David J. Lynch, "The World's Worst Bet: How the Globalization Gamble Went Wrong (And What Would Make It Right)" (PublicAffairs, 2025)

Summary

---

Podcast Summary

New Books Network: David J. Lynch on "The World's Worst Bet: How the Globalization Gamble Went Wrong (And What Would Make It Right)"

Date: September 5, 2025
Host: Deidre Woolard
Guest: David J. Lynch – Global economics correspondent, The Washington Post

---

Overview of the Episode

In this episode of the New Books Network Economics Channel, host Deidre Woolard interviews David J. Lynch about his new book, The World's Worst Bet: How the Globalization Gamble Went Wrong (And What Would Make It Right). The conversation explores the promises and pitfalls of globalization from the end of the Cold War to the contemporary era of economic nationalism, populist backlash, and shifting global power dynamics.

Lynch breaks down why the “gamble” of integrating global markets delivered uneven results, who benefited and who was left behind, and what lessons policymakers, businesses, and individuals should learn as the landscape continues to shift—with special attention to the China shock, technological change, trade, populist politics, and the future of manufacturing and work.

---

Key Discussion Points & Insights

1. Origins and Rationale Behind Globalization

[02:25–06:24]

• Lynch frames globalization as the economic story of our time, describing how, after the Cold War, the world seemed poised for US-led prosperity:

  “In the early 1990s... it seemed like free markets and democracy were sweeping the globe. Former adversaries were embracing market economics and seemed ready to join a US led international system. And it all seemed like happy days were here again.” (David J. Lynch, 02:43)

• Policymakers believed integrating workers from the former Soviet bloc and China would raise global living standards, reduce inflation via lower prices, and—critically—promote democracy and peace through free trade.
• However, the link between trade and democratization, especially in China and Russia, “didn’t fully turn out to be the case.”

2. Early Resistance: The Seattle WTO Protests

[06:24–09:45]

• Lynch recounts the 1999 Seattle WTO protests (“Battle of Seattle”) as a significant early sign of anti-globalization sentiment:

  “It symbolized the lack of consensus around how [global trade] should develop.” (David J. Lynch, 07:41)

• Protesters united left-wing labor and environmental groups with right-wing protectionist interests, foreshadowing the later populist backlash.

3. The Tech Sector, Venture Capital, and China’s Rise

[09:45–13:31]

• The early 2000s were marked by a surge of US venture capital in China’s tech sector, with Silicon Valley investors like Tim Draper playing a key role.
• Lynch admits even he underestimated China's speed and innovation:

  “It was very easy to look at China at the time and think, boy, it’s just going to take forever for them to develop to the point where we’re going to have to worry about it... And now 20 years have gone by, and the Chinese military and the Chinese economy is in a very different place than it was then.” (David J. Lynch, 13:37)

• The partnership between American money and Chinese talent created mutual dependency, but also competition that few initially foresaw.

4. The "China Shock" and its Consequences

[14:40–19:44]

• “China shock” refers to the dramatic loss of US manufacturing jobs following China's entry into the WTO.
• Policymakers, including Joe Biden at the time, deeply underestimated the impact:

  “I don’t think we have to worry that China is really going to make that much of a difference to us. Now, of course, that was wrong, badly wrong.” (David J. Lynch, 15:56)

• Lynch highlights that most attention focused on how trade would change China, not how it would transform the US. Economists' models failed to grasp the scale and speed of the disruption.

5. Impact on US Communities and Social Safety Nets

[19:44–23:25]

• Lynch describes the devastation of towns reliant on manufacturing, using Union City, Tennessee, as a case study.
• While globalization brought broad consumer benefits (e.g. lower prices, product variety), its costs were “concentrated like an economic tumor.”

  “The benefits from globalization are spread across the entire economy... The costs or the problems are concentrated like an economic tumor.” (David J. Lynch, 23:31)

• Social support for displaced workers, promised by leaders like Clinton, largely failed to materialize. “At the end of the day, what you can count on... is precious little. You’re basically on your own.”

6. Globalization, Financial Crisis, and Capital Flows

[25:06–29:56]

• Lynch draws a through-line from the US trade deficit with China to the flood of Chinese investment in US bonds, which then helped fuel the pre-2008 real estate bubble:

  “All that capital coming from both Europe and China at the time had the effect of holding down our interest rates, which made it cheaper for American homeowners to do things like refinance their mortgage.” (David J. Lynch, 26:26)

• Globalization amplified the crisis, though regulatory failure was also to blame, aided by a belief in “light touch” regulation that proved misguided.

7. Populist Backlash—Tea Party, Occupy, and Trump

[29:56–38:17]

• The aftermath of globalization and the recession drove simultaneous left- and right-wing populist movements: the Tea Party, focused on deficits, and Occupy Wall Street, focused on financial inequality.
• Many Americans who suffered job and community loss perceived the system as rigged and unresponsive. Only in 2016 did a presidential candidate—Trump—offer an “unorthodox approach to globalization”:

  “It’s like that old saying, it’s one damn thing after another. It was the China shock, then it was the financial crisis, then it was the weakest recovery. So bang, bang, bang, nobody seems to be helping them.” (David J. Lynch, 32:57)

• Lynch discusses tensions within the Trump administration between globalists (like Mnuchin) and protectionists (like Bannon, Ross).

8. The Pandemic and Rethinking Supply Chains

[38:17–45:54]

• The COVID-19 pandemic exposed the fragility of global, just-in-time supply chains, leading some companies to attempt diversification (the “China plus one” strategy).
• Nevertheless, “the incentive structure that took us to just in time has not changed enough.” Companies seeking alternatives face uncertainty due to rapidly shifting trade policy and tariffs.

