Hello, this is COI Time, a podcast series on markets and economies from DBS Group Research. I'm Tammu Wei, chief economist, welcoming you to our 146th episode. Today, it's all about trade policy. We welcome back to the show Dr. Deborah Elms, head of trade policy at the Heinrich Foundation in Singapore. Prior to joining the Foundation, Deborah was the executive director and founder of the Asian Trade Center.
She was also president of the Asia Business Trade Association and the board of director of the Asian Trade Center Foundation. Deborah Elms, great to have you back on COI time.
Thank you. And can I just say what an amazing achievement it is to have 146 episodes under your belt.
Uh, those 146 episodes stand on the back of illuminas like you. So thanks for your support, Deborah. Thank you. Uh, let's start with an assessment of US trade policy of the last 8 years. Did the narrative shift from Trump to Biden, or has it really been a single bipartisan threat of rising protectionism?
I think there were signs of change happening even before Trump won. Uh, that came into office. And in fact, if you start looking back through 2010, 2011, Tea Party efforts in the US under the Republican Party, you still see, you, you begin to see really strong strains of what is now sort of called Trumpism, but they started back even before he, he made it into office. However, he has changed the narrative. He changed the narrative in his first term.
From an acceptance of open trade, open markets, globalization more broadly, the US as part of an important network of all of alliances, um, Both for security and economic reasons, for raising living standards, reducing poverty, all kinds of things. Trump changed that narrative, and he changed it in a way that I think is durable and probably lasting, uh, particularly around the difficulties of keeping trade open.
And so I think that narrative shift, which again was building up over time, really reached a tipping point, if you will, under Trump one, and it maintained um mostly intact through Biden and of course with Trump and again, we're pushing the boundary of even further in this new protectionist, isolationist America first law of the jungle kind of direction.
I mean, I remember even back in the 80s and 90s, you know, Buy American movement was there with trucks that, you know, you bought Ford and you didn't buy Toyota.
But then Toyota started getting made in the US, and I don't think people think of a Toyota truck as a Japanese truck per se, but I saw salvos of that, and of course I'm sure you know, and I always like to point it out to people that even the young Trump back in 1987 took a full page ad criticizing Reagan for being too nice to the Japanese on the trade front.
Yeah, I remember those days quite vividly because I was at the time, obviously much younger and, you know, and a student going through the process of studying trade, and from my perspective, I also looked at US Japan disputes at the time. If you were to flash forward, many of Trump's specific complaints about China look exactly like Trump's specific complaints about
Japan in the 80s and 90s. And I, I always sort of laughed in the first Trump administration, my dissertation was on this tool called Section 301 on unfair trade. And when I finished my dissertation, I thought, well, you know, I mean, it was an interesting thing to do, and I'm glad that I did it, but ultimately this is a pointless piece of research because we're never going to see Section 301 again. It's been retired, it's not gonna
be in use. The United States has declared it's not using it, so really, why does it, you know, this was a lot of effort for not very much purpose. And then when Trump came back, came into power and suddenly we were using Section 301. I thought, holy cow, I had to dust off my dissertation, read up again on what the statute was, why did
it work, review the whole set of cases. And I thought, who would have imagined at the time that I was writing this, that I would have to come back to this again as a live issue?
There were you and I were at an event on US inauguration just a few days ago, and I remember you saying that we should stop saying unprecedented because just about everything that is happening is sort of so out of the realms of ordinary that it is by definition all of these things are a first and we just have to get used to this unprecedented stuff happening over and over again. But let me ask you for a report card. We've had, to your point, longer than 8 years of rising protectionism,
but let's just take the last 8 years. Trump really sort of, you know, re-entered the discussion around protectionism. What has been the impact of these measures to restrict trade and investment? Has the US gained jobs and investment? Has China been hurt materially?
Uh, I think if you say, what are the broad macro trends, and you would know this better than anyone, the broad macro trends look relatively unchanged. I mean, trade is at a global trade is at a higher level than it was pre-Trump. COVID, uh, the challenge we have in a little bit, a little bit on the data is, you know, COVID
made a big difference on trade flows and trade patterns. So, COVID plus Trump creates a sort of confusion over what the, the information actually shows, but global trade remains intact and robust. But what has changed is the patterns of global trade, and it hasn't changed completely, but you can see, for example, That in the wake of Trump's first term, direct trade between China and the United States, especially as shown by
trade in goods, has fallen off rather dramatically. But at the same time, trade in goods from other places into the United States has gone up dramatically, and part of that is the reshuffling of supply chains to take Into account restrictions on trade with the US. Part of it is markets and firms that are finding new opportunities.
