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    Academic Webinar: The Globalization Myth
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    Shannon K. O’Neil, vice president, deputy director of studies, and the Nelson and David Rockefeller senior fellow for Latin America studies at CFR, and author of The Globalization Myth: Why Regions Matter, leads the conversation on why regionalization, not globalization, has been the biggest economic trend of the last forty years. FASKIANOS: Welcome to the first session of the Winter/Spring 2024 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach here at CFR. Thank you all for joining us. Today’s discussion is on the record and the video and transcript will be available on our website CFR.org/academic if you would like to share the call with your colleagues and classmates. As always, CFR takes no institutional positions on matters of policy. We’re delighted to have Shannon O’Neil with us to discuss the globalization myth. Dr. O’Neil is vice president, deputy director of studies, and the Nelson and David Rockefeller senior fellow for Latin America studies at CFR. She’s an expert on global trade, supply chains, and Mexico and Latin American democracy. Dr. O’Neil is a columnist for Bloomberg Opinion and has often testified before Congress. And she is the author of The Globalization Myth: Why Regions Matter, which was published by Yale University Press in October 2022, and just came out in paperback in October 2023. So it’s just out in paperback. She’s also the author of Two Nations Indivisible: Mexico, the United States and the Road Ahead, which was published by Oxford University Press. So, Shannon, thanks very much for being with us today. I thought that we could start with you talking about why regionalization, not globalization, has been the biggest economic trend of the last forty years. O’NEIL: Great, Irina. Thanks so much for having me. And, hello, everybody. Nice to—can’t see you, but nice to be here with all of you. And, you know, let get at that, sort of why I argue that regionalization is really the biggest thing that’s happened over this last forty-plus years. Let me get at it, starting with a tale of two cities. And the first city is the city of Akron, Ohio, which is where I happen to be from originally. And Akron, Ohio was once dubbed the rubber capital of the world. In the 1950s and 1960s it was a boom town. People were moving there to work in the factories. And, in fact, one out of every two tires that were made around the world were made in Akron, Ohio, out of all of the factories and production that was there. Now it is a town that, when I was growing up—so in the 1970s—hit hard times. They started to face more competition from Japanese tiremakers, from French and German tiremakers. And the competition got so stiff that by the early 1980s the last tire came off of a factory line in Akron, Ohio that’s ever been made. And most of the companies were sold off to their competitors—to Michelin in France, to Continental in Germany, to Bridgestone in Japan. And since then, you know, Akron has hit pretty tough times. You saw lots of people leave the city. It’s been, you know, a place with lots of the challenges of the quote/unquote, “rust belt” that people talk about. And many people would say, you know, this is a classic example of the vagaries of globalization. This is what happens, right? They get competition from abroad, and these are the real challenges. But let me put a little nuance on that. And let me compare it to another town, Columbus, Indiana, which is about a four-hour drive from Akron, Ohio. And this also was an industrial town. It is the home of Cummins Engines. So, a particular engine type was invented there between the world wars. And during the postwar period, just like Akron, Ohio, you saw a huge boom as Cummins Engines went to be part of the Marshall Plan, rebuilding Europe, building up Asia, building up the United States and the like. And you saw a huge boom in prosperity come to this town, that’s about the same size as Akron. Now, Columbus, Indiana and Cummins Engines also hit tough times in the 1970s. All of a sudden, Japanese engine makers were beating them out for contracts with Ford and GM and others because they could make more efficient, you know, more sophisticated and reliable engines than Cummins was able to make. But Cummins was able to limp through the 1980s and not go bankrupt. And then in the 1990s, it saw a rebirth. And one of the key factors in its rebirth was NAFTA. All of a sudden where they had struggled vis-à-vis, you know, German engine makers, Japanese engine makers, they could now distribute their costs across North America, making some things in Mexico, some things in Canada, and some things still in Columbus, Indiana and parts the United States. And all of a sudden, they had new markets as well. And in fact, today if you go down to Mexico and you’re on one of the highways in Mexico and there’s trucks that are going up and down, in part because of the trade with the United States, chances are that is a Cummins engine in that truck, made in actually upstate New York for all of the trucks that are in Mexico, or a big portion of the trucks that are in Mexico. So, Cummins was able to get its mojo back and actually grew and is one of the big engine makers again. Was able to kind of come back. And also the town of Columbus, Indiana, was able to do so as well. And it’s actually one of the most trade-dependent towns in the United States. And is also one that is thriving. Now, what’s the difference between these two? I would argue it’s not globalization, because both face globalization, but it was regionalization. And in fact, in the case of Akron, it was limited regionalization. They got hit by competitors from other parts of the world before NAFTA, before they were able to bring in partners through free trade agreements, and the like. And they were facing regional supply chains in Europe through what was the European Community at the time, which is now the European Union, and Asia, where Japan had reached out and it had factories all over Asia. And it was able to use its economies of scale and scope and different kinds of labor and natural resources to make better products at lower prices. So they were competing against regional supply chains, and Akron wasn’t able to keep up. While Cummins Engines and Columbus, Indiana, because they could hang on there until the 1990s, were able to form regional supply chains that allowed them to compete. Now, this is sort of an example, I would say, or anecdotes that get to a larger theme. And, you know, there’s a lot of talk out there about globalization, and people feel passionately about it. They love it or they hate it. They have strong opinions about it. But as Irina said, you know, I think the biggest phenomenon is that we actually misunderstand it over the last forty to fifty years. And what we’ve seen, more than globalization, is regionalization. And let me just put out what I would say are two myths about globalization. The first over the last forty, fifty years is that the world, in fact, globalized. And when you start looking at trade and economic data, what you find is that very few countries actually participated in quote/unquote, “globalization.” And so, what I did is I measured trade as a percentage of GDP. And so if you globalized—the way I measured it is, did your trade double or more as a part of your economy, right? That’s a big shift or transformation of your economy. And when you look at it that way, there are only about two dozen countries in the world that saw their economies transformed. And in contrast, you have eighty-nine countries that saw trade as a percentage of GDP stay the same—so stagnate not change—or even decline. So there’s a good number of countries that deglobalized over these last forty, fifty years, in terms of their access and their openness to markets around the world, rather than globalized. So that’s one myth, is that everybody—it was an all-penetrating phenomenon that swept the world. It’s actually only twenty-five countries that really participated. So that’s one side. The other myth is that when companies, and money, and people, and ideas, and patents, and goods, and inputs went abroad—which they did, we’ve seen trade go from two trillion to twenty-two trillion around the world since 1980. But when they went abroad, they didn’t necessarily go to the other side of the world. They didn’t necessarily globalize. And, yes, there are companies out there that you and I all know—you know, Boeing sources from fifty-plus different countries, and Coca-Cola can be found in every small town everywhere in the world. But the vast majority of companies that went abroad, the other tens of thousands, hundreds of thousands that you or I might not know their names, yes they did go abroad, but they didn’t go all that far away. They went closer by. And in fact, when you look at trade statistics, something that brings us home is the average good that is traded internationally travels about four thousand miles. And that is roughly the distance between New York and Los Angeles. That doesn’t get you to Shanghai. It doesn’t get you to Berlin, if you’re leaving from the United States. It’s much closer. It’s much more regional. And when you combine those two together, that not that many countries participated and when they did their companies did not go all that far away, and what you’ve gotten over these last forty-fifty years are three big regional hubs. The European one, an East Asian one—or, focused on East Asia—and a North America one. And between those three hubs, 90 percent of all global trade happens. So you add up all those other dozens of nations, all the nations of South America, of Africa, of the Middle East, of South Asia including India, all together they’re just 10 percent of global trade. The real dynamism is within these three big hubs, within these three big regions. What we’ve also seen is that all regions, or these three regions, didn’t do it equally. And so, we see more integration in some versus others. So we see within Europe and the European Community, and now the European Union, we see almost two-thirds of trade, and the movement of money, and the like within these nations. So, these are nations that make things together and they sell things to each other, mostly. When we look at Asia, we see in 1980 about 30 percent of trade stayed within Asia. That has grown over these last forty, fifty years to almost 60 percent. So there too, they make things together and, increasingly, sell them to each other. They still sell them, obviously, to the United States and other parts, but increasingly to each other. When we turn to North America we see, pre-NAFTA, about 40 percent of trade was within the three countries of Mexico, Canada, and the United States. It grew in the decade after NAFTA almost 48-49 percent. So almost, you know, half—one out of every two dollars—was within the region. And then after 2001, it fell back down to about 40 percent. So, it’s much less integrated than the other two blocs or regions. Now, it’s more integrated than the rest of the world. You look at South America, Africa, the Middle East, South Asia, only about 15 percent of trade stays within those regions. When they trade, they trade with places further away. But it’s not all that much trade, right? It’s only 10 percent of global trade. But the three regions, we see North America much less integrated than Asia or Europe. And I would argue that is to North America and the United States’ detriment, and to Asia and Europe’s competitive strength. And why is that? Well, why that is—and this gets back to the story of two cities. Why did Akron fail and Columbus, Indiana succeed? And in part because regionalization, the ability to draw on different labor markets and different labor costs, draw on different access to capital, draw on different skill sets, draw on different natural resources, draw on different access to markets all over the world, allows you to be more competitive with your goods. Not just in your home market, but in markets more broadly. And that allows you to, as a company and then as your workers within the company, to grow and thrive. So, you have scale that you can’t have as just one country, even a country like the United States. That’s one side. The other side is that when you’re working, or trading, or integrated through supply chains with others in your region, they’re much more likely to buy from you. So today when you look at goods that are coming in from Mexico to the United States, imports from Mexico to the United States, on average 40 percent of that good was actually made in the United States. That’s U.S. suppliers. That’s U.S. intellectual property. That’s U.S. inputs that are going into that good that’s there. The same good average, you know, amount of American-made value added in something coming in from China is less than 4 percent. So there’s really nothing there, because most of it is Asia. That’s where the other parts and pieces and components come from. So, when a factory opens up in Mexico, it’s much more likely to create jobs in the United States than if a factory opens in China. And that too is an aspect of regionalization. And so what we’ve seen over the last forty-fifty years is that, whether we like it or not, manufacturing has gone from being a one country thing, often, to being a team sport across groups of nations. That is what international supply chains are. And what we’ve also seen is that when those are regionalized, it’s much more likely to create economic prosperity in jobs and growth in the countries that participate than those that do not. And I think that it’s a lesson for the United States as we go forward. As we’re trying to create jobs, we’re trying to create growth, we’re trying to create inclusiveness, is that we need to be thinking more regionally than just domestically in terms of our economic prospects. So let me stop there. FASKIANOS: Shannon, thanks so much for that. Really terrific. Let’s go now to all of you for your questions. (Gives queuing instructions.) So we’re going to go first to a raised hand from—let’s see. The first one comes from Babak Salimitari, who’s a graduate student at the University of California, Irvine. Q: Hello? Can you guys hear me? FASKIANOS: We can. O’NEIL: We can. Q: Good morning. So, my question—I don’t know, when I was reading the articles and listening to what you were saying, it seems more so that this regionalization versus globalization is a debate over the semantics. Because at the end of the day, a lot of the jobs that were in the United States, they just got up and left. Now whether they went to a specific region or whether they went to globally—you mentioned the fact that the Middle East, and Asia and, I think, Africa, that was, like, only 10 percent of where globalization went to, or like—yeah, 10 percent. And I was also looking yesterday that in Macomb County of Michigan, from, like, 2010 up until, like, President Trump was elected, a hundred thousand jobs disappeared. And there was also a town hall where I remember President Obama said: Those jobs are never coming back. You’re going to need a magic wand to bring them back. And it’s just—I wonder, what is it about those regions that did globalization or, as you say, regionalization happen—so, like, the EU and then Asia—there was one more if I’m not mistaken. But why were those places more appealing for our jobs to go to in comparison to the places that you mentioned that weren’t as appealing? O’NEIL: Great. Thanks, Babak. That’s a great question, and actually gets right to the heart of what’s really different between regionalization and globalization. And we have seen jobs leave the United States, for sure, right? And I would say, where we have is often when it has gone to places further away, right? As you—as you highlight there, right, lots has gone to Asia, right, because that is a place that’s more competitive because they have regionalized much more than we have here in the United States. So, you know, there’s a lot of great academic studies out there that look at the hit that China sort of coming into the world. So in 2001, China joined the WTO. And