  “There isn’t another China on the planet... So it’s difficult for supply chain executives to figure out how to reshape their networks again, particularly at a time when the President keeps changing the parameters.” (David J. Lynch, 43:37)

9. Challenges of Reshoring Manufacturing

[45:54–54:59]

• US and Chinese companies have both turned inward, focusing on domestic brands and production.
• Policy proposals to “reshore” manufacturing to the US (like Biden’s Made in America) run into practical barriers—some products simply aren’t made in the US anymore, and productivity gains mean fewer jobs if factories do return.

  “Even if you could snap your fingers and get back a factory... maybe you’d get 200 jobs [instead of 2,000].” (David J. Lynch, 52:13)

• The much larger opportunity for American workers will come from the service sector, not manufacturing.

10. Lessons, Looking Forward, and Hopes for Reform

[54:59–58:24]

• Lynch warns that a “reverse China shock”—like a sudden loss of Chinese imports—would be devastating.
• He advocates honest evaluation of both globalization’s benefits and costs, and calls for more robust labor market policies and reforms to the social safety net, especially as new shocks (e.g., AI) loom:

  “Workers need help navigating periods of tremendous change. It’s not enough to just say, good luck to you, off you go.” (David J. Lynch, 56:19)

• The core lesson: If policymakers don’t support the “losers” from globalization, popular support for open markets and new technologies will erode, jeopardizing future prosperity.

---

Notable Quotes & Memorable Moments

• On Globalization’s Promise and Failure:

  “The idea was, well, trade will promote democracy and trade will promote peace... And that part didn’t fully turn out to be the case.”
  (David J. Lynch, 05:37)

• On Populist Protest at Seattle WTO Meeting:

  “Both left and right had problems with the WTO for similar reasons, seeing it as an infringement on national sovereignty.”
  (David J. Lynch, 08:45)

• On the Cost Distribution of Globalization:

  “I think of it like frosting on a cake. And the costs or the problems are concentrated like an economic tumor.”
  (David J. Lynch, 23:31)

• On Reshoring Manufacturing:

  “If you could snap your fingers and get back a factory... maybe you’d get 200 jobs because productivity has improved... The idea that you’re going to have these factories of the old days...those days are largely gone.”
  (David J. Lynch, 52:13)

• On Preparing for Future Economic Shocks:

  “The China shock is not going to be the last labor market shock to hit this economy... We need to, in my mind, experiment with some more active labor market policies.”
  (David J. Lynch, 56:10)

---

Timestamps for Key Segments

• [02:25] — Why Lynch wrote the book; framing the globalization “story”
• [04:12] — The core promises and economics of globalization
• [06:41] — Resistance and anti-globalization protests (Seattle WTO)
• [09:45] — US venture capital & early tech partnership with China
• [14:40] — The "China shock" and underestimated impact on US workers
• [19:44] — Community devastation, wealth inequality, and left-behind workers
• [23:25] — Benefits of globalization vs. concentrated economic pain
• [25:06] — How global capital flows contributed to the 2008 financial crisis
• [29:56] — Populist backlash: Tea Party, Occupy, and Trump’s unorthodox message
• [34:28] — Factional conflict in the Trump administration over trade
• [38:17] — Pandemic, supply chain fragility, and China-plus-one
• [45:54] — China’s inward turn, re-shoring US manufacturing, and limits of policy response
• [54:59] — Lessons for the future: active policy, labor markets, and supporting workers

---

Conclusion

David J. Lynch’s conversation offers a nuanced, critical assessment of 30 years of globalization, profiling its achievements, its victims, and the urgent need for political honesty and new policy frameworks as global economic shocks—from supply chains to technology—continue to arise. He urges not a retreat from global integration, but a smarter, more equitable approach that invests in workers, mitigates disruptions, and preserves broad prosperity.

---

Transcript

[Progressive Insurance Announcer]

This episode is brought to you by Progressive Insurance. Fiscally responsible financial geniuses, monetary magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Visit progressive.com to see if you could save Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states or situations.

[Blinds.com Announcer]

@Blinds.Com it's not just about window treatments. It's about you. Your style, your space, your way. Whether you DIY or want the pros to handle it all, you'll have the confidence of knowing it's done right. From free expert design help to our 100% satisfaction guarantee, everything we do is made to fit your life and your windows. [e-mail], the only thing we treat better than Windows is you. Visit blinds.com now for up to 45% off with minimum purchase plus a professional measure at no cost. Rules and restrictions apply.

[Marshall Po]

Hello, everybody. This is Marshall Po. I'm the founder and editor of the New Books Network. And if you're listening to this, you know that the NBN is the largest academic podcast network in the world. We reach a worldwide audience of 2 million people. You may have a podcast or you may be thinking about starting a podcast. As you probably know, there are challenges basically of two kinds. One is technical. There are things you have to know in order to get your podcast produced and distributed. And the second is, and this is the biggest problem, you need to get an audience. Building an audience in podcasting is the hardest thing to do today. With this in mind, we at the NBM have started a service called NBN Productions. What we do is help you create a podcast, produce your podcast, distribute your podcast, and we host your podcast. Most importantly, what we do is we distribute your podcast to the NBN audience. We've done this many times with many academic podcasts and we would like to help you. If you would be interested in talking to us about how we can help you with your podcast, please contact us. Just go to the front page of the New Books Network and you will see a link to NBN Productions. Click that, fill out the form, and we can talk. Welcome to the New Books Network.

[Deidre Woolard]

Hello, I'm Deidre Woolard on the New Books Network Economics Channel here today with David J. Lynch, who's the global economics correspondent of the Washington Post and author of the new book the World's Worst how the Globalization Gamble Went Wrong and what Would Make It Right. Welcome.

[David J. Lynch]

Glad to be here.

[Deidre Woolard]

So why was it important for you to write this particular story?

