>> this weekend booktv is alive on the wisconsin book festival in madison. >> at the brookings institution in washington panelists discussed u.s. trade policy including a new agreement with canada and mexico and answered questions from audience. this is an hour and a half. >> it's a pleasure to welcome all of you to today's program and you for protectionism

question between the trade wars in the mega trade agreement. you have probably noticed that we have a lot of cameras in the room today. today's program will be broadcast later on. i would like to take a moment to thank nhk for the generous support that helps make this event possible and also to the brookings commitment to independence and underscore that the views represented here today are of the speakers only. so we have a terrific group of experts today willing to share their expertise. they come very different fields something is going to be a very rich discussion from economics, from political science, law, journalism. let me introduce them briefly for all of you. toshihiro nakayam is professor at taylor university in tokyo japan.

ted alden senior fellow at the council for relations here in town hylke vandenbussche is professor at university in belgium. and professor hopper law school. mark wu. let me take a couple minutes to set the scene to highlight some of the important transit issues that the speakers will be discussing and much more detail and we will start taking questions anarchists we can engage with you as well. i don't think it's too much of an exaggeration to say that we live in extraordinary times. frequently we don't know what the world is heading and certainly we don't know what international trading system is going. due to negotiation paralysis in the wto, debbie dingell, you could say that will book on international trade and investment have not been updated for the last almost 25 years. at the same time there is concern that the actions and

policies of the two largest economies in the world could also undermine the multilateral trading system. china's rise as not emergence of a market economy. quite opposite committee of the market is restoring policies have great of a specific irritants in trade we're talking about industrial subsidies, state-owned enterprises, overcapacity issues, intellectual property theft from the list is long and i'm sure we would get to that in the discussion. at the same time the trump administration is calling for a complete reset of u.s. trade policy. skeptical multilateral trade agreements, argued one and one is best for the united states and it's also been very critical of the world trade organization making a case that is not been fair to the united states. the trump administration of leverage what we call managed trade tactics, and that is trying to set outcomes to try to

reduce bilateral trade deficits. and it's very clear that the tool of choice is a tariff. so there's going to be a lot of discussions today on tariffs and quotas. and, of course, we all know that the u.s.-china trade war has escalated very, very rapidly. while all this is going on, while we see tariffs and quotas increasing, it's true that countries are active, governments are actively negotiating trade agreements. so japan and the european union have made the case that they still believe that multilateral trade agreements are best and the actually negotiated some very large, what we call mega trade agreements. we have a comprehensive tpp and, of course, with japan new trade agreement. the trump administration was not very happy with the korea-u.s. trade agreement with the north american free trade agreement did not terminate this

agreement. we negotiated them and will try to discuss what has changed or not changed. and there is of course now much more discussion about reform. there's a lot happening in the world of international politics and we will try to address some of the most important issues and what should we expect going forward. .. >> and president trump is very fond of types. he talks about that often and in a positive way. so, i would like to first get a sense from the panel here about what is president trump trying to accomplish and do you agree

that it's a powerful effective tool to bring about the resetting of u.s. trading relations? who would like to get a start? why does president trump like so much? >> well, i think that paris could be an important instrument in the respect. because size matters in this respect. the large market and the chinese exports 20% to the u.s. and 20% of imports from china. the other way around, you know, china is less reliant in terms of the u.s. impulse, but the u.s. is reliant on china for imports. in terms of export markets, the u.s. is not so reliant on china, so i think that sets the scene where the u.s. is a larger market and in that respect. i think retaliation through a

tariff could be a change the u.s. is looking for. and i think that's why we asked the w wto. and lack of property rights and subsidizing through the policy mechanism the u.s. and been talking about. they have been asking for reforms for a decade. and didn't start with the trump regime, but occurred under obama and so forth and the ue and the japanese will given a luke warm welcome. and i think for the chinese it's different and the u.s. says, well, we are going to use the tariff instrument as a way to pressurize the reforms that they want at the level of wto and levelling the playing field with respect to china.

>> i think that this is a gamble by the trump administration. and it made-- a belief that u.s. interests were better served within a system where market power wouldn't determine outcome. where all countries regardless of size would behave by a common set of rules. that was amazing thing for a country like the united states, the largest economy in the world it support. we have now changed direction on that and gone back to an earlier notion because we're the biggest kid on the block, because we have the largest market, we can push others around to our benefit. that may well be true, but what a radical change where the u.s. spent 40 on 50 years after the second world war. >> i would like to share my experience, sometimes people come to me and they explain to

me, well, what the president wants is tariffs, he just wants tariffs and 20 minutes later someone else will come up to me, you see, the president really likes deals, right? and so, i think we need to bear in mind when thinking about the president's objectives or the president's strategy, that can be volatile, it can be changeable, but also, just remember always when we're having this kind of debate that the trump administration is a group of individuals each vying for influence. at the moment it seems like the china hawks are in the ascendency, but with the, you know, more tactical processes, it seems like they're dominant in terms of the influence on the trump administration's agenda, but previous instances

like when we saw the steel tariffs, you know, that reflected a different side and that could become more important at a later time. >> and i guess at the heart of it, this is political, i guess. because make great again, going against trade is at the heart of the president's message. multilateral and he's extremely skeptical and antagonistic about the multi-laterals and trade agreement. not just trade. ic, unn. and everything trade. everything trade is at the heart and core of the trump agenda. we would sort of tame mr. trump's political agenda and try to treat this beyond just a trade issue and i guess we have to see the political side of it as well. >> thank you.

