When China joined the WTO, I think there was a view that over time they would become more like us. I think the reality is we have become more like that.
Hello, Stephanomics. Here the podcast that brings you the global economy. And that was Michael Frohman, former United States Trade Representative under President Obama and a senior Treasury official in the early two thousands. Back then, policymakers in Washington tended to assume China would keep moving in the direction of freer markets,
more open trade. It didn't, well, not really. Instead, what we've seen is first President Trump and now President Biden intervening more in the US economy and putting more constraints on global trade. A speech a few weeks ago at the Brookings Institution, a US think tank, by National security advisor Jake Sullivan crystallized for me the different philosophy now underpinning US economic policy at home and abroad.
Much of the international economic policy of the last few decades had relied upon the premise that economic integration would make nations more responsible and open, and that the global order would be more peaceful and cooperative. That bringing countries into the rules based order would incentivize them to adhere to its rules. It didn't turn out that way. In some cases, it did, in a lot of cases it
did not. No one, certainly not me, is discounting the power of markets, but in the name of oversimplified market efficiency. Entire supply chains of strategic goods, along with the industries and jobs that made them moved overseas, and the postulate that deep trade liberalization would help America export goods, not jobs and capacity was a promise made but not kept well.
Sullivan says a lot more in that speech. She also talks about foreign policy for the middle class. But what I found, maybe more striking than the content, was just how many different people seemed to have noticed it in the two weeks after it was delivered. A Scottish trade unionist, a London investment fund manager, and a colleague in Singapore all spontaneously mentioned it to me and my sister. That
doesn't happen very often. So I was interested in what Mike Frohman thought of it, whether he was worried about where all this talk of decoupling in the global economy, active trade and industrial policies might lead our conversation. You'll hear in a little bit, but we're not all talk on Stephanomic, So no, we go out to see for ourselves,
or at least my hard working Bloomberg colleagues too. In this case, our economic state craft expert Brendan Murray went to Tangier because if the world is decoupling, if globalization really is going into reverse, someone forgot to tell the Moroccans.
The first thing you notice inside the Renault factory, where some of Europe's most popular car models are built, is the noise, the buzzing of pneumatic drills, the stamping of sheet metal, the constant humming of conveyor belts. Then you notice the hundreds of young women and men operating the machines. This production line assembles more than a thousand cars a day. About eight thousand people work in the sprawling facility. It's in a region of Morocco about ninety minutes south of
Spain by Ferry. It's all part of the French automaker's strategy to develop a local auto industry with global reach. From this northwestern corner of Africa, where no communications manager Lamerbourdain takes me on a tour, are.
In the assembly departments will reassemble more than one thousand, fourteen hundred pieces Flaura It's car.
The Renault plant has two production lines, each running six days a week to meet demand.
So all the the site can produce sixty sixty cars.
Prou Yeah, but globalization is under threat. Here's US Treasury Secretary Janet Yellen speaking at an event held by the Atlantic Council, where she introduced the idea of friendshoring, where rivals like the US and China try to find more reliable trading partners.
Let's build on and deepen economic integration and the efficiencies it brings on terms that work there for American workers, and let's do it with the countries we know we can count on favoring the fringe shoring of supply chains to a large number of trusted countries.
So I wondered, how does this nation of thirty seven million people feel about its future after spending so much time and so much money becoming an international hub for trade and manufacturing. I spent a few days touring the Tangier region that's where much of the government's efforts are concentrated. What I found was international commerce forging ahead, an oasis from the protectionism, the geopolitical rivalries, and none of the talk of unraveling a world stched together by trade.
So, as I said, we're pretty diverse.
First, I went to an American company called poly Design Systems. It's an auto supplier that produces parts like sunvisors, headrests and center consoles in the Tangier Free Zone. The general manager, Julian Furman, showed me around. It's really a bustling place.
Yeah, it is.
As we toured Furman's facility, which has grown from fifty employees twenty years ago to sixteen hundred today, it was hard to fathom untangling the company's global interconnectedness. Moroccan workers here are rating Swiss or German or Italian built machines. Some newly stitched steering wheels were being shipped off to Portugal. Other parts were headed to Morocco based customers like Stilanties or Renault, or further afield to Jaguar, Range, Rover or Volvo.