You know, absent to crisis, sometimes it's hard for a firm to say, this is the moment when I'm gonna spend a lot of money and a lot of resources, time and effort on new market. Exploration, developing my new markets, but in a crisis, then you suddenly can say, actually, this is the moment when we have to make that investment and look for alternative final markets for our products, new suppliers, new distributors, etc. and I think that's been happening as well over the last 8 years.
Why was it not possible for the Biden administration to make a case for rolling back Trump era tariffs, even though inflation was such a big issue in 201, 202?
Well, that's gonna be one of the many subjects for the next PhD dissertation. It's why is it that the Democrats have and Biden himself have been so spectacularly unsuccessful at explaining why trade and economic openness matters to average Americans. We, we just, we have done a terrible job of being pro-trade. In general, anyone who's pro-trade done a terrible job of explaining why this matters, and it's not just in the US.
I mean, there is a quote that has, will stick with me till I die, that came from the Brexit period in which uh uh right after the Brexit vote for the UK to leave the European Union, they interviewed as A worker at a Japanese automaker in the UK that sells almost or at least it did at the time, sold almost all of their products directly into the European Union. And this gentleman, when asked about Brexit, said, What is trade to me? I don't own any stocks.
And I thought, wow, we have lost the plot. When a guy who works for a Japanese company in the UK that exports all of the products does not see that he is a vital part of global trade. And so I think that experience is replicated over and over and over again, where people experience trade in every hour of their day, but they don't know that. They don't recognize it. And so that makes it easy for them to to to listen to someone who says, I will protect your back, I will save you from trade evil.
And they say fantastic. And then when you say, but let's think about what you do and where you do it and why you do it, and actually, you know what, you need trade, both for your own personal life but also for your professional life. Your job depends on trade often. That's a hard lesson for people to get.
Yeah, very much so. I've got to say, I mean, I was disappointed, but lately, Deborah, I've been sort of reading about the late 1890s when McKinley was imposing all those tariffs. I mean, there was this whole period between 1892 and 1896 when the Democrats ran against tariffs, wanted to roll them back, but failed despite having the House and the Senate and grow Cleveland as the president because the regulatory.
Lobbying was so much that whoever was getting protection under tariff basically said, All right, you may have run against tariff, but not my industry, keep my industry under protection. I'm not entirely aware if there was substantial lobbying done by American companies um in the Biden administration days to prevent Trump era tariffs from being rolled back, but are you aware of any such thing?
Definitely. I mean, this is the problem with tariffs, is that it's very concentrated, right? So if you receive a tariff, in other words, you receive the protection behind the tariff wall, you're very aware of it and you're very delighted by that because it means that the competition is much less for you. You can charge whatever prices you want within reason, of course, but you, you, you have flexibility that you wouldn't have if you weren't sheltered behind this tariff wall.
And so firms fight for that. And, and the most classic example, there are many in the US, but one classic example in the US is the steel sector. And if you look at who pushed hard to keep steel and aluminum tariffs through Trump, through Biden, and now into Trump too, it's steel and aluminum. And in fact, steel and aluminum tariffs, not only are they back on the agenda for Trump too, but there is an effort to try to raise them.
Potentially, or to crack down on any kind of of assumed subversion of steel and aluminum to ensure that Buy American is only for American steel and aluminum, etc. etc. And when you do the research, uh, on how much does it cost per job saved to save these jobs and steel and aluminum, the last time that I saw the numbers come through, it was $300 850,000 dollars per job saved to keep steel working in the United States.
So you say, wow, that's an awful lot of money that is going to protect uh not very many jobs. And it's likely to get even more expensive as you go forward in time and you continue to keep this protection. But you can imagine just to sort of wrap this up, if you're receiving $850,000 per job saved, you will fight hard to maintain that protection, because as soon as that protection goes away. You're then exposed to competitive forces that you may not
be prepared for. And so the fight is brutal in Washington over reducing any kind of existing tariff preferences, even in sectors where the United States, for example, doesn't trade. It's really hard to get rid of a tariff once it's in place.
Yeah, absolutely. And Deborah, on the issue of jobs, A, it is expensive to keep the jobs, but B, The US steel sector is not a job intensive industry anymore. The employment in the steel industry is like 75% less than it was 40 years ago. Production is more or less the same, so it has become immensely profitable. You could argue that they can actually produce more steel with
less people and therefore it's more productive. But any favor to that industry is basically going to the owner of the capital, not necessarily to hundreds of thousands of workers because there aren't hundreds of thousands of workers working in the steel industry anymore.