[David J. Lynch]

Well, I think it's sort of the economic story of our time. What I try to explain in the world's Worst Bet is the transformation of the global economy and the US economy over the last 30 years or so from the end of the Cold War to the rise of economic nationalism, populism today. And I was struck a couple years back as I was preparing to cover the G20 summit in Indonesia at just how different the mood was compared to the way most people felt at the end of the Cold War. In the early 1990s, the so called end of history quote, unquote, it seemed like free markets and democracy were sweeping the globe. Former adversaries and then Soviet Union and China were embracing market economics and seemed to be ready to join a US led international system. And it all seemed like happy days were here again. And if you fast forward to where we've ended up, this is not the destination we had in mind. Back in the 1990s, I thought it was important to try and figure out why that happened, how it happened, and explain it to folks.

[Deidre Woolard]

Yeah, absolutely. I love that you started with that, going back decades, starting with the Clinton presidency, the creation of NAFTA and later the wto. So tell us a little bit more about the beliefs about globalization. You touched on it a little bit of this idea that democracy and free markets would, would sweep the world, as you put it, didn't happen. But what, what were some of those beliefs beyond deeper than that?

[David J. Lynch]

Yeah, well, I think the beliefs were, were, were grounded in some sensible economics. In other words, the, the thought being if we could integrate all these workers that had been trapped behind the Iron Curtain and had been trapped in, you know, communist China, if, if they, if all that, those human resources could be brought to bear in one global economy, we all stood to benefit. It'd be better for those workers, they'd have a better standard of living. And that did turn out to be the case. But we'd benefit too. And we did benefit. Access to low cost goods from China helped keep inflation under control here for over a decade, gave us greater global trade, gave us all a wider choice of products, a better mix of jobs in the economy and people. Also policymakers at the time, and this is back in the 1990s, also drew explicit links between expanded global trade and expanded political liberalization in countries like China and Russia, and thus a greater global peace. There were varying degrees of sophistication in the ways that politicians would present. This in its most straightforward and I think least correct, the idea was, well, trade will promote democracy and trade will promote peace. And I Think trade. You can see the argument how trade would encourage the development of a middle class in places like China. Property owning middle class over time would have more of a stake in the system. They'd be better educated, they'd be more outspoken, they would demand political change from their rulers. And over time that would lead to less authoritarianism and greater political pluralization or pluralism. And that part didn't fully turn out to be the case.

[Deidre Woolard]

No, definitely not. What you go into in the book, I found it interesting also that you covered the history of a protest. You talk about what happened in Seattle with the wto. So there were people, there was a protest to some of this at that time?

[David J. Lynch]

Absolutely there were. And you rightly point to Seattle. That was, I think, an interesting outlier almost because we remember it now. And this was the so called battle for Seattle at the end of November 1999, when President Clinton had invited the WTO to schedule a meeting in Seattle. The idea of this, what's called a ministerial, was to agree on the next phase of global trade talks. Then the process is that the ministers from all over the world come together and if the they can agree, okay, we're going to now try to organize a new global trade agreement to cover X, Y and Z, and then that would launch the next phase of trade liberalization. But you had quite an outpouring of anti globalization activists. Interesting to me that kind of melded concerns on the political left and the political right in a way that I think foreshadowed the rise of the Trump phenomenon. Because most of this anti antiglobalization in the 90s, most of the energy was visibly coming from the left. Labor unions, Ralph Nader's public citizen, religious groups, students, and they poured into the streets of Seattle, overwhelmed local authorities who really hadn't prepared as well as they should have for these types of demonstrations. It basically shut down the ministerial. It was a big embarrassment to the wto, it was a big embarrassment to the Clinton administration and didn't in and of itself prevent the start of another round of trade talks, but it symbolized the lack of consensus around how that should develop. And so at the end of the day, there was not a new round coming out of that meeting. And again, and I get into this in the chapter that I devote to Seattle, what was not, I think, appreciated fully at the time was the way in which some of the protectionist forces on the far right of the textile industry, in particular a guy named Roger Milken from South Carolina, were financing and working with the folks on the left of center groups who were trying to prevent the wto. Both left and right had problems with the WTO for similar reasons, seeing it as an infringement on national sovereignty. And to the left it was an entity that was really just a sort of a mask for corporate dictated trade rules. The folks on the right saw it as the concern was less that and just that this was some big amorphous international organization that was going to be telling Americans how to do things and they didn't want that to happen.

[Deidre Woolard]

Yeah, I like that you make that connection on the populism on both the left and the right. And we'll come back to that as we go through the book. But I wanted to frame this also around the early 2000s rise of technology, because you tell the story of Tim Draper and the venture capitalist who got in early on supporting China's tech startups, like early 2000s and really sort of fueled what's happening in tech in China today. So it feels like we missed something about the ramifications of that at the time. It seems like, great, everybody's making money and then there are the ramifications. So tell us a little bit about that.

[David J. Lynch]

Yeah, well, and I'm happy to confess I missed the ramifications. I was living in Beijing in that period. I moved to Beijing about six months after China joined the WTO. So I was there from 2002 to 2005. And most of the focus, most of my focus and most of, I think the global economics commentary at the time saw China's rise as mostly important in the manufacturing sector, that all these inexpensive factories along the coast in China were posing a threat to varying degrees to manufacturing workers in developed economies like the United States. And I, and I think many people at the time paid less attention to this phenomenon that I described through the eyes of Tim Draper, who's a very prominent Silicon Valley venture capitalist. He bills himself as the first investor from Silicon Valley to make sizable inroads into China. And he had scored a big success, matter of fact, a billion dollar success with his investment in Baidu, which is sort of China's answer to Google search engine. And at the time he was incredibly enthusiastic, he's pretty enthusiastic guy to begin with, but he was incredibly enthusiastic about prospects for development in China. He even considered moving to China at one point. And he would go over there and he'd have these day long series of meetings with just a whole lineup of aspiring Chinese entrepreneurs. And there was a lot of energy at the time initially and I think, not surprisingly, a lot of the Early Chinese tech startups were basically taking an idea that had worked in the west, and Baidu, I think, may be an example of this. Taking a search engine. Okay, we've demonstrated that concept works. Everybody in the United States needs a Google. Well, then folks in China are going to want their own version of Google. They're going to want it, obviously, in a Mandarin character language. And so you take a template that has worked in the US you bring it to China, and you sort of recalibrate it for the Chinese audience, and you make it work there. That was the initial wave. But in not terribly long, in a matter of a few years, the Chinese entrepreneurs started coming up with their own ideas and began developing a venture capital system of their own. So investors like Draper, over time, became less important. But I think the development, the marriage in those early years of Western and particularly American capital with Chinese brain power and ideas gave you an idea of how this relationship could develop over time and what some of the potential problems would be down the road.