All told, the company's reach extends to twenty six countries. Inner office, Furman described an environment in Morocco or Chinese companies, Indian companies and even Russian businesses operate alongside their European and American rivals oblivious to the friends shoring talk from politicians in Washington or Brussels.
I mean, you don't have any of this type of political discussion or tension. But we're all kind of just doing our business and shipping our parts.
To attract foreign investment, Morocco has several enterprise zones within an hour's drive from the northern city of Tangier that offer incentives for foreign investors like tax breaks, construction deals and streamline paperwork. In one of these zones, called Tangier Automotive City, tractor trailers are everywhere shuttling loads between companies like Michigan based Lear Corporation, Chinese cable producer ZTT, and car component makers from Italy, India, Germany, Japan and Spain.
I spoke with Ahmed Bennis, who oversees the Tangier med Zones.
Tanja MAD Zone started its activity in two thousand and we host today more than one thousand, two hundred multinational companies in a total footprint of five thousand hecto that has been dedicated to the development of these special economic zones and those industrial facilities. Two five hundred hectails have been already developed, the the remainment footprints and the development and will be developed in the next one hundred tenure.
None of Morocco's industrial development would be possible with out the expansion of its biggest container port, called Tangier Med. It's become one of the world's most connected gateways for global markets and ranks fourth overall in the World Bank's Port Performance Index, well ahead of even Singapore or Hong Kong. The Danish shipping line Marisk has invested more than a billion euros in its terminals. So I spoke with the
CEO of the Tangier Med Special Agency, Medi Tazi. He oversees the region and explained to me how the whole ecosystem aims to boost the nation's economy with foreign capital and ultimately good paying jobs.
The entire Moroccan import export flows through the Tangermin port that's on the port side, now on the industrial class platform. Obviously, the direct impacts from rock and economy are the contribution to GDP and jobs. We have no stopped nineteen thousand jobs and that by.
Itself is of course it breaks through its industry. Suving service is not in tourism.
This is pure.
Industrial along with success have come strains on one of Morocco's biggest resources and selling points, a young and eager workforce. In Morocco, the average age is twenty nine years old. That's on par with Mexico and India, but in Japan and Germany it's in the high forties, and Eastern Europe the average ages in the low forties, and in the
US it's thirty nine. Even with all the industry jobs, youth unemployment hovers around twenty five percent according to the World Bank, and the jobless rate countrywide was almost thirteen percent in the first quarter. Morocco's public transportation also needs help. Each day at Renault, for example, some one hundred and fifty packed shuttle buses bring workers to and from their shifts at the assembly plant, adding traffic on the roads, pollution in the air, and trip commutes of two hours
each day for many of them. So more affordable housing is needed near the industrial zones. The economy could benefit too from more women participating in the labor force. Here's World Bank economists Fredrika Marso clearly you know that.
The short answer to your question is like no.
Currently the labor market doesn't seem in great shape.
To pick up this challenge.
It is one of the priorities in the new development model, and so the government is trying to start us to solve the.
Puzzle in a cell.
Companies in Morocco also need help shifting away from fossil fuels for their energy needs or risk losing business to jurisdictions that can do it faster. Here's Julianne Furman again from Polly.
Design on that note. There needs to be movement and very very quickly.
It should be feasible.
You probably see all the press information on renewable energies, whether it's solar, wind or green hydrogen, but I think we need to move much more quickly or we're going to lose our competitiveness. From poly design standpoint, is something that I want to use as a competitive advantage against our competitors. But it's going to be difficult because our
competitors are in Europe, mostly Eastern Europe. They receive help in financing from the European organizations and they're moving very quickly and it could very easily freeze out Morocco.
After a few days traveling around Tangier, med a couple of things were clear. Morocco's fast growth has stretched the local workforce and businesses need more tools to adapt to climate change. But it's also a place where US, Chinese, Spanish or Indian companies are coexisting, competing, and even collaborating. Here in Morocco, they haven't turned inward like many other countries have when it comes to trade, but are banking on globalization to throw I've been to the future, so
their economy can too. From Northern Morocco, I'm Brendan Murray for Bloomberg News.
