I'm Scott. I'm Bill. And we're the Trade Guys. 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 H. Andrew Schwartz and I'm here with Scott Miller and Bill Reitch, the CSIS Trade Guys. On this episode of the Trade Guys, we'll talk about the recent elections in India, Mexico, and South Africa, plus we'll talk about the Red Sea Shipping Crisis and finally, we'll
get to Ambassador Tai's recent op-ed and the financial ties. All on the next episode of the Trade Guys. Guys, we've got some really highly anticipated electoral results that came in internationally. We've got elections in India, Mexico, and South Africa. All important to trade in one way or another. Let's start with India. How did that election go? Didn't go as expected? That's
for sure. Well, I've been thinking about this and it's taking me three days to find a common threat amongst the three that happened recently, which are India, Mexico, and South Africa. And if I'm not mistaken, it took until you got yourself in the pool to exercise for you to come up with analysis. That is correct. It was doing labs. I had to be piffing it. And I figured out I think what they have in common. The irony is it won't make
any difference, but that's, we'll get to that. Well, one of them was a surprise, and that's the one you mentioned in India where a blood I did not do nearly as well as people expected him to do. Lost his single party's majority. His coalition will continue. The governor Hill continued to be prime minister, but lost a lot of votes. And what was important
here was that it really was a triumph of economics over religion. It was people and it was poor people primarily, including poor Hindus and poor Muslims, voting their pocketbooks because he had promised jobs and it promised a lot of benefits and had not delivered. And I think that it caught up with him. And his campaign was a much more divisive war on religious
grounds, or Hindu's versus Muslims. And what I think it demonstrated, which was reassuring in a way, was that voters didn't really care about that as much as he thought they would. And what they did care about was did they have food on the table and did they have jobs? How was the economy going? I think the irony is that they voted against him because they were unhappy with that. It's not at all clear that the economic policy of India is going
to change very much despite the election results. The coalition that he put together for the election is going to be there. It will be some differences. What always happens with coalition governments is they take the longer to make decisions. So for a prime minister who's time has been characterized by strong leadership and quick decision making, I think
it's going to be complicated for him. But I think he'll still pursue pretty much the same economic policies that he's been pursuing despite the message of the electorate that they want something different. Mexico was, again, it was economics. This is a common thread. It was a triumph of people that appreciated what Amelow had done. And what Amelow has done in his almost six-year term is provide a lot of benefits to poor Mexicans. And he's
promoted unions, actually, independent labor unions. And he's trying to promote economic growth. And he's provided a lot of benefits to poor. Essentially, his party was rewarded for that. He couldn't run again. But his candidate, Claudia Shainbal, is going to be the new president. And I think we'll probably pursue pretty much the same policies that Amelow pursued during his term, which are pro labor, pro worker, pro poor people, policies.
I think she is more of a technocrat than he did by all accounts. How does successful time is mayor of Mexico City, which is a city with a whole load of problems. And she may apply more of a, I guess, an engineer, and if you will, or a technocratic approach to governance. But people are not expecting, like, as an India major changes in policy. South Africa was also predictable. Not a surprise. People have been saying for nearly a year
that the ANC was going to lose its majority. And it did. It ended up with, I think, so we're around 40, 42% of the vote. The next government is not clear yet because they have to form a coalition. One of the interesting things is with their, they'll form a coalition with the Democratic Alliance, which is actually the white party. It's not entirely white. It's not entirely white and it's pro business. It is more pro business, yes. But I think
the reason for the decline in the ANC's fortune was economics. They haven't delivered on growth. They haven't delivered on wages. They haven't delivered on prosperity for the poor people. In all three cases in Mexico, it was an affirmation. And in the other two cases, it was a rejection of governments that failed to deliver on economic promises that they've made. This is where Scott jumps in and says it's the economy, stupid. Well, look, I think
people all over the world are voting elections this year. And a lot of them vote their pocket book. I know that certainly happens in America. Economy and jobs is usually the number one issue in polling. And while I don't know if good polling is worldwide, people want better lives and they'll vote for them if they get a chance. So look, I think in India that it was a disappointing result. But look, I think Modi is still, last I saw was a survey
of world leaders and their domestic polling. And at that time, Modi was far and away the most popular world leader among his voters. He was in the 60s. So pretty good approval rating. At that time, the lowest was Chancellor Schultz of Germany. I think his approval rating was like 16%. So he was down in the area of Dandruff for, you know, drier lent. I mean, it was really a sad, delirating, but actually made President Biden and Prime Minister Trudeau
