Midterm Elections and the Kiwi Ambassador Speaks
November 9, 2018
Stream the podcast here.
SCOTT MILLER: I’m Scott.
WILLIAM ALAN REINSCH: I’m Bill.
MR. MILLER and MR. REINSCH: (Together.) And we’re The Trade Guys.
H. ANDREW SCHWARTZ: You’re listening to The Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I’m H. Andrew Schwartz. And I’m here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.
In this episode of The Trade Guys we welcome the Honorable Tim Groser, who is New Zealand’s ambassador to the United States. Ambassador Groser is one of the world’s leading experts on international trade. He was New Zealand’s trade minister. He was also New Zealand’s ambassador to the World Trade Organization, and he was New Zealand’s chief negotiator in the Uruguay Round. But first we had to ask The Trade Guys: What does the midterm election mean for trade? Then we talk to the ambassador about the CPTPP, the WTO, China, and even the Donkey Theory of Management, all on The Trade Guys.
As we just said in the intro, we have a trade eminence extraordinaire, Ambassador from New Zealand Tim Groser, here. But before we get to a lot of international issues that we need to talk about, I got to put it to The Trade Guys: Today’s the day after the midterm election; does the Democrats taking the House set up a grand bargain on trade? What’s different here?
MR. REINSCH: You want to go first? Give to Scott, the Republican.
MR. MILLER: Sure. Look, first of all, we have a new –
MR. SCHWARTZ: Scott the Republican because the Republicans no longer control the House or they – because they control the Senate?
MR. REINSCH: That’s right. He deserves deference because he’s now in the minority.
MR. SCHWARTZ: (Laughs.) OK. All right.
MR. MILLER: Having spent most of my career working and playing well with both sides. (Laughs.)
MR. SCHWARTZ: Yes, you have. And at CSIS – for the record, at CSIS we are bipartisan. We play well with both sides. That’s why you’re listening to The Trade Guys. So, Scott, carry on.
MR. MILLER: In any case, look, it will make for an important change, first of all, in terms of the level of oversight that will be conducted. That’s probably the most – the thing we’ll see soonest.
MR. SCHWARTZ: New chairman of Ways and Means Richard Neal.
MR. MILLER: Yes, Richard Neal of Massachusetts.
MR. SCHWARTZ: Replaces Kevin Brady from Texas.
MR. MILLER: And soon-to-be Chairman Neal is a professional. He’s a longstanding member. He is very thoughtful in terms of his policy positions and has a long history of working across the aisle. So here we have a – what would – what would set itself up to be an opportunity for collaboration. I think it’s going to take some time to play out.
The USMCA is, to my mind, the first test of this. And my guess is the Democratic Party will now have – particularly the House Democrats will have to develop a trade position, a policy position, that gains the support of their members. They haven’t had that in a while. Their position for a long time, particularly in the minority, has been “no,” so – (laughs) – and that’s been pretty straightforward. It will take some time to develop that. I think they’ll use – they’ll use the ability to conduct oversight to do that. I don’t think that we’re going to get off to a really positive start with USMCA. In fact, I think the first thing that will happen after the ITC report is published is that the Congress will do what it can to send it back for further work, particularly on labor.
MR. SCHWARTZ: Yeah, but what you’re – what you’re saying, Scott, is that the Democrats – this is an issue that Democrats and the president can work on together.
MR. REINSCH: Well, it’s an area where they can – where they can have a fight. There’s going to be more drama.
MR. SCHWARTZ: OK.
MR. REINSCH: I don’t think it’ll wait for the ITC report because the time – if –
MR. SCHWARTZ: Tell our listeners what the ITC report is.
MR. REINSCH: Well, the law requires the International Trade Commission, which is an independent agency, to do basically an economic impact evaluation of trade agreements. The law gives them 105 days from the day of signing to do that. In this case they’ve already started, and it doesn’t have to take 105 days. And technically the president doesn’t have to wait for it to submit the bill, although if he doesn’t wait for it he gives the opponents a major talking point; they say, why are you making us vote on an agreement –
MR. SCHWARTZ: So starts a fight.
MR. REINSCH: Well, he starts a fight. You know, why vote on a trade agreement when you don’t have the study that tells you if it’s any good? So usually they wait – you know, they wait for it.
But that period is not a period of silence; it’s a period of negotiation. I mean, what will happen – and I think Scott’s put his finger on it – is that the Democrats will hold this hostage at two levels. One, they have to say not good enough. They’ve been critical –
MR. SCHWARTZ: USMCA, not good enough.
MR. REINSCH: Not good enough, we would have done better. I mean, that’s what the –
MR. MILLER: Yes.
MR. REINSCH: That’s what the party out of power always says.
MR. MILLER: Easiest thing to say, absolutely.
MR. SCHWARTZ: Will they be singing the song?
MR. REINSCH: They – (laughs) – no.
MR. MILLER: No. They’ll have their own song, believe me.
MR. REINSCH: They’ll have their own song.
MR. SCHWARTZ: Their own song. (Laughter.) We’re talking “YMCA,” Ambassador, of course.
MR. REINSCH: Yes.
MR. SCHWARTZ: The ambassador’s a rock-and-roll guy. We’re going to get to that in a second.
MR. REINSCH: He can do that for us if he wants.
