← History As It Happens
History As It Happens
Origins of a Trade War
00:58:26
Since the 1980s, Donald Trump has been railing against what he calls unfair trade with a focus on Japan and then China. Also during the '80s, President Reagan, remembered as a free trader, was an interventionist when it came to the closed Japanese...
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- [00:01]
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Martin DeCaro
History as it happens. April 18, 2025 Origins of a trade war.
- [00:34]
Donald Trump
We don't have free trade right now because if you want to go to Japan or if you want to go to Saudi Arabia or various other countries, it's virtually impossible for an American to do business in those countries.
- [00:43]
Bill Clinton
Last month I announced that we had reached the framework of an agreement with the Japanese that would bring an end to predatory pricing in the US Market.
- [00:51]
Robert Reich
I am not trying to launch a new era of protectionism, but we have tried now for two or three decade to open this market.
- [00:59]
Bernie Sanders
For the past 20 years, we have watched the American family be hit with wave after wave of unemployment.
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Paul Tsongas
I think what is facing this country is that the Cold War is over. Japan won and Germany won.
- [01:12]
Donald Trump
They are ripping us like we've never been ripped before. If you look at Japan, if you look at China, where we lose $100.
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Martin DeCaro
Billion a year with China, Donald Trump's on again, off again. Tariffs do have a purpose, to reorder global economic arrangements decades in the making. But even as free trade won prevailed, American leaders moaned about being mistreated by foreign trading partners, about markets that weren't really open to American exports as they look for solutions to the loss of American manufacturing. That's next as we report history as it happens. I'm Martin DeCaro.
- [01:46]
Donald Trump
Toyota sells 1 million foreign made automobiles into the United States and General Motors sells almost none. Ford sells very little. None of our companies are allowed to go into other countries. And I say that friend and foe, and in many cases the friend is worse than the foe in terms of trade.
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Nelson Lichtenstein
Free trade, taken as an aggregate, creates efficiencies and therefore lowers the general price of many, many things that we would buy both here, the US and also with China or someplace else. It does do that. It creates efficiencies. The problem is, and this has been true for centuries, the problem is free trade can be very specifically in particular industries, particular, particular regions, cities can be devastating.
- [02:43]
Martin DeCaro
Picture a US President angry about a trade deficit with an ally complaining that its markets aren't open to American goods while its products pour into our country. And now he's threatening massive tariffs that would make some of these imports unaffordable. Well, it could be Donald Trump, but the president I'm talking about right now is Bill Clinton, and it's June 1995.
- [03:06]
Robert Reich
We still have a huge and persistent trade deficit with Japan. More than half of it is in autos and auto parts. We have a trade surplus in auto parts with the rest of the world because we are the low cost, high quality producer of auto parts in the world. But we still have a 12 and a half billion dollar trade deficit with Japan, partly because they make carburetors in Japan and sell them for three times as much in Japan as they do here. The bottom line is we want to open the markets for American products and we will take action if necessary in the form of sanctions. We hope it will not be necessary. We hope it will not have an adverse effect in the short run on anyone. But over the long run, if we're going to build the kind of global economic system we want, everyone must change.
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Martin DeCaro
Well, a couple of days after this, the United States and Japan reached a deal on auto imports, ending a two year dispute. Japan thus averted $6 billion in tariffs on Japanese made luxury cars. The Associated Press had sent a reporter to a Lexus dealership in Virginia, where they interviewed the manager about what those tariffs would have done to his business.
- [04:13]
Paul Tsongas
If the sanctions happen, all of our cars, because each Lexus model was on the list, will double in price. And frankly, these are great cars. But making an LS400, a $100,000 car, is not going to make it very competitive in the market.
- [04:29]
Martin DeCaro
$100,000 in 1995 is about $180,000 today. So all this must sound a little familiar, although we should not overdo the comparison to President Trump's sweeping tariffs on just about everything imported into the United States. Still, the notion that free trade is not always fair trade or not fair to the United States is not new. In fact, Donald Trump has been pushing this idea since the 1980s. He appeared on really popular television shows, Larry King.
- [04:59]
Donald Trump
The fact is, have free trade. We think of it as free trade. But you right now don't have free trade. Oprah, if you ever go to Japan right now and try to sell something, forget about it.
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Martin DeCaro
Oprah, Letterman.
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Donald Trump
If I were in a position, this country, believe me, would not be ripped off like it is to rail about.
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Martin DeCaro
Japan before eventually switching to complaining about China.
- [05:17]
Donald Trump
They are ripping us like we've never been ripped before. If you look at Japan, if you look at China, where we lose $100.
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Martin DeCaro
Billion a year with China staying. In the 1980s, President Reagan was a free trader, but he had his disputes with Japan, too. He ordered the Commerce Department to investigate alleged dumping of semiconductors on the US market. And in 1985, he tried to pry open the Japanese market to American electronics, forest products and pharmaceuticals. Here is Reagan speaking about his trade policies in 1987.
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Bill Clinton
In December of 1985, Japan improved market access for American leather goods and reduced tariffs on 137 items to bring the leather dispute to an end.
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Martin DeCaro
So it is easy and accurate to say the Trump tariffs could be economically ruinous. But behind the policy is a long, simmering anger, a backlash at the negative consequences of free trade. We have to remember that while opponents of globalization existed on the populist right in those days like Pat Buchanan, and.
- [06:18]
Donald Trump
As for the predatory traders of Europe.
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Bill Clinton
And Asia who have targeted this or that American industry for dumping and destruction.
- [06:28]
Donald Trump
If I am elected, they will find.
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Bill Clinton
Themselves on a collision course with the.
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Donald Trump
President of the United States.
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Martin DeCaro
It was Democrats and labor unions who vehemently opposed nafta. Here are some Democrats during the congressional debate over NAFTA in the early 1990s.
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Bill Clinton
The fact that if we pass NAFTA, Americans are going to lose jobs. Don't take my word for it. The Wall Street Journal did a survey several weeks ago in which they asked some 500 executives throughout this country what they would do if NAFTA passed. They responded 55% of them did that if NAFTA passed, they would give consideration to moving part of their operations to Mexico.