for lots of reasons, that allowed or encouraged capital to go into China because it was—they knew they would have access to global markets, and the like. At the same time, China was joining already established Asian regional supply chains. These are supply chains that, you know, I talk a bit about in the book, of the history, they were first created by Japan. Japan in the 1960s started going out and started putting factories and what, at the time, was very poor South Korea, and Taiwan, and other countries. And then South Korea and Taiwan got much wealthier and began doing more value-added things. And then they started sending factories out to Thailand, to the Philippines, to other countries around there, and to China, as China started opening up in the 1980s and 1990s. And what’s interesting here is we see the China shock. And, you know, a lot of this academic literature, it estimates somewhere between one and two million jobs left the United States because of China coming in. Now, we don’t usually talk about this but I—you know, if you look at some of the statistics and the like, yes, the United States was hit very hard by China coming into global markets. Hit harder, at least in a per capita way, was Mexico. They lost hundreds of thousands of jobs which, given their size, was sort of more important to their economy, because they were a direct competitor with China, right? They made shoes. They made clothing. They made toys, and things—industries that were just destroyed and taken away and moved to Asia. Now, the difference here, which I was trying to get out—and I’ll explain it again, perhaps, make it a little bit clearer, Babak, is when a factory opens up in Mexico it’s much more likely, one, that what’s made in that factory, or assembled at that factory, will be price competitive. So be able to compete in U.S. markets, but compete in global markets. And two, it’s much more likely to keep or create jobs in the United States. So when a factory moves to Asia, or moves to China, there will be no U.S. jobs associated with that, right? Like, you’ll come back, and you’ll buy it, you know, at Walmart or at a store, and it’ll be a good price, and it’ll be good quality, likely. And so it’ll be attractive to a U.S. consumer. But there’s no jobs there, right? If a factory opens up in Mexico, they are likely going to be U.S. jobs. And because it’s spread across three different nations, and the benefits of economies of scale that we can get, you’re much more likely to be price competitive. And so you’ll be able to sell to U.S. consumers, right? When you go to the Walmart store and you’re deciding to buy, you know, this blender, that blender, the prices can be the same. So you could buy the one that was actually made in Mexico, the United States, and Canada, not just the one that was made in Asia. And so that actually, both keeps but also creates U.S. jobs. And so what’s interesting here, and, you know, there’s a lot of talk about NAFTA. Now NAFTA’s become the USMCA. But at the time of NAFTA, that, you know, this stole U.S. jobs. You know, factories were moving to Mexico and the like. But careful studies of actually what the costs have been is that, basically, NAFTA was a wash, right? It didn’t create jobs in United States—or it didn’t—we see a net zero in terms of the jobs that went back and forth. What we do see is countries like China, with whom the United States does not have a free trade agreement, there is where you see really the job losses. So I think as we—the point I want to make, and I think is really important to understand, is that all globalization is not created equal for U.S. workers, for U.S.-based factories, for the U.S. economy. And that regionalization provides real benefits. If you want to create jobs, and good jobs, here in the United States, regionalization provides a benefit. It’s sort of a Goldilocks. It’s not too close that things are too expensive, then you can’t compete on the store shelves because things cost more. But it’s not too far that the whole supply chain goes somewhere else and there’s no U.S. jobs created. It’s sort of this happy medium, where you can actually get benefits to the U.S. economy, and to U.S. workers, and to communities. And that’s how you bring back—or, you create and see a blossoming of jobs. And the last thing I’ll say is just tied to that, is when we think about, you know, quote/unquote, “good jobs,” right, jobs that are tied to trade, that are tied to other parts of the economy, on average, pay 18 percent more than jobs that are part of the local economy. So you could say, oh, we should just close the borders and we’ll all just do everything here. And the problem with that is then when you do that, things cost more money. So people buy things less often. So there are jobs that disappear with that, right? If your car cost $3(,000) to $5,000 more because it was only made in the United States, you might not buy a car as often. You might wait six months, you might wait an extra year with your current car. Which means then, you know, people who sell cars, not going to—you don’t need as many of them right? And then, you know, all the things that go on to that. You lose lots of jobs in the economy. So the benefit of internationalization is, one, those jobs pay more than jobs that are just domestic. And, two, it creates jobs in the sense that the economy moves more quickly, people buy and sell and move and trade and do things more often, and there’s more jobs overall in that process. FASKIANOS: Thank you. There are two questions about China, so I’m going to pair them. One from the University of Missouri at Columbia and one from Stony Brook University. Does high integration in Asian supply chains mean that it’s difficult or impossible for the West to decouple from China? And then, the other question is, why is so much made in China? How are we to understand this? O’NEIL: Yeah. Those are both great questions. So the made—I’ll start with the made in China, and then we’ll go to how can we get out of—can we get away from China. (Laughs.) So made in China for so many years was in large part because China was the last stop on the assembly line. And especially when you look back at the 1990s, early 2000s, China was not as technologically sophisticated as South Korea, or Taiwan, or Japan, or even places like Thailand and the like. So those are the places that would make the semiconductor, or make the engine, or make, you know, the technology that went into the phone or the Sony Walkman at one time, now, you know, the AirPods, and the like. And China was a place where they were put together. And the value that China added was much smaller. But because it was the last stop on the chain, it was dubbed “made in China,” right? And there’s a great study that someone did about the iPhone. And, you know, one of the early iPhones came out of China. So it was made in China. But the value added was, you know, I don’t remember the exact numbers, but it was something like, you know, $10 of the $400 price. And then today, when you fast forward, and iPhones are coming out of China it’s a third of the value is actually made in China. And that sort of shows them becoming more sophisticated, right? They aren’t just putting things together, they’re actually now making the microphones, or the screens, or the other parts to it. So part of the made in China and the ubiquity of that for so long was it was the last stop on the assembly line. And much of its growth was fueled by trade. So it was very export oriented. China has changed its model. And just to give you kind of an example or a statistic is, if you look back at the late 1990s, early 2000s, trade, as part of China’s GDP, was maybe, you know, 33 to 35 percent. So a third of its GDP came from trade. Today, it’s 20 percent. It has declined. It’s a much more inwardly focused economy than it was, say, at the beginning of this century. And partly there you see a little bit less made in China because it’s focused on its own markets, or it’s focused on other markets rather than the United States. Which gets us to the, are we able to decouple? Can we get away from China. (Laughs.) And, first, I would say, actually, China’s doing a very—you know, a pretty successful job of getting away from us. So it has cut its imports from the United States and buys, you know, less soybeans and grains, and other things. It’s diversified and buys many more from Brazil, and Argentina. and other places around the world, because they don’t want to be so dependent on the United States. It has invested significantly, to the tune of hundreds of billions of dollars, to try to create its own technology—its own semiconductors, its own green technology, its own electric vehicle batteries, and the like—because it doesn’t want to be dependent on U.S. technology. It doesn’t want to have to import from the United States or its allies. And I think the real question is, how can the United States and Europe, in a part, can it decouple, or de-risk, or whatever the term is that people like to use? And particularly in industries that we’re worried about the connection to China, because they might cut it off, right? If they decided to stop shipping us toys, you know, kids might be a little bit upset because you couldn’t get the latest whatever it is, but it wouldn’t be a national security concern, maybe. But if they stopped shipping out semiconductors, or they stopped shipping out some other technologies maybe, you know, Air Force jets wouldn’t be flying. Maybe the basic communications and telecom, the fact that we can all talk here over the internet and have this, you know, Zoom, we couldn’t do that because we wouldn’t have the technology. And that would be a bit more of a challenge. What we’ve seen over the last five years is trade between the U.S. and China, as a percentage, decline significantly. So, China’s trade with the United States used to be about 21 to 22 percent of U.S. trade and imports. It’s now down to 16 or 17 percent. So huge decline. Lots of that is replaced by Mexico, is replaced by Southeast Asia, is replaced by Poland, by some other countries sort of around the world. So we’re seeing some movement. The real challenge here is there are particular things that China really dominates. And you can’t really get it anywhere else. Either you can’t get it all anywhere else, or you can’t get it at an affordable price anywhere else. So, there are all sorts of minerals that it processes. There’s rare earths, they’re things like graphite, and germanium, and gallium, which—you know, a bunch of names, but these are really important things if you want to actually have a phone or do you want to have sort of modern technologies, and the like, or if you want your car to drive. They’re part of all of that. And they, in many of these areas, controls 60, 70, 80, 90 percent of processing and production. They also make the vast, vast majority of solar panels. So, if you want to go green and you want to have clean energy, this is the place where they make most of them. And so I think there’s a lot of challenges here, is how do you build up capacity in other parts of the world for these various products? And the last thing I’ll say is, one is just can you make the investment in other places, right? There are environmental regulations with mining and refining that are kind of hard to deal with in some places. But two is, because China has such a lock on some of these industries—80 to 90 percent of production—they can flood the market. And if you’re a private company who has to make a profit, China and state-owned enterprises in China don’t actually have those limitations sometimes. So they can lower the price, drive your business, and then put it back up. So this is where a lot of governments are starting to think about industrial policy, think about subsidies, thinking about supporting industries to make sure, you know, we have things, like masks, made in the United States, or basic medicines made in the United States. Thinking about things that we see as part of national security, and paying for them so that we don’t rely on countries that maybe we don’t quite trust to give it to us in an emergency. FASKIANOS: Thank you. I’m going to take the next question from Ibtissam Klait, who’s with the University of the People, and is also a CFR Higher Education Ambassador. Q: Hello, Dr. Shannon. Hello, Irina. Thank you for this invitation. Dr. Irina, I believe that the belt of—the One Belt, One Road that connects China to the world, this is a stark example of globalization which would have manifested into a military power. I want your perspective, please. Thank you. O’NEIL: Sure. No, happy to talk about that. And let me say two things about that. One is, I’m not saying there hasn’t been any globalization. Of course, there has. I’m just saying that there’s been more regionalization than globalization. So on the company side, right, we see companies that are truly global. We just see more companies that, when they went international, they went regional. And I would say the Belt and Road is actually a really good example of this. Because when you look at the investments that that China has made abroad, a strong majority have been within the region. They focused a lot of that money in Asia. Yes, they have projects that span Europe, they buy up, you know, percentages of ports. Yes, they have projects that go to Latin America, where they build grids and roads and deepen ports, or in Africa the same. Sure, they do. They have those. But the strong majority has been regional. That’s really where they focus the Belt and Road money to create the infrastructure, to lower logistics costs that make it even more regional, right? Make it even more competitive for companies to operate across border lines, for ships, and roads, and rails, and airports, and the like to fly and to move within the region. So, I think this is a question—it is a situation of both. But even there, Belt and Road has actually been a regionalizing force. The hundreds of billions of dollars they have put in there throughout Asia have made it even more regional in Asia than global, often. FASKIANOS: Thank you. I’m going to take the next question from Charlotte Hulme, who is an assistant professor of the U.S. Military Academy at West Point: I’d be curious to know your thoughts on what would have been the differential political fallout had the United States focused on regional integration as opposed to globalization? O’NEIL: I mean, this is a hard challenge for the United States, right? Because part—the United States was and has been really the anchor of global order since—at least in the post-World War II period, right? The United States is one of the bigger pushers of the Bretton Woods institutions, you know, the IMF, the World Bank, the World Trade Organization, and others. So, they really have been sort of holding up this system. The other interesting thing with the United States is, yes, while we participate in the World Trade Organization and the like, we actually are not all that open in terms of trade. Trade, as a part of our economy, is not a particularly big part. And, in part, because we have such a big economy and in a fairly prosperous one, when you think about relative to other global actors and countries around the world. But we also have not signed very many free trade agreements. In fact, we have access—preferential access through free trade agreements, you know, no tariffs or lower regulations, the like, to less than 10 percent of the globe’s economy. And just to put that into perspective, Mexico and Canada have signed free trade agreements that gives them access to 60 percent of the globe’s economy. So when we are trying to send exports out into the world, Mexico and Canada have an advantage over us in about 50 percent of the globe’s economy, because they have free trade agreements. So they don’t pay tariffs. They have fewer barriers, you know, sanitary checks or other kinds of certifications than the United States, because we, frankly, just don’t have market access. We don’t have preferential market assets, because we haven’t signed free trade agreements. So, one of the benefits of this regionalization is we can actually export through—if we—you know, our inputs, the things