MR. SCHWARTZ: I’m not sure – he’s a pretty cool guy; I don’t know if he’s going to start doing semaphores here. Let’s – yeah.
MR. REINSCH: Well, it’s also – it’s also no video, so you can’t really –
MR. SCHWARTZ: Not seeing here, that’s right.
MR. REINSCH: You can’t really see, yes.
Anyway, they’ll say not good enough. They’ll say particularly not good enough on labor because an important part of their constituency is the AFL-CIO. Because the larger part of their constituency is pro-trade, more pro-trade than Republicans are right now –
MR. SCHWARTZ: This is interesting.
MR. REINSCH: – they’re not going to write off the agreement entirely. The business community is going to tell them we need an agreement, since the president is probably going to withdraw from the current one when he submits the new one. Nobody wants to be blamed for ending up with nothing, which is the worst possible outcome. So I think they’re going to say, number one, to Lighthizer, go back and get more on labor, which I think can be done.
MR. SCHWARTZ: Yep, there’s room.
MR. REINSCH: We have a new Mexican president who’s farther to the left.
MR. SCHWARTZ: AMLO.
MR. REINSCH: And I think there will be a willingness to do that. One wildcard is whether they could do that. The second wildcard, of course, is what the AFL-CIO says about the product. But –
MR. MILLER: They’ve already said not good enough of the current product.
MR. REINSCH: Yes. And –
MR. MILLER: It’s what they say about the new product.
MR. REINSCH: The new product, yes.
MR. MILLER: Yes, right.
MR. REINSCH: But if he comes back – if that’s all there is and he comes back with a better thing, then there’s a happy ending scenario here: The Democrats say we fixed it. The administration did a lousy job. We made it better, so now we can vote for it. Trump will ignore that and say vote for it anyway because it was my agreement and it’s a good one.
MR. SCHWARTZ: It’s a beautiful one.
MR. REINSCH: So I think – it’s a beautiful one.
The other wildcard, though, I think, is that the Democrats – and, in fairness, the minority – the minority party that controls the body will – the party now out of the White House that controls the body will always say the same thing, which is they’ll hold it hostage for something else: the infrastructure bill, a tax thing, don’t build the wall. I mean, one of the – one of the entertainments of the next two months is going to be the Democrats arguing over what the ransom should be.
MR. SCHWARTZ: Yeah.
MR. REINSCH: And if it’s too high, then they’re going to – you know, they’re going to have a problem.
MR. SCHWARTZ: Right. OK, so do the Democrats have a grand strategy?
MR. REINSCH: No.
MR. SCHWARTZ: OK. That’s what I wanted to –
MR. REINSCH: I don’t think – not yet. And Scott thinks they’re going to have a policy. Having been a Democrat my entire registered-to-vote life, I think that’s expecting a lot out of them to be – to have a policy. I think it’s more likely that they’re going to deal with issues as they come up. And they’re going to deal with it in the way Scott suggested, which is a lot more oversight, a lot more criticism, complaints about lack of transparency, complaints about lack of consultation, all of the complaints you’ve been hearing already that nobody paid any attention to because they don’t have a megaphone. Now they have a megaphone. Now they have subpoena authority. Now the set the hearing agenda. So you’re going to hear a lot about how poorly the administration is conducting its policy. You’re going to hear a lot less about how poor that policy is because they don’t really have an alternative, and I don’t think they’re going to have one.
MR. MILLER: Right. And this remains a very difficult issue. It’s important to remember when Mrs. Pelosi was speaker earlier, from 2007 on, there were – the first vote where she didn’t – that passed the House but did not achieve a majority of her caucus was the U.S.-Peru Free Trade Agreement. It’s why the other three free trade agreements got stuck at that point, or at least one of the reasons. But these are really difficult issues for the party. And even when – and if you look back to 2015 when President Obama tried to advance Trade Promotion Authority, he had a very difficult time getting support from his own party.
MR. SCHWARTZ: And just to tie this up, I mean, after all, this election was not about trade.
MR. MILLER: Correct.
MR. REINSCH: Correct, exactly. You can find a small number of places where it had an impact, and I think a couple were mentioned. I think Heitkamp ran on it and lost. The guy who represents the Iron Range in Minnesota ran on it and won; steel tariffs are popular there. Mike Bost in Illinois – who represents Granite City, Illinois, where they restarted the steel plant – he won, when a couple of his Republican colleagues lost. Sherrod Brown won, but he was going to win anyway. It’s hard to find – the place –
MR. SCHWARTZ: And Heitkamp was going to lose anyway because she voted against Kavanaugh and North Dakota as swung conservative.
MR. REINSCH: The interesting races we need to know more about are in Iowa, where two Republican incumbents were defeated.
MR. SCHWARTZ: Yeah.
MR. REINSCH: And that’s a hard-hit state on corn and soybeans both.
MR. SCHWARTZ: Right.
MR. REINSCH: Kansas, where two Republicans were defeated.
MR. MILLER: And you have a Democratic governor.
MR. REINSCH: And a – and a Democratic governor.
MR. SCHWARTZ: And where the Democratic governor won, in Kansas.
MR. MILLER: Yeah.
MR. REINSCH: And even in Oklahoma there was one district that turned blue. It was I think the Oklahoma City district; it wasn’t a rural district.
