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A
I'm Scott.
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B
I'm Bill and we're the Trade Guys.
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C
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Phil Luck and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to Trade Guys. This week we'll be talking about a busy week following up from Trump's trip to Asia. All this and more on the Trade Guys. Welcome back to Trade Guys. I'm your host, Phil Luck, here with Bill and Scott. And this week we're unpacking a lot of news from a busy week of presidential trips to Asia. First, we'll be discussing Trump and Xi's meeting on the sidelines of the APEC summit. Then we'll turn to the US and the ROK and the concept of a deal potentially here. And then lastly we'll go a little further south to ASEAN where we have new agreements with Malaysia and Cambodia and Progress and two other agreements as well. So let's get into it. First, we're going to set the amp to 12. With the Trump Xi Summit in Korea. On the sidelines of the APEC summit, Trump and Xi met for the first time in person in the second term of the Trump administration. While both sides are claiming success, both sides also seem to have given some concessions. And in large part, we may have sort of walked back from the brink a bit. So starting with you, Bill, what are your main assessments of this visit?
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B
Well, I think it's only 12 because Spinal Tap is 11 and he had to go above that and it's not 12. I think the consensus amongst the observers has been that this is an agreement that addressed some short term problems, but did not really make progress in the overall relationship. Basically what they've done is remove a lot of the leverage moves and counter moves that they had taken in the previous eight months. So they each dropped their port fees, which actually may be the biggest substantive deal of all, because that was going to be huge. And Phil and I talked to a group from New Zealand yesterday who mentioned in passing that they were watching that one very closely because port fees don't just apply to Chinese ships, but that affects everybody that is shipping something on a Chinese boat which includes lots of countries. So that'll have a big impact. They postponed their rare earths, enhanced export controls. We dropped our 50% Chinese subsidiary rule, both of which are significant things. We cut the fentanyl tariff in half. They allegedly, in one story I read, have dropped some of the antitrust investigations against our big tech companies that they had started. I mean, these are all retaliatory moves that we had taken against each other. And so basically, what you've got is a giant reset, essentially back to last March or February. There was no discussion of big stuff like Chinese overcapacity, IP theft. They didn't seem to demand that we roll back our overall export controls. There apparently was no discussion of Taiwan. So all the big issues were punted. But you can see it's a good thing because they got rid of a lot of the underbrush that was making the relationship much worse. And so we're kind of back to square one. I think, as one commentator said, you know, today is, well, Thursday is better than. Well, Friday is better than Wednesday, but it's worse than a year ago. So we've made progress, but the relationship itself, I think, is on hold. To me, the lesson of this is that, and I hope Trump figures this out is, you know, he can bully the small guys, and we'll talk about that when we get to the ASEAN countries, but he can't bully the big guys, or at least you can't bully one big guy. And what China has discovered is that it has leverage and it's discovered how to use it, and it's been using it fairly effectively. That's going to change the relationship. And I think what it means long term is that the best we're going to be able to do is a series of small agreements. So think Groundhog Day, you know, and think the first Trump administration where they agreed to buy a bunch of stuff, this deal where they agreed to buy more soybeans and more sorghum and did sundry other things. These are small deals. Trump's going to China in April, and I would predict another small deal. They'll do something he doesn't like between now and then and he'll retaliate, and then they'll counter retaliate or vice versa. You know, he'll do something they don't like. And so this will be this new little hill of annoying leverage moves by April, and they'll negotiate another small agreement to get rid of those, and we'll repeat endlessly because the big problems are intractable. So we just keep punting on those.
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C
Yeah, so I completely agree with that. And I just want to. To your point, before we had the meeting, I wasn't sure if we were gonna go one step backward or one step forward or three steps to the left, but I was pretty sure we weren't Gonna deal with the big things, right? The big issues, the structural issues at the heart of this relationship. Scott, what are your thoughts on this? Do you agree with Bill?