Now I'm very pleased to talk about some of these shifting currents for global trade and economic policy that Brendan mentioned there with someone who has witnessed close hand the machinations of international economic policy in his various incarnations, Michael Frohman. We both work together, as it happens, in the Clinton Treasury a long time ago, in the late nineteen nineties. Then I slunk back to journalism, but he went on to be Deputy National Security Advisor and then US Trade
Representative under President Obama. He's been until very recently a vice chairman at MasterCard, but in a few weeks he will be taking over what I think one would say was America's most illustrious foreign policy think tank, the Council on Foreign Relations. Mike, thanks very much for doing this. I don't have to quite call you mister President yet.
Thanks for having me. It's good to see you.
We've got lots to talk about, but I wanted first to ask you about that speech that National Security Advisor Jake Sullivan made a few weeks ago at the Brookings Institution in Washington. It's a speech that seems to have been heard around the world, or at least in some surprising corners of it, and I think that's perhaps because it seemed to capture quite how much has changed in US thinking about international economic policy since the years of
President Clinton or Obama. So what did you think about it?
Well, first of all, I thought was really a quite artful speech, and I think I agree with much of it.
I think for those of us who've been involved in trade, we've often made the point that trade policy can't exist in a vacuum, that trade policy needs to be paired with robust domestic economic policy, because we all know that the benefits of trade are broadly shared, but the negative impact or the dislocations that come with trade, or can come with trade, are more acutely felt, and one of the challenges in the United States has been that we've
rarely had the consensus necessary to pair trade policy with some sort of meaningful domestic policy to address those challenges.
I think what the National Security Advisor Jake Sullivan did was lay out the Biden doctrine on this issue, which is that very much we have to focus initially on investing in our own country, making sure that we are in this case using industrial policy and innovation to help drive leadership and key technologies, help continue to support good middle class jobs, manufacturing jobs, and not be focused on He somewhat characterized his trade policy as being only about
tariffs but not be focused solely on terror production as the and end all, and that I.
Entirely agree with.
I think it does show an evolution, particularly with regard to how we're thinking about domestic policy in the United States. Industrial policy has never been has not been popular until recently in the United States. We've not had great experience
with it in the past. But what's been going on between the Infrastructure Bill, the Chips Act, and the IRA with regard to clean energy technologies, I think is a fundamental shift, and we're seeing some quite significant progress early days still in those areas, and I think that's an important pillar of being able to also engage in international economic policy.
Well, it's interesting, and you mentioned at the start sort of the fact that trade policy you couldn't exist sort of in a vacuum. And there's a very striking phrase in the speech, which is, you know, the postulate that deep trade liberalization would help America export goods, not jobs and capacity was a promise made and not kept. I mean, that's quite an indictment that saying, you know that the promise that was made to people in signing up to this these trade deals was just not kept.
So I think there's always the risk that trade deals are over sold. I'm not sure I agree completely with that assessment. The US has relatively low tariffs. It's an average tariff about two point four percent, so much lower than the global average, much lower than most of our trading partners, which means when we engage in a trade negotiation, they are reducing tariffs far more than we are, which at least theoretically should help us promote our exports to
that country. It's reducing a barrier they already have effectively, they already have access to our market and we are now getting access to their market. And the fact that our exports continue to grow, both in services and in goods, I think is a testament to that. What Jake also refers to as the China Shock in the paper, and the impact that the China Shock had on the United States manufacturing sector. That wasn't the result of some FTA.
We weren't giving China preferred access to our market. It was the fact that they were a low cost producer that American companies decided to move their production there in the late nineteen nineties and early two thousands, and that had a very significant impact on the US manufacturing center. That cannot be denied. But that's a separate issue from trade liberalization or FTAs per se.