to join us today. >> sure, one last thought. inwhat's most shocking probably to many people is the willingness of the trump administration to go after stallwart u.s. allies. so imposing tariffs against the japan, eu and canada and one thing i'll add, i certainly agree with everyone said here, part of this political, part of this is a geostrategic competition against china, but to your opening comments, maria, part this have is frustration that u.s. allies have not been pushing a reform agenda and mention eu interests, and japanese interests are different vis-a-vis china, but also, in terms of how they con figure their supply chains and part of what tariffs are designed to do is to get allies on board with the u.s. reform agenda. whether or not it's effective we'll see in the coming months.

>> this is a wonderful beginning. i'm surprised when i ask you all, what does the president want to achieve with tariffs that two of the standards explanations did not come up. were not at the center of the conversation. one is to reduce bilateral trade deficits where that's doable or not with trade agreement or meaningful if you're talking about the bilateral trade deficit and closer to what saying, economic nationalism, to bring home the supply chain, to, you know, be a force that's not an advocate of globalization, but renationalization. it could also be that it's about pushing allies to be more, you know, to take a side and saying for them to really serious about wto reform. my opinion is that the president's not really doing this because he believes that he needs to be tough to get us to be fair-- others to be fair and open

their markets and i look at the u.s. and canada and mexico agreement and the metal ties remain, it's not eliminating the protectionist issues to me. >> and another objective to raise tax revenues which he seems excited about and is probably not a primary result of the tariffs. >> on the trade deficits point. i think there it's possible that the trade deficit was helpful in terms of-- not helpful, but it was the thing that lead him to identify the trading that he would go for rather than it being a result that he is hoping to get out of the trade negotiation. so i think early on in the nafta negotiations, it looks like this may have been, you know, it looked like they were going to go-- like the trump administration was asking for something deal.

a clause that would specifically reference that. and that isn't in the final deal. so, it almost seems as though in the practical negotiations perhaps some within the trump administration realize it's not something you can write in the trade deal. the famous last words, maybe put it into some of the other trade deals, but i think it's, yeah, identification of the thing to pick on. >> i mean, i think this is-- there's no question your point of economic nationalism, i think it's about increasing production in the united states and i think you have to look at the tariffs and the pressure on trading partners as part of a larger strategy than the tax cuts. the center piece of the tax cut was a big cut on corporate taxes and makes the united states a much more attractive location and the deregulation initiative, again, designed to make it cheaper and easier for companies to invest in the united states. so, i think there's a strong

economic nationalistic agenda here. i think that the administration believes that the scales have been tilted in global trade deals against the united states and made it too attractive for companies to outsource and export back to the united states. i think they're trying to push the scale in the other direction. >> and i think there's a sense that u.s. is being ripped off. and especially among people who support trump and he came to washington and said that i'm going to fix things, and that's what he was precisely saying during the election and that's what he's supposedly during, in the white house today as well. so, it's important political message to his supporters to i am going to reduce the deficit. but i think he's going to keep on saying that and it's going to be a symbolic message, but whether that would sort of really, you know, turn things better, i think that's a totally different story. >> so, let me build from that question because it is true

that there was political instinct behind the trump complaint in the sense that the trade message resonated with enough people that it's part of, you know, his style of governing, how he's going to move along u.s. foreign policy and what i'm trig to get at here is that president trump might not be an outlier, but a combination of a longer term trend and we know that trade has become a more divisive issue in the united states. i think you have remarked in the past that, you know, trade agreements and trade bills used to be approved on a bipartisan basis and that seems like such a remote world today. and, but the striking, also if you think about one country that helps shape the trading system is the united states. and the united states now seems to be willing to step out, as you said there's been now very, very important shift that the united states will not be constrained as much by the

mechanisms and that the market size will determine the outcome. so for audiences here and also abroad, they try to understand why has the united states gotten cold feet? why is no longer backing its own creation and why it's now perhaps the country that's very actively now trying to shake things around and disrupt the way in which we have been conducting business? so, what's happening in the united states that makes the trump administration seem less of an outlier and more of a combination of a trend. >> he think things are important for the overseas audience to realize while all have been hit by the technological changes and jobs. when it comes to health care and also redistribution, retraining and so forth. the united states is really an

