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- [00:01]
A
I'm Scott.
- [00:02]
B
I'm Bill. And we're the Trade Guys.
- [00:07]
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 Evan Brown, and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.
- [00:21]
A
Hello, this is trade Guy Scott. Thanks for listening to the Trade Guys Today. Bill and I talk about a range of issues on tariffs. We discuss the dollar and its role in international trade, and we pay tribute to our friend and colleague Andrew Schwartz. All this and more on the Trade Guys.
- [00:48]
C
Hi, this is Evan Brown. Longtime listeners may know that I've occasionally filled in as moderator of the Trade Guys for Andrew Schwartz, our longtime chief communications officer here at csis. We are devastated to tell you, if the news hasn't reached you already, that Andrew unexpectedly passed away on July 16. This is a tremendous loss for CSIS, of course, the heart and soul of the Trade Guys. And I'm faced with the impossible task of filling in for him today. I haven't known Andrew as long as Bill and Scott have, so I'll just say that I was struck by both his warmth and his genius as a communicator. And from the perspective of a younger person in this organization. He was uniquely committed to teaching and to bringing along the next generation of policy and media professionals. He's absolutely unreplaceable. So with that, I'll turn it over to Bill for any remarks.
- [01:36]
B
Yeah, we're all very sad about this personally. You know, we swam together, which is how I really got to know him. Unexpectedly, I was using my neighborhood pool one summer day, and there was this very large shape in the lane next to me, churning past me lap after lap after lap. And I ended up thinking, boy, this guy is either really fast or I'm really slow. Probably both, as it turned out. But it turned out to be Andrew, and we swam there. And in the winters, we migrated to the local Jewish community center, which in his case, he did the research and looked at a number of places and figured out that was the best fit for him. And I went there because I listened to him and he said, that's the best one. And I took his word for it, and I think he was right. We also bonded over children. He has three sons. I have two. Mine are a lot older than his, which allowed me to talk about the stupid mistakes that I made when mine were teenagers because his were teenagers when we got to know each other. They're a little bit older now. I think the youngest is probably 18. And what impressed me was his involvement in their lives, his care for them and how proud of them he was. He was really an involved and caring father and that's in many respects the most important thing. You listeners know him as our moderator, and one of the things he taught me was moderators are important. You know, it's not just some schlub asking pre typed questions. He set the tone, he set the pace, he made it light or dark as the case may be. And he insisted that the other thing that we do is that we meet people where they are and that we set our conversation at a level for all of our listeners and not just the Master's degree and PhD trade wonks, many of you who are listening and I have great respect for all of you, but we're trying to appeal to everybody. And Andrew's mission, I think was to make it comprehensible. No trade speak, you know, get us away from TPA, TAA, CPTPP 201, 301. And let's talk about what those really are called, explain them, and really get into the basics of the issues along with our point of view. I think it made for a richer, more productive podcast. And what I learned from Andrew also was that he was one of the lucky people that was excited about his job and was passionate about communications and wanted us always to be better and was always looking for ways that we could be better technologically or in the way that we approached the work. And I think we are better as a result. We're better as human beings for having known him, and CSIS is certainly better for having had him with us.
- [04:05]
A
Scott thanks, Bill. I met Andrew when I joined CSIS back in 2012. One of the things you do at that point in time, CSIS was a much smaller organization then we were in a building on K Street and it was a little more of a big family rather than an organization. But when you joined as a program director, you went through and met all the senior staff and Andrew was a communications director then, so he was one of the senior staff I met. What I noticed immediately is Andrew had read my resume and thought through what he wanted to talk to me about, which was it was not that anyone else flubbed up, but I noticed he had real insight into what I did for a living and how I got where I got in life and. And from that point on it was a delightful conversation. I enjoyed Andrew Schwartz from the moment I met him, but he had an uncanny judgment for talent. He had an eye for talent and A way to develop people that put very creative people in just the right places in his organizations as a gift. And CSIS will miss that gift almost immediately because he just understood what people were capable of, which is a great joy of Andrew. The second thing is that Trade Guys bears Andrew's stamp in very many ways that our listeners probably never see. I don't know whether it was his college years in New Orleans or his friendship with the Neville Brothers or what it was, but he was an impresario at heart. He could promote rock bands if he hadn't been at csis. He helped shape the podcast from the very beginning. The name three one syllable words, the Trade Guys, like meet the press, that kind of mind for what would stick. He had in the studio, all the podcasts had basically an album cover. Bill, Bill hates the ugly yellow of the Trade Guys. I have a fondness for detergent boxes that orange bullseyes on them. So I was much more adaptable to that. But that was Andrew's gift to the program and as well as his skills as a moderator, that simplified it and made it reachable. It made it a podcast that people could embrace and could make their own. And so we owe him a lot for the fact that we weren't very good when we started and he helped us get better almost every week in every way. And finally, he's just, he was an exuberant human being. He loved his family, he loved his country, he loved the simple aspects of American life and he really embraced it. He didn't just like things, he loved the Ravens. He didn't just like going into his kids school events. He embraced every aspect of it. And we'll miss the exuberance. So with that, let's try to move on here. Thank you, Evan.