It's crazy actually how upside down policy, particularly from the United States, is to protect a relatively small number of jobs in manufactured goods, while ignoring, and I think for me this is the key second part, while ignoring the enormous number of jobs in the United States and most developed economies in the services sector. So Trump especially, more than anyone I can think of, is so fixated on trade and manufactured goods that he
does not ever talk about trade and services. That's especially weird to me because if you think about Trump's own background, he is 100% services. His whole background, real estate, travel, tourism, golf courses, food and beverage, social clubs, whatever it is, those are all services sector jobs, services sector.
Um, um, positions, and yet he has no interest in services, which is most of the jobs and most of the economic growth and, and the future for most developed world economies is in services.
Deborah, I just want to add one story on the washing machine element because that was one area where we saw clear evidence of prices going up after the tariffs were imposed. I think the counter from some of the people in the Trump camp has been it's nonetheless forced LG and others to move some plants.
To the US and created a few 1000 jobs. But I think that is one example where we actually have good data on what happens when you put up tariff and what what happens when you remove the tariff because just I think it was in 2022 or 2023 when the Biden administration allowed the tariffs to go down, washing machine prices fell for the first time since the tariffs were imposed. So this is one tiny example where we can see there is a link between tariffs and inflation, pretty quick and clear.
But again, I'm sort of vexed why it was not something that was embraced broadly by the Biden administration.
I can't, I can't really help you there, but I, I would say again, like who fought against washing machine tariff removal, washing machine companies and companies in the steel sector that supplied steel to domestic, potentially domestic washing machine manufacturers. And so you end up with protectionist industries supporting other protectionist industries in a sort of unholy alliance, I would argue.
Of of restrictions for the purpose of maintaining those jobs, and there is a clear sense from especially the Trump administration, but also potentially from the Biden administration with their worker centered trade policy, that there is something uniquely valuable about a manufacturing job.
Which is worth supporting. And so I think from the Biden side at least, they would say, even if it costs us money, even if we have to pay more for washing machines, it's worth it because it's important to keep manufacturing jobs in the United States and to keep those opportunities available for Americans who want to be in manufacturing. And so I think that's the, the, the slightly unusual orientation that the Biden team had, but the Trump team
has it as well. And if you look at many of the statements across different people in the Trump administration, it's quite clear that they see a manufacturing job as more valuable than an alternative job, whether you're, I don't know. Doing education or you're, you know, in finance or whatever it is, you are not as valuable as a as an source of employment as a manufactured job.
Yeah, it's odd because just like Trump, most of those people also are very much from the services sector, lawyers and techies, but somehow they're all in love with blue collar jobs
in love with manufacturing. And if you say to them, do you want your son or daughter to be making washing machines, to be physically. The assembly line, making washing machines, they would say, No, I sent my kid to Harvard or Yale or something. I don't want my kid to be the one who's putting together the, the washing drum with the whatever wiring harness or whatever goes into, I don't even know what goes into a washing machine. Um, they would say no.
You know, so it's, it's rare. I mean, I, I, my son is in manufacturing, and I will tell you that especially among my peers, that's very unusual to have a child that goes on and ends up in in manufacturing is very unusual. Um, and we could talk about whether that's a good thing or a bad thing. I don't think I'm just to be clear, I'm perfectly happy with manufacturing jobs. I'm not suggesting that they're horrible or they're all horrible or
we shouldn't have them. I'm just saying that if you look at the structure of the US economy and you look at where most of the jobs are, it's not in manufacturing. And it's likely to be less in manufacturing the future for the reasons that you just indicated, as you move towards more automation in plants, you have fewer people who are on the assembly line, making the washing machines. You might have more people who are fixing the assembly line.
My, my son does that. My son is in maintenance at the, at the Tesla plant in, in San Francisco. So he's working very hard on everything from the robots themselves to the assembly line production to make sure that it still works. But they're not, he's not putting the
door on the car. The robot puts the door on the car, you know, and, and So there's jobs in this space, but they're either fixing the robot, putting the door on the car, or they're programming the robot, you know, or they're doing very simple things like, you know, bringing the steel to the beginning of the assembly line to make sure that it can then be stamped out and put into the vehicle. So that, I think the kind of jobs that are available in manufacturing are shifting.
Absolutely. Deborah, I don't know if you've watched this documentary called An American Factory. It was on Netflix 4 or 5 years ago. It is about a Chinese glass company opening up a plant in Dearborn, Michigan, and you see there that the Chinese engineers and technicians and foremen bringing their work practices to an assembly line manufacturing plant in the US and it is backbreaking work, although it is a very automated plant.