look good by comparison. So, you know, it's tough out there. And the economy is important. For me, in India, India's of interest to American trade policy because India is the alternative to China if you're looking for scale. They have some things going for them. Modi has done a good job with investment, particularly in infrastructure, which is helpful. They've got a skilled and younger workforce demographics are in their favor. They have issues with their
regulatory and what used to be called ease of doing business. And so there's a lot of room for reform. I agree with Bill reform is a lot harder when you have a coalition government. But the DJP, the Modi's party went from 303 seats to 240 to 72 as a majority. So they're going to have a coalition partner in a pro market market friendly party called the National Democratic Alliance. We'll see what happens. Mexico is also important because that's the
alternative to China thanks to its proximity to the US and to USMCA. So important conclusions there. I think in Mexico, Bill's right about Amelow's agenda and how popular it was among key voters. For me, the key question on Mexico's ability to be the resilient neighbor and an alternative to long haul imports from China is whether it can create confidence for investors. Mexico has recently well-skilled workforce. They have a workforce where manufacturing is
seen as an aspirational job. It's seen as a good job. It's not denigrated the way it is often in America. The thing of the past. And so the workforce is skilled in places. But getting the most out of Mexico will require in private investment. And the record of Amelow and this party is somewhat sketchy there. So we'll have to see what a security conditions improve. Personal securities often bit a problem in Mexico continues to be.
So I want to ask you as a couple of questions about Mexico. One, following the election of Claudia Schaimboum, peso dropped, economy, and immediate sense of suffering. So that's one thing. Why do you think that is? And will it rebound? Two, you mentioned China Scott. China obviously wants to do a lot of business in Mexico. The United States wouldn't be happy about that. What do we think Schaimboum is inclined to do vis-a-vis China in the United States? Well, look, I think the peso is a temporary
drop much like, the same thing happened with India. Because of the surprise, there was a drop in the stock market in this case in India, which quickly rebounded and found its footing again. So I don't think anything fundamental happened to the peso with the election. But look, China is an important player for all these economies. China is because of their sheer scale. It's a major trading partner for everyone. Closer you are to them, the larger partner
you are. And Mexico has been inclined to make agreements with China, to utilize China's imports in there as intermediate goods. They have a lot less neuralge about it than Americans do. And I think Chinese goods have found their way, finished products, have found their way into the Mexican market and been very successful. And Chinese intermediate products are quite important to Mexico competitiveness. So my guess is that there will be a reasonable
embrace. And to my mind, Mexico, US relationships are always prickly. They have been, since the continent was settled. And I don't expect to change in that. And it's less so with a more distant partner like China. So I imagine that we'll see a lot of Chinese goods at our Mexico for the processing. And I think we're going to have to find a way to live with that. I think the Mexican out toward China has been complicated. And Ella went back and forth
about that. Sometimes he welcomed them in and sometimes he didn't. And I'm not sure there was a clear signal being said. I think there's countries that have welcomed Chinese investment, particularly in Latin America, have not always been enthusiastic about the result. Sometimes they have been, but oftentimes they found themselves with taking in a lot of imports. And the additional manufacturing and job creation that they expected didn't
always pan out. And I think there's some sensitivity to that in Mexico. In addition, I think Scott's right about the US Mexican relationship, which has a very long history. And it's frequently not been a really good one. And it's probably going to continue to be complicated, certainly on the economic front, because the Mexicans are going to be out of pressure from, certainly from the Biden administration. I imagine from Trump to it with Beewens to not allow Mexico
to be called out, reading ground, if you will, for him, in the United States. You've got a lot of Chinese car companies thinking about investing in Mexico, not many of them actually don't yet, but they're thinking about it. And you've already got, I think, the Biden folks tell the Mexicans that if you think that Chinese EVs are going to get in the Mexico, your mistake and it will take steps to make sure that doesn't happen. And that's going
to make the relationship more complicated. It also, it'll depend, in part, on how the Chinese model any business plans for what they do in Mexico. Will they actually build cars there with sufficient Mexican content to get them over the various restrictions in the USMCA and the various burn rails that put into the inflation reduction act, or they just try to make just assemble cheap Chinese cars and hope for the best. If the United States