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- [07:42]
Bernie Sanders
To nafta is that this NAFTA agreement essentially treats the workers of this country, hardworking American men and women in support of themselves and their families as an afterthought. For the past 20 years we have watched the American family be hit with wave after wave of unemployment. We have watched them lose their jobs and lose their benefits and lose their income and their standard of living. We have seen that as unemployment has taken place in various sectors of our economy, that those families that were hit by it have never been able to recover their standard of living. They've never been able to recover their wages or the dreams for their children.
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Martin DeCaro
So partisan analysis won't help us understand how we got to this new trade war. Historical analysis will reveal that the question of what to do about the decline of US Manufacturing has weighed on policymakers, businesses, and the working class for decades now. Deindustrialization reduced living standards. Inequality narrowed horizons. These are old problems, and the debates over what to do about them in the 1970s, 80s and 90s are somewhat forgotten now. Manage Trade Industrial Policy Varieties of Capitalism Historian Nelson Lichtenstein directs the center for the Study of Work, labor and Democracy at UC Santa Barbara. He is the author of a must read book, a Fabulous the Clinton Presidency and the Transformation of American capitalism, published in 2023. Our conversation next History is defined by.
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Martin DeCaro
Nelson Lichtenstein, welcome back to the show.
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Nelson Lichtenstein
Delighted to be here.
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Martin DeCaro
Thank you for writing your book because even though you didn't write it for me personally, you've given me so much material to work with.
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Nelson Lichtenstein
Great.
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Martin DeCaro
That's good because you bring us back to this time in the 1980s and the 1990s where these same issues were on the table and the same kind of debates. How do we handle the changes in global capitalism? I want your general thoughts on the following Donald Trump's tariffs, such as they are, they're on, they're off, they're exemptions, they're exceptions, whatever, are probably not a good idea. But for the purposes of historical analysis, for the purposes of my podcast, understand how we got there. We have to understand that historically there were drawbacks or negative consequences to free trade, economically and politically. As you have said, NAFTA was politically toxic. And also the fiercest opponents of free trade in the 1990s were Democrats and labor unions. Right? And the notion that foreign countries are being unfair to US exporters. If you go back to the 80s, it wasn't China, it was Japan. I guess what I'm getting at here is there are real issues when we look past Trump's helter skelter policymaking.
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Nelson Lichtenstein
Well, the thing about free trade is this. I mean, all economists say this and economists are right in this respect. A liberal and conservative free trade, taken as an aggregate, creates efficiencies and therefore lowers the general price of many, many things that we would buy both here, the US and also China or someplace else. It does do that. It creates efficienc. The problem is, and this has been true for centuries, but the problem is free trade can be very specifically in particular industries, particular companies, particular regions, cities can be devastating. The capital, whether embodied in a factory or in just money, is mobile. And therefore, when it leaves quickly to find a more efficient place to make something, while that can be quite useful for the general population, lowering the cost of your T shirts by, you know, 30% or your cars for that matter, it can be devastating to the particular industries, factories, cities. And this is the problem that began, and we began to see this from the 19 late 50s in textiles and garments in America and then electronics in the consumer, electronics, radios in the 1970s. And then it became, for both political parties, it became an issue certainly by the 80s.
- [12:29]
Martin DeCaro
He mentioned textiles. My grandmother, Mary Mancuso passed away recently. She was 102 years old. She had a great run. She was a seamstress in the 1940s in Manhattan, working a sewing machine where she was able to make a little bit of money to get by. Right? We don't do those jobs really in the United States anymore.
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Nelson Lichtenstein
The view of American liberals and labor and the Roosevelt administration, for example, back in the 30s, was that free trade was a good thing. Not just because, well, America was very productive in those days and we could basically sell something everywhere in the world, including textiles and garments, but because one lesson from the 30s was that kind of protectionism, cartels, the Greater East Asia Co Prosperity Sphere of the Japanese, the German effort to have Lebenstrom in the East. And it kind of protected that tariffs, protectionism, cartels was a handmaiden to authoritarian and fascist regimes. And therefore free trade was, was kind of a solvent of that. And even the textile and garment unions, many of them were, by the way, Italians or Jews who worked there. And they, they, you know, where they were, understood the problems of fascism in Europe. They were free traders because they saw, they said, well, you know, you know, we need a, you know, democratic future. And, and so it took a while, it took a while for the leaders of these unions. So even though they're economically, they were being hurt to say, well, I guess we better impose some sort of tariffs and protection on these vulnerable industries. And that began to happen in the late 50s.
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Martin DeCaro
Only FDR called that international gangsterism.
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Nelson Lichtenstein
We have been forced to call out what we in the United States would call the sheriff's posse to break up the gang in order that gangsterism may be eliminated in the community.
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Martin DeCaro
These decade old problems. Donald Trump is trying to reverse global economic arrangements decades in the making. Deindustrialization, this current problem that we're discussing, what are the origins or when do we really see this taking root? Is it the 1970s?
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Nelson Lichtenstein
Deindustrialization, another definition of that, or word for that is capital mobility. If you have a factory in Toledo or Detroit, which is closing down, it may be opening up in Mexico or Alabama or East Asia. Really the issue is when you say deindustrialization is the way we look at it here, but somewhere else it's being industrialized. And the question is, who's getting the benefits of that? The fat phrase deindustrialization began in the 1970s, in particular when the steel mills and consumer electronics, which is forgotten about now, but that was completely destroyed as an American industry in the 1930s, 70s and early 80s. And so, you know, what was happening was we were importing this stuff from new factories and industries in what was then called the Asian Tigers, Hong Kong, Taiwan, Japan, et cetera, not China itself. My overall perspective here is that tariffs alone are not enough. They have to be complemented by a industrial policy at home, meaning a directed investment that's encouraged, supported, subsidized in some cases by governments in the, in the United States. So you need, you need both, both a tariff and industrial policy together. They, they have to complement one without the other is going to be much less effective. Oddly enough, we can look at the Reagan administration and they're a good example of efforts to, to do precisely this. And there's a good, some good examples we could talk about if you'd like to.