And just like the Tesla plant you're talking about, there is a lot of robot arms doing things, but still, when you make a windshield for a car or a glass display for a phone, there is a very complex man-machine interaction. It requires a lot of mental equity, but also entails standing around machines hours at an end. So the one thing that you see in the documentary is that there are a lot of American workers who just don't have the health.
To stand around in an assembly line using both their mind and their body for 8 hours, 10 hours a day, which is the minimum that the Chinese owners expect.
Yeah, I mean, my son regularly will clock 18,000 steps in a shift, and his shifts are 12 hours. So, you know, an 18,000 step day every day that you're on the site is very challenging and you know, my son who's young. is already looking ahead and saying, you know, I don't, uh, this clearly is not for me, uh, a, a lifetime kind of a job because I, among other things, I'm not going to be able to do 18,000 steps as I get older. This is going to become more and
more physically challenging. And so, you know, again, the sort of evolution of what it is that we're asking workers to do is also challenging. It's challenging for them, and they're gonna need, again, upskilling, reskilling, that's get you all into a Discussion about the changing nature of labor, but my point is mostly just to say.
There are jobs in manufacturing, we should maintain some jobs in manufacturing for many, many reasons, but that's never going to, it's unlikely to be, I, I shouldn't never say never anymore. It's unlikely to be the growth sectors of the future for the United States or for other advanced industrialized economies because of many things that are happening, not the least of which is automation. Not, not so much by trade, by the way. It's much more automation of the existing factories. I'm
People keep saying the United States doesn't manufacture anything. That's not true at all. The United States still manufactures an awful lot, and the United States is, in fact, incredibly successful as a manufacturing economy, but what it doesn't do is generate a lot of jobs in those manufacturing sectors. It does so through automation and through, um, you know, other kinds of, of procedures that make it easier to produce the thing that you want at the end of the day with fewer people.
Right. Yeah, absolutely. Um, Deborah, I'm not sure the question I'm about to ask you is a hard question or an incredibly easy question, but here it goes. Trump 2.0, early days, but what's your sense of where we're headed?
I think it's going to be very bad. I, I, I, I really, I am extremely alarmed about the direction of travel, and it's not just because I, obviously I'm not a fan of protectionism, and we're about to get a lot
of it. I think it's because we're getting a lot of protectionism from the US, but it's going to be met by Protectionist behavior in other places and it's going to be met by retaliatory behavior in other places, and the combination of protectionism, additional protectionism, retaliation, new retaliation is going to potentially spin us into a a whirling cycle of bad things, and I just worry that uh that's where we're headed. We are, we have forgotten why trade matters to us, one.
We have been happy to say we would rather have jobs, this kind of job over that kind of job. We seem perfectly fine to assume that you can do what you want, whatever you need, and that others will go along with that. Which is I think delusional. Um, and then, you know, the system as a whole is in much, much weaker
state than it was even 8 years ago. And so trying to think about like who on the global stage is going to be able to stand up and say this is not in our interest, it's not in our collective interest, we need to do something about this.
I am deeply worried. I'm deeply worried. I'm deeply worried, of course, about the United States, but I'm also worried about what this does for other countries, and I'm extraordinarily worried, and I don't think anyone is talking about it, but I'm very worried about the developing economies, many of which are, especially when you get down to the poorest countries.
We are going to be so far back of the queue of priorities that I, again, I'm, I'm deeply worried about what happens in a lot of developing countries that we're making pretty strong forward progress in terms of growth and new job opportunities, new, new sources of income and revenue for them, and now suddenly may not have that. Cause if you close your market, you're not just closing
it to one country, you're closing it to all. And so that, again, limits the potential for developing economies to participate in economic growth.
I want to expand our conversation to the broader global economy momentarily, but first, just staying in North America, Deborah, USMCA, are they going to dig it out again and is Mexico likely to suffer a big setback and Canada and the US get tighter? I mean, what, what's your sense of where all this is going?
I think USMCA is in serious trouble. I mean, they were already due for a renegotiation in 2026. In a piece of irony, they set that date because they thought it would be after a potential second Trump administration and so then it would be fine, and now suddenly here's Trump in the 2026 review period.