takes no action, that might end up being a loophole. He says, no, I can tell, if you want to qualify your cars for the various benefits of USMCA, which is duty free, or the various tax credits in Iraq, then there are very stringent content requirements that the Chinese probably will not be able to meet unless they basically make the battery in Mexico without any Chinese ingredients. But if you don't bother with any of that and just make cars in Mexico, the
standard rule of content is going to be the 51% rule. And if it's got 51% content, it can get into the United States with a 2.5% tariff. And it won't be eligible for the other benefits, but if you're making a $10 or $20,000 car, which the Chinese are, 2.5% is not going to keep them out of the US market. So I think the United States needs to think
fairly hard about how they want to handle this. The Mexicans also need to think fairly hard about what kind of industry they want to develop inside Mexico. Just a footnote, which is Mexico and the United States have been our large trading partners
with each other. And it goes well beyond Chinese electric cars. There's a lot of two-way trade that is vitally important supply chains that combine products from the two countries are prevalent in our economy and create great value for Americans and create a lot of American jobs. So there's a much bigger relationship here than cars alone or electric vehicles from China alone. Can I come back to India for a second?
Yeah, of course. I'm not as optimistic as it's got sounded about it. The BJP plan seems to try to turn India into a manufacturing hub in the same way that China has done. And there's, I think there's a lot of economists who are skeptical of that will work. It's an economy that has encumbered itself for 80 years, more than 80 years, in a network of regulatory, now administration, basically, that makes it very complicated to start up businesses
and complicated to run businesses. It's kind of built into the government mentality and India of all parties to do things that way. Have a highly regulated model and require a lot of permits, a lot of permissions to do things that other countries for a lot of you determined by the market. We'll see if the Modi government is in a position
of or willing to change that. The more interesting question I think is a number of observers of the Indian economy has suggested that their future might lie more in services because they really have a comparative advantage in services. I think software, software development, but also call centers and a whole range of things that they do already globally and they do
very well. And that it might be better in the long term if the government tries to play to its strengths rather than to play to its weaknesses. Well, it didn't bill you right. That's definitely the area in which their workforce is both skilled. And you also write about regulation. I mean, back for about 20 years, the World Bank published a genuinely useful report called doing business. And it showed basically what
it cost in terms of time and money to basically open, operate and expand a business. It was a genuinely useful report. It was so useful. The World Bank stopped publishing it in 2021 or so. This was an area where you could look at what it actually took to do things in India and it's quite burdensome. Guys, I want to move to another part of the world. We've been
talking for months now about the Red Sea shipping crisis. Why are shipping costs rising again six months after the Houthis began their strikes and in the process launched this crisis? Well, it's a case of interrelationships that what you have is, first of all, the higher costs are predominantly for container shipping. And container shipping is a very important
share of total global shipping. But there's an interesting split right at the moment between what the industry calls dry bulk, which would be commodities, steel, whatever it is, things not shipped in the 40-foot standard containers. Leap grains, you know, all kinds of things travel oil. You know, be one of the travel as dry bulk or as it's known. Those costs are relatively stable. It is container shipping and container shipping was particularly targeted
by the Houthis tribesmen in Yemen for attacks in the Red Sea. And has initially it was high insurance costs that caused the diversion from, so if you're leaving Rotterdam for Shanghai, the long way around is around the Cape of Good Hope. It's a, I think, 10 to 20 days longer, a true bid voyage, then going through the Red Sea or starting with the Suez Canal at the Mediterranean to the Suez Canal. But the longer the ships are in route, the more
containers you need to supply the entire system. So container shortages and secondary effects happen, port backups, all sorts of things. It's a major logistics problem, but it's one of the reasons you're seeing the higher, higher container shipping costs. And this does, it looks to me to be nowhere near a settlement, mostly because the people who are targeting container vessels are not part of any negotiations or peace agreement. They're
funded from Iran, principally, as I understand it. They have their own grievances, but what they're doing is definitely disruptive. And it's a tough thing for American consumers because look, new tariffs on Chinese goods plus continued tariffs on a number of important products, plus higher shipping costs, that leads to inflation. And so here is a direct example of where logistics costs can get translated very quickly to higher cost for consumers. So I don't