that—you know, parts and components that we make in the United States are assembled in Mexico or assembled in Canada, they can go out and go tariff-free into markets like Japan, like Australia, like much of Asia. They can go tariff free into Europe if they go out from Mexico, in ways that we can’t. Where we would pay money. I’ll give you an example. If a car is exported from Mexico into Europe, you know, a Ford Fiesta, let’s say, or a car from Mexico, they pay zero tariffs because Mexico has a trade agreement with the EU. If a car is exported from the United States, it’ll pay depending on the car a 10 to 20 percent tariff. So it’d be unaffordable. So we don’t export cars. But if the engine comes from the United States, and it goes into a car in Mexico, then that car is exported, then all the workers, they get to participate in that trade and they don’t pay tariffs. And you can see a competitiveness. So, the importance of this regionalization, we in some ways the United States are held back in our exports because we don’t have preferred access. Other people have—don’t pay tariffs, and we do pay tariffs. So our goods are more expensive. And one way around that, particularly right now when the United States government in Washington doesn’t seem particularly keen on signing any new agreements. One way to get in the back door there is to focus and double down on regionalization. Because Canada and Mexico are partners in a free trade agreement, the USMCA, they do have access. They have signed agreements. And it’s a way that we can actually benefit, sort of piggyback on that work that they’ve done in their market access, in ways that we don’t have. FASKIANOS: Great. I’m going to go next to Sophia Samara. Q: Can you hear me? FASKIANOS: Yes, we can. And you’re— Q: OK, great. FASKIANOS: You’re with what university? Q: I study international and European studies at the University of Macedonia in Greece. And I want to ask something more theoretical. You focused on economy and trade. However, theoretically, globalization has, like, an analogy with global threats. And I wanted to—I want your opinion on, do you think that those threats that are global are a region-to-region phenomenon, that rise on the region and then move to another region? Or do you think that they’re actually global? So does the distinction you make only apply to the realm of economy and trade? Or could we apply it to other realms? Thank you. O’NEIL: Sure, Sophia. So this regionalization argument, I think, is most convincing on the economic side, and sort of commerce and the like. We do see regional aspects to other things as well, you know, to culture, to information. You know, when people read websites that are not in their home country, they tend to read those nearby. They don’t tend to read those far away. So you see, even in areas where there’s no cost, right? You and I can go online and we could look at a newspaper from anywhere in the world. We tend to just look at the ones that are nearby to us, and countries nearby, right? Not the ones further away. And you could—there are reasons there, right? There’s language reasons and the like. But that tends to be true. When you look at the movement of students, when you look at the movement of vacationers, they too tend to stay regional. So this sort of movement of people and ideas, that too has a much more regional sense than one would imagine. And so there is a centripetal force, if you will, there. Now, in terms of global threats here, right—and so, you know, I think there’s sort of different levels to this, right? When you go to war with someone, you tend to go to war with the people next to you, right? Sometimes you go to war with people far away, but usually it tends to be people next to you, right? We can just look at the most regional recent conflicts we have, right? We have Russia and Ukraine, and we have, you know, Israel and Gaza, right? Because you share borders, you tend to—some of those threats. Bigger, existential threats, like nuclear weapons and the like, sure, there are things that are—that are going to be regional that can reach any part of the world. Things like cyber threats, too, presumably could reach anything in the world as well. So, you know, there are aspects. I mean, in all of this I’m not—I would never say that things aren’t global, because they are, right? And as communications, as the movement of ideas and people, and information, and even goods and physical things, has—the costs have come down because of technology, because of shipping, because of airplanes, all this stuff, right? We do see movement around. But what’s surprising, given how low transportation costs have become, especially for ideas and the like—we’re at zero, frankly, right, with Zoom or voice over IP, or all of that. What’s surprising is how close things stay to particular countries or within particular regions, given that there’s no other frictions there, right? And even threats, I would argue, lots of threats come between—or conflicts come between those who are near each other. So does cooperation, right? You look at free trade agreements and things like that, they tend to be with your neighbors, they tend to be with those closer by. But so do conflicts. You know, overall—of course, there’s conflicts with places far away, but they tend to be, especially the kinetic ones, with those who are next door to you. FASKIANOS: Thank you. I’m going to take the next written question from Blake Dann, a junior at Arizona State University, majoring in global politics: I’m curious if this trend toward regional economic integration may affect multinational defense agreements as these countries become less tied together economically. For example, European dependence on American defense. O’NEIL: Hmm, yeah. No, that’s a good question. I guess I would say that—I’d say, you know, I’ve been talking a bit about sort of the trends of the last forty to fifty years, which was, you know, I would argue more regional than global. I would also say right now, over the last decade but particularly accelerated the last couple of years, we’re seeing sort of a once-in-a-generation fluidity to these supply chains. And there’s all sorts of reasons. There’s automation and technology, there’s demographic changes. There’s climate changes. But particularly, there are geopolitical changes and there are industrial policy changes. So governments intervening in markets. So where many of these decisions were market based, where people were looking for price competitiveness and the ability to compete, now increasingly I think many companies are making decisions based on things that governments are doing, right? They’re either—you know, geopolitics, they’re favoring certain countries over other countries, or they’re offering subsidies or tax breaks, or sanctions to force sourcing or production or sales in different countries. So I’d say all of that, you’re seeing some movement around there. Part of that, especially the geopolitics of it, is you’re seeing what our Treasury Secretary Janet Yellen calls friend-shoring but, you know, looking to put particular industries that you find important to your national security in places that you trust will give you access to those things if bad things happen, right? So in this, the United States trusts Europe, pretty much. They don’t trust China so much. And vice versa. And so I think here, just getting back to your defense question, what the United—what I think all countries will find, including the United States, is that it’s going to be very hard to indefinitely subsidize many industries. Perhaps semiconductors is something that we’ll permanently subsidize, but other than that there are very few industries that you’re willing to permanently subsidize, for lots of reasons. So industries, companies are going to have to be profitable. And to be profitable, it’s very hard to make things in just one country, just in the United States. So for defense, when you’re sourcing different parts for planes, for what—surveillance equipment, for whatever it is that you need, you’re going to have to have manufacturing and industrial partners. And you’re going to add on this national security layer, which is it needs to be countries that you trust. So there, actually, I don’t think Europe will be cut out, because that’s a whole host of countries that we trust. I think many of the arrangements that we see the government trying to make—the Biden administration trying to make with countries in Asia that we trust—Japan, South Korea, Australia, India, perhaps—that’s partly trying to find different places where you can source. Lots of things there. There’s geopolitics there too. But on the commercial side, that you can source from. And I think you’re going to see the United States turning more and more to those in the Western Hemisphere, particularly Canada and Mexico, given the already deep trading ties, the industrial bases there, and the trust that we have in those countries. So it doesn’t mean Europe will be excluded, but I do think there still will be the sort of regional aspect to that, because it is profitable, because there’s already a proven path to profitability for private companies who participate in all this who, if they don’t turn a profit, will go out of business tomorrow. Which is different than places where you have state-owned enterprises that have a cushion of a federal budget. FASKIANOS: Great. I’m going to go next to Zachary Billot. Q: Hi, there. I’m a senior at the University of Nevada, Las Vegas, majoring in political science. But my main interest area is in international organizations and the design of them. So I’m interested to see your opinions on the Chinese integration, either as an observer state or sort of as a funding partner, to several different international organizations—the Arctic Council, building of the African Union new headquarters. I’d be interested to see how you think that might play into this idea of regionalization first, but still globalized focus or command of control abroad? O’NEIL: No, that’s a great question. And, you know, one thing you’ve seen China successfully do, and concertedly do, is really become big players in all kinds of international organizations, in all kinds of UN bodies, and the ones that you’ve just discussed. They become really big players in lots of the standard-setting bodies around the world, the International Telecoms Union and others, that set the standards for all kinds of technologies, and the like. So they submit dozens and dozens of papers and the like. In part, because if they can set the standards then their companies can get ahead, but also in part, they have, you know, an interest in those aspects. We’ve also seen them create organizations when they have felt—or, be part of founding organizations if they felt that the international ones out there don’t suit their purposes. The BRICS is one of them. You know, sort of a group of emerging markets that came together. China being one of them, Brazil, Russia, India. China, the first founder, South Africa and the new members who just joined in the last few months as well. You see them forming an Asian Infrastructure Bank. I mean, there’s a lot of things that they’re doing on the global stage as they’ve sort of kind of emerged and want to assert their influence and authority, and the like. Some of this is good, right? One of the previous questions was about the Belt and Road Initiative, and China’s invested hundreds of billions of dollars to build infrastructure in countries that didn’t have it and needed it. And it’s helped those countries grow. And so some of that is important. Other parts, you know, there is at times a coercive side to this. So much of the funding that China has put out there, often some of the terms are onerous or very opaque, and, you know, at times collateral is natural resources or even the ports or airports or things themselves, as we saw in the last couple of years in Sri Lanka and places, where it’s a very difficult balance. So as China is the second-biggest economy in the world, it’s an incredibly important player and it needs to be a voice in these global institutions if they’re going to matter. That’s for sure. But you also need to find some sort of balance. And it’s hard when some countries come to these organizations to try to solve problems together and others come just to get kind of advantage, right? And I think there’s moments when you see that, and where they don’t really work. And I think, you know, one of the challenges, for instance, with the World Trade Organization today is many countries, including the United States, feel that it isn’t working to actually set ground rules that are fair and transparent, right? Because it deals with tariffs, but it has nothing for subsidies. And that’s really been the China growth model, is to put in subsidies to sort of give its companies and its products a leg up in various places. So, you know, I think this is one of the things that international organizations struggle most with, is we need to include China because it’s one of the most vital players in the world and countries in the world. And if we’re going to solve climate change and all kinds of other things, they’re going to have to be part of it. But there’s often a disappointment, and a frustration, and even anger that they are not playing—they’re not contributing to the public good within these organizations. And how do you balance all of that? So, I don’t think there’s any easy answers, Zachary—(laughs)—on how we do this. But I think it is—it is why we’re seeing struggling. And, frankly, why I think we’re seeing more issues coming down to bilateral, multilateral things. So rather than the World Trade Organization, we’re seeing the G7, or the G20 take on these issues, because these bigger global organizations aren’t able to grapple with the global problems we have today. FASKIANOS: Great. I’m going to take the next question from Fernando Reimers, who wrote his question but has also raised his hand. So, Fernando, you can just ask it yourself. Q: Thank you, Irina. Shannon, thank you so much for writing the book and for the—for the webinar. So what is your explanation for how U.S. domestic politics explain the fact that we didn’t pursue regionalization more aggressively? I’ll just share an observation which may not have anything to do with it. But I remember when we began to talk about NAFTA, I was convinced it was going to be like the European Common Market, if not the EU. And I remember writing to Larry Summers, saying we should be prepared because there are going to be all kinds of education exchanges between universities and so on, between countries in NAFTA. And none of that came to pass. In contrast, in my own field, in education, I’ve seen an extremely effective creation of exchanges between China and the U.S. You know, the Confucius Asia Society played an incredible role getting K-12 schools to teach Chinese to kids, teach them about China, and so on. So, anyway, that may not be part of the answer, but why? How are own domestic politics a part of the explanation for why we missed this opportunity? O’NEIL: Mm hmm. And, Fernando, nice to hear your voice. It’s been a long time. (Laughs.) Q: Yeah. O’NEIL: But, you know, I think there’s a lot of answers. But one of the reasons is that I think it caught us by surprise. And, you know, you look back at the postwar period after World War II, and the rest of the world was decimated because those wars have been fought in their places, right? So Europe was decimated, right? The roads were destroyed. The rails were destroyed. You know, it had been the center of war. And Japan had also been destroyed, right? The bombs—so, you had—for twenty years there was no industrial competition around the world, right? The United States was the only game in town in terms of this. And we got—we didn’t have to be efficient. We were the only ones who were able to produce. And we did produce for the world, right? We did send these things out to the world. The other thing is that when Europe, and Japan, and Asia rebuilt, they rebuilt more technologically sophisticated for the time, right? They rebuilt with a more modern infrastructure. And when you see that today, if you go to China, their