Um, I don't think we're gonna wait until 2026 to have this discussion, and in fact, Trump's, one of Trump's many executive orders on his first day included a directive to his agencies to give him recommendations about what should be done with NAFTA or USMCA immediately. So that report is due by April 1st, and that recommendation is likely to include the potential for withdrawal, even. And for serious adjustments in all kinds of things. So I, I think USMCA is headed for Rocky period
even before we get to 2026. And Trump's early comments and early actions around tariffs are not directed at, have not been directed at China or, you know, others, it's gone after Canada and Mexico. This is, uh, you know, the Canadians especially are really quite incensed about this because they say, wait a second, we're being held accountable for immigration and fentanyl in particular. That's what Trump keeps complaining about, neither one of which
seems to be a problem out of Canada. So even if, let's imagine the Canadians said, OK, you, you win, Mr. President, you're right, we should do something about immigration and fentanyl. How do you fix a problem that doesn't exist? Even if I wanted to show you that I was doing a great job fixing this problem, because it's not a real problem, there isn't any evidence I could give you that would say this is the solution to this problem that you've imagined.
So, you know, the Canadians are really up against it.
But on Canada, is there sufficient political will on Canada's side to retaliate if the US goes ahead with this 25% tariff that it's threatening? Well,
again, this is for me why Trump is so alarming. It's not just that Trump is alarming, it's that the the leaders who are around him are much, much more weak than they were, and Canada is about to enter a new political election, which we haven't seen in Canada in quite some time.
That comes at like the worst possible time, right? The worst, the worst possible time is uh to have your own transition at the moment when your most important economic and security partner is treating you as if you were the adversary, you know, this is not a recipe for successful Canadian policymaking or for bold policymaking from Canada. So, uh, you know, we'll see. I suspect they're gonna try to muddle through somehow.
But that's gonna be very problematic. Uh, you know, Trump is in a position to do a fair amount of damage to the Canadian economy, and Canada is in less strong position to do something to the United States economically, but also politically to, you know, again, they would have to really be committed to doing so and at an election cycle, it's always easy for the opposition to take a side that In the long run is going to be a problem for them.
Yeah, I'm beginning to see that sort of jockeying for either curry favor with the US or trying to carve out something independent, but yes, you're right, the political space is extremely narrow in Canada. They're in a pretty weak spot. And Deborah, let me just go back to the point that you made. It's just not Canada. When we look around the world, many countries are right now going through a rather fragile moment in their A political cycle, you know, Germany and France and Korea
and so on. So yeah, Trump is pretty lucky. He is in a position to do a lot of things where the other side doesn't have a very cohesive stance.
Yeah, I had, I had someone who I thought was, was brilliant at this actually and said, you know, we're in a bit of a prisoner's dilemma here, which is, while the rest of us all have strong incentives to cooperate, to maintain open markets, to maintain lots of different principles that have been important, bedrock principles for some period of time, each of us has an individual incentive to cave and collapse and to say to Trump, you know, whatever you want, we'll, we'll do it we'll do it, sir.
And so you have this sort of prisoner's dilemma pressure that is likely to lead everyone to try, or nearly everyone to, to ultimately cave, and the net result for all of us is significantly worse off.
Yeah. Uh, I, I think that the, the risk of that is extremely high. Now Deborah, it's not all about the US and it's not just one-sided. The countries who might be on the receiving end of the US are pursuing regional agreements, bilateral agreements, just as an offset to some extent of the US are turning away from. The world that we have been familiar with characterized by globalization. So let's talk about a couple of trade agreements. We
talked a little bit about USMCA. What about CPTPP? Is there any strategy in there among those non-US entities to do something?
Well, I would like to think so. I've been trying to buck them up to be more bold for quite a long period of time, and it's been an uphill slog, but I, I'd like to think again, in every crisis is an opportunity, and if there was ever an an opportunity for CPTPP members to band together and to show that open trade matters, that cooperation matters, that coordination on regulations and so forth makes a difference, that you end up with a stronger economic growth as a result of it.
This is the moment. And so the CPTPP countries, uh, we have 12 of them now, it's an active agreement, including the the UK who just became a member, um. Just became a member. I, I think it's, there is a platform there for them to be bolder, but they are hamstrung themselves by two things in particular. One is on their own, again, they're relatively They're not large economies on their own, so they have to actually coordinate in order to have real heft, and
that's difficult. Coordination is always difficult, and they have to coordinate the first and most urgent issue or an urgent issue for them is the expansion process. In the queue to expand is China and Taiwan.
And a bunch of other countries. That decision on what to do about China and Taiwan is really tying the group up in knots because they, they cannot make a political decision to either move or not move and so their solution to this is to do nothing at all, and I think The more you get buffeted by external events, the harder
it is to continue to do nothing at all. So, that's the challenge for CPTPP is to sort of figure out how are we gonna stay united, again, in this sort of prisoner's dilemma, law of the jungle world that we're entering, but I think there is a platform there already made. It is providing economic benefits to companies already and has been since 2018 when it went into force. So there's, there is room for CPTPP countries to seize the initiative and to be bold, but it is challenging.
I mean, it's definitely challenging.