- [06:50]
B
And we're going ahead because Scott and I both felt that if we had asked Andrew, he said, yes, go ahead, do it.
- [06:57]
A
Yes. The show must go on.
- [06:59]
B
The show must go on. So here we are, Evan.
- [07:02]
C
The show must go on. And Tariffman certainly hasn't taken a break to mark this occasion. So we've had a, a host of new tariffs come out over the past couple of weeks, most seemingly going to come into effect around August 1st. So by my latest tally, we're looking at 35% on Canada, 30% on Mexico and the EU 50% on Brazil. Indonesia was also hit. And that's just kind of scratching the surface. So I know negotiations are ongoing with many of these partners. Retaliation is a potential thing that could happen. So what's standing out to you guys here, out of all this mess and how do you think things will play out over the next few weeks?
- [07:39]
B
Well, one thing I noticed is that details are slowly beginning to come out about the agreements that Trump has announced without revealing any details, Vietnam and Indonesia. You know, in the midst of all this, we have only one text and that's the UK And I think we said in previous podcasts this is a, it's a brilliant political strategy because there are no details. The reporters can only write what Trump says, so they dutifully write what he announces. Eventually the details come out, but by that time nobody's paying any attention because they've, the public has moved on to something else. So trying to track down the details is kind of a useless exercise in a way. But for those of us in the business, and particularly in the trade world, details matter and what you commit to matters. And I was intrigued today to see that one of the advisors to the Indonesian President, Mary Pangisu, who I had met before, was a candidate for the WTO Director General's job two times ago actually, and had been, I think, Trade Minister in Indonesia before, but currently is an advisor to the President. Their president had a press conference in which she commented, among other things, that whereas Trump said that Indonesia gave us tariff free access to everything, she said something slightly different. And that was that she said Indonesia had agreed to US increased market access for exports that don't compete directly with Indonesian products or those that are in short supply locally, which included wheat and cotton. And that officials in Indonesia expect that this concession is going to have only a modest impact on imports overall. She went on to say, it's not about opening up totally and giving in everything to the US it is more nuanced and balanced than what maybe appears to be to the outsider. So that doesn't surprise me. And I think you'll see the same when details about the Vietnam agreement and other future agreements come out. I think this is partly a tendency for the President to claim things that are not always real, but also it demonstrates the danger of letting the two big guys have a one on one conversation. Presidents are not known to be detail guys. You know, they're policy guys. They're focused on the big picture. So when they get together to talk the big picture, you know, it's very easy to get signals crossed. I recall once when I was on the Hill, my then boss, Senator Hines, had a major argument with the Treasury Department about something, I forget what. And so we ended up having a meeting with the Secretary of the treasury one on one, just two people in the room, no staff. And when they came out, they announced they'd reached an agreement and then the secretary left. And subsequently each of them had a press availability where they explained what they had agreed to and they were 180 degrees different. And nobody could do anything about that because nobody else was in the room. And so this happens at the presidential level too. And I think it may have happened in this case. What the Indonesians think they agreed to and what Trump says they agreed to are not entirely the same. I think they're not 180 degrees opposite, but they're not the same. And so figuring out how meaningful these things actually are is going to take a good bit of time because we have to wait for texts and details to actually emerge. The other thing she said, and then I'll hand it over to Scott, was that they're continuing to negotiate, which also suggests that none of this is final. More to come.