infrastructure is much better than our infrastructure. I will say that as living in New York and going—I mean, our airports are getting better, but it’s been a while. But you go there. And so as you get to the 1970s, and 1980s, the United States and had no competition for twenty years, and had gotten used to, like, there’s nobody else who makes anything out there that’s any good. In fact, part of the Marshall Plan was bringing people from Europe here to train them how to make stuff again, and all of this right? And then all of sudden you hit the 1970s and 1980s and, you know, what? Europe and Japan figured out how to make stuff. And they had set it up in a different way that was much more competitive than the prewar period, and much more competitive than the United States was by itself. And so, I think there’s a little bit of just a mindset here, is the United States—I mean, we’re a huge country. We’re a prosperous country. We have some of the best technology, the best universities—of which you’re a part of. I mean, there’s all these things and advantages that we still have. But I think we got a little bit used to resting on our laurels, that nobody else could compete with us. And, you know, lo and behold, 1980s, 1990s, lots of people compete with us. And, in fact, they had a leg up a bit, because when they rebuilt their manufacturing industrial base, they did it in a more efficient, later twentieth century into the twenty-first century kind of way. And they never kind of came at it as, like, we’re going to be alone. We don’t have to do it with anyone else. And I would say just the comparison with China. I mean, China is shifting right now, but it came up knowing—I mean, its rise—its incredible rise with double-digit growth for twenty-five, thirty years, was really based on the global economy. And it’s just the last ten years where they’ve been pulling back, right? They’ve been reducing trade as part of their economy. They’ve been trying to become self-sufficient, right? Indigenous innovation, all these, you know, five-year, ten-year plans are all about becoming more self-sufficient. But they too harnessed the global economy, and the United States, frankly, for that rise. In ways that, you know, we didn’t. Our path was different in our industrialization and our growth. And so, I think we have to adjust our mindset that for us to succeed it’s got to be kind of a team effort, right? We can’t just be—we’re not playing singles here anymore, right? This is a team. Q: Thank you. FASKIANOS: Thank you. I’m going to go next to Mojúbàolú Olufúnké Okome. Q: Thank you very much. Mojúbàolú Olufúnké Okome. And I teach political science at Brooklyn College. So thank you very much for your thought-provoking presentation. I have to confess, I haven’t read the book. But I was just—a lot of questions came up for me. And one is, if regionalization is so beneficial and NAFTA was supposed to be a regional economic agreement, why hasn’t NAFTA been beneficial to North America in general? Also, China doesn’t seem to be putting all its eggs in the regional basket. And wouldn’t it be more logical to combine regional and global strategies? So and what is intriguing about your presentation is that this regionalization thing has been pushed in the Global South more than, you know, in the Global North. So why is it that there was no embrace of the usefulness of regionalism in the Global North? You know, because in the Global South it was, like, if we’re going to develop, we have to do more south-south trade. And for Africa, where I’m from—actually, I’m speaking from Nigeria today—this has been the thing. But, you know, we haven’t managed to grasp it. But there’s that African Continental Free Trade Agreement that’s supposed to maybe push it some. So really love to hear what you have to say. O’NEIL: Great. I’ll give you a short answer, since there’s three questions. And I guess, good afternoon, or good evening, since you’re in Nigeria. (Laughs.) So on the first one, NAFTA, you know, I think the limitations to NAFTA are that it’s just not that deep an agreement. It’s basically an investment agreement. So it makes sure there’s a level playing field for investment. It does reduce tariffs. But it isn’t as deep in agreement as we saw, say, in Europe, where, you know, it’s about regulations, it was about monetary policy, as the euro came along. It was about the movement of people, it’s about the way—you know, sanitary checks and all sorts of things. You saw the EU really develop a central bank, develop a judicial system, develop a parliament. It’s a really deep integration that has been, frankly, beneficial on a commercial side in ways that NAFTA never was, right? NAFTA has no staff, right? NAFTA is a trade agreement, but it’s much more limited. What I would say is that it’s always hard to prove the counterfactual, but I think there’s a good case to be made that without NAFTA the United States and North America wouldn’t have an auto industry anymore. It just wouldn’t be competitive. We’d be importing cars from other places. You know, there are a lot of industries actually that have integrated. What NAFTA has done is certain industries have integrated, but not all that many. And the industries that have integrated have actually become locally, but also globally, competitive. So automotive industry, aerospace industry, some processed foods. There’s some machinery and the like. You see sort of competitiveness, and growth, and prosperity in those industries that really have integrated and used NAFTA as the base. But you haven’t seen as many as you see in Asia. So, I would say NAFTA actually has been a good thing. It just hasn’t been as widespread. And in part, because it’s a somewhat weak agreement, right? It’s not all that significant and forcing of integration. On China, I would say what you see in China and part of its rise is it chose a regional strategy in making things and then a global strategy in selling things. And so you see a bit of both. And now more recently, China has been turning to a regional or even more domestic in making things. Sort of its China for China policies, where they want the value-added to be made in China not made in other places. And more regional in selling things. So there’s movements over time. Part of that is U.S.-China tensions. They don’t want to be dependent on the United States, so they’re looking for other markets. Often within the region, Southeast Asia, and the like. But they did combine that. Regional in making things, hooking into regional supply chains for sort of the growth, and learning, and in learning managerial skills, and knowledge, and intellectual property, and the like. And then looking at global markets as a place to sell these goods. And then finally on sort of the Global South and regionalization, you hear a lot of talk about regionalization in the Global South. You hear it in Africa. I do a lot of work on Latin America. You hear it over—you’ve heard it in Latin America since the 1960s. There’s been almost twenty organizations set up to bring regionalization to Latin America. The reality is, Africa, Latin America, the Middle East, South Asia, they haven’t been able to do it. The rhetoric is there, but the reality is not. And the trade between the countries in Africa, or the trade between the countries in South America, is very low. It’s 10 to 15 percent. And really, the vast, vast majority, 85 to 90 percent, goes to places far away. And what that has meant is largely that Africa and Latin America and other places have been kept on the ends of supply chains. So they send out raw materials and they buy back the finished goods. And all of the value-added, the manufacturing and the technology and the sophistication, happens in other places. So they don’t learn. You know, you don’t have sort of climbing the value added. You don’t have educational gains. You don’t have better jobs with better wages paid, because you just are sending out the raw commodities—the oil and the minerals and the cobalt and the like, and then you’re bringing back the iPhone or the Samsung phone, or whatever it is. And that’s where I think regionalization has a real promise for Africa, for other places. And hopefully the Africa Continental Free Trade Agreement will help begin to do that. But I think this is the real challenge. There’s a lot of talk about it, but we haven’t seen the actual numbers change. And I think that’s why in some places you haven’t seen inclusive growth. It’s one of the factors. FASKIANOS: We have very little time left. So I’m just going to do a quick hit—it may not be a quick hit—for a written question from JP Maddaloni, who’s a military professor at the U.S. Naval War College: Are there certain commodities, he’s thinking energy, that are more global than regional? Do you see a regionalization dominance in certain commodities? O’NEIL: That’s a—that is a great question. And, yes, there is commodities, because some are just found in certain places, right? Like cobalt is only found in the Democratic Republic of Congo, pretty much—(laughs)—you know, places. Others, you know, nickel and things, are in three or four countries. So, yes, oil as well. So those are global commodities. In terms of value, in terms of global trade and the global economy, which is $100 trillion, they’re not a huge value. So that’s partly why they don’t look quite as important. They’re sort of the beginning of a process, not the middle or the end of the process. And even some of those are regional, right? So oil markets are global, though you see different prices in parts of the world. But natural gas markets are very regional. And I will say sort of last, as we finish this out, as we move to a greener economy and greener energy supplies, they will tend to get more regional or even more local, right? You’re not going to send solar power across an ocean. You’re not going to send wind power across an ocean. Geothermal too is going to be used more locally. And natural gas, which is a bridging kind of fuel or energy source, is already very regional in its—in its pricing and in its use. So, yes, there are commodities that are out there that are global, but I think even there some of the phenomenon—especially in the energy and energy transition—is going to be more regional and more local as we go forward. FASKIANOS: Fantastic. Thank you to all of you for your questions and comments. I’m sorry that we couldn’t get to all of you. Shannon, we’re just going to have to have you back. But you should also—I commend her book to you. Again, the title is The Globalization Myth: Why Regions Matter. And you’ll find some answers there. So please check that out. And you can also follow Dr. O’Neil on X, formerly known as Twitter, at @shannonkoneil. So, Shannon, thank you for this hour. We really do appreciate it. The next Academic Webinar will be on Wednesday, January 31, at 1:00 p.m. Eastern Time with Thomas Graham, who is a distinguished fellow at CFR; and Bonny Lin, who’s at the Center for Strategic and International Studies. And they’ll talk about the China-Russia relations. And in the meantime, I encourage you to learn about CFR paid internships for students and fellowships for professors at CFR.org/Careers. Follow us at @CFR_academic on X, and visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for research and analysis from our fellows. So please do go there for more information on global issues. And again, thank you all for joining us. And Shannon, thank you to you. O’NEIL: Thank you all, and thanks for the questions. (END)

Experts in this Keyword

Michael Froman
Michael Froman

President, Council on Foreign Relations

Miles Kahler

Senior Fellow for Global Governance

James M. Lindsay
James M. Lindsay

Mary and David Boies Distinguished Senior Fellow in U.S. Foreign Policy and Director of Fellowship Affairs

Sebastian Mallaby headshot
Sebastian Mallaby

Paul A. Volcker Senior Fellow for International Economics

  • Supply Chains
    It’s Not Deglobalization, It’s Regionalization
    Decoupling and derisking, deglobalization, slowbalization, and localization. Journalists, columnists, and more than a few authors are touting the end of an era of hyperglobalization characterized by open markets and capital flows, of seamless transport and ever-rising trade across the world. Policymakers and CEOs caution that this fragmentation of the global economy is slowing innovation, boosting inflation, and leaving workers, shoppers, and citizens worse off. Yet these takes largely miss the biggest international economic story of the last five decades. More than globalizing, the world economy was regionalizing. That means the starting point for today’s shifts in international supply chains is distinct from most conventional takes. And these views tend to overstate the ability of government policies to disentangle international commerce. Even in the face of hostile geopolitics and industrial policy and protections, the factors that drove regionalization in recent decades will remain powerful and profitable. True globalization may not be in our future, but regionalization still is. Much is being made of the recent downturn in trade, with international exchanges falling over 3 percent over the last twelve months. Yes, trade is slowing down, and no longer outpacing global growth. But this is off of record highs. And looking over the last forty years, trade has steadily grown in volume and importance to the global economy, now comprising a significant majority of all economic activity. To be sure, production and trade are shifting as international supply chains reconfigure themselves. The biggest shift has been from China, which has pulled back as the main engine of global commerce. Trade as part of the Chinese economy has fallen from a high of 64 percent of the GDP in 2006 to just 37 percent today. China’s pullback explains in part why global trade growth has slowed. Yet it has also opened opportunities for other nations to step in. And many have. Vietnam, Thailand, Korea, India, Mexico, Poland, and the Czech Republic are among those that have boosted exports in real terms. None of these rising trading nations will make the singular splash that China’s entry into the world’s economy did at the turn of the 21st century. For most, their populations and markets are smaller, so they won’t individually impact global flows as significantly. India, the most obvious contender to replace China given its size and global ambitions, has yet to be able to get beyond its bureaucracy, limited infrastructure, and inherent protectionism. And for any nation aspiring to fill the trading gap being left by China, the market-led opening of the 1990s and 2000s, often dubbed the Washington Consensus, has given way to one increasingly guided by governments and public policies. The path China took to manufacturing dominance is no longer as clear or open in the 2020s. Still, collectively this host of countries can be as significant for global flows, ensuring that deglobalization, just like globalization, remains a myth. These new trading paths will lean regional. Many of the winners in Southeast Asia are rejiggering supply chains around the region, bolstered by the Regional Comprehensive Economic Partnership, or RCEP, which lowered tariffs and cut out paperwork for inputs and finished goods moving between its fifteen members. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) helps its five Asian members as well by making it more efficient and profitable to trade with each other compared to those outside the club. Mexico’s trade growth also reflects deepening regional ties particularly with the United States through the USMCA, which replaced NAFTA in 2020. What companies are finding is that internationalization still makes sense for costs, talent, and profits. Governments will find that national security strengthening, supply chain resilience, and economic competitiveness also benefit from a geographic spread. But as we are seeing, it is shifting directions from that of the last forty years. Geopolitics and industrial policy matter. And regionalization looks to be that Goldilocks middle that will enable governments to protect growing national security concerns, boosting supply chain resilience and allowing companies to thrive.