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A
Well, I think that first of all, China is always outstanding team of negotiators who are really good at getting what they particularly want out of any given negotiating encounter. So they just seem to be the best at that for a lot of reasons. Some of it is having an authoritarian government and a high degree of social control. They can do what they want to do, but they're very confident at negotiating. And I think what they've exposed is President Trump's style, which goes back, at least to my knowledge, as far as the book, the Art of the Deal, where he pushes and pushes and prods and tries to reshape things in advance and then when he counters resistance, he'll, he'll drop back. And that I think is a good summary of the whole thing. I agree with you and Bill that we're not going to solve any of these sort of structural or fundamental issues with China because China doesn't want them solved. But I think resetting to the status quo ante of a year ago is actually very helpful to all the traders in the region, including American companies doing business in China, whether as importers or exporters or in the country. The port fees thing was just almost like de minimis in terms of the number of people it annoyed versus the problems it actually solved. So I'm glad to see that get backed off. And I think moving back was Churchill said talk, talk's always better than world war. And so having a little cessation of the tensions by backing off the extreme positions is, I think a positive thing. But I also think Bill's right on what we're going to see from the US as it goes forward is there'll always be a little forward action and withdrawing when it doesn't quite work. And so, but this is, this is a long term relationship with an adversary at some level and I'm not surprised it looks that way. Now, having complimented the Chinese negotiators, I'm still long on the American economy. I think our system will work great. We'll be fine. We gotta be careful, we gotta be smart. But that's the story as best I can tell.
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B
So are we being smart?
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A
That, I don't know, look critical. Minerals is an issue. It's a big issue. We've got to have a way to solve that other than relying on China. And that's obvious now. So let's get to work on That I don't know whether we're going to be smart on it or not. I hope we are. So there's a number of things like that, and over time, we'll probably make fewer unforced errors just because the people are figuring out what works and what doesn't.
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C
So that only works if the people stick around for more than a few months, which is sometimes a challenge in this administration. Scott, more seriously, I want to pick up on one thing you said, which was, you know, they can do what they want to do as a function of their political system. This reminds me of something that, you know, was a revelation that came to me when I was in the last administration, thinking about sort of economic coercion a lot and the way that China does it. I think it's important for us Economists like myself to remember economic coercion or economic pressure is not actually an economic tool. It's a political tool. Right. So the reason that harming soybean farmers in the United States is impactful is not it's necessarily its impact on the US Economy, it's the effect on US Constituencies. So, I mean, whether it be the soybean agricultural trade or China's just general willingness to sort of endure economic pain, do you think this administration should be thinking differently about the leverage they have?
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A
Look, I think this group of people, particularly the President and Treasury Secretary Besant, given their backgrounds, are really good at understanding leverage and collateral. And in many ways, that's the core business they were in and very successfully for 40 years before their current jobs. So I don't think it's a matter of them being unaware of what the stakes are and how it works. But they've got to get their own sense of who they can trust and how to move forward. This is a very human process. At the end of the day, well.
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C
Potentially a mixed bag out of the Trump Xi Summit. I'm sure we'll have plenty more to talk about as soybean purchases do or do not come to pass, and export controls, you know, export licenses do or do not get approved.
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B
That's actually an important point in the first go round. They didn't do everything they promised to do. They bought about, I think, 62, 63% of the commitments they'd made. So watch the soybean market and see what actually happens and whether they actually do buy all this stuff. If they don't, that will be an issue in April, you know, and then we'll have another small deal where they will promise again to do what they promised to do before.
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A
And to Bill's point, that investigation, that investigation of the first Trump administration's phase one deal and what got delivered and what didn't, that is ongoing according to the US Trade Representative.
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C
Yes, that's an important note as well. Yeah. And they definitely didn't come through on the first time phase one agreement. And actually I should note that even if they purchase every soybean that Secretary Besant says they are going to, that would still be a 33% reduction over last year's purchases. So, you know, soybean interest in the United States will not entirely be made whole out of this. Well, next let's turn a little bit further south to Southeast Asian countries in the ASEAN summit. Coming out of that summit, which is the first leg of the President's trip, there was announcements of trade deals or frameworks that were much more clearly spelled out than some of the previous ones. So that's progress with Malaysia and Cambodia. These have been interesting in that they actually have a bit more specifics and there's some interesting flavors to these. So let's start with Bill on this. Bill, what are your thoughts coming out of this agreement?