[Deidre Woolard]

Yeah, we definitely seem to think that they would always need us as the guiding force, and I think that is what is not happening right now.

[David J. Lynch]

No, I think it. And it's funny because I look back on those years again when I was living in Beijing. On the one hand, it seems like yesterday. On the other hand, it was 20 years ago, more than 20 years ago. But at the time, yeah, I think it was very easy to look at China at the time and think, boy, it's just going to take forever for them to develop to the point where we're going to have to worry about it. I remember going to a Chinese Navy demonstration in Qingdao, which a beautiful city along the coast up in the northeast, and to see a Chinese warship that they were very proud of that was a generation or two or three behind the best in the US Navy at the time. And so, again, it was easy to not be terribly concerned about some of the. Some of the potential trajectories, growth trajectories, looking ahead. But, boy, you know, you blink. And now 20 years have gone by, and the Chinese military and the Chinese economy is in a very different place than it was then.

[Deidre Woolard]

Yeah, absolutely. I want to also talk a little bit about manufacturing, which you mentioned. So you talk a lot about what you call the China shock. So China comes into the WTO and the combination of trade with everything else they're doing, you know, they're very prepared to. To kind of decimate U.S. manufacturing. In some way, we saw that coming. But in some ways, it really seems like, we, we didn't, we certainly didn't prepare our workers. What, what did we miss there?

[David J. Lynch]

Yeah, I think if you look at the debate in the late 90s over granting China what, what's called in the US permanent and normal trade relations PNTR, which was a, a key step in China joining the wto. You know, it's really striking to go back and read that Senate debate because a guy named Joe Biden got up on the floor at one point, this was in September of 2000, I believe, and said something along the lines of, you know, I don't see a big economic impact either way from this. I don't think we're going to create, suddenly create a lot of new jobs here in the United States to send exports to China. But I also don't think we really have to worry about the impact of China, which after all, right now has the same impact on the global economy of the Netherlands. So I don't think we have to worry that China is really going to make that much of a difference to us. Now, of course, that was wrong, badly wrong. And in going back and doing the research for this, I was struck that at the time, I think there was a lot more emphasis on the part of the US Policymakers, economists and others placed on how much of this process of bringing China into the global trading system, how much that was going to change China, but not much attention was paid to how much it might change the United States. And I think that was the key failure. You go back and there was a government study from the International Trade Commission that projected the numbers of just how much difference in the early years it would make in terms of rising Chinese imports. And they just got it badly wrong. I won't quote numbers because I'll misremember them, but the ITC estimate of the potential increase from Chinese imports into the United States in those first years was way off. And many economists got it wrong. They were using their models from trade between advanced countries like the US And Germany or the US And France, and assuming that the same sorts of modest adjustments within economies would be necessary, and they just didn't get right how dramatic, how quickly China would develop and how dramatic would be the impact on the U.S. hey, it's Ryan Reynolds here for Mint Mobile. Now, I was looking for fun ways to tell you that Mint's offer of unlimited Premium Wireless for $15 a month is back. So I thought it would be fun if we made $15 bills, but it turns out that's very illegal.

[Progressive Insurance Announcer]

So there goes my big idea for the commercial.

[David J. Lynch]

Give it a [e-mail] Switch upfront payment.

[Deidre Woolard]

Of $45 for three month plan equivalent to $15 per month required new customer offer for first three months only. Speed slow after 35 gigabytes of network's busy taxes and fees extra.

[Progressive Insurance Announcer]

See mintmobile.com this episode is brought to you by LifeLock. Between two factor authentication, strong passwords and a VPN, you try to be in control of how your info is protected. But many other places also have it and they might not be as careful. That's why Lifelock monitors hundreds of millions of data points a second for threats. If your identity is stolen, they'll fix it guaranteed or your money back. Save up to 40% your first year. Visit lifelock.com podcast for 40% off terms apply.

[Ashley Graham]

I'm Ashley Graham and as a parent I know the back to school transition can be a lot when it comes to wellness. Ollie supports me and my family through it all. Kids multi is big in my house. It supports their immune system and they love to take it. A win win for everyone. Shop these [e-mail] or retailers nationwide. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease.

[Deidre Woolard]

And what they also got wrong too was that you point out in the book is how this contributes to wealth inequality. And really the small towns that rely on manufacturing in the US that were just devastated. You talk about this from the 2000s and there are towns all over the country that have not rebounded that really see no hope of rebounding in any significant way.