MR. SCHWARTZ: Yeah, suburban.
MR. REINSCH: But we can do some – we need to do some more research, but it appears that there may have been isolated pockets where the issue made a difference. But nationally I don’t see – I don’t see a big impact.
MR. SCHWARTZ: OK. We’re going to be talking about this more in days and weeks and months to come on The Trade Guys, but we can’t not talk with Ambassador Tim Groser about the bigger picture. Ambassador Groser, first question I really have to ask you is: Do Silicon Valley billionaires often hit you up for good advice on land deals in your country of New Zealand because they’re preparing for the end of days?
AMBASSADOR TIM GROSER: Unfortunately, no – (laughter) – because they’ve read the data, which is that New Zealand is the least corrupt country in the world. And –
MR. SCHWARTZ: So they – (laughs) – there’s no room for them.
AMB. GROSER: And I thought it was going to be winner for me, but there’s nothing in it at all, no. Never been hit up. Never been tempted.
MR. SCHWARTZ: OK. OK. Well, I wasn’t suggesting you were tempted. I just – I’ve been reading a lot about how guys who have a lot of stuff out in Silicon Valley, they spend their time thinking about how they can set up away from the United States for when the end of days comes and they can actually live in a peaceful place like New Zealand.
MR. MILLER: You’re suggesting it’ll be a month later in New Zealand. (Laughter.)
AMB. GROSER: Yeah, there’s a whole lot of jokes around that.
MR. SCHWARTZ: Right, right, right.
AMB. GROSER: You know, New Zealand was very accurately called the last stop on the planet.
MR. SCHWARTZ: Oh!
AMB. GROSER: But it’s not just Silicon – I mean, the reality is a lot of mega-rich Americans have been doing this for quite some time; Julian Roberts – not Silicon Valley – for example.
MR. SCHWARTZ: Yeah.
AMB. GROSER: A fantastic American who has put in a – you know, he’s the Tiger Hedge Fund guy. Put in hundreds of millions of dollars into New Zealand, particularly conservation; built some fabulous golf courses; made a fantastic contribution. So we are – we’re really supportive of these super-rich Americans –
MR. SCHWARTZ: And a lot of movies have been filmed in New Zealand.
AMB. GROSER: Oh yeah. No, we have a really, really good relationship with the very-well-off Americans who come and invest time and money in our country.
MR. REINSCH: But haven’t you imposed some restrictions on housing acquisitions?
AMB. GROSER: We have imposed restrictions on housing, but I don’t really think Julian Roberts wanted to buy an Auckland house, you know, so.
MR. SCHWARTZ: Tell us a little bit about how you’re a trade guy? Because you have an enormous amount of experience and have been doing this for a long time at a very high level.
AMB. GROSER: I’ll give you a personal sort of view. I was originally intending to be an academic economist. And I got a phone call from my very mature wife, 18 years old, and she said: I’m pregnant; get a real job. So, OK, that was the doctorate down the proverbial.
So I had a choice of three jobs very shortly thereafter. One was – because I had been leading – the leading child actor in New Zealand because my parents were both professional actors. It’s not surprising –
MR. SCHWARTZ: I see. Tell us what –
AMB. GROSER: – you know, when people need children they would use their own. So –
MR. SCHWARTZ: So you were the leading child actor in New Zealand.
AMB. GROSER: Child actor, yeah. And so I’d carry this –
MR. SCHWARTZ: You were the Macaulay Culkin of New Zealand.
AMB. GROSER: Yeah, without the cash behind it.
MR. SCHWARTZ: Got it. (Laughs.) OK.
AMB. GROSER: And so I had a choice of three jobs. One was to play the young lead male on a new TV soap opera. I’d been on a previous one. The other was to join one of the most chaotic rock bands, because I’d also played bass guitar in rock groups. And the third was the (straight guy ?) –
MR. SCHWARTZ: This is music to my ears.
AMB. GROSER: – join the New Zealand Treasury as a junior economist.
MR. SCHWARTZ: Ah.
AMB. GROSER: I had just enough sense at that age to pick the third option, so I became a junior economist in the New Zealand Treasury. I became interested in economic reform because New Zealand in those days was – looked like the Politburo on a bad day. It was deeply protected by import licensing and extraordinarily high tariffs. It was a complete mess. So we in the Treasury, we knew we had to start by pulling down frontier protection to get an economy into shape. That’s why I became interested in trade.
I then moved to play a – you know, as a junior person, but quite an influential role technically in designing what was considered to be the world gold-standard FTA of the day, the CER, the FTA between Australia and New Zealand of the late ’70s and the early ’80s. I learned huge amounts politically, as well as technically, from that.
Then I went to Geneva, eventually became New Zealand’s chief negotiator for multilateral. Played a reasonably important role in the Uruguay Round pulling agriculture, services, intellectual property into the world system of rules, designed largely and enforced by the United States. Then I went off, a sojourn to Indonesia.
And then I wrote the first think piece that led to TPP. So –
MR. SCHWARTZ: Which we want to talk about here.
AMB. GROSER: Which is, you know, an interesting thing. We haven’t got time to go into the negotiating history here.
So I’ve been with TPP for 18 years. And this is why I say anyone who wants to get involved in strategic trade policy who’s into instant gratification, forget it, buddy. (Laughter.)