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B
I think the first one was that it illustrates the bullying point that I made earlier. These are smaller economies and Trump knows he can push them around and he did basically in all the agreements, Malaysia and Cambodia, which are actually fleshed out. And it looks like there's an actual text of an agreement that we can examine. Although a lot of issues were left dangling. The Thailand and Vietnam agreements were frameworks, which means even more things were left dangling. But in all of them, the other countries basically agreed to let in our stuff almost entirely tariff free. And they agreed to remove access barriers, conform some of their standards to those of the United States. Basically very accommodating. And what the United States did in response was it agreed to go ahead with the tariffs that it had already put in place, which were 19 or 20% depending upon which country we're talking about. So they seem to be establishing first kind of a template for middle sized economies. A lot of the language in the agreements is similar, but it's not identical. And people that do business in those countries really need to get into the weeds and read the actual texts because each country did not commit to exactly the same thing. Two most interesting things to me that came up were there's a digital section and it looks like the Trump administration is returning to the pre Biden time in its support for free flow of information. Now it's limited a little bit, but in One case it's, you know, Cambodia says it'll take steps consistent with its sovereignty, which is potentially a giant loophole. But saying that you're prepared to support the free flow of information to basically countries that we trust is not quite as broad as one would like. But it's a step forward from where Biden was, where they were really calling into question the whole concept. So that was interesting. And the willingness of the other countries to commit to no digital services tax, no discriminatory tax on U.S. digital companies or cloud services, and supporting the WTO E commerce tax moratorium, those are all good things. And getting that commitment out of those countries, I think was a smart move. The other thing that's noteworthy, which is new, is there's a national security section in these agreements which has not appeared before. And basically what Malaysia and Cambodia commit to do, although with Cambodia there's the sovereignty footnote, is to impose export controls and other sanctions that are comparable to ours if we tell them that there's a threat to our security. If they don't do that, that's a fairly significant step. I mean, we'll see if they actually do it and if anything, and see what we demand and what they do. There may be a big gap there, but it appears that what they're trying to do through those provisions and more words that are still vague on transshipment and circumvention is try to find ways to make sure that Chinese content does not get into the United States. I mean, in many ways these are kind of decoupling agreements because they're going after Chinese content that comes in through third countries. They've really gone after Chinese content directly through a network of anti dumping counter of alien duty rules, the Uyghur Forced Labor Prevention Act, Trump's first Trump 1.0 China tariffs and now the additional tariff, the fentanyl tariff and the additional tariffs that he's put on and steel and aluminum and the 232s, a lot of that have blocked Chinese trade. And you can see it in the data, their trade with us overall is going down. Our deficit with them is going down, but our deficit with the other Southeast Asian countries in particular is going up. And that implies, and I think to me proves transshipment is going on. So a lot of these measures, they're not so much national security measures in the defense sense. They're national security measures in the sense that we're really trying to find ways to, to block Chinese goods from sneaking into our country from other destinations.
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C
Yeah, couldn't Agree more. I mean, this is something for years now administrations have trying to find ways to deal with Chinese embedded content, right? Whether that's semiconductors embedded in products or otherwise. And you know, this is an issue where it's just really hard to deal with this with sort of direct bilateral tariffs. So this is sort of the natural extension of that. I fear that it's going to turn into a bit of a game of whack a mole, but we'll have to see how that goes. Scott, what are your sort of main impressions from these agreements with a bit more meat on the bone?
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A
Definitely more than with US China, but as Bill pointed out, it's important to read the fine print and the companies and industries that are doing business in these markets want to read carefully what they actually got. Having said that, you know, I've spent a lot of years when I was in the private sector with the APEC process and sometimes you get back from meetings and feel pretty good about what was accomplished at the times. You hope nobody noticed how much the airfare was, but overall it was a kind of a voluntary group. But one of the things I learned while I was in that that process was to watch asean. ASEAN as a group, first of all, they have incredible differences in the level of development and the economic output. And almost anything you can measure, you go from basically Singapore to Laos in terms of levels of development and levels of industrialization and connection to the world. And because they have very different starting points, they often move at a different speed. So they protect themselves within commitments to try to maintain something that they can justify with their constituents and manage to effectively deliver. The one thing about ASEAN is entirely pragmatic. It's probably the most pragmatic group of countries that have dealt with. They actually are very slowly moving and they always move in the direction of more open trade and it may take them a long time to get there, but they, they never seem to go backwards. They always move toward more openness. It may just be because they're mostly island nations or maritime nations, they have a history of trading, they have history of pragmatism, but it really shows up in the way they negotiate as a 10 party group and the kinds of things that come out. So I'm actually really pleased that this took place, that the U.S. focused on the things that are important to the U.S. like free flow of information. But importantly there's a sense of predictability for the future and actually very positive about what's been done there on both sides.