  • Globalization
    The Anti-Globalization Backlash, With Peter Trubowitz
    Podcast
    Peter Trubowitz, a professor of international relations and director of the Phelan U.S. Center at the London School of Economics and an associate fellow at Chatham House, sits down with James M. Lindsay to discuss the reasons for the rise of anti-globalism in Western countries and its consequences for world order.
  • United States
    The High Geopolitical Costs of U.S. Economic Policies
    Biden’s economic plans risk alienating the Global South when the United States needs them most.
  • Economics
    World Economic Update
    Play
    The World Economic Update highlights the quarter’s most important and emerging trends. Discussions cover changes in the global marketplace with special emphasis on current economic events and their implications for U.S. policy. This series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is dedicated to the life and work of the distinguished economist Martin Feldstein.
  • Supply Chains
    Down and Dirty: The Global Fertilizer Dilemma
    Podcast
    Feeding the world's eight billion people has never been easy. Since the Russian invasion of Ukraine shocked the market for fertilizer, that task has gotten even harder. The fertilizer crisis threatens to exacerbate food insecurity worldwide, especially in low-income countries already reeling from record-high inflation and rapidly depreciating currencies. What is fertilizer’s role in the food supply chain?
  • Latin America
    Latin America’s Moment Returns
    The Council on Foreign Relations’ blog on Latin America and the world will again feature regular analysis and updates on trends shaping the region.
  • Sweden
    Susanna Fellman: The Nordic Model of Capitalism in Historical Perspective: Past Successes and Future Challenges
    While social welfare is integral to Nordic capitalism, Scandinavian countries are still market economies that had strong economic growth through the twentieth century and currently enjoy some of the highest standards of living in the world. However, these countries face problems of their own, such as an aging workforce and difficulties in integrating immigrants into the labor force and society at large.
  • NAFTA
    Regionalization and U.S. Economic Competitiveness
    Play
    Shannon K. O’Neil, vice president, deputy director of studies, and Nelson and David Rockefeller senior fellow for Latin America studies at CFR, discusses the role of strategic regional partnerships in shaping economic competitiveness. This webinar is moderated by Carla Anne Robbins, senior fellow at CFR and former deputy editorial page editor at the New York Times.  TRANSCRIPT ROBBINS: Welcome to the Council on Foreign Relations Local Journalists Webinar. I’m Carla Anne Robbins, a longtime journalist. Now I’m a senior fellow here at the Council. I’m also faculty director of the Master of International Affairs Program at Baruch College’s Marxe School in New York. CFR is an independent nonpartisan membership organization, a think tank, publisher, and educational institution focusing on U.S. foreign policy. CFR is also the publisher of Foreign Affairs magazine. As always, CFR takes no institutional positions on matters of policy. This webinar is part of CFR’s Local Journalists Initiative created to help you draw connections between the local issues you cover and national and international dynamics. Our programming puts you in touch with CFR resources and expertise on international issues and provides a forum for sharing best practices. So I want to thank you all for joining today’s discussions. We know you’re incredibly busy, really close to deadline all the time. This webinar, as Will said, is on the record and a video and transcript will be posted on our website at CFR.org/localjournalists. We’re really pleased to have Dr. Shannon O’Neil with us today. We’ve shared her bio so I’m just going to give you a few of very considerable highlights of her experience. Shannon is vice president, deputy director of studies. I suppose you’re my boss, aren’t you? And Nelson & David Rockefeller senior fellow for Latin American studies at the Council on Foreign Relations. She’s an expert on Latin America, on global trade, U.S.-Mexico relations, democracy, and immigrations. Dr. O’Neill is the author of Two Nations Indivisible: Mexico, the United States, and the Road Ahead, and her newest book published last fall is The Globalization Myth: Why Regions Matter. So, Shannon, thank you so much for being with us. I have a few questions to get us started, and like a lot of you are experts on this webinar we’re going to open it up to the group for questions, and as Will said, you know, you can raise—do the raised hand icon when the Q&A starts but if you have questions while we’re having this discussion don’t hold back. Just put them also—you know, just post them right there in the Q&A part and it will also help us shape our conversation. So, Shannon, you know, we heard a lot in the last two presidential campaigns about the damage global trade has done to American workers and, specifically, you know, how much damage NAFTA did, and once COVID hit, you know, we also heard even from trade enthusiasts, you know, saying that we got too dependent on global supply chains and we started hearing a lot about this word reshoring. So can we start with something of a level set? You know, we tend to blame trade for a host of changes and ills over the last decades. How dependent is the U.S. economy on trade? And we also hear a lot about trade creating winners and losers. Which part of the country have been the big winners and which ones the big losers? O’NEIL: Well, thanks, Carla, and thank you all for coming. It’s great to be here, and those are all really big questions so let me take pieces of it and then we can keep coming back to this because that is sort of the—at the heart of all of this is what does trade do for us as a nation but also various communities and the like. And so, you know, the short answer is we blame trade for a lot of things and much of the dislocation and the changing of jobs and the movement of jobs is not about trade. It’s much more about technology. It’s about other—economic competitiveness. It’s a lot of other kinds of things. So that’s one part. The other thing with trade is that all trade is not created equal. So some kinds of trade is actually better for U.S.-based companies and U.S.-based workers than other kinds of trade and here I would distinguish actually between trade with nations that are far away from our—you know, from the United States and some that are closer by and the reason for this is basically one of the other things you just brought up, which is supply chains and international supply chains. And you know, one of the hallmarks—we’ve gone through the world—you know, stepping back for a minute, the world has gone through over the centuries lots of rounds of globalization. This isn’t the first rodeo. The first time that we’re talking about globalization, right, we had the Silk Road and we had, you know, industrial revolution and all these different times. But, really, the hallmark of these last forty-plus years of, quote/ unquote, “globalization” is the creation of international supply chains. So the goods that are moving around the world more often than not are not finished goods, right? They’re not the computer. They’re not the table. They’re not the refrigerator. They’re not the iPhone. They are the pieces and parts and components that go into those and every other kind of goods. So intermediate goods is what economists call them. That represents seventy-five plus percent of trade today and that is these supply chains and what we have found is that when production happens nearby to you, you’re much more likely to be linked into that supply chain. So, for instance, so kind of getting to your NAFTA question, when a factory moves to Mexico it is much more likely to buy from suppliers in the United States than anywhere else in the world and we see that in the trade data. So, for instance, a good that is coming in from Mexico to the United States so Mexican exports to the United States, on average forty percent of that good was made in the United States. That is U.S. value added, that the U.S. workers that are making some kind of part or component or providing a service that goes into the making of that car or that refrigerator or whatever the product is that’s coming in. When a good comes in from China less than five percent of that product was made in the United States because they don’t turn to the United States for suppliers. They turn to other Asian nations. If you took China and you looked at how much was—you know, that input was from Japan or South Korea or Taiwan or Vietnam it would be a pretty high number. You would see that connection. So one of the things that we have found, and this is back to sort of what’s good for U.S. communities and the like, is that when trade is nearby it actually supports and even creates jobs and when trade is further away or comes from places further away it’s less likely to. It sometimes does and there’s ways that it is important but it’s much less likely to, and so in that, you know, NAFTA was actually something quite good for the United States because we see—in the decade after NAFTA was signed and then came into force you see manufacturing jobs grow in the United States, Mexico, and Canada. You see as they integrated their trade more, and you saw integration, you saw trade between the three countries go up from about forty percent of all trade to forty-seven (percent), forty-eightpercent. So almost one out of every $2 was moving between the country. During that kind of first decade of NAFTA you actually saw, really, a blossoming of manufacturing in the United States as well as the other nations. Now, China comes in the WTO in 2001 and that integration fades and over that next decade, the 2000s, you saw trade within NAFTA countries go down to forty percent again. So you lost those ties together. You lost those supply chains that would have, you know, supported suppliers and jobs in the three countries with each other and these are the years of the China shock where everything’s—finished goods were coming in from China and they were accessing supply chains all over Asia, which meant the U.S. was not really part of it except as the final consumer. And that was, you know, what some economists called the China shock, right, the loss of anywhere between 1 (million) and 2 million jobs in the United States because we were no longer part of that manufacturing process. So basic line is, you know, trade isn’t really the bottom of all of our woes here in terms of dislocations and things in terms of jobs and, two, is that some kinds of trades have actually been much better for workers and it’s counterintuitive to the narrative that’s out there. ROBBINS: So I didn’t—I mean, I actually read about this and occasionally teach this, although having me teach anything about economics is a little bit like driving without a license. (Laughter.) But there’s a lot of talk about winners and losers. I did not know this about the difference between NAFTA and I—certainly, if you look at the charts, you know, you can see the big trade shocks with China. But I didn’t realize that it was so regionally focused and I do want to get onto this notion with your book in regionalization. But before that, there’s also different regional impacts inside the United States and can we talk a little bit about winners and losers? Because, certainly, there have been even great benefits of trading with China. I mean, we wouldn’t be able to go into Target and get all those great cheap goods that look a hell of a lot better than, I think, we saw before the trade with—and, you know, lowering of prices, and there’s been great advantages for American consumers of that sort of trade. So has there been different impacts that we felt in different parts of the country of globalization of trade itself? When we talk about winners and losers are they more focused on different classes, of different sort of jobs? O’NEIL: So there are a lot of differences. So one is you sort of bring up consumers, so consumers in general have benefited from lower prices. You know, it used to be—you know, now we go and everybody has fast fashion because you can buy a shirt for $10, and that wasn’t the case before, right? Things would cost much more money. Same with all kinds of goods, furniture. Same with all the technology that we use. I mean, it’s amazing. Quality has gone up and prices have gone down across the whole board. You know, I mean, just an example, you know, cars pretty much cost the same thing they did twenty, twenty-five years ago and they weren’t, you know, moving computers, which they are today in terms of the number of semiconductors and the technology that’s in there. But the prices haven’t gone up even though the quality and sort of the sophistication of cars hasn’t changed, or has changed while the price has not changed. So there’s a benefit across consumers and consumers—lower end consumers tend to benefit more just because they use more of their disposable income for the basic goods, right, the clothes and the food and the transportation and the products than wealthier people who don’t use it. They use more services often but they also don’t use as much of their money for those kinds of things. So you see a lower income bias in the benefits of trade on one side. The other difference I would just say, too, and that sometimes I think you get lost in some of the U.S. debates is that there’s a benefit, too, to companies both that use imported parts and that export. So what we also find in the United States is that jobs that are tied to exports pay better than jobs that are tied just to the domestic economy, and the Commerce Department has done a number of studies but somewhere between eighteen (percent) and twenty percent—they pay eighteen (percent) to twenty percent more. So, you know, these are the good jobs. Jobs that are tied to exports are, you know, better paid and more stable often than those that are not. So there’s a benefit, too, to being tied to trade. If you’re looking to have a job in that sector you’re much more likely to—or you may do better than not. One other thing that sometimes is hidden in all of this is, you know, the United States is a big place and sometimes when factories close and—or jobs move away it’s not to China. It’s not to Mexico. It’s to Alabama and Tennessee and Mississippi and other places like that. And so, for instance, to give you an idea, if you look at employment in the auto sector in the early 1990s right before NAFTA it was about a million people. If you look at it today it’s about a million people. But those jobs are not in the same places that they were in the 1980s or early 1990s. And so, you know, for politicians, who stole your jobs if you’re an autoworker in Michigan? Probably Alabama, right, or North Carolina. Probably not— ROBBINS: Right-to-work state states, states without unions. O’NEIL: Right-to-work states, yeah. So there’s a movement and that’s another—that’s a different issue. That’s not—that’s not the Council on Foreign Relations and not a foreign policy issue. But it’s not China or Mexico, frankly, right? It is the movement within the United States of various places. And so it’s right to work. It’s also that as cars went from being, you know, machines to becoming much more high tech types of entities or types of products is that you needed a different factory floor. So you had to—you could take the sunk costs you already had in a factory that was older and had different technology or maybe just start all over new and that’s often what people do, right? So you don’t use the old factory because it’s no longer equipped. You need a whole new building and so where do you build it? You find it in some other place. So I think some of the winners and losers in the communities is there’s the geographic changes have happened. Some of its been within the United States so moving to different states. The other side here, and this is—it’s a challenge for the United States. But the world—as we have kind of dealt with some of our economic issues or as we sort of move along, you know, the world is changing, too, and you look back at the 1960s or early ’70s and, you know, that was a time when the United States was really preeminent in manufacturing and other types of production in some ways because the rest of the world was still flat out from World War II. You know, all of Europe’s industrial, you know, sector had been destroyed. Japan’s had as well, and so we really didn’t have global competition. Those countries could, you know, just feed themselves or just provide enough for themselves. They weren’t exporting to the world because they were just getting back on their feet and so we had sort of these days where we were the only ones who really had a base. And then you get to the ’70s, ’80s, and then into the end of the twentieth century and they came back and the way they came back was building regional supply chains and the United States still going it alone, not sort of creating, you know, partners and not crossing borders. They just weren’t able or we weren’t—many of our companies were not able to create sort of high-quality low-cost goods to compete with these. And so, you know, as we think about our policies and we think about how to bring our communities back or how to, you know, take advantage of what’s going on there, you know, is trade good or bad for U.S.