And what about REP?
Yeah, the Regional Comprehensive Economic Partnership is 1615 countries now in Asia, so all of ASEAN, China, Japan, Korea, Australia, and New Zealand. That again, is a really interesting agreement because in addition to the direct economic benefits that come from using the agreement, you have a potential platform for conversations about trade in Asia for Asia.
And like CPTPP, I would argue that at a time of global shifts, it is the perfect time actually for more intensive dialogue and communication around where do we want the future to be, what kinds of actions are we prepared to take, what kinds of actions are we not prepared to take. Let's actually have those conversations with one another. We can't do it in a lot of other settings. REP is a natural platform for that. Accept that, and it goes back to the sort of,
you know, weak leadership. Like, who's gonna lead that? The, the, the Koreans certainly know know we wouldn't even know who would show up. The Japanese really struggling internally to make sure that their leader remains in place. Australia's facing an election going on. New Zealand has shifted its policies. There are new leaders in across ASEAN as well, who would be. Jockeying for position, so you know, you think about like it's a great idea.
But practically speaking, who's gonna lead the charge? Answer, oh, probably not really anybody, which means you don't get that kind of coordinated activity that you would like to see. But that doesn't mean, let me just be clear, and this is why I, I think Asia is the place to be. That doesn't mean that leaders themselves don't understand the importance of open trade. I mean, for a region that has been built on economic openness, if that ends,
it's a problem for them. And so you, you do see, which is very heartening in my view, you do see lots of leaders in this region who are continuing to pursue trade openness agreements in any kind of fashion. Whether it's these big mega regionals like CPTPP or REP, whether it's sector specific agreements, so we have some green economy agreements between Singapore and Australia, New Zealand just just put through a very interesting uh trade and climate.
Agreement with the unusual batch of countries. Whether it's digital economy agreements, we have a bunch of those growing in place, bilateral trade, a lot more trade with the EU, so the EU is continuing to sign agreements with this region or restart, like with the Malaysians. Um, the GCC, the Gulf Cooperation Council, is also very keen to do trade agreements, uh, with members of Asia.
And so I think there is this sort of interesting dichotomy between the protectionist poll, which is likely to get stronger as Trump gives license for leaders that like protectionism to go down that path, with an integration poll that's always been there and a cooperation set of communi, you know, set of agreements that keeps you open.
Deborah, within Asia, when you talk about trade in Asia for Asia, with respect to goods, we actually have pretty low tariff barrier and inputs do move around pretty freely in the region and hence we have a regional supply chain which is very efficient. Talk to me a little bit about trade and services. I think once somebody told me that if you have a bunch of Google engineers sitting in Malaysia for a project, they can't just get into a plane and go to another project in Thailand.
There are issues related to those engineers having work permits in uh Thailand, although they're all part of our SAP. So have we made any progress that is sort of tangible nature with respect to trade and services?
Well, trade in services is, as I said earlier, super important because that's the direction of travel for most advanced, uh, economies. So you need to think about trade and services, but our rule making around trade and services is still weaker than it should be. And there's a number of reasons for that, but the most important, I think, is that when we start talking about trade and services, It's actually about your domestic level regulations that we're discussing, right?
So if we want to provide banking services in a different market, it's about what are the banking rules that I have in my market and whether or not you qualify under my existing rules. And if you don't qualify, then am I gonna change my rules? Am I gonna make you follow my existing rules? And so it's all about sort of behind the border or inside the domestic economy, rules and regulations.
That can be much more sensitive, even if it's uh an area where both parties agree or all parties agree that something should be done, the practicalities of making changes at the domestic level to accommodate more trade and services is difficult. So that's, I think, why we don't have the the same commitments to trade and services. It's also harder to identify. First of all, what services are traded at what levels. We just don't have the statistics that we do on
trade and goods. It's much harder, much, much harder to model or to guess at what is the benefit of opening up this services sector. Whereas if I say I'm gonna change a tariff level, that's relatively easy to model, and we have lots and lots of tools to do that. We don't have a tool that says, if I Grant 3 licenses for insurance brokers. This is what happens. If I grant 5 licenses, this is what happens. Like we just don't have those models uh to easily show
us what the difference is. And so the net result of that is services tend to be still much more protected. Uh, and when you talk about different ways that you deliver a service, the most protected by far in this region is movement of people, which is why your Google engineers cannot move, because they are, it's not, it's not that Google as a company cannot deliver services in multiple locations necessarily, it's that Their people cannot move seamlessly between their own entities to
deliver those services, at least on a temporary basis. Forget about long term immigration, just even on a temporary basis, the project ends, I go to another project, that can be complicated in this region.
