:05] He's an Ohio guy, born and bred. He's mostly focused on NAFTA and North American issues.
Dan Ujzco [00:03:13] Where I grew up NAFTA's not a four-letter word. But if you say the word NAFTA, you're going to hear a four-letter word come flying back at you.
Luiza Savage [00:03:18] But lately a lot of my conversations with Dan end up leading to China. Recently he was in a meeting with some very senior people from the business community representing sectors that were highly impacted on trade. And the business people came in, and they did a very slick presentation.
Dan Ujzco [00:03:40] PowerPoint graphics the whole thing that said if you do this, administration, if you do what you're talking about doing on trade if you do that.
Luiza Savage [00:03:48] The economic gains from the Trump tax cuts from the Trump deregulation the historically low unemployment rate the high rate of growth the strong stock market gains all of that will be overwhelmed by the negative impacts of this trade war.
Dan Ujzco [00:04:03] And the representatives of the administration looked at it, and everybody thought was Mike drop moment, right? Aha. And everybody in the administration kind of looked at each other and said, "We know. You think we don't know that?" But let's look. We've had this issue with China since the early 2000s. We're not able to do anything in the first decade of this century because we were in the middle of the war on terror. It was all about 9/11, Afghanistan, Iraq. Then we went into the Great Recession, and we certainly couldn't have done anything then that would cause any shocks. And in fact for most of this decade we've been in recovery mode. Now all of the economists are telling us we're looking at a recession just on business cycles probably in 2020, 21 maybe, who knows when, but coming soon. And China is talking about main China 2025. If we don't do this now when will we ever do this. It's really I think in the eyes of this administration and now or never moment, and they may be right.
Luiza Savage [00:05:02] This idea that that now is the time to fundamentally change the U.S. relationship with China. It really struck me. And that's what this show is about: Big problems that need big solutions that will require much more creativity than our politicians and our policymakers can often muster, in an increasingly interconnected and complicated world. From POLITICO this is Global Translations. I'm Louisa Savage. I've got POLITICO'S chief economic correspondent Ben White with me. Hi Ben.
Ben White [00:05:39] Hey Luiza.
[00:05:40] And Ben let's start by going back in time to what we sometimes call the End of History. That moment when I don't know where you were at the end of history but I was in college, and we were watching some incredible things go on around the world. We were seeing the end of the Cold War.
News and archival clips [00:06:00] I say let's renew our pledge and build a more peaceful world.
Luiza Savage [00:06:04] We were seeing the Berlin Wall coming down.
News and archival clips [00:06:07] I'm Peter Jennings in New York just a short while ago astonishing news from East Germany where the East German authorities have said in essence of the Berlin Wall doesn't mean anything anymore.
Luiza Savage [00:06:15] We're seeing countries that were once authoritarian and communists embrace democracy, embrace capitalism. And for me, someone who was born in Eastern Europe, this was an incredibly euphoric time. And it seemed like the march of history was toward democracy and capitalism. How did it look from where you sat?
Ben White [00:06:38] Well from where I said I was listening to a lot of Pearl Jam and Nirvana in college but was in fact also paying attention to what seemed like you know a big shift in the march of globalism and free trade. There were plenty of critics of all of this who didn't love this march toward globalization, but it did seem to be the wave of the future free trade walls coming down nations trading with one another to lift everybody out of poverty. And that was going to lead to liberalisation of democracies around the world particularly in China. That was the future of the global economy. And there are a lot of really interesting players from this era. And I talked to one of the big ones.
Carla Hills [00:07:17] Hello is this Ben White?
Ben White [00:07:19] Carla Hills.
Carla Hills [00:07:20] Are you posing the questions or am I holding forth with a speech?
Ben White [00:07:25] She was the U.S. trade representative under President George Herbert Walker Bush and what the USTR does is essentially serve as the lead trade negotiator for the United States, is the main person in all the big meetings for the creation of trade deals.
[00:07:43] There's a great moment where George Bush gives her this giant crowbar, which was you know kind of a joke basically saying, "Carla, take this crowbar and go pry open these new markets for us.".
News and archival clips [00:07:55] You know I would like to have you think of me as the USTR with a crowbar, where we're prying open markets, keeping them open so that our private sector....
Ben White [00:08:04] And it worked. The U.S. led the way in creating a rulebook for global free trade. So we had some really important things happen during this period of time in the 1990s -- creation of the European Union in 1993, passage of NAFTA the North American Free Trade Agreement 1994.