-based workers, part of it is that the rest of the world has kind of jumped forward and they’re playing a team sport right? Manufacturing has become a team sport. It’s not—you know, it’s not playing by yourself. You know, it is a team sport and so you’re competing against that whole team. And so as we, you know, think about how do we bring back—you know, I grew up in Akron, Ohio, and I talk about Akron, Ohio, in the book and the challenges of sort of losing the industrial base there and losing the tire industry, which was a huge industry, and part of the reason Akron lost the tire industry was it was competing against Japanese companies, French companies, German companies, but they all had regional bases. You know, Japan was producing all across Asia so their tires and their cars were just cheaper and more efficient. Europe had co-created the European community so they were—you know, French and German, you know, car companies and tire companies could sell all across the European Union so they had bigger markets and more economies of scale so they could just make it better than Akron did and cheaper than Akron did, and that was part of their challenge. It wasn’t they were a victim of globalization so much as it was the challenge of limited regionalization, and you saw the last tire come out of Akron in 1982, a decade before NAFTA was even around. So I think as we think about how do we bring vibrancy back to states and cities and local communities we need to realize that we’re competing against very sophisticated international supply chains and we need to find some of those for ourselves and for our communities to tie our cities into those connections so that we can produce things that are very high quality but also affordable and we can appeal to global consumers. Not just Americans but, you know, the 7.6 billion people that live in other countries around the world. ROBBINS: So in the Akron—I mean, it is fascinating if you think about it but NAFTA was supposed to deal with that and—but it just came too late for Akron, and then if I’m following your argument then China came and took away some of the benefits of NAFTA. Now, you know, where do we find our—where do we find our cohort? O’NEIL: So let me—can I—can I— ROBBINS: Yeah. So sorry. Yes. O’NEIL: Yeah. Let me just add on to that and here—so that’s the story of Akron. Let me tell you the story of Columbus, Indiana. So Columbus, Indiana, is a four-hour drive from Akron. It is the home of Cummins Engines. So another industrial town and a city about the same size, and Cummins, too, was—you know, did very well in the post-war period. It, too, hit really hard times in the 1970s and ’80s competing against the Japanese engine makers, the European ones, you know, Germans and the like. But they struggled through the ’80s. They made it through the ‘80s and then they were saved by NAFTA, I would say. And so Cummins Engines they were losing contracts to the Japanese for Ford, for GM, and they really looked like they were on the ropes. When NAFTA happened they were able to move some of the labor-intensive work to Mexico so they were able to lower their price and gain back those contracts that they had lost in the United States. They also had the Mexican market open to them, which they had never had access to, and they are now the number-one provider of engines to trucks in Mexico. Those are all made in a plant in upstate New York so it created jobs here in the United States selling into the Mexican market, which they now didn’t have to pay tariffs for which they had had to before NAFTA. And now Cummins is back on its feet and it’s, you know, a tens of billions of dollars company in revenue and is really another global player and it was, I would argue, precisely NAFTA that allowed them to survive and, really, to thrive. So sorry I interrupted you, but there’s the— ROBBINS: No. No. No. No. That’s a great story. But can we talk—and I do want to ask you the question about the regional cohort but before we do this so if I’m a reporter and I want to see the impact of trade in my city or my—you know, my state, everyone’s really used to these stories about, you know, factories with the chain on the—you know, closing them down. But when you were saying before the cars that come across the border are forty percent, you know, from Mexico, still forty percent U.S., it’s very hard to see because you don’t have a label that says this part is made in the U.S. and this part is made in Mexico and this part is made in Canada. I mean, how do I do a story that shows what—you know, what’s made in the U.S., what’s the benefit of trade? How do I track down businesses that actually, you know, benefit from trade in my community? O’NEIL: Yeah. I mean, so each community is going to be different. Some of your communities will have—you know, cars is the most integrated, really, or vehicles are the most integrated of the supply chain. So you can find—you know, whether it’s a supplier that you have in your—you know, in your city or whether it’s an assembly plant or the like you can sort of find the different aspects. But, you know, I would bet you if you went to any big employer and big maker of things, manufacturer that happens to be in your community, that lots of them—those who are very actually successful would have international ties. So they would either be a supplier like a Cummins Engines. You know, Cummins sells engines down to Mexico. It sells them all over the world, to Canada, to places all over the world. So that’s one—it’s very obvious there, right, that they’re one of the most international. But, you know, some are much smaller suppliers and so, you know, I was—when I was working on my first book I spent some time in sort of the Bahía region of Mexico interviewing various people down there and, you know, one day I walked into somebody who was making sunroofs and there were these guys from Michigan and they had come down because they make the steel in Whitehall, Michigan. They make the steel that’s the particular kind of steel that can go into sunroofs and is strong enough but also flexible enough to make that sort of shape. And so they were down there and bringing down a shipment but also training the people how to work there and, you know, they told me that, you know, they had one factory in Michigan and now they’re opening a second one because they had so much business from Mexico. And so, you know, this is a small town, you know, as we were talking about, you know, them riding snowmobiles in the winter right outside the factory. You know, this is not a big city. But I think if you start looking around many of the factories, especially if it’s an industrial manufacturing factory, whether it’s parts—whether it’s the beginning/end, you know, the parts and the—and the pieces that go in or whether it’s the end whether it’s assembly, where they’re thriving is because they’ve hooked into the supply chain. So if you go and, you know, talk to those who work in those factories or run those factories and ask them where the different—you know, where they land on this sort of network I bet you’ll find some surprising answers and interesting ones. ROBBINS: So your book talks about, you know, and you spoke in the beginning about the advantages of regionalization and how we were being outcompeted by Europe and Asian countries that had larger regional trade blocs. If we wanted to be more regional—and I can’t imagine the change in American politics to do that but we can always hope—what’s our natural cohort? Where’s—what’s our region? We’ve already—we’re already dealing with, you know, Canada and Mexico. You know, what benefit did we get for dealing with, you know, El Salvador? That’s not a big economy. So what’s our region? O’NEIL: So I’d say one it is deepening the ties and the commerce that we have with Canada and Mexico. So it’s not necessarily adding countries but it’s deepening the mix and, you know, I—the book looks at the last sort of fifty years and the history of supply chains and the creation of these three big regions, and just to give you sort of pieces of data, between—you know, as we look at globalization over the last twenty-five years there have only been about two dozen countries that really participated, that really globalized, where you saw trade as part of their economy—their GDP—double or more. And in contrast there are dozens more—there are eighty-nine countries, to be precise, where trade as part of the economy didn’t change. It stagnated or it even declined. So there’s a good number of countries that deglobalized from 1980 to today. So partly, we haven’t seen all that much globalization. I think that’s one just sort of baseline. And the other baseline is that when companies did go abroad, and they did—you know, we’ve seen trade go from 2 trillion (dollars) to $32 trillion from the 1980s to today—but when they did they didn’t go so far away. They tended to go closer by or they didn’t go to the other side of the world usually. We have examples, of course, that some did. You know, Boeing did and other big—you know, big brand names. But most companies didn’t do that right? It’s the Whitehall steelmakers. You know, they just went to Mexico. They didn’t go any further than that. And so when you combine these two, what you’ve gotten is three big regions—a European one, an Asian one, and a North American one. And between these three, ninety percent of all trade happens in the world. And the dozens and dozens of other countries that are in South America and Africa and the Middle East and South Asia all together—that includes India, for instance, you know, huge countries—Brazil, huge countries, in terms of population—all together, they only produce ten percent of global trade. So they’re really left out of this movement that we talk about as sort of this all-encompassing thing and so I think that baseline is important for thinking about how we view this. And then the other thing is that different places regionalize in different ways and just, you know, Europe was very top down. Lots of treaties that combined the economies and created a free trade agreement and got rid of regulations and created one currency, the euro, created one passport, you know, that sort of thing. They created courts and parliaments and all sorts of regional bodies. But Asia didn’t do any of that and they’re as integrated almost as Europe right? It was just CEOs and it was governments helping them building infrastructure. But it was companies that went out and outsourced and, you know, starting in the early ’60s Japanese companies started outsourcing to South Korea and Taiwan and then later when they got wealthier South Korea and Taiwanese companies started outsourcing to Vietnam and to China. And so this path and the integration—the deep integration you see in Asia is really led by companies, and when you get to North America there are some industries that have done that. We’ve seen—you know, we have NAFTA but it’s not as comprehensive as Europe and I—as you mentioned, with the politics I can’t imagine us getting all that much more comprehensive right? We’re not going to have one currency. We’re not going to have one central bank and things like that. But you could imagine more industries that have so far taking advantage of it. And so, you know, we have autos. We have some aerospace. We have processed foods. But many of the industries that did not regionalize are many of those that have faded. So that’s apparel. That’s shoemaking. That’s furniture. That’s a lot of electronics that all decamped for Asia. You could imagine that if you could bring some of those back and you create a regional supply chain you would see more of that business in all three of the countries, which would be beneficial for workers in all three places. ROBBINS: So when people talk about reshoring—because we saw the vulnerability not just for semiconductors during the pandemic but things like PPE, just the snarls in global supply chains. When we talk about reshoring, A, do you think that that’s actually going to happen? And B, it would seem to me that that would make more sense to do it regionally than just inside the borders of the U.S. Is reshoring something that’s coming on and—other than for semiconductors or do you see this as something that makes sense and something that’s going to happen? O’NEIL: So I think some of the forces in—sort of economic forces that are happening today open up more space for reshoring and in part it is that the cost structure for businesses are changing. You know, you see with automation, with AI, with sensors and algorithms and all of this that for many industries labor just doesn’t matter as much as a percent of costs and particularly low-cost labor is not as important because it’s different kinds of workers that are manning machines. And I was back—right before COVID I was on a panel with the head of Caterpillar at the time and, you know, he was telling me that whatever their plant is, wherever in the world is it is exactly the same, that, you know, they don’t change it because some place has lower cost labor than others. It’s the exact same and, really, their biggest cost is logistics. So, you know, that was—that’s sort of a front runner kind of a company and one that has heavy machinery so logistics is really expensive versus other things that are lighter. But it tells you a little bit about the movement of things around the world and I do think right now we are in a space of very fluid supply chains and it’s because of automation. It’s because of demographic changes. Places that used to be cheap labor are not cheap so more. It’s because of geopolitics and, you know, divides between China and the United States. But it is also because of—so there’s space here for reshoring, in some sense. The challenge is here when you bring things all back to one place is twofold. One is if it’s all in one geographic location, as we found with COVID, it is pretty vulnerable and it’s not just vulnerable to COVID. It’s vulnerable to other things and we’ve had examples of this in the United States. So in 2018 Hurricane Maria hit Puerto Rico and shut off the lights for a good number of months. So it took a long time to get it back up and running, and three months later you couldn’t find saline fluid bags in hospitals in the United States. You couldn’t find scalpels. I mean, this is a place of lots of medical equipment and it—you know, eighty (percent), ninety percent of what the U.S. had been purchasing came from that one island. Part of the United States but it was gone. And so you don’t want to be geographically vulnerable. If the real reason is resilience you don’t want to be just in one place. So that’s part of it. The other part is—and you bring up semiconductors—but if the U.S. government is not going to subsidize indefinitely a business, which maybe we will with semiconductors but it’s hard pressed to think of more industries than just a couple or more products, then you have to be commercially viable and you have to compete against others who are making that product and to do that it’s very hard to do in one place and particularly to do just the United States. So that’s where—so the power of an international supply chain happens is you can divide up—you can have the economies of scale from lots of markets or across markets but you also have the benefits of specialization that you can get when you have one plant that produces just a particular node along a supply chain and they get very good at it and very efficient at it, and then you’re able to make something that’s better and cheaper. It’s very hard to do that in one country. China doesn’t do that in one country. None of the things that we think about coming out of China are all made solely in China. They bring in parts from all over Asia primarily and that’s part of why they’ve been so successful in conquering global markets, and I think that is a lesson the United States can learn, too. If you want to be successful conquering global markets you need to tie yourselves to others that allow you to make those products that can compete. ROBBINS: And but the countries to which we would be tying ourselves are mainly still Canada and Mexico or are there other countries in the hemisphere? O’NEIL: Yeah. Those are the ones to start. The other, I would just say, with those two the benefits that they bring to us is—as well is the United States actually has very few free trade agreements, preferred access to various markets. We have sort of preferred access where we don’t pay tariffs or lower tariffs and the like to less than ten percent of the globe’s GDP. Mexico and Canada, in contrast, they have free trade agreements with sixety percent of the globe’s GDP. So if a car is assembled in Mexico, it can be sent to Europe and sold without paying any tariffs. If that car was assembled in North Carolina, it would pay a ten percent tariff to go into the EU and basically make it unaffordable. You wouldn’t be able to compete in European markets. So if Cummins Engines or other providers of engines can send those to Mexico, put them into cars assembled in Mexico, they have a chance at selling to Europe’s markets in a way that U.S.