And I guess we should talk about that sort of broader premise underlying a lot of the international economic policy, certainly in the Clinton White House and to some extent Obama as well. Jake Sullivan refers to it. He says much of the international economic policy of the last few decades had relied upon the premise that economic integration would make nations more responsible and open, and the global order
would be more peaceful and cooperate. If bringing countries into the rule based order would incentivize them to adhere to its rules. It didn't turn out that way. There was this basic view that bringing the world closer together, having closer economic integration, would sort of make countries better, and that's turned out to be wrong. Do you agree that that's turned out to be a mistake.
I think it's hard to argue the counterfactual here because certainly as more let's leave China to the side for one moment, we'll come back to it.
But if we look at the rest of the.
World, as they became integrated with the open they opened up, they became integrated with each other, regionally, they became integrated with the global trading system. Most countries I adhere to most rules most of the time. It's never a perfect record, but I think we've seen in general a relatively robust rules based trading system. Now China. China is a different case because it did come in under the rules of the w T at the time, and frankly.
The rules that were negotiated at the.
Uraguay Round on state owned enterprises, on subsidies, on non market economies did not fully take into account the nature of the challenge that China would end up posing to the global trading system, and when people talk about multilateral trade reform or wto reform, these are the issues that need to be looked at, because clearly the multilateral system was not up to the bar that it needed to be to deal with the challenge that the China posed,
an economy that big, that integrated with the rest of the world, operating in some respects on a very different set of rules and business models, and that has been that has been the challenge. But to say that all of that you know that the rules based system never
really worked, I think that is probably an overstatement. And what we don't know, even with regard to China is if they had not been part of the global trading system, what kinds of policies would they have pursued, whether they have been more protectionists that I was struck at one point, Stephanie, as you may recall, I was the G twenty shirtpap and I remember various G twenty summits, and each G twenty summit is right after the financial crisis, there was
a statement in the communicate that said we stand against trade protectionism, and we'll roll it back where it exists.
G twenty is not a legal institution.
There's no implication, no ramifications if you violate a statement in a leader's communicate from the G twenty. And yet I remember summits where leaders fought to the end on that point because they did not want to be criticized for taking protectionist measures.
So the rules based system does have.
This effect, whether it's fully enforceable in the way that we like it or not, on constraining government behavior. And again, without it, we don't know how much worse things would have been.
Okay, But just to take that point, because it feels like it is just China, there's a lot of countries that have ended up kind of rejecting some of the models represented by the G twenty, whether it's Russia or the UAE or even India on occasions, you know, have wanted to go their own way. And I guess you know when you think about those discussions in the G twenty. The G twenty itself was based on an idea that
you could separate. You could have kind of very different political values sitting around the table, very different political systems. You could part that outside the door and still have a useful conversation and a useful goal of moving towards economic rules, and you know, you could move the economy forward, move economic policy forward, and kind of part the politics outside the door just doesn't feel like that, if it
was ever possible, doesn't feel like that's possible now. And certainly even the G twenty can't agree on anything as long as Russia's invaded Ukraine.
Well, look, I think the G twenty was at its best in that period of eight oh nine twenty ten in dealing with the global financial crisis, and to your point, countries were able to park their politics on the outside and cooperate with each other to deal with a global crisis.
As the agenda of the G twenty evolved over time, it was never meant to be a foreign policy forum to deal with issues like war and peace in Ukraine and even the even some of the other economic issues where we do not have consensus, including with China over the WTO or over global rules. It does certainly have its limitations, and I think that's why countries have opted for pursuing coalitions of the willing, coalitions of the ambitious regional agreements, sexual agreements.
Friends, shoring near shoring. They've sort of pursued.
Things outside the wto outside those frameworks because those frameworks have proven to be somewhat limited in their capacity to really develop a meaningful consensus.
One more thing, going back to the speech, and then I just want to have a couple of questions about the future. I mean Frank four who has written quite sort of elegantly about it in Atlantic he said, the Biden administration is doing nothing less than rejecting the economic orthodoxy of the past fifty years and proposing a new theory of capitalism. Do you think that's right, even allowing for a little bit of journalistic embellishment, I think.
That goes a bit far. If you look at what.