- [16:20]
B
If I can add something that's Kind of a description of apec. The APEC summit is going on right now. Trump didn't stay for it. But AIPEC is really an evolutionary agreement. Most things are not mandatory or obligatory, but over a long period of time, they accomplish quite a lot. And what you'll see coming out of APEC are sort of. Scott's right, directionally, all trade promoting ideas, all trade encouraging ideas, and they move very slowly. But if you look at it over 10 or 20 years, they actually accomplish quite a bit. It's impressive.
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C
Yeah. So the other thing, I totally want to agree with both of you on this. I mean, the other thing I would say in terms of addition to trade promotion, this is also a group that definitely does not want to choose between the United States and China. And, you know, to Bill's point about the economic security provisions in here, I did find them really notable because, you know, while they're not sort of a real stark decision or a choice, they are trying to force these countries to handle our issues with the prc one step removed. And Scott, to your point about managing constituencies, I found this to be especially interesting in Malaysia because by my reading of these, these are saying that we have the ability to ask Malaysia to mirror our sanctions, our export controls, and some of our tariffs as well. Mirroring our sanctions and export controls is not something Malaysia has ever wanted to do. When I was there in the last administration trying to get them to stop transshipment to Russia, I was very politely, in a diplomatic way, said to go pound sand. So, you know, this is a big ask. And so we'll see how this unfolds. But I thought that was quite telling. All right. Well, excellent. Well, moving to our third topic. Let's move back up north to Korea. So one big trade deal that had still been outstanding when the president started his trip was our trade agreement with South Korea. Now, as Scott mentioned earlier, they may have thought that they already had a trade agreement, but this administration has different things in mind. The biggest outstanding issue was a $350 billion investment fund, billion with a B that the Koreans were promising to invest in the United States and what exactly the particulars of that might be. So maybe I'll start with you, Scott. What are your basic thoughts about the agreement that's been struck, where we are, what needs to be ironed out still, and what's next?
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A
The U.S. korea agreement. First, I'm pleased that it has been concluded on satisfactory terms to both sides. It was a rough childbirth, primarily because, as we talked about earlier, Korea had the temerity to think they had a free trade agreement with the United States. I think they had sort of terms that were substantially preferential to their competitors. One of the things that is particularly disruptive about President Trump is he has very low regard for what existed before. And certainly you look at his treatment of the European Union or the members of the eu, he'd rather make individual agreements with the member states and doesn't seem to feel bound by their own declaration that we negotiate as a customs union. We do these things together. That doesn't seem to particularly matter to the president, given his style. And that showed up here. And it's one of the things that made things difficult in the front end, but over the long haul, look, Korea is a great partner of the United States. They're a major investor here. They're a major exporter to us. They are an importer of US Products, and they're a treaty partner. So there's a lot of reasons to expect a positive conclusion out of this. And it appears they got there. So sorry about for the difficulties along the way or the assumptions that you may have made, but nice job getting it across the finish line. So that's good news for all parties, including businesses doing business in that bilateral relationship.
- [19:53]
B
The thing that was interesting to me about it was they finally settled the question about an inbound investment into the United States. And they did it in a rather interesting way. They've committed to the 350 billion that they promised earlier. 150 is going to shipbuilding, but the other 200 is going to arrive in $20 billion annual increments over 10 years. This is designed to not disrupt their own monetary system and basically eliminate their entire stock of reserves, which is what investing the whole thing would have done. And it also avoided a currency swap with the interest rates that would have accrued if that had happened. The idea of sort of forced inbound investment may not be a very good one, but if you have made the commitment, this is probably a decent outcome for them compared to some other things. I mean, it still sounds like a $20 billion bag of cash every year. And we'll see how that actually plays out. I mean, there's. The opportunities for corruption here are endless, but it's better than, I guess, one big $350 billion bag of cash.
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A
And it's not like Korea wasn't an investor to start with. All right, there's massive investment in the auto sector and many others. So they're already an inbound investment, the.
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C
Highest greenfield investment of all partners.
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B
Yeah, that's why it should be smaller. That reminds me that Malaysia made a similar commitment, 70 billion. So it's not confined only to Northeast Asia. And I should add also that the other big winner here, I think, in the Korean agreement as well, is Boeing. Most of these countries, except for Cambodia, agreed to buy a pile of more planes, 30, 50, 103. I think in one case that's a lot of backup for Boeing, which already has, you know, an order book that is booked up for like, I think at least the next eight or 10 years. So these are good commitments and it's great for Boeing. It's going to be a long time before any of these guys actually get an airplane.