- [10:49]
A
Bill's story about how policy differences can happen in these circumstances is a good reminder. Part of the reason people respect trade professionals, hold them in as high esteem as many of us do, is that trade professionals are very good at getting the specifics nailed down. They have long standing techniques called bracketed texts, they have schedules, they identify non conforming measures. This can be mind numbingly boring. But when you get down to what countries actually agreed to what they bargained for, when it's rendered in precise language, you know what the deal is. And that's very important to anybody who uses the fruits of the trade agreement, anybody who's engaged in the commercial activities. So there's a rule for that here eventually, but it's not now. There's another issue which is one, I think it just has to do with modern media. I'm old enough to have been a fan of the Eagles. They had a great song called Dirty Laundry, which is about the evening news in Southern California. And it's a funny, ironic, sarcastic song. But it happens here too. We've got these headlines, 35% tariffs on Canada. Really it only applies to about seven products because anything that's part of USMACA isn't effective. And so there's a difference between the volume of the headline, which is often world coming to an end and then the text is they're still negotiating on the end date for the world. And so the scope of the discussions and the subtlety of the ongoing back and forth, particularly as the President likes it, his art of the deal form of bargaining is often lost in the headline. That sounds like Everything's collapsing. I would note this importantly because here we are, since April, we've been in a tizzy over high tariffs and yet import prices are flat versus previous year. Okay? And maybe that's because there's a lot of chickening out. Maybe it's just ongoing bargaining. But I think it's important to step back and say, think of all the headlines that you've reacted to in the past five months or four months and compare that to the fact that on the whole, import prices are flat versus year ago. And so there's a lot of subtlety going on. There's a lot of things going on, but sooner or later I think this is going to work because it looks to me like they know the direction that they want to take. It was clear to our guest last week, another Evan, Evan Smith, who talked about, you know, we're decoupling from China. That's what's happening out there. We're doing it with tariffs, we're decoupling, okay? We're going to be making some things that we didn't make here before. It's probably an international security interest and all this is driving toward a common conclusion. But, you know, it's a little disruptive in the process.
- [13:27]
B
I talked to an economic forecaster last week who I have enormous respect for, and he thought that the impact ultimately would be less than some people are predicting. I don't entirely agree with him on this. He's more of a quantitative person than I am. I'm not a quant, as listeners may have figured out. And his point was that the goods affected by the tariffs so far are 17% of the consumer price index, according to his calculations. So not very much. And I approach these things more anecdotally. So I said, well, look at coffee, you know, here's something that we don't make and we're not going to make it. You know, the climate doesn't suit it. So if you have a 20% tariff on coffee, isn't that going to be inflationary? Aren't people going to notice? And his comment says, look, you know, I don't know how he knows this, but go to Starbucks and if your latte is 5.99, the value of the coffee, there is a dollar. So 20%, 20 cents, you know, are you going to go to war over a 20 cent increase in the price of your latte? Now, of course, in the instant case, the Brazilian tariff, where we get a lot of our coffee, is going to be 50%, but that's still, you know, $0.50 in our example. So now that's a single case. If you think about it in the context of automobiles, a 25% tariff, which is what he's put on automobiles, that makes a difference. You know, $30,000 car, it's going to become 37,500 just because of the tariff. So this is going to be variable. I think the impact has not been yet what it will be. One, because a lot of the tariffs have not gone into effect, they're being held in abeyance and two, because there was a lot of stockpiling in the winter and it is only now, I think, that we're seeing those inventories run out. So I think as you look toward the fall, you're going to start to see more of a price impact. But then again, it depends on, in part on what happens on August 1st. And do we have another taco episode where he chickens out and kicks the can again or not? I think the prevailing view is that and Scott said this is, this is classic Trump negotiating strategy. Extreme demands, big threats, and then fall back, fall back, fall back and settle for something small. I suspect that it appears he's been really irritated by the taco argument. So my guess is what you're going to see before August 1st is some more, a few more agreements, maybe India. I mean, he's been teasing different ones. I think Japan and Korea are problematic at this point. We, the United States are not willing to give them what they're demanding and they're not willing to give us what we're demanding. So we'll see how that develops. India seems to be getting closer. Other Southeast Asian countries are getting closer. President Marcos of the Philippines will be here, I think, next week and that will probably lead to some announcement. And you know, they're circling around in the plus or minus 20% area outside the UK so I think you'll see some more of those, you'll see some postponements where he thinks there's a good faith effort underway and you'll probably see some victims because I think he needs to prove, if only to himself, that the taco joke is wrong.
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A
Well, I think that that run with the B2 bombers was a check on the taco joke, but I don't think the Iranian nuclear program thinks that he always chickens out at this point.
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B
No, but it's a sad commentary that the basis of our policy is made on the president's need to prove himself.