-based assembly plants do not. So that’s a benefit that they provide us. Now, as we think about would we expand this beyond, you know, there are countries throughout the Western Hemisphere that could be partners. There are countries, you know, in Europe and others where you see complements and you see reasons to ally across this. So it doesn’t have to be just geographic or it can be further away. But I do think that the sort of natural benefits of already having a base of manufacturing productivity and ties and a preferred access, which, you know, with Europe, we do not have at the moment, already having that base there makes them a pretty compelling place to start and start the expansion. ROBBINS: So I want to throw this open to the group. And just as a reminder, you know, please click the raise hand icon on your screen to suggest you’d like to ask a question. When you’re called on, please accept the unmute prompt and state your name and affiliation. And you can also submit a written question via the Q&A feature. You’re journalists. Come on, ask questions. Not that I don’t have lots of questions but waiting for those hands to go up here. Come on, guys. Questions, please. Lots of questions here. Well, while we wait I will—I’ve got more questions here but I, certainly—I don’t want to do all the work here today. You know, you see a lot of governors and, you know, states have their own trade offices and they—and you see governors going on what are either genuine trade trips or boondoggles. I can’t decide which they are. I mean, if I’m a reporter and I see my governor going off on a trade promotion trip how do I assess whether or not it’s a success? Because it costs taxpayer money. They’re not traveling on their own dime. O’NEIL: It does, and you see dozens and dozens of cities and states that have offices in—you know, in Shanghai or in Mexico City or in other parts of—you know, so they’re a permanent position or permanent place, you know, working to make sure that you see, you know, Texas or California or Los Angeles or pick your—you know, pick your state, pick your—pick your city. You know, I guess in some ways there is proof in the pudding of, you know, over time do you see them bringing anybody. You know, do you see either, you know, foreign companies coming in and investing in the communities, investing within the—you know, the state or within the township that they’re representing. I think that’s one. Do you see those local—you know, go interview. You know, usually on those trips they go off. You know, there’s lots of local CEOs or other businesses that go along on the trip and, you know, three months later, six months later, do they have any more customers. Did they—you know, were supply chains opened up there, right, or did they find a benefit and I think, you know—and if they didn’t why didn’t they. Was it just that the trip itself was a dumb idea or was it that it’s a lot harder to enter into the new markets? What was the challenge there? Were they looking for—what were they looking for and what did they find or not find? But I think there’s a lot of, you know, experience and insight to be gained from those who go on those trips and really seeing it. Maybe the governor—they’re going to have a press release, right, if that’s what they’re doing. But the businesses that went along I think there’s interesting insight to be gotten. One is what’s the opportunity but then also what are the challenges for U.S. companies that are trying to make this leap and become more international either in searching for customers—they’re suppliers and they’re trying to supply them—or they’re trying to find places to do parts of their work so that they can be more competitive in U.S. and other global markets depending on where they are within this whole process. ROBBINS: Those are great stories there. We have a question from Rose White. Rose, do you want to ask—and so you are from MLive in Michigan. Do you want to ask your question? Q: Yeah. Hi. So a comment, and I’m based in Michigan and we—Michigan kind of got a lot of mentions in this conversation and auto manufacturing is a big thing here, and something that we’re seeing now is with foreign investment there’s been a lot of anxiety from our readers and from people in the community about those investments and I was kind of curious what your perspective is on reporting some of those concerns and also trying to explain and report to our readers just kind of how some of these systems work in a non-nefarious way. O’NEIL: Hmm. Interesting. Yeah. So I think one is how do you tell the story of the more aggregate statistics of foreign direct investment that come in and so the aggregate there is, you know, when you see companies come in, one, they tend to pay better wages than those who are not tied to it. So if you have, you know, I don’t know, a Japanese company that comes in or, you know, Toyota sets up a plant or a European company or whatever it is they tend to pay better wages. They also tend to last longer. Those that are coming in and bringing foreign direct investment the plant or the business is more likely to stay open and be open five years and ten years later. So this is, you know, bringing stability that brings in, you know, the job, the people who work there but also, you know, the tax base and the like. They’re also often likely to buy from local suppliers and, you know, some of these, especially big corporations, 80-plus percent of what they buy will be from the local suppliers so there’s opportunities for American-owned companies to then service some of these. It depends on the industry and some kind of bring their own suppliers. But a lot, really, will look for local sources so I think there’s opportunity to sort of highlight. But how do you translate all that? Those are, you know, wonky numbers. How do you translate that into what’s it going to look like for our community—what’s it going to benefit there. And so I—you guys do amazing jobs and I love reading all the stories I read and then talking with the reporters who just have this great feel for your communities. But I do think it’s interesting, one, to—you know, is there a parallel city or place where an industry—a company like this one, maybe this one but maybe a company like this one in sort of the industry that has come in even if it’s four hundred miles away and what happened there. You know, are there a couple phone calls you could make to sort of see what happened to a particular community? Did it really build the tax base or did it—you know, what were the tradeoffs—somebody who maybe did it three or four—five years before. I think that’s kind of interesting. That may be some insights for your community as that happens. You know, another thing that I think is kind of interesting to highlight is, you know, the nature of foreign direct investment has really changed in the United States and, particularly, I would say, changed with the kind of rising tensions with China. So you’re really seeing no Chinese investment in United States and so, you know, there is a—I don’t know if you all saw there’s a documentary that the Obamas had funded that was, I think, on HBO or Netflix. I can’t remember. It’s called American Factory—if you’ve seen that and, you know, there was a kind of down and out Ohio factory that had closed and a Chinese glass company came in and bought it. And so, yes, it created jobs but nobody really liked working with the Chinese because they had very different ways of doing it and management they brought in was all Chinese and so it was—it’s kind of an odd fit right? And I think those stories are worth telling too, right, is that it might bring jobs. It might bring tax base. It might, you know, fill the restaurants or provide, you know—but I think the question is how do they come in, and I think different types of companies come in different ways. Some tend to come a little heavier with their own people and personnel and others less. I mean, my impression—and this is not just from the United States but looking around the world—is that, you know, when Chinese companies come in they tend to keep the top layer management Chinese. Even in other countries they tend to—it’s a way of, you know, surplus labor sending it out or surplus materials like cement or steel or the things sort of getting out in the world for their own economy. But other nations, I don’t think, are like that. So and not to—I don’t want to—I’m not trying to pick on the Chinese but I think there’s sort of different complexions to the kinds of companies that are going in, and diving in a little bit to that, I think, could also be interesting. And as—just as I was saying, on the China side, it’s very hard for or much harder for Chinese companies to come now into the United States because of CFIUS, which is, you know, a U.S. body that looks at national security issues and doesn’t let foreign entities buy particular assets and that’s expanded a lot when it comes to China, like things in manufacturing that before never would have been. You know, courts and airports and things were often there but now you see anything connected to technology and electronics is also in that space, particularly for companies from China. So you’re seeing a change in complexion there, too. But I think it would be interesting and, I mean, I personally would love to see a story about—and I know this will be kind of a long lead one so I don’t know how much time you have or, you know, resources. But what’s the difference between, say, when a GM plant comes in or a Toyota plant comes in? Is there really any difference? Is one better than the other? I mean, it’d be kind of interesting if foreign direct investment comes in, right, so—or it doesn’t have to be autos but some other plant—some company comes in that’s foreign supported does it have a different complexion than, say, when you see an investment from a U.S.-based company with U.S.-based owners. ROBBINS: Great. Rose, anything else? Q: No. That was helpful. Thank you. ROBBINS: Great. So we have in the Q&A a question from Joel Donofrio from Yakima. Joel, do you want to ask your question or should I read it for you? (No audible response.) I’ll read it. So Joel Donofrio from Yakima says, how can U.S. trade officials work to lower tariffs with countries such as China and India? These tariffs have hit exports of agricultural products such as apples and cherries hard in the past five to six years. O’NEIL: Yeah. That’s a great question and the short answer is we could actually negotiate trade agreements, which we’re not doing, right? (Laughs.) So that’s the short answer and back to, you know, when I said we really have very few free trade agreements around the world and most of them are actually in the Western Hemisphere. They’re with countries in the Western Hemisphere. We have also ones with Israel, with South Korea, with Singapore but we don’t have agreements with China. We don’t have agreements with India. We don’t have agreements with the EU. We don’t have agreements with huge blocs of—very limited agreements with Japan. And so if we want access and lower tariffs, particularly for our agricultural products but all kinds of products, then we need to negotiate agreements. The other thing that has happened, I would say, for the United States and the challenge for us is over the last five years the rest of the world has been negotiating agreements. So you have the TPP, which the U.S. was leading, which is now the CPTPP. So the Comprehensive and Progressive Trans-Pacific Partnership, which is, you know, twelve-plus countries lining the Pacific both in the Western Hemisphere and the Pacific. You have the EU who has negotiated agreements with Canada, with MERCOSUR, the sort of South American countries. You have Africa has negotiated a continental free trade agreement that’s come into place. You have—twelve, thirteen countries in Asia have negotiated RCEP, the Regional Comprehensive Economic Partnership, which is a free trade area with South Asia as well as China and South Korea and Japan. So you have all of these different agreements of which the United States is not part of any of them, and as they come into force our products are relatively more expensive. So we did not sign on to the TPP and that has come into force so what that means, for instance, is that Canadian and Mexican exports of beef to Japan or Australia or the other participants face no tariffs but U.S. beef exports have a 10 (percent) to 12 percent tariff so are no longer competitive in those markets. So I think part of our challenge is how do we—you know, how do we do this. We need to be part of these agreements. We need to think about getting back into TPP of which agriculture would have been one of the biggest beneficiaries, and we need to start thinking about—in the types of trade negotiations we’re doing thinking about market access for ourselves as well as—which also means some reciprocity of letting others come in to our—but—into our country. But I think that is missing over these last two to three years and, to me, actually that is what a worker-centered trade policy would look like is opening up markets and making it—making our products more competitive in them. ROBBINS: It used to be that the Republican Party was the party of trade and the Democratic Party was the party of unions and anti-trade. Now we don’t have a party that’s a party of trade. Do you see any politicians who are taking up the point of trade or anybody who’s at least making an argument that makes sense to you for this or are we in such a deep hole that you can’t imagine anybody digging out of it? O’NEIL: You know, we—I do not see them yet or I see very few voices doing it yet. But I think there are reasons where we may start to see a shift. One is just what Joel was saying there is that lots of agricultural—particularly agricultural sectors have been hit very hard by the lack of access and there are a lot of states