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C
Totally agree with your bill. So, I mean, I think to just to put a finer point on the point about the investment fund, I think this is super crucial because the administration was asking for 350 billion. On paper, it's still 350 billion. But there is such a huge difference between Korea sending over $350 billion tomorrow, something about like 80% of their foreign reserves. So that would have been immense versus 20 billion a year over the next 10 years with another 150 for shipbuilding. So there, I think again, I sort of agree with your. I'm not sure I love the sort of diplomacy by bag of cash approach, but we ended up in a much better spot. Two other things I want to note really quickly on that. So I was in Seoul about two weeks ago and, you know, it's hard to overstate how impactful the raids on the Hyundai facility in Georgia were. Right? And especially in light of this conversation about inward fdi. I mean, that was a Hyundai facility, right? This is the sign, this is the physical manifestation of Korean FDI and the idea that we would sort of treat a partner that way. You know, it did make this more difficult even just politically to sort of get this over the line. And the last thing I want to note and bring us all the way back up to our first discussion of the US China discussion. Yes, we're sort of back to square one a little bit with China and the United States. But there's collateral along the way in two ways that are relevant to this agreement. One, one of the reasons that Korean industry shipbuilders are interested in, in investing in the United States is the idea that they will get some sort of protection or subsidies and port fees were going to be a big part of that. So watch this space. We need to have some sort of incentives for US Investment. And in shipbuilding.
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A
Phil, did we ever get to the Bottom of why Korea didn't use the visa category that exists for these experts within companies to transfer. I mean, it is a, it is a section of U.S. migration law. There are these visas available and they apparently weren't the Korean or they hadn't negotiated that provision because that for me is the oversight there. The reason they were ratable is because they behaved in a manner contrary to the way the system actually works to make it fully legal. And it's quite a common practice. So what happened?
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C
So that's actually not my understanding of the situation, honestly. So basically there are two different visa categories. They were availing themselves of one versus another. They have since gotten clarification from the US government, at least from the State Department in a bilateral conversation that they've been having that these categories are equivalent and that they were in the right space. There's so, you know, again, watch this space. But my understanding is that has been resolved and appears to be largely miscommunication on the US side.
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A
Okay, well, yeah, there's a confusion can be resolved. And the key for me is this classification does exist and is used. So I'm glad they're using it because it is very important to have experts and the company I worked for, the international company I worked for, it was very important to have people knew how to run the equipment and knew how the equipment went together to be available to building a site somewhere else.
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C
Exactly. And again, if we want all this fdi, that's definitely going to be necessary. So couldn't agree with you more there.
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A
Yeah, we definitely want other countries to give us that, that kind of treatment when our executives go abroad to expand.
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C
Exactly. Yes, Totally agree with that last thing. Just really quickly on the shipbuilding point. So again, the port fees were going to be important for that. The other thing was Hanwha Oceans, which is a large Korean shipbuilder, was sanctioned by the Chinese for their participation in our trade investigation that led to the ship fees. So while our port fees went away and the Chinese port fees went away, we still have a collateral Korean firm in the middle that's still sanctioned because of our sort of action. So just another point that these trade wars do have combatants and also sort of casualties on the sides, whether they be soybean, farmers or otherwise. So we'll keep watching these negotiations and see if there are any additional collateral damage coming out of this, whether it be partners ourselves or China. Bill Scott, any last reflections of a busy week of trade news? Just.
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B
Well, we guarantee we're going to be back revisiting all these eventually, if not sooner. They are, as I mentioned earlier, a lot of them still have a lot of questions. The Chinese agreement, nobody signed anything. What you've got is what Trump said, what Xi said, what Secretary Bessant said, and what one or two Chinese officials said. The official written account of the meeting from each of the countries put out is not the same. The Chinese mentioned some things that the US didn't mention and vice versa. So we've said what we think we know and what has been reported. But give it a week or two and I think there'll be more details coming out that may change what we want to say. So this may be a topic that we'll come back to.
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A
Great. That sounds like full employment to me, Bill.
- [26:27]
B
Just trying to stay in business, that's all. Yes.
- [26:29]
A
Stay relevant and current with the Trade Guys, who repeat themselves every three weeks.
- [26:34]
C
That sounds great. All right. Well, we'll keep watching this space and thank you guys and see you next week.
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B
Thank you.
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A
Take care.
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C
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