MR. MILLER: Wrong career move.
AMB. GROSER: Oh, forget it, wrong career move, you know.
MR. REINSCH: And you’re really the father of it.
MR. MILLER: Yes.
MR. SCHWARTZ: Father of the Trans-Pacific Partnership.
AMB. GROSER: I’ll stop short of saying that. But I wrote the think piece that persuaded George Yeo, who was Singapore’s trade minister, that Seattle was going to fail, there would be no Seattle Round; and we, New Zealand and Singapore, as two small, very pro-trade countries, we need to find a way of bringing the United States into the Asia-Pacific. So let’s start here, get some momentum, and then see if the Americans are interested.
Well, I mean, the strategy actually worked. It’s just that –
MR. REINSCH: Until the last moment.
AMB. GROSER: Well, but – well, let’s talk about that, because actually it has worked; it’s just without the United States.
MR. REINSCH: Yes, yes. Fair point.
MR. MILLER: The agreement is entering into force.
MR. SCHWARTZ: OK, so let’s – yeah.
AMB. GROSER: And then I would make – just two other things. I stood for director general on the basis of what I saw – I left – I was chairman of the rules group in Geneva for the – this is where we met, of course, originally, the WTO.
MR. SCHWARTZ: The WTO.
AMB. GROSER: And then chairman of agriculture group after the collapse of the WTO negotiations in Cancun in 2003. Then I joined the dark side, went into politics, became trade minister for seven years. Negotiated many agreements, including one I think is intriguing politically, a comprehensive FTA with Taiwan, by another name. And then I came up here to be ambassador. And I’m on my way home the day after tomorrow. And if anything I say causes them to declare me persona non grata I’ve left Dodge City 48 hours ago. (Laughter.)
MR. REINSCH: We can always hold off releasing this until you’ve arrived.
MR. MILLER: We can wait till you’re wings up. (Laughs.)
MR. SCHWARTZ: Well, I mean, there’s an awful lot here. But I’d be remiss if I didn’t ask you. Did you keep up your chops on the bass guitar?
AMB. GROSER: No. I dropped it for 30 years as the normal exigencies of children and stuff goes, you know, marriage, you know, blah, blah.
MR. SCHWARTZ: Yeah. Yeah. OK.
AMB. GROSER: And trying to climb up the greasy pole to make a career of oneself as a young person. I started playing electric guitar, jazz guitar, about 10-15 years ago. And I don’t have much time to practice, but that’s what I do. So I do some basic jazz, blues-oriented stuff. You know, as anyone who would worship at the feet of Donald Fagen would.
MR. SCHWARTZ: Oh, yeah. OK, well, this is good. I mean, now we’re talking. Donald Fagen of Steely Dan, of course. So that’s –
AMB. GROSER: For your listeners, the greatest innovative rock band of the last 40 years.
MR. SCHWARTZ: I will not disagree with that. So let’s talk about the Tran-Pacific Partnership. So the United States has withdrawn. The first week of President Trump’s term in office he withdrew the United States from the TPP. What’s happening now? And how is – did the United States squander a chance to build a robust coalition that would push back against China’s unfair trade practices?
AMB. GROSER: Well, this is a very interesting question, because actually the – so what happens – before the U.S. formally joined – and the previous Republican administration had been sniffing around the core of the TPP. It was an agreement called P4 or Pacific Four for some time. And then President Obama’s people, Mike Froman and Ron Kirk, took a bit of time to get into this. But eventually when the U.S. came, of course, it transformed everything. This became a – it moved it from being an intriguing but largely irrelevant little footnote in the history of trade policy to being the big kahuna.
Now, although the United States has left, because the United States left after it was negotiated and, thanks to, frankly, incredible political leadership by Prime Minister Abe, we’ve actually preserved a great deal of the “aquis,” as the Europeans call it, the acquired, meaning the substantive achievements of U.S. power inside the successive agreement called the CPTPP. Think of it as TPP without the United States. So the mark of the United States on things like the provisions on SOEs, the complete lack of special and differentiated treatment in this agreement. The mark of the U.S. is still right front and center. So the U.S. is actually influencing from its past activity. It’s just part of the deal at the moment.
Now it’s coming into force within weeks. I don’t think we need to get technical here. There’s issues around what I call – what trade lawyers call ratification processes. Think of it as 99.9 percent done. It would take an asteroid attack on Tokyo in the next six weeks to stop this.
MR. MILLER: But all the political commitments are in hand.
AMB. GROSER: It’s all – everything’s in line.
MR. MILLER: It’s just ministerial at this point.
AMB. GROSER: It’s just now a procedural wait.
MR. MILLER: Right.
AMB. GROSER: Of very short duration. And it’ll come into effect probably late this year, actually, or at worst early next year. And this is about 14 percent – I mean, obviously we would have loved to have the United States in. The United States hasn’t tried to put pressure on us, the remaining guys, to stop doing this. It’s just said, well, that’s your call. And that’s fine. And it – but it will be a big deal.
MR. SCHWARTZ: Has the U.S. reputation as a fair and predictable negotiator taken a hit?