News and archival clips [00:08:18] President Bush picked an appropriately symbolic setting today to sign the North America.
Ben White [00:08:22] And the creation of the World Trade Organization in 1995.
News and archival clips [00:08:26] Members a chance to renew your faith in global trade liberalisation.
Ben White [00:08:31] So there was this widespread idea that the world was moving towards a period of globalization and free trade and the bringing down of barriers, and that nothing could stop that.
Carla Hills [00:08:41] It was optimistic, but I think appropriate for the time we clearly benefited from opening the markets. President Bush Senior actively believed that we could not in this interconnected world accomplish our goals without having a collaboration with other nations. It was a history that was continuing to progress.
Ben White [00:09:09] So, Luiza, essentially what the free traders say is that the way to lift nations out of poverty and to create more wealth is to do more trade.
Carla Hills [00:09:18] I don't think we could survive as well by turning inward. We have five percent of the world's population producing nearly 20 percent of its output. We need markets beyond our borders. And if you look at the benefits that we have achieved by opening markets, it's not just the economic that I allude to of the two trillion dollars in additional GDP and the fact that our allies gained and we climbed out of a really ugly hole following World War II, but also poor nations gained and the richer the poor countries get the more likely you are that they will not become havens for international crime and terrorism. So there are a lot of benefits that flow from opening markets and creating collaborative neighbors and colleagues around the world.
Luiza Savage [00:10:10] And Ben when you say there was also this theory that the more we democracies engage with other countries that maybe aren't democracies themselves, the more we'll win them over the more they'll start to share our values and do things the way we do them and it will be this positive cycle towards democratization and human rights and capitalist trade.
Ben White [00:10:33] Yeah this is absolutely kind of the foundational argument by the free traders that it would do that, that more free trade and lowering of barriers would encourage nations to develop towards the liberal democratic model.
Luiza Savage [00:10:48] So one of the selling points of more open trade is that free trade is a win-win proposition.
Ben White [00:10:54] Yes I talked about that with Mike Froman another former U.S. trade rep. He served under President Barack Obama.
Mike Froman [00:11:00] The degree of poverty alleviation we've seen in the last 75 years has no historic precedent. It is there has been a greater impact positive impact on people's lives in the last 75 years than any time in human history. But those countries or regions that fail to open up failed to pursue good strong macroeconomic policies did not see the same degree of benefit. And so we have a pretty good case study, both a comparative case study of those countries that did pursue globalization and those that didn't, and that's very much that very much affected my perspective.
Ben White [00:11:38] All right so you have big idea No. 1 that free trade can make everybody better off. Big idea No. 2 is if you're going to have free trade you need some rules that everybody agrees to live by. You take those two rules together and you get a pretty good sense for what was unfolding in the 1990s and through the early 2000s,.
Luiza Savage [00:11:56] So here's where we were in history. Democracy is ascendant capitalism is ascendant. You have countries coming together to create a rules-based system that they could all rely upon. But all that was based on the assumption, the hope that other countries, especially China, would play by the rules and not just play by the rules but that being a part of a rules based trading system with major democratic capitalist nations that other countries would move toward capitalism inch by inch, that there would be a move toward more openness politically with regard to human rights and dissent. But that future? It just didn't pan out the way we thought.
Ben White [00:12:37] Pretty much everyone we talked to agreed. China doesn't play by the rules of international trade.
News and archival clips [00:12:42] I voted for China to be in the WTO, and they haven't lived up to the rules of international trade. The military is the government is the economy is the government. China is falling short of complying with quite a few of its WTO obligations. Whether it's stealing of intellectual property rights. China's overproduction of steel is a plague, is a plague. Whether it's currency manipulation they have so willfully and blatantly violated all norms of international trade. We really haven't dealt with a state-owned socialist communist country of this size before.
[00:13:22] And when they're talking about China as a bad actor they usually mean that it's the Chinese who are flooding the market with cheap goods. The Chinese government is subsidizing all of these industries. And whenever any American company wants to go and do business in China, they force them to turn over their technology. That just means if you're a tech company and you go to do business in China, you have to take all of this proprietary intellectual property and give it to the Chinese, and obviously American companies do not like to do that. So there's basically no disagreement that there is a big problem going on here with China. But there's huge disagreement over what we do about it. Do we just slap unilateral tariffs on China and engage in a trade war? Do we put together a coalition of other countries to pressure China? Or do we just go to the WTO? Obviously the Trump administration has decided to take on China one on one with a unilateral trade war and our allies are just waiting around to see how it goes. I spoke with Christine McDaniel, a trade economist at Mercatus.