The administration is doing, for example, on the Indo Pacific Economic Framework, they are taking a series of issues that are meaningful. There's significant issues, things around supply change, things around digital trade and working with other countries. I think they've got fourteen other countries there fifteen other countries now around the table to try and come up with rules.
I think Jake is right his speech that.
Oftentimes too much attention is paid to tariffs, as the boll And end all of trade policy. But that was also a little bit of a caricature. If you notice in his speech he talks about the nineteen nineties and then he talks about the twenty twenties, there's conveniently a twenty year gap.
It's like the gap in the during which time you were in charge of trade policy.
I'm just saying the Bush administration and the Obama administration. It was two thousand and seven when Sandy Levin and the House Democrats negotiated with the Bush administration a series of agreements about how labored environment should be included in trade agreements, and certainly the trade agreements that we pursued during the Obama administration that was finalizing Korea, Columbia and Panama or TPP or t TIP, they were not fundamentally
or only about tariffs. They were about rules on labor, on environment, on standards, on new issues like digital economy, and so I think there's been an evolution in how people think about this. It's the teriff production that gets the most attention, and it's the most sensitive because it affects goods and therefore manufacturing as well as of course agriculture.
But the trade agreements.
For some time have been broader, and in fact, I think our approach has been quite explicitly to use trade and trade agreements to get other things done, use the power of market access to get countries to raise their labor standards, or use the power of tariffs to enforce environmental agreements that were not otherwise enforceable, like the Convention on in their National Trade and the Dangerous Species. So I think the trading system has gone through a bit
of an evolution. I think it went further during the Trump administration when it came to labor rights enforcement, and we see that with Mexico, and I think that's been a healthy step in that direction. The question for the Biden administration to go to Frankfort's argument is not so much it's a new theory of capitalism, but can we pursue a robust economic engagement and leadership agenda that doesn't have terror production at its core? And I think the
answer is potentially yes. It just means you need to flesh out the rest of the tree there and make sure that there are things that help bring the countries.
To the table.
And at a time, particularly in the Asia Pacific, when there's a desire by our allies and our partners at the US be engaged shows leadership. There's a desire to have that opportunity to work with the US on issues as a counterbalance to China's natural dominance in that region. And so that's I think the great challenge and the great opportunity for the Biden administration.
So if you will US representative, now, what is your job? I mean, you're not doing the President Biden has suggested anyway that free trade agreements are not really you know, they're kind of old fashioned tool. I think he said, we certainly don't have a great lot of energy around the world trading WTA World Trade Organization anymore. So what's your job now?
If you're a USTR I think you work quite innovatively with like minded countries and like minded broadly defined. We don't have to agree on everything. Doesn't all have to be democracies. I mean, there can be a wide range of countries. I think inside the tent, you know, on
concrete ways to address common international economic issues. So supply chain resilience, making sure that there's redundancy and diversification and security in our supply chains, access to critical minerals and critical materials, cooperation in R and D around the most important technologies, rules around the digital economy. We're all every country's wrestling with this, the most recent issue being AI.
But even before you know, chat GPT hit our.
Screens, we were dealing with issues around data and how should data be protected and treated? And privacy issues, data localization requirements. What kind of effect does that have on the business models? How do countries and governments benefit, how do individuals benefits? So lots and lots of issues like that that governments really do need to work together on, otherwise we're going to have really a balkanization of rules.
I was going to ask you what you thought the risks were if you have this kind of robust approach to industrial policy and a slightly more nuanced approach to international trade policy, you know what are the risks? I mean, I get. What I wonder about is just the number of politicians now all around the world thinking great, I'm allowed to get my hands on all the strategic industries. I can just say I'm doing industrial policy just like the Vibe Biden administration.
Well, there is a bit of an irony here that when China joined the WTO, I think there was a view that over time they would become more like us. And I think the reality is we have become more like them, and so we're now following their lead on industrial policy, on protectionism, on a variety of measures, restraints on for an investment and the like. That's just the reality. I think of feeling as though since they weren't becoming more like us, that it was on level playing field.
And this is since we have very little control over what they do, we only have control over what we could do, and that this is what this is what we.