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Martin DeCaro
Yeah, we'll get to Reagan in the 80s in a moment on page 27 of a fabulous Failure, talking about Bill Clinton when he was a politician in Arkansas and how manufacturing production in the state soared by 300% between 1967 and 1980. We're talking about Arkansas here and you say per capita income as a percentage of the Nation peaked in 1978. All that growth came, however, in the years just before the Federal Reserve, seeking to break inflation's grip, precipitated a recession during which exceptionally high interest rates devastated U.S. manufacturing and home building. The Fed strategy, you say, not only de industrialized many of the cities bordering the Great Lakes, but also put downward pressure on the labor intensive branch plants that had proliferated in rural states like Arkansas. So, you know, we talk a lot about trade policy as being a causal mover. Trade policy is often a reaction to forces already underway. Right?
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Nelson Lichtenstein
Yeah, the rural south was sort of boomed, kind of the early, early Sun Belt boomed in the, in the 60s and 70s, basically, you know, branch plants, low wage, putting together of apparel and toys and parts. But then beginning in the, in the 80s, to stop stagflation, to stop this very high rate of inflation in the late 70s, Volcker, first under Carter and then under Reagan, put interest rates through the roof. That did stop inflation, absolutely, for many decades, actually. But it also devastated, devastated industry and sent companies looking abroad even more for cheap places to slot into their supply chains, as it were in Arkansas, where Bill Clinton was governor. Really, the main thing he was trying to do as governor of Arkansas, I mean, he was a Democrat, he was a liberal in a way, was to how do we industrialize Arkansas? And he went all over the world looking for models to do that. Italy, Japan, Germany, et cetera, and trying desperately to figure out ways to do it, and only with partial success. How do we, how do we stop this deindustrialization? How do we have high wage, high productive jobs in heretofore agricultural and poor states?
- [18:26]
Martin DeCaro
Again, a theme I'm going to hammer throughout this interview, is the origins of today's dilemma. You have a section here in your book Lessons from Walmart. You're an expert on Walmart and its supply chains, page 37. You say companies like Walmart had begun to source an increasing proportion of the clothes, toys, shoes, kitchen appliances and home electronics they sold from the Far East. More than 250 domestic garment factories closed between 1980 and 1985. And no region was hit harder, you say, by these closures than the rural south, where cheap labor had been the prime attraction before those minimum wage jobs are outsourced to Central America and across the Pacific. And a little bit later in your book, you have a great paragraph. I'm going to share some of this here that explains really the larger economic forces that were in play. You say Reagan's tax reductions for the wealthy and his deregulatory economic program not only increased inequality, but also changed the structure of the economy. The structure of the economy promoting finance, real estate, retail and defense. Because of the high dollar, US exports were expensive and foreign imports amazingly cheap. American manufacturers therefore faced a crippling environment that would persist even after the 1985 Plaza Accord, which was designed to devalue the dollar against the yen. And the mark interest rates, however, remained stubbornly high even after the Volcker shock abated, thus raising corporate expectations for what constituted an acceptable rate of return, a standard that many manufacturers could not meet. So there's a lot going on here too. The destruction of labor unions as well after Pacco.
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Bill Clinton
It is for this reason that I must tell those who fail to report for duty this morning they are in violation of the law. And if they do not report for work within 48 hours, they have forfeited their jobs and will be terminated.
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Nelson Lichtenstein
You have here a kind of a beginning in the 80s and continuing into today, a kind of conflict within capital. So what does financialization mean? It means that you want to have a strong dollar that will attract investment and buying of US Bonds for either Japan or China. That's true today. And that means of course, that imports are cheap. If you have a strong dollar, imports are cheap, cheap. Walmart will take advantage of that. But it also means that American exports are expensive. And so it puts a kibosh on the manufacturing industrial economy. Now take, take Walmart for example. I wrote a book on Walmart, as a matter of fact. So Walmart on the one side, it benefits enormously from the cheap products of the Far east and Mexico and sells them to consumers. And Walmart brags then and now that it saves enormous amount of money for American consumers. And it does, and its competitors do as well. But that's based up on a decline in American manufacturing, a decline in the wages and really standard of living of Americans both in the south and the North. When we talk about deindustrialization, we always think of Detroit. You mentioned those southern sort of branch plants. They're also hurt by sourcing from China rather than from Arkansas. And that means you have a sort of a low wage economy. From a point of view of a Walmart worker or any other worker. Well, what's better to have a cheap T shirts or to have extra money in your pocket? Well, you can only buy certain things at Walmart. You can buy consumer goods and things like that, but you can't buy education, health care, housing, et cetera. So ultimately the bargain is a bad one for American workers. That is only cheap imports, emphasizing that and also cheap wages. But that's what's happened. And throughout this period, 80s, 90s, you have the finance, the Treasury Department, Wall street, they generally want a strong dollar that makes the buying of their bonds very attractive all over the world. But that puts a downward pressure on wages and manufacturing and production. And that's a tension that's there. You can see it right now. Wall street is worried that the Chinese aren't going to be buying American bonds as a result of Trump's policies. And that created a huge slide in the stock market recently.
- [22:45]
Martin DeCaro
That's right, yeah. Well, the bond market, it was the reason why Trump backpedaled here. Not, not necessarily the stock market, but yes, the bond market.
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Nelson Lichtenstein
That's right.
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Martin DeCaro
Yeah.
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Nelson Lichtenstein
Yeah.
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Martin DeCaro
So also at this time, Nelson, was the idea that other countries are taking advantage of us. Matter of fact, Donald Trump talked about this on Larry King, on Oprah. I was watching some clips earlier of him before connecting with you here in the late 1980s when he was actually thinking about running for president, or at least that's what he was saying.
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Donald Trump
The fact is that you don't have free trade. We think of it as free trade, but you right now don't have free trade. And I think a lot of people are tired of watching other countries ripping off the United States. This is a great country.