outlier compared to many other advanced economies and led to a much larger sizable portion here that is upset for the reasons ted is talking about, right? not necessarily just on trade, but also looking, feeling as though they are being left behind. i think the other thing that has changed though, of course, is the impact that of the wto. it used to be global trade rules were updated at least every, roughly decade or so, right? the dispute settlement that the united states received was not quite as aggressive about parring back trade revenue tools and where the u.s. is, those are the two major shifts from say the 1990's when the u.s. was a leader. and that might not be quite apparent to folks oversees because of the body has been trading back remedies, other

than europe. other countries have not felt the brunt of that to the extent of the united states. >> go ahead. >> go ahead. and also thinking protectionism is a very powerful tool. with protectionism you can create domestic manufacturing, you can pull inward fdi. you can bring manufacturing, you know, business back home, so, for a politician to use protectionism to their advantage is something we know an economist works, so i'm pretty sure the u.s. will be in better shape in the books because of the protection policies. it's very difficult for the general audience to understand the benefits of free trade if you is he-- see people losing their jobs and specific areas targeted. it's due by and large by a number of issues, but mr. trump is pinpointing china as one of the guilty actors in this play and protectionism vis-a-vis

china is will bring certain benefits and these are short run games and we know as economists again in the long run, there is a lot of risks involved which is why we're having the debate today. so i'm guessing getting reelected and using protectionsism i think is part of the agenda. >> i think in the long run, as you've said. we've seen this emotion of support for trade agreements over the years in the united states. you go back to 1979, the tokyo agreement passed in the house of representatives by a 395 to 7. and in the senate by a vote of 90-4. that's how popular-- even the japanese competition, over the last decades most of these agreements squeeked through by a handful of votes. there was a steady erosion. i think the other thing that happened was the 2000's and the great recession and its aftermath. if you look at manufacturing jobs in particular, manufacturing is a share of

u.s. employment that's been declining for years and that's mostly an automation story, but the actual numbers fell off the cliff in the 2000's. from 17 million jobs to 11 million jobs and the places that got hardest hit, ohio, pennsylvania, michigan, north carolina, wisconsin, that's where the places where because of the peculiarities of the election system donald trump won the election. a lot of that i think was a delayed reaction to the impact 2000's. >> and between n.r.a. and gun control. and u.s. is for some kind of gun control and n.r.a.-- you see the council on global affairs, people are basically for trade, but there's intense opposition being organized, i think. and mr. trump was very

effective in sort of, you know, organizing and making that into his political power. that's the reason why, you know, there's-- we feel like the protectionism is on the rise, but generally speaking, people are for it. but it's the same logic that sort of n.r.a. prevents gun control. >> i'm glad you bring that up. you know, my reading of what has happened in the united states is that the united states basically enbarked on the cheap. it opened markets, but did not provide that safety net to allow people to cope with the faster pace of change because of technology, because of trade and it's very clear, you look at the numbers and the united states does not invest in what we called active labor market policies, does not invest in work force training. and it's true that with these huge microeconomic shocks to the global crisis, there are many, many communities out there that not only feel are vulnerable and that's why they're going to respond this

way and we also know that protectionism can gain traction politically because it promises, you know, short-term gains because the costs, you know, in terms of how much consumers pay in terms of competitiveness takes longer to be realized and it's harder to make the case, you know, for why free trade matters for the competitiveness and for the consumer welfare. and then, you know, people look at the popularity levels of the president, and they hear the president saying in his inaugural speech that protectionism leads to prosperity and i think in my conversations when i traveled abroad, i do hear this question that gets to what he was referring to and i'd like to bring in the rest of the panel. the question, does the american politics on board -- we know the support for trade has gone up, but how come the president is not, you know, experiencing

high heat because he's having the tariffs and seems to be pleasing a lot of people. how do we explain the discrepancy of the polls and politically, the president being supported by his base? how do we square that? >> so i'm not 100% up to speed with the polling on the latest trade actions, but i will say that there's a big difference between people's answers when you say do you like trade, and do you like trade deals. right? and so people are much more skeptical of trade deals than they are of trade. so, interestingly there was a recent pew poll that found that republican voters are now more in favor of trade than democrats, which is very surprising and is essential will i because people like trade, whenever their guy is in power. whereas, if you look at people's attitudes towards past trade deals, that's much more

republicans voters are much more skeptical relative to democrat voters. so that's one of the kind of circles, squared. , we live in such a polarized country today that i think it's so hard to disentangled what the president is doing on trade with support for the president overall. but, and i recognize i live in cambridge, massachusetts which is not anywhere close to emblematic to the rest of america. i'll point out two things on that point. i think that, one, there's a difference of attitude among the american public about actions on trade generally and whether or not there's a need to get tougher vis-a-vis china, and so, i think when the polling doesn't sort of disentangle that, there's some of that there. and the second point i'll just add is that i think when it comes to looking at the