[David J. Lynch]

I was struck. I went to one town that I described as sort of an example of this in Union City, Tennessee, in the northwest corner of the state where there was a good year tire plan that made sort of low level passenger tires but had been there for years and was really probably the the source of the best blue collar jobs in the area. About 2,000 people work there and trade was not. And this is what I think is important to keep in mind as we examine all these questions. It wasn't that the rise of Chinese imports by themselves put all these people out of work. It was that Chinese trade was an important ingredient in sort of this cocktail of economic change that included automation and included mistakes by management, bad practices by management, making sure the CEO's pay was doubling at a time when there was layoff after layoff after layoff and mistakes by the union in playing hardball at a time when they probably didn't have all the cards they needed to play hardball. But trade was a key part of this. And this idea of winners and losers from globalization was the part that we certainly saw coming from the very beginning. Bill Clinton, who I think of as kind of the godfather or globalization, said globalization's a fact, it's not a choice. In other words, this thing is happening with or without these specific trade agreements. Thanks to technology and a lot of other things, globalization's happening. So there are going to be winners and losers. That's okay because overall the economy will benefit. But the winners are going to do so well that they're going to have to provide for and they'll be able to provide for the so called losers. They'll be able to give folks with the least skills and the least education. They'll be able to give them relocation assistance, retraining, whatever support they need so that they can benefit from this new global economy just the way all the well educated people in banks and technology companies and everywhere else will benefit. We got to make sure nobody's left behind. So this problem was seen, but nobody ever did anything about it. There was, there was always some other thing or issue or concern. The budget deficit, the wars in Iraq and Afghanistan, desire for good relations with China. There was always something else that took priority over providing for these disadvantaged workers. And whether you lose your job because of trade or because of automation or because of something else, at the end of the day, what you can count on from the government and from society is precious little. You're basically on your own own. And over time, I think as people in some of these communities, which is where the impact of this phenomenon was concentrated, they became resentful and who can blame them?

[Deidre Woolard]

And the penalty for corporations making these moves, opting for not just shipping things. I mean, we tend to think of China as cheap goods, but it's also components of different things. There's really not a lot of penalty for these companies that are making these moves and in fact they're applauded for it because reduces their costs and the shareholders are happy. So it seems like that is part of what contributes to a lot of where we are now.

[David J. Lynch]

Yeah, the shareholders are happy and again, we all benefit. That's the other important part of this winners and losers consideration is that. But the benefits from globalization are spread across the entire economy. I think of it like frosting on a cake. And the costs or the problems are concentrated like an economic tumor. So you and I, and even some of the people in these communities who suffered, they still benefit from no inflation from the wider availability of products. I mean, I remember my wife and I were talking about this the other day. I grew up in Connecticut in the 1960s, and if we were lucky, we could get corn on the cob about six weeks every summer. And that was it. And now living here in Virginia, we have fresh fruits and vegetables pretty much 365 days a year, which would have been unimaginable in the 1960s, at least in New England. And we have those fresh fruits and vegetables because of trade, because of trade with places like Mexico and Peru and other, other places south of the border. Everybody benefits from that. But the people who paid the price weren't the investment bankers on Wall Street. They weren't the software designers in Silicon Valley. They weren't journalists like myself in Washington. They were folks with a high school education, in many cases, who were working in basic manufacturing, sort of at the low end of the manufacturing totem pole that were just ripe to be competed out of business by low cost Chinese labor.

[Deidre Woolard]

One of the things I thought that a point you made, the book that I thought was really interesting, that I hadn't quite considered, is that China's investment in the US Actually made the great financial crisis worse. So tell us a little bit about that.

[David J. Lynch]

I think this is an interesting dimension to the globalization debate that doesn't get talked about nearly as much as the manufacturing component. And that is that the flip side. And I'll try to make this as simple as I can, because you can find yourself lost in a dictionary full of financial market jargon. But one way to think about this is that the flip side of our chronic trade deficit, and we've been running a trade deficit since 1975, this is one of the things that President Trump is very exercised about. And a trade deficit means, basically we're buying a lot more stuff from folks overseas, particularly in China, but many other places, we're buying more from them than they're buying from us. And the flip side of that trade deficit is that we have a capital account surplus. We have money, a lot of investment money flowing into the country. Now, why is that the case? Well, basically, because we buy so much stuff from China, at the end of the day, they end up with a lot of dollars that they have to do something with. And so they reinvest that in the United States rates often and usually in our treasury market, in our bond market, bond market, because that's super safe, they can get a decent return. They can move the money out anytime they need it. So the treasury market's where that tends to end up, all that money coming in. And there was also a separate river of money at the time coming in from European banks that, that went into the housing market. But all of that capital coming from both Europe and China at the time had the effect of holding down our interest rates, which made it cheaper for American homeowners to do things like refinance their mortgage and what are called cash out refinancings, where you refinance and you end up taking some money out because your home price has gone up so much, you feel like you've got a windfall, now you want to spend it. That played a big part in our bubble and ultimate bust. In the early years and before 2008, a lot of Americans took money out through a cash out refinancing. They were able to do that because interest rates were so low. Having that money, they went and spent it on things. The economy kept roaring along. More and more of these investment products, the mortgage backed securities that the European banks were investing in were created. And that just was putting more fuel on the fire, to mix metaphors, more fuel on the fire of this bubble. And so when the bubble popped, the damage was at the margin a little bit worse than it otherwise would have been. Now I should note that the primary causes of our bubble were domestic, were errors of regulation, errors of bank management. These are sort of homegrown mistakes that Americans are responsible for. But these global capital flows were an aggravating phenomenon, an aggravating part of that. And some of the regulatory weaknesses that were evident in the UK and in Europe were also basically ideas that we had exported. This idea of the light touch banking regulation, which Alan Greenspan, the then chairman of the Federal Reserve was very fond of. The idea that the bank management had, nobody had a bigger stake in making sure the bank was well run. So the argument ran at the time than the bank management. So we don't need a lot of heavy handed government bureaucrats writing a lot of complicated rules. We'll just trust the bank managers because after all they don't want to see the bank blow up. So they'll make sure they don't do anything too risky. Well, we know now that, I mean we knew, some people knew then that was a pretty dumb idea. It's a little bit like saying to motorists on the highway, hey, pick your own speed limit, right? Because you've got the greatest incentive to stay safe. So we'll trust you not to go 100 miles an hour down the highway because after all you don't want, you don't want to see yourself have a car accident and get hurt. So we won't set a speed limit. We'll just trust you.

[Deidre Woolard]

So what leads to, from out from that, it seems, is populism kind of splits. And you talk about this in the book. You get the rise of the Tea Party on one side, you get Occupy Wall street on the other side. And the Tea Party sort of leads us to where we are now. But those movements really are connected, it seems like, to both the recession, but also to this response to globalization.