Christine McDaniel [00:14:19] You can see this in the data. The state-owned enterprise share of their economy started to shrink after they joined the WTO. Then after President Xi took much stronger control of everything, now that's reversed course, and now we see a really increased presence of state owned enterprise in China's economy. And those expectations we had did not, have not been realized yet. And it doesn't seem like they're going to anytime soon with the current political situation in China. It's not realistic to think they are going to give up state capitalism in order to escape some tariffs from the United States.
Luiza Savage [00:14:57] What happens next? More in a moment.
Luiza Savage [00:16:59] Ben, let's talk about the Trans-Pacific Partnership. What is it?
[00:17:03] All right. So the Trans-Pacific Partnership, which everybody calls TPP, was a giant trade deal. 12 nations around the Pacific Rim led by the United States and Japan as the biggest economies in it, but not China. But China was absolutely the top of everybody's mind when TPP was being debated and created.
Darci Vetter [00:17:21] When TPP was announced, the reaction from China was not very positive that year, that this is an anti-China measure.
Ben White [00:17:28] Darci Vetter was a negotiator at the U.S. trade rep's office for President Obama. And this is her take.
Darci Vetter [00:17:33] The more TPP went forward, China's response would be to say if this model is successful, if it becomes a strong alliance, if other countries do see it as attractive -- it was always meant to be a magnet to bring others into the region --then that's actually an alliance we would think about joining. The idea that it was designed necessarily to contain China, I'm not sure that that's the right word or that's not really the way I thought about it. It was more to sort of influence China to create a set of practices.
Luiza Savage [00:18:08] If you think about the trade agreements that the U.S. was a party to, they were pretty old, and part of the promise of TPP was supposed to be the things that either weren't included in NAFTA because they didn't exist or to fix some of the things that were wrong or weren't good enough or strong enough. And the idea was to set rules of the road that China would eventually feel compelled to follow.
Darci Vetter [00:18:35] I would always say the most important export from TPP will be the U.S. way of doing business.
Luiza Savage [00:18:41] So this sounds like a logical plan, like a way to get a big part of the world to give U.S. companies certainty and help them make rational decisions about where to put their investment to reduce risks of investing abroad to encourage trade to bring more countries into the trading fold. Sounds like it makes sense.
Ben White [00:19:05] It did make a lot of sense, but politics happened. It was a tough sell in an election year in places in the Midwest, where Dan Ujczo lives and works.
Dan Ujzco [00:19:13] We did more on the ground roundtables with businesses and stakeholder groups in Ohio and Michigan and western New York for TPP than I could count.
Ben White [00:19:23] Darci Vetter was actually one of the ones out there trying to sell it in those roundtables.
Darci Vetter [00:19:27] You know I spent much of 2016 going to all the small cities in the U.S. talking about TPP.
Dan Ujzco [00:19:34] Now how many Americans actually understood that the TPP was not a trade deal with China, I'll leave that, that's subject to debate, and I just will go to my grave saying we didn't have the votes to get that through Congress because people didn't understand it.
Darci Vetter [00:19:46] You know shame on us a little bit for not understanding the depth of anxiety about how quickly the global economy seemed to be leaving broad parts of the United States behind and for not thinking about how we talk about trade and its opportunities, for not investing equally in advancing our workforce to meet the needs of a global economy at the same time that we were advancing these trade relationships. Those are not mutually exclusive goals, but it was easy to present them as such. We had one part of the economy that had no idea how their interests were being represented by the trade agenda, and I think Trump capitalized on that anger in a way that was really masterful.
Dan Ujzco [00:20:34] And that's where we are now.
News and archival clips [00:20:35] I immediately withdrew the United States from the horrible, disastrous, would-have-been-another-NAFTA-but-worse Trans-Pacific partnership.