president's actions, there are many people, particularly in the heartland, who believe by getting tough is part of a tactic to eventually getting us towards a deal and right now, it's too early to tell whether or not a deal is going to happen, but for the general public, they just saw two deals the last month so they think the tactic is working even though it's hurting them. if more deals aren't forth coming, that might look at it differently, but at least on your question, why is this resonating? pause people-- because seek are seeing a tactic and this is a president who got tough and more done vis-a-vis others who did not and i think that's driving some of it. at the end of the day it's still about the polarized view of do you like trump or do you not. >> thank you, mark. i'm glad you brought up china we need to move from talking just about the united states, but china as an actor in international trading system.

frequently china's integration and in town more and more voices say it was a mistake to let china join the wto. so what are your views on that? what kind of opportunities? what kind of challenges has the immersion of china as an export powerhouse and now as a very large foreign investor and so forth had on the system, and was the deal made at the time a good deal or not? >> my idea is trade is not-- what do i mean by that? when china entered in 2001 wto there were no guarantees on the competition policy. you have to understand the world trade organization is an organization about trading rules. let me just give you an example of the european integration. not to say that european integration doesn't have flaws.

before they entered the excommunities countries in central europe they made sure the countries rewrote the policies and realigned with what brussels were having and other countries were having and only after they could enter the single market. and now we hear very little about the conflict with former eastern european countries and what happened with the china case, china got access to a club, a club of free trade countries call the wto, but there were no guarantees how it would handle its competition policy and the notion was that open markets will bring this about. trade will bring this. competition policy. now we're down the road and chinese is subsidizing its companies. and that's where the problem lies. the world trade organization is not a world competition authority. so by and large you have

competition policies that are still very much on the national government and china is doing in that respect what it wants. the trade partners do not have any instrument to tackle that because it's under the national policy of the countries. the wto would allow you to do is to use tariffs to counter veil that. so if you're finding out that chinese is subsidizing on particular products. you can use an anti-dumping tariff to counter that, but you have to know that anti-dumping is only one or 2% about trade and the cases of anti-dumping which is the u.s. is using a lot, the eu is using it's only 1% of trade. what the trump administration is doing, we're going for a much larger basket of goods and count are vale your subsidizization policies in the hope it will level the playing field and are' going to stop doing that and that's we want you to do and that's my understanding of what's going on. >> i'm sure there are other views. who wants to jump--

>> i'll deter to mark on the china ends of it. it's interesting to watch the debate in the united states which of i've done closely going back to tiananmen square and bill clinton. the united states made a gamble with china. the decision was made to welcome china into the existing trading order on the hopes that china would embrace it and over time, the way become more like us. you know, this was bob zellic's notion as china as a responsible stake holder. if you go back to the debates of china in the wto and whether to give china permanent regular trade regulations. there was a book out about the challenge of integrating rising powers into the system. they were all quite conscious of this and if you look at the debate now, a lot in washington feel like guilted suitors. we reached out to china and we offered china a stake in this wonderful system and china has rejected it.

they've become less like us. they've become less of a market economy, more state dominated. they've less of a civil society, less free. and there is a real-- it seems to me, quite sudden, but it's been growing for a long time, a shift in the opinion in official washington. this is not republican versus democrat. this is quite wide, that china just didn't pan out the way we expected and that's where you get the debate, was it a mistake even to encourage them to join the wto in the first place. i think that the united states had no choice, but fact that the question was asked tells you the depth of the angst in washington over what transpired. >> i guess in 2001 there was this hope that we could sort of shape the rise of china, but this notion, i think, is collapsing in a rapid state. and i think last week larry kudlow here in d.c. used this term, trade coalition of the

willing to contain china. so i think there's this emerging concensus here in washington that of course, before that, you know, people were talking about china being different from soviet union, that, yes, in terms of security, there are some worries, threats, but in terms of economy and trade, it's a possibility and we can use that leverage and sort of shape china in a positive direction. i think that notion is collapsing at a rapid speed and trump administration is sort of jumping on that notion. and it's not just like you said, it's not just a republican thing. i see sort after concensus and there's difference in nuance, but emerging concensus about being tough on china and trade is a very important component of that. >> i think that the debate that is playing out is at least in the west, a realization to use the language that the international rules,

international law is not going to con train or reshape the rise of china and what i sense from my travels overseas is that especially in asia people sort of look at you and say how naive of you to have believed that to have been the case, but there's a difference now in terms of tactics as to what to do now that this realization has come to fore. and most of asia, no one ever expected that was going to be the case and there's a much longer time horizon so there's much more of a sense of at least this type of engagement, but caution, and sort of hedging against a china supremacy. that's the right type of approach and they would like for the u.s. to maintain that type of hedge. and i think here in the u.s., there is a debate as to whether that's correct or not or whether the u.s. is just being played by others, where at the end of the day, the u.s. does not want to return to a sovereignty-based trading order