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Martin DeCaro
I want to talk about Reagan in the 1980s. Right now you have a chapter in your book, not laissez faire Reaganite trade Policy. What was going on in the mid-1980s with Reagan and Japan? What was the dispute and what did the Reagan administration try to do about it?
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Nelson Lichtenstein
In the 80s, Japan was the great rival. It was the second largest economy in the world. And there was a lot of hysteria, even a kind of yellow peril kind of thinking about Japan, which kind of had a racist character to it. But nevertheless, it is true that Japan was an economy that seemed to be working. And at that time, Reagan, who has a reputation as a laissez faire free trader, in fact, encouraged by certain sectors of American capital, everything from Harley Davidson motorcycles in Milwaukee to the beginning of the chip industry in California, Reagan saw the Japanese competition as a problem for specific sectors of the the economy. And he was quite willing and his administration pushed by the Commerce Department far more than treasury, which is really against it, but by the Commerce Department to set up a kind of tariff or quotas, for example, with Japanese automobiles In the early 80s, the Reagan people kind of browbeat the Japanese into sort of voluntarily reducing their imports and instead setting up factories in America, Honda, Nissan, Toyota, which they began to do. And Reagan also almost Biden like, was to set up something, I think it was $500 million fund to encourage the American production of computer chips and to prevent really set a quota that the Japanese would purchase 20% of all their.
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Bill Clinton
Chips would be from America action in December 1985. I directed the Commerce Department to investigate whether Japanese semiconductor chips were being dumped in the United States. Response? Last month I announced that we had reached the framework of an agreement with the Japanese that would bring an end to predatory pricing in the US market and in turn improve American producers access to the Japanese market.
- [25:29]
Nelson Lichtenstein
Reagan is quite interventionist here on specific sectors, not in general, but specific sectors. Some of that policy was carried on and continued on through into the Clinton period. The Biden industrial policy have some echoes of Reagan as well.
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Martin DeCaro
You mentioned the Japanese auto exports issue. There was a limit that was agreed to earlier in the 1980s. Japan would only export to the US 1.8 million cars per year. But what was it about the Japanese markets that was the problem? I mean, they. They weren't open to U.S. goods, U.S. investment. What was going on there?
- [26:06]
Nelson Lichtenstein
I mean, this was the time we'll get into this. But when many in the US they thought our two great rivals in economically at that time were Germany and Japan. And it was just that they were sort of similar to the US but doing what the US Was doing better. But they were different forms of capitalism. We'll get to that in a bit with the Japanese. They were kind of coordinating government agencies which channeled loans to specific industries, very tight connections between banks and these industries. When it came to consumer goods kind of regulations, which, for example, the Japanese said, oh, we can't import American skis because Japanese snow is so different from that in the Rockies, I mean, and things like that. So there were a whole variety of sort of quasi quotas and regulations of all sorts, plus sort of just social norms in Japan that made it much more difficult to export from the US to Japan, which is one of the main things that Clinton sought to do early in his administration. And this was frustrating. It was frustrating to the Reagan. It's frustrating to all of the Americans who were trying to do that. The, the Japanese did have a different form of capitalism. They did sort of invent the idea of lean production. They were more efficient in some ways. But there was also a kind of governmental willingness to block American exports, that's.
- [27:27]
Martin DeCaro
For sure, because this gets into the issue of free trade or unfair trade. And you mentioned Clinton in the mid-90s. We'll get to that. I have a clip of Clinton.
- [27:35]
Robert Reich
We have tried now for two or three decades to open this market.
- [27:39]
Martin DeCaro
He was railing about Japanese, the auto industry, actually. What he said was he was going to put large tariffs on Japanese auto imports. About Reagan, though, I want to stay on him before we get to the 1990s I found an article from 1985 in the Los Angeles Times. The United States wants Japan to hold down auto exports administratively while opening its markets in communications equipment, electronics, forest products and pharmaceuticals. But I don't know. I don't think Japanese people wanted to buy American TVs.
- [28:17]
Nelson Lichtenstein
Well, right, that's true. Electronics was. But it's true there were certain things that Americans did well, auto parts more than automobiles. There was a demand for that in Japan and you could do that. The other thing, by the way, you mentioned, the Reagan administration did put this quota on Japanese cars called a voluntary agreement. And in return, this is when you began to get the Japanese auto plants. The UAW at that time, Douglas Fraser, president of the UAW at that time, flew to Japan, was completely down with this. Yes, set up your plants in Kentucky, set up your plants in Ohio. That's great. Because the UAW at that time mistakenly thought they could unionize those plants easily. One element of trade is, you have to think about what about the possibility of unionization of a high standard of living for American workers. The sort of the flip side of trade is, well, have these companies put their factories in America and actually in California, Japan did put some consumer electronics factories in California. They tended to have low wages and were non union. And then of course, the auto plants all were non union and had lower wages than in Detroit. And over time that put downward pressure on unionized wages, you know, in Detroit and the North. So the two things go together. You can't just talk about tariffs or about quotas or about unionization and wages. They fit together and sort of Biden, I mean, now that he's gone, he looks pretty good. He understood that to a degree and the people around him understood that to a degree in his infrastructure program.
- [29:47]
Martin DeCaro
Japan is not a pro union country, is it? Pro union economy?
- [29:51]
Nelson Lichtenstein
No, no, it has kind of, what would you call it, kind of company unions. I mean, just enterprise unions. Although you have to say that over time, given the nature of Japanese technological advance, real wages in Japan are high. It's not a low wage country, despite the fact it doesn't have a strong union movement. Wages there, say an auto, are probably equivalent to what they are in the.
- [30:13]
Martin DeCaro
U.S. this 1985 article said the Japanese market had low consumer spending, outmoded distribution systems, and tight connections among the government, banks and industry, as you mentioned. So one more thing about Reagan, then we'll move on to the end of the Cold war. In the 90s there was something called the Plaza Accords of 1985 and a report I have here about that. They touched on currency exchange rates, often an overlooked aspect. It included a 50% depreciation of the US dollar against the Japanese yen. But the recessionary effects of the strengthened yen in Japan's export dependent economy led to the Japanese asset price bubble of the late 1980s. So these accords were not good for Japan, right?