Um, I want to take a small detour, Deborah. I read this article which was in the Henrich Foundation website. You wrote it, I think it came out just a few days ago. The title is Who Is Us, us in inverted comma. Why a Battle to define connected cars Matters. I think your article sort of underlines or underscores the complexity associated with. Nationality-based production, which is what Trump is trying to go after because the world has changed a lot. So walk us through your article.
Yeah, thanks very much. I'm happy that you gave a shout out to this piece. I've, I've been working on it for quite a while, and it's been a challenge to put into words my, my thinking on this because it's,
it's a sort of a big amorphous idea. But what I'm trying to get at above all, is that We have often treated firms as if they were countries, so we say things like, China should do such and such, the United States should do such and such, but actually we're talking about Hundreds, thousands, millions of different firms and consumers who are doing whatever it is that we would like them to do or not like them to do.
So, that's always been a challenge, but it's becoming even more urgent in a world in which we create incentives for firms that are considered to be Chinese or American, and we say only Chinese firms are subject to these rules, or only American firms are eligible for these benefits. So the question comes up, well, who is us? Who is Chinese? Who is American? And our traditional ways of looking at this don't seem
to fit particularly well. So it's not about even where you're headquartered or where you pay taxes, or where you hold a board meeting, or where you manufacture the thing that you're making, or where you deliver the services from
or to. You get this gets extremely complicated. And when I saw this draft regulation, which is now a firm regulation, unless the Trump administration undoes it, On connected cars or on electric vehicles, it gets really, you can really see the sort of sharp edges of this policy dilemma, and let me just briefly describe what that is, which is this piece of legislation says that for connected cars, again, like, think of them as electric vehicles, passenger cars.
You cannot have any hardware or software with a nexus to The People's Republic of China, or Russia, but we don't care about Russia in this instance. So the, the, that raises all sorts of red flags in your head, or at least it should, which is like, how, what is a nexus? How much nexusing do we need to do in order for this firm that is supplying hardware or software to a connected car company.
Um, how close do they need to be to the PRC and what constitutes significant nexus, like, so there are really big questions that are overarching, that are not being addressed, and as we create more and more rules like this connected car regulation, we have to think even harder about what does it mean to be us, whatever us is. Why do we assume that an American company, in quotations, is less of a security, national security.
Economic threat to something, then, uh, I don't know, a Singaporean company or a Chinese company or a company from Lesotho. I mean, we, we, we really need to think about what is it that is the source of the threat, if there is one, and then how do we design policies that capture just that and not everything under the sun.
There were, I was in India recently on the streets of India. You see all these MG cars. Indians don't tend to think MG as a Chinese car, although it's owned by SAIC, and primarily the reason is that it's a joint venture in India. So the Indians are doing the same thing that the Chinese have done over the decades, which is require a joint venture with a local partnership. So JSW and SAIC, 50/50 owner of MG cars. But the fact of the matter is the components are all Chinese.
But now you have a beneficial owner, which is Indian, at least for half of it, and India seems to be OK with it despite having various reasons of friction with the Chinese. Similarly, you know, a company like Volvo, we all think it's a Swedish car, but actually it's owned by Geely in China. Now, is Volvo not going to be able to run on the streets of the US because the ultimate owner is that, but some components are European, some are Chinese. It, it, it becomes a rather nebulous situation.
And that was the, the, the real point of my piece was to say we are not thinking hard enough about who is us. And as we create these rules, the, the consequences and the unintended consequences of rules like you may not have a sufficient nexus to this or that country. Uh, uh, becomes even more urgent to, to really think about, well, why is it, why is it actually that having a nexus to this particular country is the problem? Is it,
is it, why? I mean, in some cases it's a clear line and you can say, ah, because here in this case, we do have ownership, for example, potentially by The Chinese government, which controls the board, which controls the factory, which controls the production, which controls the, you know, you could, you can draw a very straight line and that maybe then we say, yeah, you know, that does look very
alarming and we should be careful about that. But that's not always the case, and you just mentioned several examples that I think are much more thought provoking, like, is this really a risk to us? And if so, why? What is it about this that makes it risky? And if Again, life is full of risks. Is it a sufficient risk that we think we should undo existing legislation on existing rules in order to change it to stop this kind of behavior in the future?
Let's um reverse the perspective of this discussion from what the US is seeing and what the US would do to China. What is uh China's strategy going forward?