or if it is going to return to that and the sense in the u.s. is, we might as well play our cards while we have the upper hand. that's the debate played out here, but what i sense from my own travels is that overseas, there was not that same type of recognition that china was going to somehow engage in this type of economic regime change simply because they joined the wto and there's a rules based system that could do that and i think in the u.s. we're just coming to terms with that and my sense is also in europe, right, there is-- as you mentioned, right, also a sense of now that the chinese are moving up the supply chain into actually innovation driven, and europe never debated vis-a-vis china, only russia. >> i want to move in the confrontation or economic tension between the united states and china that--

before i do that, mark, i know you've written extensively on this and that's why i want to bring up the discussion here, china's challenge for the wto and the fence if i remember correctly what you wrote. there have been other nonmarket economies incorporated into the multilateral trading system and the system can cope with them, but that the nature of the chinese challenge is different and therefore, the wto is particularly challenged in trying to bring discipline to china's market policies. could you elaborate on your arguments? >> sure. the wto has brought in lots of different types of economies, but the last major time they faced a challenge of this sort is when the soviet economies started and create add duality and market economies and nonmarket economies.

and like in the u.s., even more the corporate economies, where market forces are dominant and then a nonmarket economy which is basically command and control or soviet style types of economies and that was duality. and that was more than 50 years ago. what we've seen is the emerges of a archetype, and the state retains key control over capital and infrastructure. now the trading system is struggling what to do with that third archetype that can't fit into the rules as tightly. and that's the tension here and why the rules can't work with that. there are a lot of other flaws with the structures of the rules, but these can be managed over the course of time, but that's what i see at the heart of the essential -- tension there's a third type of economy the rules haven't anticipated. >> it's important not to miss the big picture here, china is really large, therefore, if you

can't incorporate china, the potential is so much bigger than with any other country we've ever dealt with. >> and when you have the two largest economies in the world locked into a trade war we're trying to figure out what's going to come out of it. you know, tactics, you know, clearly, they have escalated very, very quickly. sometimes it feels like you know, the trump administration will tell them, we're going to impose this tariff and if we retaliate, it's hard to make sense of what's happening because it's moving so fast and it's hard, also, because i think for a time there was no clarity as to what is the end goal. you know, president trump talked a lot about bilateral trade deficits because he cares about them and then he also talked about especially the ustr investigation of china's theft of intellectual property and policy run amok and

mr. kudlow saying we're trying to build a coalition of the willing to contain china and we now seem to be talking about disengagement. engagement has been a policy that the united states has pursued vis-a-vis china for decades and perhaps we may be at that critical juncture. so, are we there on the verge of a cold war, an economic cold war with china? and if that's the case, there won't be any talks forth coming and is this the new former? >> there was this speech by vice-president pence at the hudson institute which came very tough on china and some people say this is the fulton iron curtain moment. it might be. so, if the target is china, i think it's more effective to do it multilaterally. so tpp in a sense was a more effective tool, but i guess tore the trump administration, the multilateralism frame work would not work. so, what is emerging is sort of

a new type of concensus on china policy within the trump administration and that involves the strategic component, the protectionist component, sort of like the human race component the religious freedom which vice-president pence is interested in and sort of the basic hawkish attitude presented by john bolton and what mike pence laid out last week presents this policy on china. so, i think this is a concensus. we would have to deal with it for certain, a certain period of time. >> can i point out that the wto's problem is not just china. even in 2001, there were already issues because look how long it took to conclude the round. it took about ten years to conclude these trade talks in geneva. so we have to look at the

deeper causes of what are the institutional things that are not working at the wto. part of the reason, i think that 50 years ago there were about five players around the table that the countries are participating in the global trade arena. you have the european union, the u.s., you had japan, maybe australia and canada. it was relatively easy to strike a deal with five countries, but then, you know, you had other players that were also sitting at the table and having their demands. those that newly entered the world trade arena like brazil, india, china, you know, they all wanted their say, they all wanted also to be the rules, you know, favorable for them. we know from public theory that to strike a deal with a much larger number of players around the table is so much more difficult. which is why it became an issue of, you know, concluding the talks took so long. there are some people that say we should maybe look into a different model of trade talks altogether. we are doing now the