- [16:47]
A
To the media or just the style. I always wonder how much of this he actually accounts for and is is moving forward. He's a very interesting character, and he gets a lot of things right in the end. And he's very forward about communicating. He's always out there. The number of questions he's taken from the media versus the previous four presidents, you know, I mean, it probably is about equal at this point their entire terms. He's out there, he answers the question, and it's not always in his interest to do so, but he also is driving in a direction that I think is pretty helpful to the country once it gets there, don't you think?
- [17:26]
B
Maybe at some point people just get tired. I found myself thinking in the last week, you know, if there were a magic lamp that I could rub and the genie would come out and give me one wish, what would my wish be? My wish would be that he'd just shut up for a week, just stop talking. Every day he does something and there's press there, and every day he answers questions, and every day he teases out something. The tariffs. We're going to do 200% on pharmaceuticals, but we're going to wait a year. But, no, we're going to start small, as early as August 1st, and then we're going to build up, you know, and Brazil is going to be 50, but then, you know, next week, maybe it's not going to be 50.
- [18:04]
A
You know, the voters had the choice of a conventional politician, and they chose Donald Trump. So that's what we got.
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B
Yeah. Do you think they'll regret it?
- [18:13]
A
It's hard to say because he's always been so polarizing. He has very strong approval within his own party. So that's one of the reasons he has the sort of the room to run on these issues. But, you know, you get what you vote for.
- [18:25]
B
The best analysis I saw was that he's driven by the need for attention, and he's figured out correctly, I think, that the best way to get attention is to create conflict. Good news stories don't make the front page. When I get home, if I get home in time for the evening news, NBC closes every night with one good news story, you know, at 7:27, after the previous 26 minutes of bad news. Conflict creates attention, and he is an artist in creating conflict. Everything is a fight, and so that's what the voters are getting along with.
- [19:00]
A
Steady tax rates, which became permanent law, and a lot of other provisions that will wind up being pretty much what people voted for.
- [19:09]
C
So we've talked a bit about what Trump and his tariffs and his rhetoric mean for the economy long term. And Scott certainly mentioned apocalyptic headlines. So we've seen some reporting. I mean, there's undeniable volatility in the market over the past few months and some have argued that there has been an erosion of the safe haven status of the dollar. So Scott, maybe you can start by explaining what people mean by that and how, how concerned should we actually be about long term economic viability?
- [19:39]
A
Well, the dollar has the status of the world's reserve currency, mostly because it's considered the least bad asset to hold. As a sovereign. We've never defaulted on debt ever, and so we're held for that reason. But also the dollar is held for a number of other reasons as well. It's the principal currency for settlements of international transactions because everyone accepts the dollar. The dollar has very large pools of liquidity. You can make large transactions almost anywhere without affecting the price of the dollar. That's why liquidity is important. And while there are questions raised about its store of value, mostly because we have a tendency to print up a lot of it at certain times when we want to spend but don't want to tax, it is still the unit of account that's preferred in international transactions. So that's the same and there isn't an obvious successor at this point. We have open, contestable financial markets that welcome capital from all over the world. That's not the case in China. The level of political control over the dollar is quite low compared to alternatives. The euro is a good medium of exchange in the eurozone and it provides a lot of efficiency. So but as long as the fiscal policy and monetary policy are separate entities controlled by separate authorities, the euro has a built in limitation. As an alternative, it doesn't mean to say it's not going to be held and it doesn't mean to say there aren't ways to collateralize the trades that are going on as much as Russia did when it was excluded from Swift. So there's a lot of buzz in currency markets. Is that the dollar getting softer? Well, yes, slightly, modestly. But keep in mind the one tariff that nobody talks about that's in place is the 10% tariff, basically flat rate on all goods entering the United States. And that first has generated the highest tariff revenue ever. So Congress is going to really like tariffs before it's done. And second, the most economists would predict a 10% tariff would soften the value of the currency by roughly that amount and boost exports. And it seems to have done both. So I'm not particularly worried about the dollar as either a reserve currency or as the principal international currency at this point, you don't want to take things too lightly. And that's why I'm also very supportive of the work that's being done to reduce spending. And as we manage flat tax rates and reduce regulation and try to get economic growth to the levels that many of us believe the US Is capable of, I was happy to see the rescissions package finally passed. So Congress needs to take the action to actually reduce spending to a more reasonable level. I tend to think that the combination of efforts with faster growth through lower regulation and lower taxation and investment incentives and lower spending by the Congress will work together to strengthen the dollar in the long run.