[David J. Lynch]

I think of them as two sides of the same coin, but I think you're right that they're part of the same phenomenon. And the way I, I think of this history running from, well, let's say through that first decade of the century is it's a little bit analogous to the pandemic where the people who suffered the most were people with pre existing conditions. Right? If you went into the pandemic with lung problems or diabetes or some other medical problem, you then the pandemic hit you harder than it hit a world class athlete who was in great shape. And the economic analog of that was the preexisting condition was being hit by the China shock. If you were in those cohorts of the least educated with the fewest skills, or you were living in these manufacturing dependent communities, you had already been dealt a pretty severe blow from the China shock. And then just as you may be getting through that or still wallowing in it, the global financial crisis hits. Our housing bubble goes bust, the economy's in trouble. The worst crisis since the Depression. And who feels that the worst people who are already suffering and struggling and right off the bat they see or they have a perception that the only people that the government seems to care about helping are the bankers. Now I think that was an exaggerated view of reality and I think it was, if the banks had gone down, we all would have felt that. But the idea that nobody in the banking industry paid any real price at a time when millions of Americans are losing their homes and are paying a quite tangible price, I think really fueled this anger. And then you go further and you have the weakest recovery after the financial crisis that we've had in the post war era because of politics, basically the Republicans decide to make the budget deficit an issue in 2010, and that grows out of the Tea Party. But that focus on the budget deficit meant we were, we took an austerity approach at a time when we should have had the government stepping up to prime the pump the way we did coming out of, out of the pandemic. So it was, I think, from the perspective of folks living in these China shock communities, it's like that, that old saying, it's one damn thing after another. It was the China shock, then it was the financial crisis, then it was the weakest recovery. So bang, bang, bang, nobody seems to be helping them. Even in 2012. If you're a voter who wants a different approach to globalization, your choice, such as it is, is Barack Obama or Mitt Romney. Now, there's a lot that separates those two men and their policies, but not really on the issue of globalization. They're both pretty, both of them pretty conventional on that subject. So it's not until 2016, from the perspective of these folks who've been left behind, that they have a candidate who takes a completely unorthodox approach to globalization and says, you're right, all this stuff has screwed you over. I'm going to fix it. Just put me in office.

[Deidre Woolard]

Yeah. And I found it interesting, you mentioned in the book that President Trump had really had that belief for a long time. But of course, he gets into office in the first administration and, and there's a conflict, too, because a lot of the people he brings in are by nature globalists. The Treasury Secretary, Steve Mnuchin, and some other people. And there's conflict there between the protectionists and the globalists that you discuss in the book. So tell us a little bit about that.

[David J. Lynch]

Yeah, very much so. I think, first of all, as others have remarked, I don't think Donald Trump ever expected to become the Republican nominee. And when he became the Republican nominee in 2016, I don't think he ever really expected to be elected president. So he wasn't really fully prepared. He was a little bit back on his heels as he started, relied on the Republican establishment in a way in those initial months and first term, in a way that he certainly doesn't today when he, I think, feels a lot more confident in what he's doing. But there was that tension, and there were voices in the White House in that first term that basically saw themselves. And I'm thinking of Gary Cohn, the head of the National Economic Council, to a lesser degree, Steve Mnuchin. But he played a role as well in sort of preventing the president from acting fully on all his impulses, because I think we've seen where his impulses lie in the second term, where he's been much more comprehensive in his approach to levying tariffs and much more willing to sort of Roll the dice on a near daily basis with tariffs on individual countries. And that tension kept percolating. We saw it in the first meeting down at Mar a Lago. I think it was April 2017, when Xi Jinping came to meet President Trump. And there was a dinner there with folks like Steve Bannon, who's much more of the populist, anti globalist figures, Wilbur Ross, who was then the Commerce Secretary, a big bond trader and investor from Wall Street. So a lot of different voices there. And that, that conflict, I don't think was ever entirely reconciled. And I think the agreements that came out of that first term, the renegotiation of the NAFTA deal, which the President had derided, is the worst trade deal in history, and its replacement with the USMCA United States, Mexico, Canada agreement, that was a significant achievement. But there wasn't the sort of broad remaking of the global trading system in a populist dimension. That I think is the President's emotional instinct. I don't think Donald Trump sits around thinking deep thoughts about the, the organization of the global economy, but I do think he has a very deep belief in the utility of tariffs as sort of the Swiss army knife of diplomacy. You can use it to cure just about any ailment you can think of, in his view. And I think he does believe that the international trading system, which, let's not forget was, was designed by American architects by and large, he sees that system as having somehow been unfairly tilted against the United States for decades in a way that has shortchanged the American worker. And I think you're getting a clearer view in this term of his determination to do something about that than was the case in the first term.

[Deidre Woolard]

Yeah, absolutely. Let's talk a little bit about the pandemic because you discuss in the book how, you know, there was that panic over the global supply chain all of a sudden, you know, we had the toilet paper hoarding. We had this, this worry that we weren't going to get things, but it also, it, it seemed to abate rather quickly. So, you know, we, we had, we had sort of been at that just in time manufacturing versus just in case manufacturing were any lessons learned. It feels to me from the outside like we're sort of back to where we were as far as thinking about things.