multilateralism, but there is an alternative. people have suggested stepping stone theories where you first build trade agreements with the largest players in the world, say the largest exporters and then take on board other countries less important in terms of their trade sure. is that good or not? i don't know. but i think we should ask ourselves the question is multilateralism viable today, being the case that every country, u.s., but also eu and other countries are doing a lot of free trade agreements on their own. we just concluded one with japan and concluded one with south korea not long ago. we're doing that and in geneva the spaghetti bowl of agreements. it's been under stress for a long time. it's not just with china, china is seeing what's wrong with the rules and using to their advantage, but i think there's deeper issues to consider. >> thank you, and that's a very good point because we should

not assume, as i was perhaps doing in this conversation. when you talk about tensions and it isn't just the united states and china, there's a larger context and the wto has some decline flaws and it's difficult to negotiate beyond the border regulatory matters when you're talking 160 plus countries and when you have a mechanism that does matter and therefore it means you have to abide by the rules. nevertheless i think the fact that the two largest economies are pursuing the trade tension and in a way, eroding a confidence in the multilateral trade system is significant. particularly we think this is evolving into a longer term conflict of adversaries looking at each other in that manner. what do we know about how china is thinking about this? how is china responding to the trump administration's messaging startingen trade,

starting with deficits. and now after the hudson speech, you know, it's different thing altogether. how is china responding to this. >> and it's a trade piece, and china's response out of the box was to retaliate equally against the united states and target their retaliation because of the agriculture sector if ways they thought it would cause president trump to change direction. this led to the scandal of the advertisements in the des moines paper, so, but that's what all trading partners do when they retaliate and the chinese weren't unusual there. i think that did not have the effect that they hoped for. mark talked about even in farm country in the united states is it fair for the support for the president being tough? china's reaction to the second round of tariffs is interesting. they didn't respond in equal measure and the proportion of

tariffs were smaller and sent out a message to u.s. companies. we want you to stay invested in china. there was a fear they'd go after u.s. companies in various ways. instead the opposite message, we want you to stay and want foreign investors to stay here and there's a lot of worry about investments trying to leave and escape the tariffs. the chinese changed in the second tranche and in every way put out the idea they want to negotiate. and we're dissatisfied with the americans, we're disstudy with the americans. the chinese do not want this fight, but it's not clear there's any way out of it at this point. i certainly at the moment don't see one. >> mark. >> i think there's a debate that's playing out in beijing over what are the americans after. and it's-- the debate that the chinese are asking themselves is is this, are the americans out for

regime change because if that's what the americans are asking, that's the first step of what they see as political regime change. so there's a group that i think thinks if that's the case, there's no point to negotiate, we should just stand firm and we should try to drive wedges between the u.s. and its allies, but also at the end of the day, china benefits from a stable rules-based system to try to maintain that. so, i think there's that group in china and then there's another group that worries, to use your language, right, that this is the new normal. if this is the new normal, even if china stands firm, this is going to constrain china's ability to carry out economic reform agenda, particularly in terms of containing its debt levels, but also driving movement away from investment led, consumption led growth model. and you can see that that group then says, well, we need to negotiate because if we don't do so, that's going to cripple

our long-term ability to stay on task with the economic agenda. between the debate, the two points that should not be lost. even at the level of 10% and even up to 25%, even if the third tranche comes on board, that still, the chinese economy is not as dependent on exports and particularly the u.s. market as it once was. it can stomach this in the near-term, but the question is what is the u.s. after and what impact on china's own reform agenda on character and what it needs to keep its economy charging ahead? >> and i think the key questions is the time horizon. as you said, this is perceived as a short-term, you know, before the mid terms for max tum political message is one thing, if you think that the times are now going to be in place for a long-term, then you start talking about changes to the supply chain. and the question is, does this mean that these companies will come back to the united states or will they just relocate

somewhere else in southeast asia and the goal of the trump administration of trying to create uncertainty to bring back the manufacturer may be harder to achieve. so, my question to all of you, truly, i don't have the answer to this, and i find it puzzling, is why is the language now is so harsh, and the competition is highlighted in so many denver fronts from the u.s. side. why is this stock market discounting the impact of rising tension between these two very large actors in the system? . not that i'm wishing for the stock market to react, but i think it's puzzling that despite the fact that we keep hearing how this is going sou south, the markets are fine. do anybody have an idea of what's happening here? >> okay. well, first of all, you know, caveat, when reading the stock market, it's a--

you know tea leaves parallel. so i think the-- i'm going to pivot slightly and talk about the way that there seems to be this disagreement among economists that you actually need-- you need to hit the economy with fairly severe assumptions of autarchy. if you have character-- you'll have a sizable effect on dpro growth. and that's trade are -- that are going to be put in place and in the context of the u.s. economy a simple point that

chinese trade is not that lar large, that the kind of -- the counter point to that is to say, well, so far if this stays as a tariff war as a conventional tit-for-tat tavr tariff maybe the down side isn't so bad. the uncertainty where things start to become more dangerous and whether you see -- so imagine if the chinese said we are going to restrict, you know, sales of -- or surprising they put bounds on exports, at the moment we're thinking of conventional tariffs and where things become a little bit more expensive, if this changes into something where you have binary on/off switches then i think some companies could be