that have strong voices in the U.S. Congress that are agricultural states. So, you know, one could imagine that some of those politicians might start to think that this is what their constituents need and so I think there’s a political arbitrage to be done there that’s possible. And then, more broadly, we see with, you know, Gallup polls and other polls that a strong majority of Americans think trade is an opportunity and not a threat. So there is a latent base there to be mobilized if you found someone to take that on. Now, we know that there are—you know, Gallup polls and other polls there are a number of issues where a strong majority of Americans believe one thing and the—you know, that isn’t the way our politics is going or the way that they’re discussed in Congress. So it’s not as if it’s an easy translation and, you know, there’s a gap there. But I do think there is a space and I think there are real political winds, especially in agricultural states, to begin to focus again on these free trade agreements. And perhaps it is that some of these agreements that have been signed over the last five years are just coming into force. So they’ve been signed but until they come into action you don’t realize that you’re going to be facing a relatively much more—it’s going to be much harder for you to get into those markets than it has been historically because all of a sudden all your competitors from other places or others that are within the group are going to be paying much lower tariffs or have fewer regulations or just have better access than you do. And so as that happens, we get beat out more in places that we used to sell a good amount I think, you know, maybe the politics around this changes. ROBBINS: Yeah. That’s fascinating. So it’s a timing issue because, certainly, you’ve seen the turnaround in Britain. I mean, the Brits have seen the cost of Brexit, you know, hit them pretty fast and—things as simple as just being able to move across the channel and trucks backed up and all of that. So but that’s not surprising that that hit them because the barriers came down immediately, so we’re only—we’re only going to see this right now. So I have a very sort of—a question that’s always fascinated me, which is—and I’m waiting for other people to ask questions here—you know, the Cubans—I really am completely fascinated by the Cubans, who have been making this pitch for quite a while, which is if only you could lift the embargo. Look at this fabulous market for American agricultural goods. Well, first of all, you can sell food to Cuba but you can’t finance it. So that’s the restriction on the—on the—(inaudible). But there is actually a bipartisan legislation, not that it’s going to pass, on the Hill once again to lift the embargo because of the agricultural market. I mean, Cuba’s a tiny market. I mean, if you—for any of you guys who are out there from agricultural states Cuba’s a tiny market. Would it make a difference for any agricultural exporter if we lifted the embargo? I, personally—from my own personal opinion and I was a longtime editorial writer. I’m allowed to have opinions. But I think we should lift the embargo. I think it’s dumb. But, nevertheless, would it make a difference to any agricultural state? O’NEIL: Yeah. So Cuba is a population of 10 million people and they’re not particularly well-off people. Per capita the GDP of Dominican Republic is higher. (Laughs.) So I would go for the Dominican Republic if you’re trying to, you know, corner the market. But, you know, there are—they are 10 million people. They’re very close by. You know, you could imagine, you know, cherries and apples and other things that were just on the list that it is—if the embargo was lifted perhaps there would be a market there, right, and in a place. But, right, this is not going to—this is not going to move the dial in terms of U.S. agricultural exports. I would focus your energies elsewhere. (Laughter.) ROBBINS: Yeah. That’s what—I just wanted to—that was my reality test here. Thank you. O’NEIL: (Laughs.) ROBBINS: So while we wait, could we talk about decoupling, which—from China and what that means and what the impact would be? You were talking about how CFIUS, which is the group of different Cabinet members who come together to decide on what industries the Chinese can buy and can’t buy into and how it’s broadened and broadened and broadened. The converse side is the pressure that the U.S. is putting on its allies to not buy from China that we’re putting on ourselves to not buy from China. What’s the impact of that on the U.S. economy and U.S. consumers? Is it all really just about strategic goods and things that have an impact on the military or is it broader? O’NEIL: Yeah. So it’s interesting. So, you know, we hear a lot about decoupling and then the naysayers say, well, just look. The, you know, trade deficit or trade with China was the biggest it’s ever been last year so we’re not really decoupling. But if you sort of dig below those top line numbers, which are hit by a couple things, one is, you know, the tail of COVID and we had, you know, a huge change in the kinds of things we demanded and everybody needed a new laptop and new electronics and that was really China who makes, you know, nine out of every ten computers and the like. So some of it was an odd demand—sort of a shift in demand. Partly it was that and partly it was inflation. You know, if you sell the same amount of goods but the price goes up five (percent), ten percent, well, guess what? You’re going to get a record number of goods. But when you start kind of looking below those numbers you actually see some, if not decoupling, some distance. So in those numbers overall you see volumes stagnant if not declining so, yeah, prices were up but sales are going down. You see, particularly in agriculture, you know, the cherries and the apples, you see challenges in terms of U.S. exports and you also see U.S. exports not keeping up with—U.S. exports to China not keeping up with exports happening to the rest of the world. So as China was—during COVID was actually growing and, you know, you saw Europeans, you saw South Asians, you saw other countries their bump up in sales to China was much higher than U.S. bump up. So we lost market share, basically, and the same thing with some of the Chinese goods. So, overall, you know, while the numbers look like record numbers and, oh, nothing is happening here, actually under the hood I think is quite worrisome as you’re seeing China especially diversify and diversify in agriculture where they’re finding other places to buy. So U.S., while absolute numbers don’t look so bad relative terms look much smaller. As the Chinese economy grows we’re not benefiting from that growth, I would say. The other thing, and you sort of brought this up with CFIUS, is what we have seen is a huge decline in foreign direct investment, Chinese coming to the United States and U.S. companies going to China and so that’s really about the growth and trade three to five years from now right? If you’re not investing in the new factory or not investing in setting up offices then you’re much more—you’re less likely to trade in the future. And so I think what we are seeing is just the start of a distancing or a de-integrating of the relationship, not the end, and I think we’ll start seeing more and more of that. And then we have these hard breaks like you were saying with—you know, with semiconductors or with others where it’s just you can’t sell anything. You know, it’s not about tariffs. It’s not about the price. It’s just your export bans on those sorts of things. The other real question let me just put out there for the relationship, which is sort of on pause but it’s sort of an ugly kind of, you know, cloud hanging over U.S.-Chinese trade for the future is a bipartisan law that was passed a year-plus ago came into force last summer and this is the Uighur Forced Labor Prevention Act. Now, this is an act that says you can’t import goods into the United States that were made with forced labor from the Uighurs, which are primarily based in Xinjiang, a particular province of China. This is a little—we’ve always had bans on forced labor and there are various laws that, you know, you can stop goods at the border and Customs can stop them if you think there’s forced labor there. But this one is much more stringent. It’s basically you’re proven guilty until innocent. So anything that comes out of that province you have to prove that it wasn’t made with forced labor, which is hard to do, particularly because the Chinese are banning companies from sharing information with Customs. So you don’t know, and within that bill is it’s not just if it’s coming from Xinjiang, from that province. It’s if there’s any forced labor, and it’s very hard. It could be any factory in China could potentially have someone who is working against their will and if you have to prove that they’re not that’s sort of a high bar to climb. And so far it hasn’t been broadly enforced because they’re just sort of getting the apparatus up and going but it is something that one could imagine with the—you know, the hostilities in the U.S.-China relation you could see it expand. And so I think it is—it’s sort of a, you know, a sword of Damocles sort of hanging over some of this trading relationship that could potentially fall at some point. ROBBINS: So is trade an effective tool to get countries to change their behavior whether it’s—I mean, there’s no question that these are crimes against humanity that are being committed in Xinjiang. I mean, there’s just forced sterilization, people in concentration camps. I mean, there are just terrible things that are going on there. So that’s one thing on human rights, but also the use of just things as basic as tariffs to get the Chinese to stop intellectual property theft or to open up their own markets. Do we have a history of using trade pressures successfully to get countries to change their behavior? O’NEIL: You know, I think we have seen some successes in the past but often it’s when people opt into them. So you look at some of these trade agreements and people sign on. Some trade agreements are much more comprehensive than others. So, for instance, just talking about NAFTA, NAFTA, signed in 1993, we just have a new version of it, the USMCA, and it has really significant labor provisions and environmental provisions and we have seen all three countries using those to go after, you know, allegations of, you know, abuse of unions and that sort of thing in successful ways. And so I do think when countries opt in to higher standards and free trade agreements and the like they tend to be pretty effective. I mean, Europe has done that many times and many of the agreements they sign, too, have environmental, labor protections, and the like. And so I think there is a positive sign. So people who want to join the club and then—and benefit of having higher labor standards or transparency and accountability is you get access to quite profitable markets. So I think that’s one way to go. We have at some times seen sanctions or penalties change some behavior in some places, you know, countries that, you know, we have cases of—for instance, you know, Bangladesh is a big apparel producer. Had sort of terrible labor conditions and a big fire that, you know, killed hundreds and hundreds of people, primarily women. And in the aftermath of that there were sanctions and some people, you know, didn’t want to produce in that country. But they really cleaned up their act. And I think—dare to say, you know, twenty years later it’s a much better industry to work in and much more transparent and safe and all those things because they want access to global markets. That’s a place of growth. You know, would this change the Chinese behavior, which is wrapped up in geopolitics and a whole host of other things? I think I’m less optimistic that we see it because it’s not just about a commercial arrangement. It’s about the sort of broader arrangement. And, obviously, you know, the—I think—I mean, an extreme example we have, you know, Russia, who has been forced out of the financial system and all kinds of sanctions and isn’t changing their behavior at all, I would argue. So there are places I think it’s easier if it’s an opt in because people are—it’s an incentive to have access to greater prosperity than the like. But it’s—it can be selectively successful but it’s not always. ROBBINS: So we are coming to the end. I just wanted to ask for a little bit of advice on research. So where does one get trade data if you’re writing a story—if I want to understand where my state fits into global trade, where my state fits into regional, where it fits into the broader country’s trade? O’NEIL: Yeah. So if you want global trade there’s a great database that the World Bank provides. It’s called W-I-T-S, World Indicators of Trade and Services, and you can go in there and you can plug in countries and timelines and you can get all kinds of cool graphs. It’s a super easy interface so I highly recommend checking that out. If you want it on your state or, you know, particular areas the Commerce Department has some good stuff and the Bureau of Economic—BEA—Bureau of Economic Advisors, I guess, they have great trade data that you can go and find and they break it down by states and sometimes even by kind of county and others so you can find things there. I mean, each state, I’m sure, has—you know, they do have economic bureaus and development bureaus and if you go to them and you’re writing a story I’m sure they’d be happy to share with you probably the most glowing version they can, but they—you know, they’d be happy to probably help you find the data that you need and particularly if they’re touting, you know, foreign direct investment or others coming in. I think that’s one interesting place. And then I guess the other thing I might just keep an eye on is over these last two years the U.S. government has legislated and passed, you know, over $2 trillion worth of money that’s going to go into economic stimulus between the infrastructure bill, the CHIPS and Science Act, and the IRA—the Inflation Reduction Act—which is really about, you know, clean energy and clean technologies and we are going to see, you know, an ambitious—over these next two years but really over the next five-plus years we’re going to see that money going out to communities. And so you can look on, you know, Treasury’s site for the IRA stuff, Commerce’s site for the CHIPS Act, different—and see which communities are getting it and which bids have made it. But I would be watching those stories and see how those, you know, projects, which are often brought together by communities more broadly, right—it’s the company but it’s also the local communities and development, you know, groups and the like—and kind of see where they go, you know, which ones work, which ones maybe haven’t worked, and I think there’s stories to be had within all of that that I would be checking out. ROBBINS: That’s great. We will share these links when we send out to the group. Shannon, this has really been fabulous. Thank you for sharing your expertise with us today, and thanks to all of you for joining us. We’ll send that link to the webinar recording and transcript and some of these links as well that Shannon mentioned. As always, we encourage you to visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for the latest developments and analysis on international trends, how they’re affecting the United States and your communities. Please don’t hesitate to share suggestions for future webinars with us by sending an email to [email protected]. Thank you all again for joining us today. Shannon, it’s great seeing you and I apologize for the glare, I mean, really—(laughter)—as this has been going on. It was gray here and this has moved on over the course of it but I suppose I’m just in the state of grace, which is why I’m backlit here. (Laughter.) But thank you all, everybody, and we’ll see you at a future webinar. But send us ideas. Anyway, have a great day, everybody. O’NEIL: Thanks, all. ROBBINS: Thank you so much. Bye.
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