- [30:58]
Nelson Lichtenstein
No, they weren't. The effort was here. We got to increase, make it easier to export American goods and therefore let's reduce the value of the dollar versus the yen and then that will make American export better and make Japanese imports a little more expensive. But the Japanese were very productive in this period. Very inventive. And the plaza cords did not really end the Japanese export drive all over the. They accommodated it. Currency manipulation can help a lot, but it can't solve the problem entirely. What did eventually, the problem with Japan is they had a big bubble. Yes, they had a huge bubble with real estate and everything else. And it burst in the 90s. It took a little while for everyone to realize that. But then Japan entered a kind of permanent recession slash depression for. For about two decades, really.
- [31:45]
Martin DeCaro
Mid 1990s on I remember pop culture, there was a book called Rising sun by Michael Crichton. Yes, Japan will be number one.
- [31:54]
Nelson Lichtenstein
Yeah, here's where the racism comes in. Germany was doing very well at the same time, but there weren't novels about Germany taking over the world. There were movies and novels about the Japanese doing that. And that was part of it. That was the element of it. And frankly, a lot of liberals in America understood that. And so they were kind of reluctant to go along with some policies that would restrict Japanese economic power. They rightly saw that as kind of oriental. You know, that wasn't the main theme, but it was there. It was, it was there.
- [32:25]
Martin DeCaro
Yeah, I liked that book when I read it as a teenager. And then when they announced they were doing a movie, Sean Connery was in it. A detective, an expert in ancient wisdom.
- [32:36]
Bill Clinton
Every aspect of your appearance and behavior will reflect on you and on me as your senpai. You'll probably find them irritating tonight. Do keep your hands at your sides. But you Japanese find big arm movements threatening.
- [32:49]
Paul Tsongas
Believe it or not, I have done this before.
- [32:51]
Nelson Lichtenstein
You know, I do know these things.
- [32:53]
Martin DeCaro
Movie wasn't very good, unfortunately, but whatever. So a great thing about your book is that you bring us back to these intellectual ideological policy debates. Left, right and center, books, magazine articles, all focusing on this problem. The premise of this episode, what to do about the decline in U.S. manufacturing, Walmart jobs are being outsourced to overseas sweatshops. What are we going to do about this? Clinton had his ideas. You talk about Robert Reich, Ira Magaziner and all. But if you were to ask Paul Tsongas who won the Cold War? Well, we all would agree the Soviet Union lost the Cold War. You to say in the early 1990s, this new era is opening. Who won the Cold War? Paul Tsongas would have said Japan and Germany. So without getting back into Japan again, let's talk about what was happening in the United States. We were fixated on these models overseas, but we had a lot of trouble trying to figure out the right policy direction to take. So which policy directions were on the table?
- [33:57]
Nelson Lichtenstein
Yeah, Tsonga said that in his debates with Clinton, and Clinton agreed with it. Gentlemen, President Bush told us the other night how he sees the state of this union. I'm going to ask you how you.
- [34:08]
Bill Clinton
See it tonight, Senator Tsongas.
- [34:10]
Paul Tsongas
Well, Robin, my view is really quite simple. I think what is facing this country is that the Cold War is over. Japan won and Germany won and Taiwan won and Switzerland won. You know, I left Washington seven years ago and I live in the real world and the real world is trying to compete out there in the global marketplace. And it is a war. And the result of our inability to compete over the long term because of the Reagan Bush policies means a decline in the American standard of living.
- [34:39]
Nelson Lichtenstein
Governor Clinton, the state of the Union tonight.
- [34:43]
Robert Reich
Well, I disagree a little bit with Senator Tsongas. I think we did win the Cold War and we ought to celebrate it, but we're losing the aftermath. The President's failed trade mission to Japan ended with the Japanese prime Minister saying he felt sympathy for the United States of America. That outraged me, but it pained me too, because the kernel of truth in his remark was not that there's something wrong with the American people. They're working harder today than they were 10 years ago for less money. What's wrong is we are the only advanced nation in the world without an economic strategy.
- [35:17]
Nelson Lichtenstein
What that meant was that Japan and Germany won meant that their model of capitalism, it wasn't socialism, it was capitalism. Whether it's German social market economy where the state encourages all sorts of apprenticeships and kind of cooperation and sectorial bargaining with the unions, et cetera, or the Japanese system, these were superior in terms of production and in terms of economic well being than what was going on in the US And I think a lot of people, certainly among liberals and the Clinton world, agreed with that. Now, what are you going to do about it. And how is the American state? Now? Clinton was running for president. He said, I'm going to solve some problems. What is the American state going to do about it? I'll just outline a couple of different perspectives. Take Robert Reich, Reich, for example, who's today quite valuable and a big critic of sort of unfettered capitalism. Back in the late, in the 80s, Reich and some people around him said, look, we are not in favor of tariffs. Reich was a free trader. We're not even that much in favor of picking winners and losers in terms of, you know, what American industries are going to work and therefore should be supported by the government. Instead, what we should do is have a tremendous investment in education, skills, it increase the skills level. The problem with America is we don't have a skilled working class. The Germans were notable for their apprenticeship program and not just for metal workers, but for all sorts of people. And so Reich said to Clinton and one of his ideas was every company should devote 1% of its income to retraining its workforce, et cetera. And he sort of said, if we build it, they will come. If we educate Americans, you know, then we don't care if the factory is owned by the Japanese or the Germans or anyone else. They'll put it in America because we have a skilled workforce. Now, I think he was ultimately wrong. That's not in fact how you get in reinvestment. And I think he would agree with that today. But at the time, that was a debate. And just to take one figure who disagreed with him, who ended up inside the Clinton administration was Laura Tyson, who was a economist and she became head of the Council of Economic Advisors. And she had a debate with Reich in the pages of American's Prospect in the Harvard Business Review. And Bill Clinton was following this. Bill Clinton was sort of an intellectual. He was not a dunderhead. He was following all this. And Laura Tyson said, no, that's not true. Yes, it's good to have an educated workforce. But in fact, all the R and D that's done the really important stuff, whether it's Silicon Valley or Tokyo, always stays in the country, you know, that owns the company. They may put their branch plans, their, their low wage, low skill plants abroad and the Japanese were doing that. But the really important thing is technical, high skill R and D. And she said, no, this is not going to work. We need a more direct governmental investment in the new industries. So there was these debates were taking place then of course, I should say that there was even a third perspective characterized by Robert Rubin and Alan Greenspan, which was basically we don't want industrial policy at all. All we want is low interest rates which will make it easier to invest and just let the capitalists do it. Just let them invest whatever they want to, whether it's a new factory or a new yacht or anything. That was a third perspective ultimately won out.