affected worse than the markets are assuming. but, yeah. >> i just have one thought here. i mean our stock markets are doing fine here in the u.s. and europe and elsewhere, right? in fact, we're seeing new records and that's precisely for the reason articulated. and what the business dislikes is uncertainty. the stock market is in bear territory. if you look at key emerging economies and anyone holding an index fund, back to the emerging economies, those are being hit by this and that's where the stocks are in the supply change. what we're seeing is two different effects playing out in different parts of the world. >> okay. a question for all of you, is there a coalition of the willing to contain china? i say this because, you know, allies have been hit by tariffs, national security

risks and impose tariffs on metal and aluminum and could be imposed on automobiles, talking high economic stakes. that creates some division. i think that japan and the u.s. working closely with the united states in codifying new rules to address china's market distorting policies and efforts to look at industrial proxies and enterprises. so they want to work on the rule, but they might buy into a tariff war, by the not buy into a war containing china and not just addressing the market distorting policies and you know, everybody's talking about, at least in town here, about the u.s.-mexico-canada new trade agreement or revised trade agreement having clause that have been described as an anti-china clause, basically making it harder for china and mexico to consider negotiating

with china. japan and the eu, they don't have yet an agreement with china. they're negotiating with the united states. it's that the united states would tell them hands on on trade negotiations with china. are they going to say yes, given that they're hit by tariffs, given they may want want to the geopolitical struggle, given they may want to protect autonomy in the trade policy? so, i think the tariffs are very much part of this nerve tiff. so the european union and the japanese governments would never say that they support the policy of tariffs, but the european union and japan have wanted changes in the rules to address their issues with china for a while. the problem is that the chinese. there's been nothing to get the chinese into the table. the tariffs get them to the table. so while they might not endorse that policy themselves. they are a helpful instrument in making that plan get any

results. >> when it's a 301 vis-a-vis china and when it's metal and aluminum-- >> and so far we've seen it's impressive the compartmentalization of the issues. so far the eu and china have been able to separate those out. i don't think it's been helpful, but i don't think it's interfered at a practical level. i think if there were to be tariffs on autos, then that could change, that would be a blow of a magnitude of a different order of magnitude, but i think so far it has been an irritant, rather than a block. >> very good. and other views how allies are looking at the u.s.-china trade war? >> so far the japanese government has dealt with the trump pressure quite effectively. in terms of tariffs on cars. the sort of, you know, managed to sort of marginalize the

issue for now. so, and also, since we're direct neighbor to china, i think the threat perception, not just in terms of, you know, trade and economy, but in terms of security, the threat perception is larger than other countries. so when vice-president mike pence reacted in a very tough manner last week, there was a sense of welcome in japan and yes, whether the tools that mr. trump is utilizing is that effective or not. we're not sure, but there's a sense at least now in the white house, you see a tough president who's trying to sort of deal with china in a very serious way, in a very different way as the other leaders used to. so it's a very ambivalent sort of feeling, but there is a certain sector, especially in the security and diplomatic

community that's quite comfortable although there's worries about the soming issues on tariffs and bilaterals on trade. >> quickly, i think the right language to use would not be a coalition of the willing, but a coalition of the unwilling, i think that canada and mexico came to feel they had no choice, but to do a deal with the united states and send upwards of 75% of their export to the u.s. and i think they would prefer not to have to choose, to try to be able to maintain a broader network of trade relationships with china, but if the united states is going to force them to choose and increasingly that looks like that's the case, then their choices are pretty obvious. >> and just had one thought here, i think the three sides in the try lateral share a common diagnosis of the problem, but a disagreement as to how that problem should be addressed. but to go back to the point, i think it's important to real highs that diagnosis of the problem shared by the tri

lateral is not necessarily shared by the rest of the world. on the u.s., there's a sense or realist recognition that's the case, so why bother to work through the wto when you know this is going to be held up hostage over a time horizon, right? and i think japan and eu have both been much more committed towards a rule-based proceed based mechanism to resolving that and i think that's the crux of the disagreement and we'll see how far they're able to bridge those differences over the coming month as the try trilateral works on this. >> and you can work on the new rules between the three countries, but there's a difference between that and the wto. and what's the-- with the rules-- >> the discretion of the u.s. government you could impose tariffs and negotiate from a

trade agreement, but the trump administration retains the discretion to bring up new cases and tariffs can go up regardless of the deal that was struck with this different partner. and related to this the european union reached a cease-fire, that's how it's called, the trade-- you know, people who follow trade, with the trump administration in july. to avoid this dynamic of tariffs and counter tariffs and so forth and japan agreed to launch the trade agreements on goods. the american side likes to call it a full-blown trade agreement so there's a discrepancy there. i wonder if you could tell us about, what are the prospects for those negotiations? is there going to be big negotiations because of the sizes of the economies involved? because if there's going to be pushback against the watering down of the settlement or using export quote at thats, that violate wto rules, and we've