AMB. GROSER: Well, I mean, this can’t be answered with a simple political response. The reality here is that we are obviously concerned about certain aspects of trade policy. I’m not saying anything that hasn’t been said by my leaders in public. I mean, is New Zealand steel and aluminum imports a strategic security threat to the United States? In our view, obviously not. Were we pleased that the United States withdrew from TPP? Obviously not. But when you start to get down into the substance of this, it becomes a little grayer and a little more nuanced.
You know, I stood for director-general of the WTO in 2012. I didn’t get there because I didn’t exactly choose a winning platform. I wouldn’t accept the conventional wisdom that it was, quote, “the turn” of a developing country. I think what is this some U.N. foreign policy? Besides, this institution’s in deep trouble. And secondly, I said if you think – and this is not wisdom – (inaudible) – as you know, Scott. But if you think that the judicial arm of the WTO rests in some hermetically sealed zone from the complete failure of the WTO to advance rules and negotiations, you are dreaming. The cancer will spread from one lung to the other.
MR. MILLER: The ambassador was one of the few to recognize that the WTO was really running on fumes politically speaking at the time. So –
AMB. GROSER: Absolutely. Now, so the point is that when you – you know, the conventional critique of the administration’s trade policy fastens on the fact that they’ve broken a whole lot of eggs to try and make an omelet. We’ll get to whether making an omelet will be the outcome or not in a minute. But the substance of U.S. concerns have a lot of legitimacy in it. What Ambassador Lighthizer is saying is identical to what I said about the appellate body, for example. Vast judicial overreach. Failure to understand the political limits of erosion of sovereignty. You know, all of these things we have some sympathy for the United States. The issue of special and differentiated treatment. I don’t think I’d be regarded as a super hardliner, but I can tell you this, to take a practical example.
We’ve just – we, in the United States – New Zealand and the United States have just finished, after a long struggle, a highly successful WTO challenge on Indonesia’s agricultural restrictions. Those are costing us, you know, hundreds of millions of dollars a year. I don’t know what it was for the U.S. And but that wasn’t the real driver behind my decision when I was trade minister to work with the former administration to take this case. It was based on this is the fourth-largest economy in – sorry – country in the world, by population. Not fourth largest –
MR. MILLER: This is Indonesia.
AMB. GROSER: Indonesia.
MR. MILLER: Right.
AMB. GROSER: Right. They call themselves a small, developing country. I’m sorry. It is time for Indonesia to start to take up some of the obligations of the system. And I talked at length to people who’d be perfectly comfortable – this administration would have done the same thing, I’m sure.
MR. MILLER: Yeah. Burkina Faso is a small, developing country. (Laughs.)
AMB. GROSER: Yeah, exactly. It’s time to move on this issue. You know, and when I think about the WTO, I remember – I mean, GE’s in difficult straights now. But there was a time when the legendary Jack Welch was CEO. And remember what he said: When the speed of change outside your organization is faster than the rate of change inside, the end is not far. Now, an organization is not a company. Organizations don’t go bankrupt like companies go bankrupt who have lost the plot. What they do is they cede relevance.
MR. SCHWARTZ: Yeah, they lose their mojo.
AMB. GROSER: The lose their relevance. They lose their mojo. This is an issue of the highest importance given what’s happened in a global sense to world trade. So I don’t want you to try and think that I don’t understand what’s driving some pretty extreme policies of the United States. But I share some of those concerns personally. And I’m the record as having done that.
MR. SCHWARTZ: That’s interesting. I mean, how do you see the – so now the TPP is called the CPTPP. How is that going with the United States, in your view?
AMB. GROSER: It’s going really well, because the Japanese have stepped up to the mark. And I mean, I had –
MR. MILLER: Astonished every observer.
AMB. GROSER: Astonishing, absolutely.
MR. MILLER: No one ever expected that.
AMB. GROSER: Look, I remember – can say this because I’ve said such positive things about their prime minister. I think he’s just outstanding.
MR. SCHWARTZ: Prime Minister Abe.
AMB. GROSER: Yeah, absolutely outstanding leader. But in the past, you know, small guys like us and big guys like U.S. were tearing our hair out at why doesn’t Japan, the third-largest economy in the world, share some leadership with the United States for an open trading system? And you could never see it. They would come with three different ministers to speak from three different points of view. To their enormous credit, they started to sort themselves out, actually through TPP. So they appointed a single minister for the first time to be a single voice. It’s not like Japan’s the only country that has interagency difficulties. I mean, every single country in the world has got different agency views when it comes to trade. But we reconcile this, or try to, through a single stream, into a single person who is responsible. And the Japanese have finally got there, around about five or six years ago. And that’s why it’s going forward. That’s why it’s succeeding.
MR. SCHWARTZ: You know, it was pretty slick too. When Abe went down to Mar-a-Lago and gave President Trump a golden golf club. You can’t over – you can’t forget that.
AMB. GROSER: Yeah. He’s good. The guy’s good.
MR. REINSCH: I want to come back to the omelet and the eggs for a minute, because you said the same thing that a lot of people have been saying in a number of contexts about the administration, which is essentially right diagnosis but wrong prescription. That on the WTO, the problems they’ve identified are legitimate, serious problems that need to be addressed. Public opinion here in China, same thing, that the administration has identified serious problems that need to be addressed.
The controversy is over the prescription. What do you do about it? So let’s do the WTO for a minute. Right diagnosis. What would have been the right answer for us, the right thing to do to actually address these problems and not just let them fester?