- [38:47]
Martin DeCaro
Yeah, that prevailed. That prevailed. You mentioned Laura Tyson. She wrote a book in 1992, who's Bashing Whom? Trade Conflict in High Technology industries. You Write on page 56. Tyson argued for a tough new managed trade policy toward the Japanese if the United States was to finally penetrate the all but closed Japanese market and prevent the evisceration of the industries in which Americans had been an innovation pioneer but lagged in low cost manufacturing technique. You say Tyson's book was provocative. But there was another book that may have made even a bigger impact. Manufacturing Matters the Myth of the Post Industrial Economy by Stephen Cohen and John Zissman or Zeissman. They took aim at people both left and right who saw America and other advanced industrial economies transitioning to a post factory service oriented economy in which knowledge workers would create value by manipulating data, ideas, sentiments and interpersonal relationships. Well, we have become a post factory service oriented economy. So they were wrong, which is all right.
- [39:54]
Nelson Lichtenstein
No, I think they were right because the production, actual production of things and sometimes this is more than just things but various kinds of services and whatnot. This is linked to everything else. You know, you can't just have Walmart, you do have to make things. You need knowledge workers to make things. They were actually attacking Robert Reich there who was saying oh you know, we don't have to worry about making things. And they were saying that for example we only have 2% of all Americans are and agriculture. But that doesn't mean we don't have a gigantic agricultural sector which produces a huge amount of foreign trade. We do it just it just that the number of people involved and the same would be in truth of manufacturing. And that was Tyson's group in Berkeley. There was this sort of group on the international economy she was part of by the early years of the Clinton administration when it came to Japan they said look, free trade is just not going to work because of all these obstacles. What we have to do and Ty have said this in her book on high tech and computers, et cetera. She said we just have to set up but basically a managed trade agreement with Japanese. They will buy X number of computers, they will buy X number of auto parts and the Japanese can do it any way they want, but they have to do that. You know, it would be a government edict because that's the only way that's going to, that's going to solve this. You can't just let the, let the market solve it because then it's not going to work. That was the policy of the Clinton administration for about two years. The first two years they tried that really hard. Clinton was totally on board with that when it came to Japan, but for a variety of reasons, it didn't work.
- [41:25]
Martin DeCaro
This is the varieties of capitalism debate that you talk about in the book. So Clinton is remembered as a free trader when we look back on it, These issues notwithstanding. NAFTA, then China in the WTO. But in the mid-1990s, he got into a major spat with Japan. Again, he sounded like Trump, or maybe Trump sounds like him today talking about how we have a trade deficit with Japan, they're not opening their markets, etc.
- [41:51]
Robert Reich
We still have a huge and persistent trade deficit with Japan. More than half of it is in autos and auto parts. We have a trade surplus in auto parts with the rest of the world because we are the low cost, high quality producer of auto parts in the world. But we still have a $12.5 billion trade deficit with Japan, partly because they make carburetors in Japan and sell them for three times as much in Japan. Japan as they do here.
- [42:16]
Martin DeCaro
So Clinton threatened to put huge tariffs on Japanese automobiles.
- [42:21]
Nelson Lichtenstein
Yes, that's right. Well, there was a crucial negotiation, reached its climax in the spring of 1995. I mean, really, the Japanese were quite resistant. They were very resistant because actually they sort of knew they had allies inside the U.S. basically, the, the financial world was, were sort of their allies anyway. They were quite resistant. And here, here is a kind of a saner Trump or the way we sort of, some of us interpret Trump as being sane would have a Clintonite sense that is, oh, we're going to use the tariffs as a way of leveraging our opponents to do what we want and then get a sort of sane trade deal. So in the spring of 1995, there was a threat to put 100% tariffs on Lexus and those expensive Japanese cars, luxury cars that were being sold in America. At one point, Clinton aide said, well, we're going to lose the LEXIS vote in Greenwich, Connecticut, but okay, that's fine, we'll lose those people, but in the meantime, we'll force the Japanese to basically open their market.
- [43:20]
Robert Reich
I am not trying to launch a new era of protectionism, but we have tried now for two or three decades to open this market. And this is the last major block to developing a sensible global economic policy.
- [43:36]
Nelson Lichtenstein
It didn't work. It didn't work because the Japanese said no. And it also didn't work because Robert Rubin and the treasury people said to have that policy would mean that the Japanese would not be buying our T bills, would not be buying our treasury bills. It would mean that American interest rates would go up, you know, that we don't want that. And so really, the treasury kind of sabotaged the rest of the Clinton policy in the spring of 1995. And after that, Clinton did become a kind of the kind of free trader, the kind of neoliberal that we think. By the way, I should say my chapter on the effort to create managed trade with Japan, the title of it is A Detour on the Road to Neoliberalism.
- [44:20]
Martin DeCaro
So I do want to talk about what's happening today. One more question about the history, though, the debate over China and the wto. There are some who said Clinton, and not just Clinton, Republicans in Congress. There was a lot of support for China in the WTO among multinational corporations. You know, Donald Trump talks about countries ripping us off when really the players here are multinational corporations, American companies in foreign countries who make their products there and then they export them back to the United States so they can be sold at a large profit here because the labor in other countries is so large, low. All right, that's my economic class.