In the first Trump administration, it, it looks as though the Chinese strategy was to buy for time. To engage in negotiations in I, I, I think. Uh, again, we're gonna have a big argument about this, but I would say they engaged in those negotiations at a fairly high level and they appear to have taken it seriously. Did they follow through on all their commitments? No. What they, did they intend to follow through on all of their commitments? It's unclear. But at least the process
itself was a high level of engagement, extensive negotiations. They produced a phase one document, they agreed to purchase things far in excess of anything they'd ever purchased before. You know, and so I think the Chinese strategy was, let's see if that works and in fact. Of course, they had higher tariffs applied against their products, up to 25% on a very wide range of products. Many of those tariffs remain today. In fact, all of them remain today. None of them have been removed and
none of them have been reduced. In fact, they've had more tariffs applied to Chinese products. Um, so that is obviously a downside if you're China. So, you go into Trump too, what are you gonna do? That playbook, I don't think is gonna work as well. So, it's not obvious that Trump wants a deal with China, and if he does, what does it look like? It's gonna be quite different. So I think the Chinese at the moment are. Go to do two things. You can already see it.
They started before Trump was inaugurated with a few smaller actions to indicate, I think, their willingness to respond this time. And those could be ramped up, they could be made much more challenging for US companies and, and for the United States in general, in a lot of different ways. It doesn't have to be tariffs for tariffs. There are lots of things that the Chinese can do if they choose to retaliate against the US or US companies, um,
big and small. So I think there will be some retaliation that takes place if necessary because the Chinese want to, to indicate their own resolve. But they will, I think, also see if there is a deal to be had because if there's a deal to be had and it's relatively simple, then I think China would say fine. At the moment, Trump has been threatening a 10% tariff against China. Trump has been threatening that.
That is relatively manageable, I think if you're China, because they're ultimately, after the first Trump administration, the Chinese diversified themselves and they are far less reliant on the US market than they were. They have a lot, lot more on the table than they did at the time. So
a 10% tariff, not great, but they could manage. If it goes beyond that, and if it goes into other areas, then they have new challenges and I would say that for China, to me, the bigger worry at the moment is not what Trump is gonna do. But what Congress is going to do, because Congress is united around the idea that that China is the biggest adversary and so there is a lot of activity that I expect to see out of Congress.
Um, and out of the, the agencies, White House agencies that are not tariff related, that could be much more problematic if you're China than whatever Trump decides to do from the Oval Office.
Now, I really cannot believe I'm about to say this, but I'll say it anyway, is Elon Musk the honest broker between China and the United States?
I think that's less clear. I think if you look at Musk, you know, in, in his huge volume of trade activities and business activities, his, his dealings in China with Tesla is actually pretty small, much more important for him and much bigger for him in terms of the
financial benefits are his other businesses. And so, I am unconvinced that that Musk is gonna moderate even his own behavior based on Tesla being in China, he is more likely, I, I would argue to cut that out or off than to cut off or out his other initiatives like infrastructure, you know, the, the telecommunications infrastructure, you know, space exploration, etc. So those are contracts that are bigger and more urgent for him than Tesla in China.
And I, if push comes to shove, I don't think he's gonna come down on the side of let's save Tesla, let's intervene in US China relations. But I could be wrong, because again, we're dealing with very um volatile personalities and so I maybe it depends on the day and the hour, I'm not sure.
Well, I think your point on Tesla is very well taken. I mean, Tesla does sell a lot of cars in China and the made in China Tesla cars are sold all over Asia, including in Singapore, but I think we are at an inflection point because the kinds of cars that the Chinese brands are rolling out, they're not only ultra competitive with Tesla, I think going forward they're going to be out competing Tesla on price and quality and technology.
So if Trump is really, you know, Musk is really forward looking, you're right, he may actually focus on the more lucrative chunkier thing than being fixated on his footprint in China. Yeah, mercurial personalities, maybe he's, you know, he and Trump want to do a deal on TikTok and God knows where that goes. But, but yeah, Deborah, I think we need to have you back like every 6 months to do an update on the show.
Yeah, well, trade has never been more interesting. We had hats made in the first Trump administration that said making trade great again. And I, you know, I thought it was, it was good, and I enjoyed the hat, and I put the hat to the side. And now I'm like, oh, we're gonna have to make more hats because we're gonna make trade great again for the next however long as everyone, including people who never cared about trade, suddenly are, you know,
having conversations about tariffs. You get in a taxi anywhere in the world and all of a sudden tariffs comes up. From a taxi driver like that never happened before Trump, and it will happen again in Trump too.
I think if you have a t-shirt that says I did Section 301 in my dissertation, even that will get response from people.
I have a lot of t-shirt ideas that are coming out of the Trump administration.
Deborah, thank you so much for your time and insights. Sure,
thank you very much for having me.
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