[David J. Lynch]

That's a good question. I think some lessons were learned, but in many ways the incentive structure that took us to just in time has not changed enough for there to be a radical overhaul. So, in other words, if you're, if you're the CEO of XYZ Corp. And you've got a global supply chain, and you've optimized it basically for low cost, because that's Wall street rewards you on your profits, and your compensation as CEO is tied to your stock's performance. So all the incentives lead you in the direction of low cost. And that's how you end up up with supply chains concentrated in China, which now is increasingly seen as the chief strategic rival to the United States. And I think if the idea, and these are not directly analogous, obviously, but if somebody in the 1980s had said, let's rely on the Soviet Union for our supply of critically needed medicines, and let's rely on Soviet minds to produce the substances that we need to make jet fighter engines for the Air Force, and let's rely on the Soviet Union to produce a whole host of other goods that we can't get. Anywhere else, people would have looked at you like you were crazy. And yet that's where we've ended up with China. And we saw that in April during the early trade talks, when the Chinese, in response to President Trump's tariffs, turned off the spigot on what are called rare earth minerals that we need for everything from the magnets that are inside your smartphone to the magnets that are in electric vehicle engines to jet fighters and other military hardware. And that was China's way of saying, hey, you think you've got leverage over us? Well, we've got leverage over you, too. And now some companies have migrated elements of their supply chain out of China in recent years in a response both to the initial trade war, the supply chain disruptions of the pandemic, and now what's happening in the second Trump administration. But many companies. That Chinese market is still very attractive to a lot of companies that think they can sell a lot of cars and toasters and coffee cups and everything else. You can think of a lot of Chinese consumers there. So what companies are doing is taking. In recent years, they've taken what's called the China plus one strategy. So they'll have a supply chain, they'll have a factory in China, but maybe they'll set one up in Vietnam as well, or they'll set one up in India. Now, what President Trump's been doing in recent weeks has scrambled those considerations because he's just put 50% tariffs on India. Now, India is a place that a lot of companies went thinking, well, that's a democracy. That's a country that successive American presidents, not just President Trump, but Joe Biden, Obama have been working to cultivate as a counterweight to China. So that's probably a pretty safe place to go, they thought, and then they go there. And now Trump puts a 50% tariff on. So if you've moved your supply chain to India, you're now in a world of hurt. And so a lot of companies that might at this moment, think, okay, I really need to make some changes in my supply chain because we are now in a new era of the highest tariffs since the 1930s. They're higher in some places than others. So I've got to recalibrate, think this through, and shift. Shift some of my supplier base to other countries. Well, where do you go? What's safe? And what country has the infrastructure and the capacity to meet your needs? Because there isn't another China on the planet. And China became. China became the center of global supply chains because it's got unbeatable port, ports and highways and rail lines and availability of workers and factories that can churn out customized products in the numbers, in small numbers and large numbers. Whatever you need, they can do that. There's no other China out there. So it's difficult for supply chain executives to figure out how to reshape their networks again, particularly at a time when the President keeps changing the parameters.

[Deidre Woolard]

Yeah. And it takes so much time to, you know, to set up a factory. You know, as you were talking about that, I was thinking about Apple and trying to move from China to India, and it's taken, you know, years because. And they still aren't making the most sophisticated iPhones yet. Because especially with something like that, it takes.

[David J. Lynch]

Takes.

[Deidre Woolard]

It takes a lot of time to really. To get up a factory. At the same time, you have this moving target of tariffs.

[David J. Lynch]

Absolutely. And it's particularly true in the auto industry, which can take a couple of years, literally, to qualify a new vendor. Even if you're a GM today and you decide, hey, I want a new supplier of, I don't know, some part that goes in the driver's seat. And I'm buying that today from China. Well, I don't want to rely on China, so let me go find another supplier and maybe I'll look. Maybe. Is there somebody south of the border where the tariffs for the moment are pretty low in south and Central America? Oh, here's somebody in Colombia. Let's say they can make that part. They say, well, now I've got to go down there. I got to visit the factory. I got to investigate their capacity. I give them the specific. I'll have them Produce a limited run. I'll have that shipped up to my factory in Detroit. My engineers will test it, make sure it's got the strength it has to have, make sure it'll endure over X number of cycles. And then maybe you've got some questions, so you have to send it back to the. And this can go on and on and on because you don't want. If your gm, you can't just take a flyer on some guy down in Colombia who says he can produce a part and order 10 million parts for your driver's seat and then find out six months from now that it fails after three months of operation. These companies have a lot at stake in these supply decisions. These are absolutely critical decisions. And the pace at which Washington keeps changing the rules on the tariffs is a real headache for American companies.

[Deidre Woolard]

Well, and speaking of gm, you mention in the book that GM had really hoped to capitalize on China on that market. And one of the things that is happening that we didn't plan on is that as China as a country kind of turns inward and relies more on their own manufacturing, that opportunity that we thought we were going to have, all those consumers hasn't quite materialized the way some companies and the way I think we thought it would.

[David J. Lynch]

Yeah, there are a number of companies that have made a lot of money in China over the last 20 years. But the push to develop homegrown producers, homegrown consumer brands, has changed things. There was a time when there was a real cachet to going out to eat at Pizza Hut or a cachet for the Chinese. In the period when I lived there, for instance, it was still considered cool to go to Starbucks or again, eat a Pizza Hut or Kentucky Fried Chicken, which was hugely popular. And the cars on the street, in my time there, you saw endless numbers of Buick minivans, Audi sedans. The foreign brands were really the thing. And certainly Apple was, and I think still is part of that. But over time, and I think some of this is completely understandable as China has become more prosperous, and they're very much more prosperous today than they were 20 years ago, you've seen homegrown domestic alternatives pop up. The government has supported that in many cases. You've seen the domestic car makers, which, when I was there, I remember going to the Beijing auto show in 2005 and meeting the CEO of a company at the time that, that nobody had heard of, called byd. And I was kind of kidding him because his logo looked exactly like the BMW logo. And I mean exactly. With the exception of a Couple of letters. And I was kidding him about that and I said, you know, that logo looks kind of familiar. That looks a lot like the BMW logo. And he paused for a minute and he said, well, maybe they got the idea from us now. At the time I thought that was just kind of humorous. Fast forward to today. BYD is a huge global success story and is making electric vehicles in a cost effective way that the US can only dream of. Batteries that charge much more quickly than ours do. So things have changed. That's not true across the board. The Chinese are still struggling with their efforts to produce a commercial jetline or they could compete with Boeing and Airbus. That turns out to be an incredibly complex piece of work. But as we've in recent years tried to emphasize made in the United States under both Biden and Trump, the Chinese are doing the same for both economic and geopolitical reasons. The twist is that under Xi Jinping, the goal is to make the outside world still more dependent on China while making China less dependent on the outside world.