Need to do.
Look today, actually, the Council of Correlations Foreign Affairs magazine just published an article this morning by the Director General of the WTO and Gozi Konjouela called why the World still needs trade? And I think the risk you a about the risk, I think the real risk is what she cites, which is that trade has been the driver of poverty alleviation for the last several decades, has helped lift one of the factors that has helped lift hundreds of millions, if not over a billion, people out of
abject poverty. And we've seen tremendous progress both on abject poverty but also on all sorts of other human development indicators because of growth, and growth needs to be more inclusive. We need to make sure that people are benefiting from it broadly. But we've seen backsliding with the pandemic, with
countries pulling apart. I think the biggest risk going forward is that in fact trade does not contribute as much to that kind of positive economic development, and that we see more people falling into poverty.
And do you think countries like Morocco will ultimately have to pick sides?
You know, I.
Don't.
I don't think so.
I mean, I think I think the issue of decoupling and pulling apart to two great blocks. I think that's again a bit overstated. I think we're going to find where there's de risking or even a bit of decoupling, it's over a very limited set of technologies, not broadly.
We're trading more.
The US and China are trading more, and Jake says is in a speech, we're trading more with each other
now than we ever have. You know, despite the protectionism, despite the tariffs, despite the tensions in the relationship, our bioloedal relationship is economic relationship is deeper and broader than it's ever been, and so I don't think countries like Morocco are going to have to pick size one or the other, with the exception of some very discrete technologies, whether it's in the telecom area, semiconductors, or you know, maybe in some of the clean energy technologies, and you know,
I think we need to make it attractive for them to pick our side. I think one of the challenges we have is in Washington right now there is a robust bipartisan consensus on the nature of the China problem. There is less serious thought and consensus going into where do we want this relationship to go in the future, What is the new equilibrium that we want to establish
with China? And that's important not just so that we know where we're going ourselves, but I think in our conversations with Europeans with third countries, they don't want to be put in this position of having to choose, and they understand and in many respects share our concerns about China, but they haven't yet seen what our vision is for the future.
Of course, the other question in their minds is who's going to win the next election. So what in this approach that we've talked about for the last twenty minutes or so changes if there's a Republican president from January twenty twenty five. Stepping back from who it might.
Be, look, I think one thing that the Biden administration has demonstrated is that there's a fair degree of continuity between one administration and the next when it comes to the diagnosis of the problem and even even some of the responses. So the Biden administration has embraced the US Mexico Canada Agreement and the labor provisions of that. Of course,
I mean it's a good agreement. My guess is a future administration would continue to embrace some of the industrial policy that the Biden administration has launched, the investment in chips, in infrastructure, in electric vehicles, and the supply chain around electric vehicles. So I think there's just a lot of continuity at this point on these questions.
The final question, in a couple of weeks time, you're going to be a few weeks time, you're going to be taking over the reins at this as I said, very illustrious institution. I think in some ways one might think what the Council and Foreign Relations is most focused on is what the at least the elite global conversation is going to be about in the next few years, where do you think where do you think you're going to be putting more resources and sending more people to think about at the Council.
Well, look, I think we've got the return of geopolitics and war in Europe, which of course has to be a major focus. We've got the rise of China and the whole management of strategic competition. I think that's an area that we'll need a lot of focus. And then I think the whole area around technology and foreign policy,
technology and national security. I think we're just beginning to scratch the surface in terms of what impact AI quants of computing, synthetic biology, other new innovations in the technology and science area are having or could have on international relations, on global governance in the life.
So if you're good on those things, get your resumes into the Council form relations in the next few weeks. Michael Freeman, thank you.
Very much, thanks for having me.
Well that's it for this episode of Stephanomics. Next week we'll have more, But in the meantime you can get all your economic insight and news from the Bloomberg terminal website or app. This episode was produced by Magnus Henrickson, Yang Yang and Samma Sadi, with help from Moses and special thanks to Brendan Murray and Michael Froehman. The executive producer of Stephanomics is Molly Smith and the head of Bloomberg Podcast is Sage Bowman.