AMB. GROSER: I will try and be as objective as I can, and say I think to some extent some violence had to be done to get people’s attention. I remember, if you can afford me the privilege of going off track a tiny bit to make the point –
MR. REINSCH: We do that all the time.
AMB. GROSER: One of my – one of my greatest –
MR. SCHWARTZ: (Laughs.) Welcome to The Trade Guys.
AMB. GROSER: One of my greatest mentors when I was a young man, he taught – he was one of my professors of economics and he later turned into the brilliant academic mind behind the New Zealand Central Bank, introduced me to what he called the Donkey Theory of Management. Now, the Donkey Theory of Management –
MR. SCHWARTZ: Scott is smiling.
MR. MILLER: We could maybe use this.
AMB. GROSER: And you have in the WTO. Bill decides that – he sees me, a struggling peasant farmer, with my only one asset, which is a donkey. And the donkey won’t move. And I’m not strong enough to make the donkey move. Bill is from Boston or one of the great –
MR. REINSCH: Chicago. Chicago.
MR. SCHWARTZ: He’s from Chicago.
AMB. GROSER: Whatever. And he says, I can help you. I can give you advice on how to get your donkey’s attention. I said, well, I can’t afford your rates. He says, no, no, no. We do pro bono. We do pro bono. So I say, if I don’t have to pay, sure. So Bill comes up to my donkey, my only asset, picks up giant mallet and smashes the donkey right in the middle of the forehead. The donkey falls to the floor with its legs splayed. And that’s the end of the story, except that I ask Bill: What the hell did you do that for? And Bill says, because there are occasions when you’ve got to get their attention. (Laughter.)
Now, we don’t know whether that donkey got up again and survived and moved forward or not. Be sure that if he did survive, he would have learned the lesson. We’re still at the stage now where as a result of these technical maneuvers that are no – we understand, but we don’t need to get into them – the hammer blow has been put through the judicial process of the appointed judges. Basically, we’re either right at it now or will be, where nobody’s at home to hear the cases. And when you have a dysfunctional dispute settlement process, then it calls into question the political solidity of a whole set of rules that underlay the entire global supply chain of the world, right?
So we don’t know whether the donkey – whether we got the donkey’s attention. I’m prepared to concede personally that sometimes the Donkey Theory of Management needs to be done. What I don’t know is has somebody in the system here, the most important country in the world, actually got a plan to get the donkey up again and move forward? I don’t know.
MR. REINSCH: Well, I think it is up again, at least staggering. You’ve got the Canadian effort, the meeting in Ottawa, I guess, now two weeks ago with 13 countries, including yours, to try to develop an approach. You’ve got a paper from the EU. You’ve got a trilateral effort from the U.S., EU and Japan to deal with the China problem which underlies a number of these issues. Are any of those, you know, a signal the donkey is getting up or not?
MR. MILLER: Well, there’s actually a – there’s an important thread to pull out of all those efforts, which is there’s finally a recognition that the – you’ve got to get away from the guys of a single undertaking and solve all known problems, that the institution needs to make some progress. And that, for me – that’s a salutary improvement.
AMB. GROSER: I think the clear answer is yes, you’re right, Bill. There are signs of the donkey’s beginning to twitch and come to life again. We just don’t know whether the attack has been so fatal that we can actually get it to move forward.
MR. REINSCH: It’s not just having a stroke, it may actually –
MR. MILLER: (Laughs.)
AMB. GROSER: So I –
MR. REINSCH: Gathering strength.
AMB. GROSER: I think there are some signs of that. The Canadian meeting I think was a good one. And the guy that succeeded me as trade minister came and spoke to Ambassador Lighthizer before we went up there, because we didn’t want this to be seen by your system as an anti-American thing. China didn’t come either, by the way.
MR. REINSCH: And how did that go?
AMB. GROSER: I think it went reasonably well. But, I mean, this is going to take a long rebuilding.
MR. REINSCH: Well, that’s – we’ve talked to the Canadians about this. In fact, we’re talking to the Canadians later today. And I think the clear message we got from them is that this is going to take a long time. I mean, everything takes a long time at the WTO, and this one in particular will take some time. I’m not sure, with this administration, whether we have time. And that’s what worries me.
AMB. GROSER: Yeah. Well, I mean –
MR. SCHWARTZ: Well, they definitely know the donkey story.
AMB. GROSER: Yeah. (Laughter.) Yeah. I mean, there are people –
MR. REINSCH: They’ve got – they’ve got the mallets. (Laughs.)
AMB. GROSER: There are – as you know, there are people who say the intention is not, in fact, to make the donkey walk forward again.
MR. MILLER: Sure.
AMB. GROSER: I mean, this is the – I mean, I’m not going to ascribe this to any particular individuals, but it’s a matter of public record.
MR. MILLER: No, but that’s the skeptical or the cynical view of –
AMB. GROSER: Exactly.
MR. MILLER: – the administration’s action, is –
MR. REINSCH: Well, yeah, we’ve talked about that before. And the other argument is the variation of this apocryphal quote from Vietnam. We had to destroy the village in order to save it and that, you know, we have to destroy the appellate body and then we’ll build something that’s better. And I’m baffled by the latter statement. I don’t see how you’re going to come up with anything that’s better, because it’ll almost certainly be a GATT-based voluntary structure, which I think would be a huge step back.