- [44:57]
Nelson Lichtenstein
Yeah.
- [44:57]
Martin DeCaro
Back to Clinton and the wto.
- [44:59]
Nelson Lichtenstein
Let me add one more thing about wto. China. That was crucial, China getting into the wto. And then what that said was that investment in China would be secure, not be as subject to government edicts as before. Yes, cheap products from China is important. But the other side, other thing where Wall street really gets involved is Wall street firms wanted to capitalize the privatization of really, really the big Chinese telecommunication companies. There's steel, all of these government owned. Some of them were rust belt, but others were more advanced. And they wanted to basically capitalize these, sell stock on the New York Stock Exchange, make a lot of money. And they did that. I mean, the telecom companies are gigantic with 800 million subscribers and things like that. And so Robert Rubin again, and the Wall street were pushing China to be in the WTO because they knew that would facilitate these, all these deals and capitalizations and financial aspects that's been lost. But that was extraordinarily important.
- [46:03]
Martin DeCaro
Enormous amounts of money, enormous amounts of money were made, as you point out. But the thing About China and the WTO.
- [46:10]
Robert Reich
The WTO agreement will move China in the right direction. It will advance the goals America has worked for in China for the past three decades. And of course it will advance our own economic interests economically. This agreement is the equivalent of a one way street that requires China to open its markets, with a fifth of the world's population, potentially the biggest markets in the world, to both our products and services in unprecedented new ways. All we do is to agree to maintain the present access which China enjoys. Chinese tariffs from China, telecommunications products to automobiles to agriculture will fall by half or more over just five years. For the first time, our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China, sell through the Chinese government or transfer valuable technology. For the first time, we'll be able to export products, products without exporting jobs.
- [47:15]
Martin DeCaro
Some say this was a mistake. Clinton shouldn't have done it. But again, it wasn't just Clinton. The opponents of a lot of this free trade, as I mentioned at the top, were Democrats in labor unions. In fact, Sean Fain at the United Auto Workers just gave a speech saying he's not against all tariffs. Even now he's against sweeping tariffs. But anyway, back to wto, the other side of that debate. What I want you to answer is that China was so big and was emerging anyway that even if it hadn't joined the wto, it still would have emerged as a major economic power by now.
- [47:47]
Nelson Lichtenstein
Yes, I think that's true. These trade deals, whether it's NAFTA or the wto, it's a way of reassuring American investors that a certain kind of legitimacy and lawfulness will take place. But yes, I think there was already a lot of trade with China. It was growing in the 1990s. It accelerated after they joined the WTO. And, and one of the things is that the, the loss of. I've always made this point that there were a lot loss of jobs to Mexico but far, far more to China. And that really accelerated the late 90s and the early decades of the 21st century. One of the reasons that the. Well, it's true of Bush, but it's also true of both Bushes and Clinton in particular was there was really an illusion there that free trade capitalism is going to create a civil society in China. You're going to have a stock market in Shanghai. It means you have to have accurate prices of, of stocks. You mean have to have commentary that's free about it. And, and Clinton could wax Panglossian on this, you know, cell phones and, and stock markets equal democracy. I mean, and the, and the Americans went at this in a big way. It was, it was totally naive, but they believed that for a, for a season. And that was one of the arguments for bringing China into the wto.
- [49:06]
Martin DeCaro
That's right. It would have a free press still waiting for that.
- [49:10]
Nelson Lichtenstein
Free press, free association, et cetera. Yeah.
- [49:13]
Martin DeCaro
So today, now we can say people across the political spectrum are revolting against shareholder capitalism. Nike or Walmart. By the way, I looked up Nike. They employ hundreds of thousands of people in Southeast Asia, hundreds of thousands in Vietnam alone. And when you add in their supplier facilities, the numbers grow even larger. So shareholder capitalism, low wages are paid to foreign workers. Nike pays its Vietnam workforce much less than it would have to pay, say, a unionized textile factory in the United States. They export the finished products to the US and then they're sold at a huge profit. That maximizes value to shareholders. Nike is sold publicly on the New York Stock Exchange and, well, they took a hit when the tariffs were announced just recently. Right? Yeah, but there's a few problems with this. Let's just start with the sheer enormity of reshoring all this Manufacturing, manufacturing through the blunt force instrument of tariffs. It's not going to happen. I mean, we talk about Nike, you can talk about any of these companies. Just not going to happen, is it?
- [50:16]
Nelson Lichtenstein
No, no, it is. Especially with low wage things like shoes and, and T shirts and stuff like that. Tariffs alone are not enough. You have to have an industrial policy, domestic one, because if you have, for example, one of the things that's been brought up in the, in the financial press is, well, if you have a tariff on China, things will go to too, to Vietnam, which is a big industrial country now, or to Mexico. And you know, you have Vietnamese companies investing in Mexico. Basically, they'll get around it. So you need, in addition to tariffs, you need a kind of domestic policy of investment. And I mean, Biden was doing that when it came to electric vehicles. That was, he said, look, he and his people and others said the Chinese will eat our lunch if it comes to electrical vehicles. So we have to have both tariffs. They did put them on the, on the Chinese, but then tremendous incentives and subsidies to create a battery belt in the American south and to create EV production. And that's what they were doing. I don't know. That may in fact kind of continue a bit under Trump. It hasn't quite been destroyed. The other thing, I want to make one other point which is Important. There's a kind of arbitrage on democracy here. I mean, these countries we're talking about are authoritarian. Workers cannot simply get together and demand higher wages. Whether it's Vietnam or China or even Bangladesh, a premium is being offered by these countries. Yes, we are authoritarian. That's giving us an advantage. The Americans seem to be wanting to do nothing about that whatsoever.
- [51:42]
Martin DeCaro
Yeah, so much for the proletariat in Vietnam and China. They can't have their independent labor unions.
- [51:48]
Nelson Lichtenstein
China. One of the big things that many commentators say about China is it's a gigantic country with potentially a gigantic domestic, domestic market. If you double the standard of living of an ordinary Chinese, it's been going up, but it could go up even higher. You know, they'd be buying all that stuff for themselves and the kind of predatory export drive wouldn't be there.