see any end in sight. Bill, you may have more optimism. I think you've covered it very well. Insurance is also an issue because these kinds of attacks cause insurance rates to go up significantly anyway. And that often is a termative factor in a lot of economic activity. So I think that Scott's right, the efforts to put the duties out of business or at least out of the shipping and attack business so far have not been entirely successful. The British and the US Air Forces have attacked various
locations in Yemen. And I assume that's made a difference, but it hasn't shut everything down completely. So I think we're just going to have to endure this for a while. I mean, the answer, I think permanent answer, long term answer is a peace agreement, which, and you're right, the duties are not part of that. They just have to react to the external work that you're occurring. So I think we're going to see more of this and it's going
to make things more expensive. It's going to create shortages. It's going to take things longer to get here. And we're heading, we are now, if you think about sort of supply chain cycles, we are now about to head into the school starting and that holiday rush where all the retail outlets, both brick and mortar stores and other places are stocking up on stuff that the kids need for school, which means new clothes and also new books,
pens, all the stuff that goes along with with with appa mostly clothes and shoes. And they're trying to get all those in before Labor Day basically so that they'll be available. And then as soon as they dealt with that, then you're going to have the Christmas rush and the holiday rush. And that stuff needs to get in in October and November, if it's going to be available, when and where people want to buy it. So we're heading into the
time of year when the demand for containers, demand for shipping is going to be peak. And that's going to probably raise prices further and make the delays more problematic. Guys, finally, we have time to talk about one last thing and that is Ambassador Catherine Ties op ed in the financial times where she argues that economic policy should work on behalf of working people rather than in service of trickle-down economies and deferring to
the wisdom of markets. She put an emphasis on a new social contract. What is this all mean in practice? I think we both have a rant on that. But I'm going to let Scott go first. Well, I read this op ed with great interest and and wondered if Ambassador Ty had borrowed Senator Warren speechwriter or perhaps the AI she used was trained by Senator Warren speech writer. It was a classic progressive speech of fuzzy aspirations, but I couldn't actually
find a concrete policy direction anywhere from it. Look, I want to support working people and the Bureau of Labor Statistics said last month that there were over 140 million Americans in their employment survey. So there are a lot of working Americans working people. I have no idea who she means. Does she include tech workers? Does she include farmers? Does she include people who make their living providing services with important goods? I just don't
know who she means by that. I know what that catchphrase means if it were spoken by a union leader. It's familiar language in that context, but as a matter of American policy, I don't know what it means. I don't know what what she has in mind when she wants to configure a reconfigure the American economy. She talks about economic opportunities and economic justice. And certainly there are parts of great policy which are about fairness, things like
nondiscrimination, most favored nation treatment. So it's part of her policy toolkit. But frankly, the examples are all after the fact. The only way we know that something is part of her preferred policy is to look at it after it's been implemented. I couldn't find anything that she proposed as part of a practical agenda that would accomplish what she wanted. Look, in my mind, the US Trade Representative has one of the most pragmatic jobs in the
cabinet. Here she negotiates trade agreements principally. Most of them see their job as removing barriers to US exports of goods and services, to making fair treatment for American firms and international commerce. There's none of that here. So I'm not sure what to make of it. Here comes Bill Graham. Well, I can tell you which worker she's talking about. She's talking about union workers in Pennsylvania, Michigan, and Wisconsin. That's what I was afraid of. That's
who it's about. I happen to agree with her on the first half. In fact, for those of you out there who also read by column, I think that's what I wrote about this either last week or the last week before they all kind of blur together after a while. I think what we've learned is that Triffle Down doesn't really work in the US economy. When President Kennedy was talking about economic policies, he said it, a rising tide lifts all boats. I think what we've learned from
globalization is that it doesn't lift all boats. It lifts the odds of the rich people, but it doesn't lift the boats of the poor people. So I think Nearon to a legitimate problem, where I disagree with them and agree with Scott. I don't think they've developed a coherent response to how to deal with that. I mean, to me, the mistake from the beginning has been to assume that you can address social inequities and economic inequality entirely through trade
agreements. My view from the beginning has been that the agreements create benefits. They create more growth. They create more trade. They create more exports. There's also more imports coming in. How we distribute the benefits are really determined by other kinds of government policy. If you want to use a trade agreement to redistribute benefits, which is what she talks about, you can try to do that through rules of origin that are discriminatory, basically.