MR. MILLER: I always wind up going back to our Geneva ambassador Dennis Shea’s comment to Bill at a CSIS event is that we’re being disruptively constructive.
MR. REINSCH: Yeah.
AMB. GROSER: I know the phrase.
MR. MILLER: And I don’t know whether the adjective or adverb prevails here. So we’re going to find out.
AMB. GROSER: I just think that we should immediately take your ambassador to court for a vast breach of intellectual-property theft, because he clearly stole this from Schumpeter, creative destruction. (Laughter.) Is he aware of this? Shall I start a case immediately against them?
MR. MILLER: That sounds like a good plan when you –
AMB. GROSER: Well, but, I mean, he’s absolutely right. So we’ve done the disruptive part.
MR. MILLER: Right.
AMB. GROSER: Are we going to get to the constructive part is the question that all of us here are grappling with.
MR. MILLER: Correct.
MR. REINSCH: You know, he does have an IP problem, because we had a closed-door session with him before the public session when he said that. He was asked another question. He said the same thing you had said, which is, in effect, you know, you can’t make an omelet without breaking eggs, which, of course, is from Lenin, which he apparently didn’t know.
AMB. GROSER: Lenin?
MR. REINSCH: Yes.
AMB. GROSER: OK. I wonder what that sounds like in Russian?
MR. SCHWARTZ: Are you talking John Lennon or –
MR. REINSCH: No, Russia. Vladimir Lenin.
AMB. GROSER: Vladimir.
MR. SCHWARTZ: Oh, all right. OK.
MR. MILLER: The other Lenin.
MR. SCHWARTZ: The other one. The less important one. (Laughter.)
AMB. GROSER: I suspect that something may have been lost in translation; that if we could all speak fluent Russian, it would sound much more lethally dangerous in Russian. Don’t you think?
MR. MILLER: Most likely.
MR. SCHWARTZ: I’m still tripping out about the donkey. I mean –
AMB. GROSER: I mean, if you go back to my anecdote about my attempt to convince the WTO when I stood for director general, guys, we have a real problem here – no, no. Nobody wanted to hear this, you know. And the amount of spin that was going on, trying to create tiny little procedural things some giants – I mean, give me a break, you know.
So the first thing was to shift the underlying attitude that actually we’re doing fine. No, you are not. Second step is to start now slowly building up the substantive shifts in direction. I don’t think it’s appropriate to start to try and draft something that’s legally binding or anything like that. Start to talk about what do we need to fix.
I mean, for example, some of it is old-fashioned plumbing, like if I look back on my career as a professional trade negotiator, not as a politician – because I always felt I had much more power as a chief negotiator of my country than I ever had as a minister of trade, for reasons I won’t go into.
But one of the things I’m most disappointed about was the proposal I put forward in the Uruguay Round for reform of Article 19, the General Safeguards Agreement. It wasn’t usable. And I knew the steam in the kettle needed – I’m not some ideological free trader. I totally believe that’s the direction we should be going. But I recognize politics, and –
MR. REINSCH: Oh, yeah. Safeguards are basically –
AMB. GROSER: Safeguards are fundamental. We don’t have an effective safeguard for dealing with fair trade.
MR. REINSCH: Right.
AMB. GROSER: Actually, CVD and AD, contrary to what some in this country think, actually do work. That’s why Chinese imports of steel and aluminum are down to, what, 2 percent –
MR. MILLER: Sure.
AMB. GROSER: – or something of that ilk.
MR. MILLER: Exactly.
AMB. GROSER: They have worked.
MR. MILLER: That’s right. And –
AMB. GROSER: The problem is fair trade.
MR. MILLER: And that’s the tool politicians could most benefit from –
AMB. GROSER: And I put forward a –
MR. MILLER: – because you stay on the right track.
AMB. GROSER: – sensible proposal – I won’t go into it now because it gets into deeply technical stuff quickly – about just having the right to – when you need timeout politically.
MR. MILLER: Yes.
AMB. GROSER: And the extremists in the developing world killed my proposal. So, you know, I think you’ve got to start talking about a range of frankly fundamental old issues like that, around the base, the juridical base to special and differential treatment, which is the 1979 enabling clause. And then we have to get into 21st century issues. Start to build up consensus, but don’t think you can – that there’s somehow some – if only we could find the magic solution, we could then move this game forward. No, no, because we can’t do this without the United States.
MR. SCHWARTZ: Speaking of the United States, there’s something on the horizon that I think we should discuss here. President Trump and President Xi of China are likely to meet at the G20. Is there a breakthrough that might happen with them? And what would that mean for the rest of the world?
MR. REINSCH: Well, you know that it will be the most successful meeting in history, or at least the most successful meeting since the Kim Jong-un meeting.
MR. SCHWARTZ: It’ll be a huge meeting.
MR. REINSCH: So it will be a huge success.
MR. MILLER: It’ll be luxurious.
MR. SCHWARTZ: Definitely. Beautiful.
MR. REINSCH: And there are – the rumor is there may be Chinese coming here next week to get ready for it.
MR. SCHWARTZ: Right, to meet with our trade ministers.
MR. REINSCH: Yeah. Well, we will see. It depends a little bit on who shows up. With China, you can learn a lot by who they send, and –
MR. SCHWARTZ: So we don’t know who’s going to show up until they get off the plane?