[Deidre Woolard]

Yeah, so like you just mentioned a little bit about both Biden and Trump wanting to bring manufacturing to the US and wanting to bring it certainly the semiconductor factories with, with the chips act slow, slow process so far, a little bit. A lot of bumps in the road on, certainly on getting those semiconductor factories up to speed. So we can't really undo what has happened. But what is, what is the future of manufacturing in the U.S. do you think? After, you know, after writing this book and studying this for so long.

[David J. Lynch]

Yeah, I think. And both Biden and Trump have to varying degrees talked about this desire to reshore manufacturing. The problem is, and Biden ran into this with his Made in America or Made in the USA initiative. You can't just issue an edict and tell people they have to buy stuff that's made in America because in many cases the stuff just is not made in America, has not been made in America for decades and may not be made in America for a decade. And we saw this quite explicitly with some of the US ports that were ordered to buy the big, the giant ship to shore cranes. And these are the massive cranes that stand several stories high and they reach out over the container ships and pluck the individual shipping containers one at a time and bring them to the dock. They're massive pieces of hardware and no surprise, but the biggest, lowest cost producer is a Chinese company. And so at many of the ports, the Port of Norfolk has Chinese cranes. Others have ordered them, but the Biden administration did not want to give a waiver to the ports. They wanted to mandate that they buy these cranes from the United States. Well, nobody makes them in the United States. Now could they be made in the United States? Well, it's like anything else. If you have unlimited funds and a certain amount of time, if the government wants to support this endeavor, you could envision creating that or recreating that capacity in the United States. But it's not going to happen anytime soon. So that's one illustration of some of the trouble you run into. The other is that both parties talk about this desire to reshore manufacturing from a jobs perspective, that we're going to bring this work back and that'll be good news for American workers. And the problem is that even if you could snap your fingers and get back a factory that, let's say, disappeared 20 years ago and took 2,000 jobs with it, if you could snap your fingers and get that factory back tomorrow, maybe you'd get 200 jobs because productivity has improved consistently across that time. American workers haven't gotten any cheaper relative to the alternative. Now I should say Chinese wages have come up. But it's still the case that making things in the United States is expensive. And so whatever manufacturing work you get back in the United States is going to be highly automated. Some people will get jobs. But the idea that you're going to have these factories of the old days where 2,000 or 5,000 workers would take their lunch pails and clock in in the morning and clock out at night and just based on their one salary, be able to raise a family. Those days are largely gone. What was called the manufacturing wage premium. In other words, the fact that manufacturing work paid better than other blue collar work. That was true for decades. It hasn't been true for about the last decade. So to my mind, there are good arguments to say we should look at our supply chains with an eye towards resiliency as well as cost. Consider is this something, this product, Is this something we're comfortable being dependent on China for? Or would we rather depend on Mexico or Europe or Canada or ourselves to produce so you've got less geopolitical risk. That makes sense. Sense. But to tell voters that we're going to reshore and that's going to bring back the good old days and we're going to have 5 million more manufacturing jobs, I don't think that's in the cards. And I think it's misleading voters to think that it is in the cards. And it also takes our eye off the sector of the economy, the much larger sector of the economy, the services sector, which is where, you know, 95% of the new jobs are created. We should be looking at ways to make those jobs more attractive to people, to make sure the benefits and the pay are attractive, because that's where most Americans are going to end up working.

[Deidre Woolard]

Yeah, yeah, that's true. So last question for you. Obviously we can't undo everything that's happened. You point out in the book a reverse China shock, which would be devastating, but where does the hope lie? Is it in that service economy? In the book you talk a little bit about reforming the tax system. Where are you finding the avenues that we can not undo what has happened but mitigate it? Perhaps?

[David J. Lynch]

Yeah. I think it's important to look back honestly and assess the lessons of this period and to do it in a. An even tempered way. In other words, this is what I tried to do. I'm not a polemicist. I'm not at one end of the extreme here, but I want to look back and say, okay, what worked? What were the benefits? What didn't work? What should we adjust going forward? Now? Why do I want to do that? Because, as you say, the China shock is largely in the past. It was pretty much over and done with by about 2010, 2011, in that period. Well, gosh, that's over a decade ago. So is this just a question of historical curiosity? No, because the China shock is not going to be the last labor market shock to hit this economy, to hit this country. Look at what's happening with artificial intelligence. There are all sorts of estimates about the extent to which that's going to upend employment prospects, not just for blue collar folks. Maybe this time it's actually more for white collar people. So a much larger pool of workers could be affected. We don't really know yet the exact extent and probably like every other technological improvement, pardon me, over time the net benefits will exceed the cost. But we've got the same flimsy social safety net today that we had when the China shock first occurred. And I think one of the lessons, pardon me, one of the lessons that we need to learn is that workers need help navigating periods of tremendous change. It's not enough to just say, good luck to you, off you go. As a result of government policy, your world's going to be turned upside down. We need to, in my mind, experiment with some more active labor market policies without undermining the flexibility in the labor market that makes the economy work as well as it has worked. But we should experiment with things, take a more aggressive and active view of the possibilities here because as Bill Clinton warned back in the 90s, if we don't get this winners and losers issue right, we're going to lose the support for the further trade liberalization and the further globalization that could make us all more prosperous if we approached it in the right way and if we learn the lessons of the past, which is what I'd like to see us do.

[Deidre Woolard]

Excellent. Well, thank you so much for your time today. The book is the World's Worst how the Globalization Gamble Went Wrong and what Would Make It Right.

[David J. Lynch]

Thank you.