Unfortunately, we did it with USMCAO, but for its value added to take place in specified locations in order to be eligible for whatever trade agreement benefits are available. That's just a small part of the total picture. Of course, it also ignores, as Scott said, that their American workers are a diverse community. There are a lot of people, yes, they make steel. They make cars. They make a whole bunch of manufacturing equipment. But there's a much larger number of workers in the services
industry. There are professionals. There's a lot of people who, even the ones that are making all those manufactured parts, they're making from imported components. If you are emboling, you have hundreds, if not thousands, of suppliers at various stages of your supply chain. Many of those stages are foreign. You've got American workers here making money, putting together parts that are assembling parts that have come in from all kinds of places. Mexico, Canada, China,
in some cases, and elsewhere. They're put together here. Eventually, they end up in an airplane. Those workers don't seem to be on the list of people that we're worried about. We seem to be worried just about a small group of workers. But I guess what's frustrated me about the whole thing is that there isn't really a coherent plan for how to fix that. They've been very clear about what they're not going to do. They're not going to negotiate trade agreements that involve giving other people
more market access. What that means in practice is you're not going to negotiate trade agreements. Because if we have nothing to give, then nobody else is going to give us anything. And that's played out in the I-Puff. It's modest. It has to. And the trade color is in Purgatory or limbo, depending upon how you want to use these things. So I think on the whole,
it's been a disappointment. But I have to say that I think the initial thought that agreements historically have been based on the idea that if you benefit big companies and all trickle down with the workers, I think that's pretty much proven to be not true. But they really haven't come up with a solution to that. Well, look, nobody ever mentions growth, which is for me the topic that's most important to open belong mall, open markets grow faster than closed. That's well known.
But if you look at just the US economy, since the turn of the century, we've grown at about 2% a year on average, really economic growth. Okay. We chose an economic strategy and economic policies that have led to 2% growth. Had we chosen policies that have led to an average 3% growth, every American would be $18,000 better off in their per capita income. I could use another 18 grad. I could too, because the reason I put the number out is because that means a lot of people
who are relatively poor are richer. Okay. One of the ways you help poor people is let them get rich. Okay. And so the obsession with chief executive salaries and this big business thing is a complete misdirection of what really can be done with economic policy to generate growth that is broadly available to people. And as you put it, if you've got an extra 18,000 dollars per capita to work with, you can do a lot with social policy. You can do a lot with health policy. There's a lot of
options you have as elected official. You don't have a people or 18,000 dollars per year. So for me, they just miss the boat entirely. As it result, I don't think it resonates. I don't agree with you on the executive salaries. You've got workers making $40 or $50,000 and the CEO is making $15 million counting his stock options. I'm not sympathetic. And I don't think anyone's asking for sympathy, but I'm suggesting it misses the point
from a policy standpoint. You ought to have a pro-growth policy and make poor people richer. You know, if I was making $15 million a year, I would know what to do with that also. You're not making $15 million a year, Andrew. You would see a crisis. Andrew. No, alas, you know, I'm a devoted public servant and down for good causes as you guys are. And thank you for all this terrific insight today. We will be back next week with more trade
guys, but in the meantime, thanks guys. This was great. Thank you. To our listeners, if you have a question for the trade guys, write us at tradeguysatcs.org. That's tradeguysatcs.org. We'll read some of your emails and have the trade guys react to it. You've been listening to the trade guys, a CSIS podcast.