MR. REINSCH: I think we’ll know before they get off the plane. But when I heard the rumor yesterday, we didn’t know who it was going to be. So we will find out. My guess is –
MR. SCHWARTZ: You can ask Peter Navarro, because he’s going to be here tomorrow at CSIS.
MR. REINSCH: Well, there you go.
MR. SCHWARTZ: OK.
MR. REINSCH: If he – will he know? Probably.
MR. SCHWARTZ: You would think.
MR. REINSCH: Well, I’m not so sure. We’ll see.
MR. SCHWARTZ: All right. Well, your –
MR. REINSCH: Anyway –
MR. SCHWARTZ: Your job tomorrow, though, is to ask Peter Navarro when he is coming on The Trade Guys. That’s what you guys need to do.
MR. MILLER: I’ll be there if you want me to ask that question.
MR. SCHWARTZ: Yeah, you’ve got to ask that, because I’m going to be in New Orleans.
MR. MILLER: Yeah. All right.
MR. SCHWARTZ: So you guys got – you guys –
MR. REINSCH: Is it in the morning, or when is it?
MR. SCHWARTZ: Yeah, it’s in the morning.
MR. REINSCH: Then I’m teaching, so Scott has to do it.
MR. MILLER: OK. Well, I’ll see if I –
MR. SCHWARTZ: All right. Scott’s on it.
MR. REINSCH: Lots of planning.
MR. MILLER: So there’s a high hanging curveball over the plate that I’ve got to smack out of the park.
MR. SCHWARTZ: Scott is totally on it. All right. (Laughter.)
MR. REINSCH: Anyway, getting back to the actual question –
MR. SCHWARTZ: Yeah. Yeah.
MR. REINSCH: – it seems to me that the most likely thing is that they will agree to have a real and serious negotiation and that they each will appoint somebody very high up to undertake that; in our case, probably Lighthizer. In their case, the good sign would be Wang Qishan, who’s the vice president –
AMB. GROSER: Yeah.
MR. REINSCH: – and which is not quite the same as – well, maybe it is kind of the same as –
MR. MILLER: Similar. More similar than it’s been in the past.
MR. SCHWARTZ: Important guy in China.
MR. REINSCH: An important guy that the president, in that case, has confidence in to have a discussion. It’s hard for me to imagine, given the breadth of our complaints, that we can work out something between now and the end of November. The only way we could do that is if the president does what people expected him to do last spring, which is to settle for a cheap market-access deal.
MR. SCHWARTZ: All right. But if we –
MR. REINSCH: You know, they buy more soybeans. They buy more LNG. They buy more planes.
MR. SCHWARTZ: Right. But as you’ve been – as you’ve said, flipping the switch on and off is not easy. And if the president doesn’t work out a deal with the Chinese soon, you’re talking about some potential – it wasn’t an issue in this midterm election, trade, but it certainly could be an election in two years – it certainly could be an election issue in two years.
MR. REINSCH: Well, yes, because of – I mean, he’s got two pieces of leverage and he has – he loves to threaten. One piece is the tariffs that’ll go from 10 percent to 25 percent on January 21st – January 1st. You can do that or you can not do it. And the other piece is the additional $257 billion worth of stuff that doesn’t have tariffs on them yet. You can do that or not do that. He’ll probably threaten both; already has. My guess is that they won’t do the latter. They will do the former, unless they’re making progress, in which case maybe they’ll hold off.
MR. MILLER: And maybe they’ll just have a plan to make progress. Also, look, China’s part of this calculation as well. Today the third-quarter balance of payments was reported, and China had the first negative essentially capital outflow, net investment outflow, since the 2016. So things aren’t sunny in China at the moment as well, at least in terms of investor sentiment. So there’s motive – there’s motive for action on both parts.
MR. SCHWARTZ: Got it. Got it.
Ambassador, this has been fantastic having you on. Your insights are invaluable. What advice do you have for Americans as they look at trade unfolding over the next several years?
AMB. GROSER: To employ my new company, Groser & Associates.
MR. SCHWARTZ: (Laughs.) There you go. All right, Groser & Associates. How do we reach you?
AMB. GROSER: I’ll create it as soon as I hit the ground. And my fees will be outrageous.
MR. SCHWARTZ: OK. Well, that’s what – we love that, so –
MR. REINSCH: This is Washington. People are accustomed to that.
MR. SCHWARTZ: Yeah.
MR. MILLER: When I first was thinking about going in the private sector a long time ago, I met with someone who had done that and I asked him for advice on fees. His advice was figure out what you’re worth and then triple it, and then add 20 percent. So that’s my advice.
MR. SCHWARTZ: There’s the formula. OK.
AMB. GROSER: I love it.
MR. SCHWARTZ: To our listeners, if you have a question for The Trade Guys, write us at TradeGuys@CSIS.org. That’s TradeGuys@CSIS.org. We’ll read some of your emails and have The Trade Guys react to it.
We’re now also streaming on Spotify, so you can find us there too. How cool.
Thank you, Trade Guys.
MR. MILLER: Thanks, Andrew.
MR. REINSCH: Thank you.
MR. SCHWARTZ: You’ve been listening to The Trade Guys, a CSIS podcast.