been through the template of agreements, it might be up to the europeans and the japanese because they are larger players. are they up to the task? are they going to say, well, no to these things or do you think that because they don't want to have that friction with the united states, they'll make concessions? how are things looking up for these negotiations from your point of view? >> well, before this agreement atta attack, you know, the japanese government was seen as being engaged in sort of a delaying tactic because we wanted u.s. to return to tpp and japanese government is pretty good at sort of-- so, that's what we were seeing as doing. but now that we're engaged with, you know, u.s., however you want to term it on some sort of trade deal, we do know the want to sort of-- we do not want it to be a very sort of complex, you know, and show there's a friction, a

difference between the u.s., i would imagine that the both government would respond to sort of finish up, you know, in a quick, quick manner. japanese can open up its agricultural market at a tpp standard would sort of emphasize creating jobs within the u.s. you know, that kind of, you know, agreement. and then sort of focus on the security side, for china's rise, and i think that's what the japanese government intended to do and in a much more longer term. i think we're interested in providing a sort of reentry part where u.s. can come back in the tpp hopefully, but the difficult-- the thing is that if we sort of agree on with the u.s., it would deemphasize the tpp, so, that's the dilemma for us. and that dilemma it going to remain. >> especially from what i hear from--

in tokyo is people are thinking let's wrap the negotiations with the united states quickly and they insist that the scope is limited, it's a trade agreement on goods, it's a tariff discussion because they don't want to have a protracted discussion between the two countries and they can focus on areas where there's a common view. the trilateral efforts that we've been discussing and the security agenda. but there are issues like currency manipulation that the united states may put on the table, this clause that tries to discourage countries to negotiate with nonmarket economies. and japan is negotiating with the partnership as part of china, and i would imagine that larger countries don't want to be told with who they can negotiate, even if they share with china, that would strike to me as a major concession to agree to something like that. so i think those are the intentions, whether it actually

plays out. i think that the u.s. and japan have a history of protracted negotiations and i agree that the japanese are good at deflecting, but it's a very different geopolitical con complex because of the rise of china. how do the negotiations from the united states and eu look to your point of view. >> i keep insisting the point that i believe size matters, size matters for your bargaining position. some of my own research has shown you'll never trigger a trade war with a country bigger than you, meaning where you know that retaliation can hurt you, which is why the eu has not moved, i think, because it's too small vis-a-vis the u.s. and china to make that point. were you asking about the coalition of the willing, i think in a wider coalition and again, we don't know what's going to happen, but i think it could be the outcome that the eu is turning to its opened allies because i believe that the european union considers the u.s. despite the trump

regime, so to speak, to be an old ally and i think they want better outcomes to, but they're not in a position to bargain as much. if we look at germany trade to china. germany is exporting 6% to china, but importing 10% from china and vis-a-vis the u.s. about 10% of german exports to the u.s. and 4% are coming back, so the u.s. is a very important export market for the european union. china is a very important country that puts you in a situation somewhat in the middle of the bed i would say, like i said earlier the u.s., a different situation, and their numbers are more disequilibrium and they're in a position to start a trade war. if you're for a coalition, easer to to go with the coalition with the eu than a coalition of your own. i'm hopeful that what we're seeing today is not going to result in a cold war with china, i think it's going to be leverage, leverage to try and

ensure that the levelling playing field is restored and i think once that occurs chances are-- there's a lot of benefits that we have from china entering the global trade arena as well. we should point that out, too, it's not all bad news. and we have some for incomes with people with low income have access to goods they never had before, you know, china is a big potential export market for our firms as well so we want china to be part of that world order it's just we also want it to play by a good set of rules and maybe it's their history or past dependent, they come from a communist background, that's lingering on for 20 years, as was mentioned earlier, they grow up and become more like we and play to a set of rules that we think are the right set of rules and once they do, i'm hopeful that much of this will pass, hopefully, because as you said for global value change this is what we want to happen. >> and i'd just like to remind

everyone that t-tip was not the most popular thing that the eu ever did and just, you know, supposing there's some kind of negotiation, just to think about the process of getting that passed and to think about how easy it would be for european politician to stand up and say, i'm taking this to donald trump. >> and with all of those elements on the table, how will these play-- >> we are going to leave the discussion on trade policy as the u.s. senate is about to gavel in shortly. you can watch all of our programming at our website, c-span.org. two items on the senate agenda this morning, we are expecting a final vote on a water infrastructure projects bill including spending for 12 army corps of engineers projects and authorizes 4.4 billion dollars in financing for state water drinking programs.