Ben White [00:20:47] All right so let's just quickly recap some of the things that President Donald Trump has done to completely upset the order of things when it comes to trade. He imposed steel and aluminum tariffs on allies in Europe and Canada. He threaten to pull out of NAFTA in 2017, then threatened to scrap it if Congress doesn't pass the new NAFTA, the U.S. Mexico Canada agreement. And of all the stuff the president has done on trade, pulling out of TPP is the one that really drives people like former U.S. Trade Rep. Mike Froman completely bonkers.
Mike Froman [00:21:14] We have lost by pulling out of TPP -- which I have repeatedly said I think is perhaps the most significant strategic blunder in recent American history -- we've lost that position for the United States at least for now, and we have created a void a vacuum that China is quite effectively filling at the moment.
Ben White [00:21:35] He said I'm going to go it alone on China and I'm going to do it myself. My administration is going to fight China one on one. We're not going to be part of this trading block of 12 countries and a giant part of the global economy that would take on China in a multilateral way.
Luiza Savage [00:21:48] That reminds me of something that Michael Pillsbury said when I spoke with him. Michael Pillsbury is an adviser to President Trump on trade and China, and he's been advising successive U.S. presidents on China going back to Richard Nixon.
Michael Pillsbury [00:22:03] Well the TPP was a good idea because it was a test to see if without China, could 10 or a dozen Asian countries all agree to high standards for labor and environmental protection but also try to reduce tariffs among themselves. And the Obama administration demonstrated yes, it can be done. But during the campaign President Trump's dream, if you will, is that multilateral organizations have to reach kind of the lowest common denominator so an even better deal with lower tariffs and other parts of the trade deals can be done if it's bilateral. That's something he ran on, and the economists don't like it, but the politicians tend to say, yeah, you probably can, if you're the most powerful country, you probably can get a better deal in bilateral agreements. But the problem is it takes so long to negotiate each one, whereas something like the TPP you immediately have all 12 countries wrapped up. I was a consultant to the Obama administration in the Pentagon, and I think one of their concepts was after we get TPP done, then we show China, you can join but you've got to meet all these standards. And we'll now we'll never know whether China would have said yes or no.
Luiza Savage [00:23:27] So I was really interested to talk to Michael Pillsbury because he's had such a big influence on this administration and the way they think about China and the way that they think about trade. He's someone who talks to Robert Lighthizer, the USTR. He's someone who influences the conversation in Washington around China. And he's someone who's been thinking about these issues for a really long time.
Michael Pillsbury [00:23:51] So I learn Mandarin Chinese, and wrote my dissertation on China.
Luiza Savage [00:23:57] And his story is so interesting because he started out as someone who advocated for more openness between the United States and China.
Michael Pillsbury [00:24:06] And I was taught even more firmly that China was our future friend we had mistreated China badly that anyone who thought badly about China was a McCarthyite who was anti-communist and therefore wrong.
Luiza Savage [00:24:21] And as time went on he came to see China as more and more of a strategic threat both economically and militarily.
Michael Pillsbury [00:24:30] Then I joined the government off and on for 30 years, and most of that time I was also told China is America's natural ally. We need to sell weapons to China. We need to cooperate with China in covert action of the CIA. And the real enemy is the Soviet Union. So that was my basic bias from age 18, shall we say, up into the 1990s.
Luiza Savage [00:25:00] And then what happened?
Michael Pillsbury [00:25:02] Well it didn't work out the way I was taught. It turned out that I and many others had deceived ourselves that China wanted to be just like us. So if we had massive trade with China and the middle class in China grew and we sold weapons to China to help them defend themselves, slowly over time they would become a capitalist free market country. They would have some kind of democratic at least respect for human rights, if not a multi-party election system, and they would certainly be America's best friend in the world. When that didn't happen, different people had different moments when they woke up.
Luiza Savage [00:25:49] And his book The Hundred Year Marathon has had a lot of influence in Washington and among people in the Trump administration who really see trade as just one piece of the bigger emerging rivalry with China for superpower status.
Luiza Savage [00:26:07] Do you think that the institutions that were built in the 90s were built on premises that are not true, assumptions about China that are not true and therefore it's time to kind of reform those rules?