- [52:10]
Martin DeCaro
But do they want to buy American cars? Well, Tesla sells cars in China. At least it did. That's another thing here. Do Japanese and South Korean people want to buy American products? I guess some. It depends.
- [52:22]
Nelson Lichtenstein
Well, they certainly want to buy. They certainly want to buy some things. Airplanes, agricultural instruments and some high tech stuff. And of course, by the way, the American automobiles are being sold. Till very recently, General Motors was doing very, very well there. Tesla doing okay as well. But General Motors was a major, major player in the Chinese auto industry. I think they're having trouble now, but they were for about a decade and a half, they were doing very well.
- [52:45]
Martin DeCaro
Agriculture is huge. Matter of fact, during the first Trump term, because of the trade war, the government, federal government here had to subsidize farmers who lost the Chinese market to the tune of many billions of dollars. So, yeah, I shouldn't overstate that issue about them not wanting to buy our stuff. But here's another issue too, about this idea of reshoring. I have the New York Times from Sunday here. Apple has faced questions about moving some iPhone manufacturing to the United States for more than a decade. In 2011, not President Trump, President Barack Obama asked Steve Jobs what it would take to make the company's best selling product in the United States rather than China. In 2016, Mr. Trump also pressured Apple to change its position. Mr. Cook has remained steadfast in his commitment to China and has said the United States does not have enough skilled manufacturing workers to compete with China. He said, in the US you could have a meeting of tooling engineers and I'm not sure we could fill the room. He said at a conference in 2017 in China, you could fill multiple football fields. So Maybe this goes to the heart of a really important issue here here. When free trade and deindustrialization took hold in the United States, we didn't replace those jobs that went overseas with something real.
- [54:01]
Nelson Lichtenstein
The argument which is made that you know, whether it's made or, but farm workers, we don't have enough farm workers or we don't have enough engineers. If you're bringing in Indian engineers to staff Silicon Valley. But they, but they're only temporary and they can't get a US citizenship in there. And therefore you need a kind of freedom in the, in the working class to, and a kind of incentives to produce, to generate those engineers. I, I, I'm very skeptical of, of the argument by a executive that we don't have enough skilled workers because there's kind of underemployment everywhere in the United States. And by the way the austerity that that has been imposed on secondary education, high schools and, and, and then, and even universities is, is such that, and the inc incentives for like finance versus sort of engineering, you could re alter all of that. You would be getting plenty of American engineers after we America was the engineering marvel of the world during most of the 20th century and there's no reason we can't return to that. I find those kind of, that kind of argument self serving.
- [54:59]
Martin DeCaro
Well another thing here too, in the Trump administration's idea or their vision of reshoring US Manufacturing, they probably don't want those low wage jobs to be unionized or right. And who would work, who would work in a Nike factory if it were to be relocated?
- [55:14]
Nelson Lichtenstein
Well, let me say that, let me.
- [55:15]
Martin DeCaro
Say this, let me just finish this question though. You know, a Nike sneakers or T shirt factory here in the United States, you know, would want a low wage job like that. Immigrants to the United States. But we're also cracking down on immigration.
- [55:26]
Nelson Lichtenstein
Now let me say this. I visited a Nike factory in Guangdong province 20 years ago and I tried to visit Foxconn which makes all the Apple iPhones. They wouldn't let me in. I noticed at the, the factory was a Yuan factory which is a supplier for Nike and Adidas and other other firms. I was struck by the labor intensive quality. There were very few machines and there were lots of workers. It reminded me of, of a Lewis hine photograph from 1910. I mean America does substitute machines for people. So if the wages went doubled or tripled in South China, which I think free trade, unionism and more democracy would enable that to happen. It would make the, the potential incentives to ensure Some of this stuff with, with lots of machines, you know, much more possible. The same is true of Foxconn. What's going on in China. In fact, you have a million workers and it's really like 1950, a kind of garment manufacturing. Individual workers are doing, you know, soldering things together. I mean, a lot of that could be automated and some of it could be brought back to the US Certainly the high value aspects of it. So I think that again, this argument that we don't have the skilled workers is just completely self centered.
- [56:38]
Martin DeCaro
Well, that's a choice that we've made. But some would say the companies would actually say, listen, we relocate to the United States, the cost of the clothing, the cost of the gadget is going to be a lot higher because our labor costs would be higher. And the response to that from some is, well, tough. You're just going to have to make smaller profits. But that's not how global capitalism works. And a Cato Institute YouGov poll, people were asked, would the United States be better off if more people worked in manufacturing? 80% said yes. Then the question would you be better off if you worked in a factory instead of your current field of work? 25% said yes. So yes, I want more manufacturing, but I don't want to work in a factory myself. Why? Because that's not what really people are aspiring to do in this country. Generally speaking, I don't want to sew sneakers for Nike.
- [57:30]
Nelson Lichtenstein
Well, let me just say, I mean, one of the things that has happened is that there's identification of factory work with, well, in the old higher wages. That's not necessarily the case. And there's identification say of retail work or fast food with low wages. Those are not necessary. That's not built into the nature of the world. You can have high wage service sector jobs and low wage factory jobs. Just historically, unions and managers in factory work offered higher wages from the $5 day which Henry Ford put together in 1913 as a way of recruiting workers. That's an historical artifact and those things can change. When I was in Finland on a Fulbright, I went to the local pizza parlor and I would tell my son, these people are earning good money with health insurance, that we need that in America they were working a pizza. These things are not fixed. And I think that that poll you mentioned was indicative of both two things. One, oh, factory work is high wages and B, it's lousy work today. I think that that's what that reflected.
- [58:35]
Martin DeCaro
On the next episode of history as it happens. The fall of Saigon 50 years later, a three part series is coming your way. Defeat in Vietnam, Vietnam Origins, Resistance and Consequences. History as it Happens. Publishes new episodes every Tuesday and Friday. My newsletter every Friday. Sign up free@historyasithappens.com.