- [22:41]
B
I don't entirely disagree with that. We did a public event here at CSIS a couple months ago with Paul Blustein, who wrote a book called King Dollar which went into this issue in great detail. And I recommend it to listeners because it's eminently readable. In fact, I was trapped by that because I was talking to a colleague who also does book events from time to time and she said, well, I don't read the book. I just call the author up the night before and say, what do you want me to ask you? And in Paul's case, I actually started reading the book and I couldn't put it down. It was really interesting. I mean, you think the dollar really. But it was well written, good bit of history. His basic point, I think up to a point agrees with Scott, which is that the dollar is going to maintain its preeminent role in the global economy. There's some sand leaking out of the bag. There are other countries that are other currencies that are competing for public attention. The euro, the pound, the yen are the most obvious ones. There are limitations on all of them. The two countries that are trying most actively to de dollarize are Russia and China. Russia to avoid the bite of the sanctions that's hard for them. Nobody wants rubles, but everybody wants oil. And so I think they found a way, both legally and illegally to continue to trade. China is doing its best to internationalize the rmb. There was just a report earlier this week that Chinese officials had met with the Egyptian officials and entered into a currency swap agreement and an agreement engage in more transactions using the yuan. And that this was portrayed in the media as sort of the opening round foray into Africa and to try to internationalize the RMB in its trade relations with Africa. My view has been from the beginning that until the currency is fully convertible, they're not going to get very Far so I think the dollar reigns supreme for the time being. Paul's bottom line was that will continue unless the United States does something really stupid. And I think in his mind the risk of that happening was going up. We've come much closer to default because of the debt ceiling issue than we have in the past. I think we've now kicked the can on that one through into the, I think the middle of next year now at least. So it's not going to be an immediate issue. But this was a serious issue in this administration and in the previous administration and you know, both parties are at fault because the party out of power always tries to use it as a threat and it's one of the most unproductive and unthoughtful debates the Congress has. But we're kind of stuck with it. I don't think there's a lot of sympathy for eliminating it, despite I think every president the last three or fourth thinking that was a good idea. So, you know, if we can surmount the default issue, then the next question will be are tariffs actually going to go into place and will they end up being some monumentally stupid thing that will drive people away from the dollar? I think the more likely short term consequences rather than driving people away from the dollar is they'll drive bond yields up and people will stick with the dollar, but they'll demand more of a premium for doing so. And that's at one level good because it keeps the dollar prominent in the global economy. At another level, it's bad because it increases our borrowing costs and it pushes the economy in the direction of a recession. So we'll see. We're not there yet. We may never get there because as we said earlier, the effects of the tariffs so far are less than expected. We'll have an episode like this again probably every week from now on, but certainly in mid to late September when we'll have a couple more inflation reports under our belt and we'll have the August deadline having passed and we'll have a better picture of whether we're all eating tacos or whether there's a different argument.
- [26:18]
A
Well, yeah, no question we'll continue to follow this closely. For perspective, in 400 years of international commerce, there have been exactly three principal currencies, the Dutch Gelder, the British pound and the US Dollar. And that's a lot of time. A lot of kingdoms have risen and fallen in that period of time, but three principal international currencies. So we won't farewell to the dollar for a long time, but Then again, things can snowball and you can lose control.
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B
Well, yes. And one telltale thing, that statistic that is interesting is if you want to look at one thing that is really, really up, it's gold.
- [26:56]
A
Yes.
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B
And for which my son will probably punish me forever because he wanted to invest in gold 10 years ago, and I told him, don't do it. Big mistake. Which showed you how smart I was.
- [27:05]
A
Gold is the best performing asset of the 21st century. In this century, the gold has outperformed the S&P 500, which seems staggering, but it has.
- [27:15]
B
And the signal there is. People are nervous.
- [27:18]
A
Yes, that's correct.
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B
And they're going back to the very traditional, something that's tangible, that you can feel, that's quantitatively limited.
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A
Well, it's been money for 2,000 years. It's been a medium of exchange for at least 2,000 years. So we will be back to this topic. Evan, thanks for moderating today. And I think we probably exhausted our knowledge base and we've exhausted our listeners along the way.
- [27:42]
C
Yeah. I'm recalling Bill's advice to the president about 10 minutes ago that sometimes you just need to stop talking. So thank you, guys, and I'm sure we'll be seeing you very soon.
- [27:53]
A
Thanks, Steven.
- [27:53]
B
Thanks.
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C
You've been listening to the Trade Guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks for tuning in.