Michael Pillsbury [00:26:24] We're in a period now where the answer is going to become clear to your question. I would say over the next year or two we're going to find out, can we have a trade deal, can we have some kind of reconciliation with China, can we get back to the G2 cooperative spirit? In which case the institutions that had been built are all perfect for a U.S.-China cooperative relationship. Or are we moving in a very different direction from G2? Are moving toward a new Cold War, a relationship in which competition and friction far outweighs whatever cooperation is possible, and where our various allies in Europe and in Asia have to take sides, where they don't want to do. They are very happy to trade and get along with China and with United States. But if it goes more toward a new Cold War relationship, then the allies will be put on the spot as well. But it's too soon to say in 2019 which of these grand directions were moving in. In fact just the past, just in the recent past, it's become even more possible to see both of these alternatives but not to know which one is coming.
Luiza Savage [00:27:43] In this current trade dispute between the United States and China with the ratcheting up of tariffs, who has more leverage?
Michael Pillsbury [00:27:52] Nobody knows. At least I don't know. There's a case for each side. Our leverage may be on their economy and on their political system, that we will if their economy starts to suffer and the growth rate drops from 6.5 down to six percent or even below because of the tariffs, that it's going to enhance this debate in Beijing. If the reformers win, then we will get a deal and we'll look back and say, Aha, we had more leverage. But right now it's very hard to tell. You can't make microeconomic quantitative calculations of the relative pain very accurately. So it's a bit of a mystery.
Luiza Savage [00:28:33] So Ben this feels like a really big deal. We're now in this moment of potentially an emerging bipolar rivalry. You just see it again and again -- China, China, China. What do you think.
Ben White [00:28:46] So I think what you see, if you pull back the lens here and step away from the daily tweets and all the noise, is that we are very much on a pivot point of history in terms of the United States relationship with China the second-largest economy in the world and that everything that the Trump administration is doing on trade with a renegotiation of NAFTA, and junking TPP, and the steel and aluminum tariffs are all in service of this bigger historic battle with the Chinese. And what you heard from Pillsbury and it's common to other people, hawkish China trade people in the Trump administration, is that they had moments of radicalization on China over the last couple of decades where they went from thinking that China will ultimately be our friend and will develop in this way that embraces democracy and capitalism and human rights to thinking that they absolutely are not doing that, that they have a very different plan in mind, which could undermine the U.S. economy in many ways. And so they have set up their worldview and their policy to take on China, and now we're at this moment where we are in this fight we are in the unilateral fight with China over the future of global trade and the trade between these two giant nations. And it could go you know in a number of directions -- one, dawn of a new cold war with China in which we are in a long-term trade fight with them that will hurt both the U.S. and China and who will bend the knee first? Or Trump decides that he needs to make a deal with China whether it's a sweeping one or a smaller one, and that we don't get engaged in this giant trade war. But you know that this is all playing out in real time as you and I speak, this historic tectonic fight with the Chinese.
Luiza Savage [00:30:26] And I think Ben this is what we'll be exploring throughout this podcast series as the implications of these big tectonic shifts and the implications are quite staggering. For allies, do they pick sides? What are their interests in all of thi,s how did they respond, how is this war in the trade arena with China impacting America's ability to negotiate trade agreements elsewhere and impacting its broader relationships with historical allies? The implications for technology, the implications for the global governance and multilateral approaches to the kinds of solutions that will be needed to tackle global problems like climate change. So next time on global translations, Ben and I are going to talk politics. Is there a political constituency for free trade? Where are the Democrats on this issue?
Sherrod Brown [00:31:21] Well I'm I'm worried that the president is pissed on it wrong. Tariffs are a temporary tool to get to a long term trade policy, not tariffs as the policy itself.
Luiza Savage [00:31:31] And where are the Republicans headed in the age of Trump.
Chuck Grassley [00:31:34] You got to admit and and be thankful for the fact that this is a president that ran on a platform and whereas most presidents run on a platform they don't stand on their platform. This president is standing on that platform.
Ben White [00:31:51] Even if it wasn't a great platform?
Chuck Grassley [00:31:53] He got elected on it. You expect people to keep their promises once they're elected.
Ben White [00:31:58] Fair enough.
Luiza Savage [00:32:00] Thanks to my colleague Ben White. Our producer as Annie Rees. We had help on this episode from Patricia Yacob and Micaela Rodriguez. Dave Shaw is the executive producer of POLITICO audio. I'm Luiza Savage. Global Translations is presented by Citi, a leading global bank. Subscribe to the show wherever you get your podcasts and listen for a branded episode from Citi, about some of the same themes, coming Thursday June 27. Thanks and see you next week.
Article originally published on POLITICO Magazine