Webinar: The Future of the Global Trade System

Dr Robin Niblett CMG

…our building, disappointingly, still, but I’m delighted to be keeping up our great programme of events in this our centenary week and marking the week after the 100th anniversary of our first meeting on the 5th of July 1920. And I think it’s highly appropriate that we would have an opportunity to talk about the future of the global trading system, and I can’t think of anyone better to engage in this conversation with than Ambassador Robert Lighthizer, the US Trade Representative, who’s been an architect of one of the key aspects of the Trump administration and is really giving us a chance to think through very carefully the future of trade in the context of the past of trade.

And I think one of the things that was most notable about the years after the founding of Chatham House, those interwar years, was the collapse of what was then the trading system and all of the negative things that followed on from that. One of the things that was fixed immediately post-war was the trading system, the creation of the General Agreement on Trade and Tariffs – Tariffs and Trade, which was then succeeded in 2000 by the WTO, the World Trade Organization. That has been creaking at the seams for a while, and especially given the pretty impactful arrival of China and a huge workforce into global markets as a result, one could argue that it’s been creaking for a while.

Certainly now, it is heavily under challenge and the Trump administration has taken a very careful look at what it believes are the inequities built into that system and taken it on, in some cases within the WTO system, and in some cases operating more off its national laws. Allies have been hit, competitors have been hit, but there’s no doubt that it is certainly putting a question what we mean about trade, what are the benefits, what are the risks, and how should it be thought about for the future? We would be able to say all of that even without COVID-19, but with the fact that the COVID crisis has come in the middle of this, rethink of the future of global trade adds all sorts of intensity.

I want to remind you that this conversation is on the record, as I think you all know, it is also being livestreamed. If you wish to tweet, we have a hashtag for this week, #CHCentenary, and obviously we want this, as with our other meetings, to be very interactive and engaged, so please, as and when you want, start giving us some questions in the ‘Q&A’ box. We would like to be able to turn to you to ask your questions, we can unmute you. If you’d rather not ask them yourselves, just put that in the note, say, “I’d like the moderator to ask this question for me,” but otherwise, we will, by preference, try to call on you. So, do please put questions into the ‘Q&A’ function, and I will be – you know, we’ll make sure there’s plenty of time for conversation here.

Just to remind you all, Ambassador Lighthizer was sworn in, in May of 2017 as the 18th USTR, US Trade Representative. He is a very experienced Litigator and Negotiator. Some people know, but not many people know, he was the Deputy Trade Representative to President Ronald Reagan. He was also Chief of Staff to the US Senate Finance Committee. These are roles that require great skill in that particular dimension of really thinking through the legal and procedural and negotiating dimensions of all aspects. He has a number of feathers in his cap from his three to nearly four years in situ now, which includes the US-Mexico-Canada Agreement, the first phase of the US-China Agreement, and bilateral agreements with South Korea and Japan, amongst others. And, obviously, he is at the heart of shaking up the WTO with an appellant body that is right now not able to operate.

But I think he will have the opportunity to explain the philosophy, and, Ambassador Lighthizer, welcome again. You and I had a chance to have a couple of words before this, but we’re thrilled that you would take the time to join us. Maybe I would kick off and say, you know, what’s the philosophy, I suppose, that’s animating the Trump administration’s strategy, your strategy, honed over many years, about global trade? Share those ideas with us, then we can engage in conversation a bit. Thank you again for joining us.

Ambassador Robert E. Lighthizer

Well, thank you very much, Dr Niblett, I appreciate it. It’s an honour to be here. I am a fan of the Chatham House, I think you’ve made enormous contributions to international policy for 100 years, and that’s quite an accomplishment. And whenever, over here, we talk about the very best think tanks in the world, Chatham House is always at or near the top of that list. So, I want to congratulate you for your now several years as the head of it and congratulate all your scholars for all the work you do and all the things you facilitate, and I’m honoured just to be here and to participate. I do, at some point, want to actually go to the House and see the House, so that I can actually say, “Yes…

Dr Robin Niblett CMG

We’ll find that opportunity.

Ambassador Robert E. Lighthizer

…and I was at Chatham House.”

Dr Robin Niblett CMG

Thank you.

Ambassador Robert E. Lighthizer

Well, that’s kind. I appreciate the introduction, too, I – it is, in fact, true that I was Deputy to my current job in the mid-80s, and some of my friends have suggested that it took me 35 years to get a promotion. With that, nonetheless, here I am, full of strong views, and now able to do something. The future of the global trading system is a big issue, I’ll – I – what I would propose to do is just briefly – I’ll just, in a sentence or so, say what our philosophy is because you asked that question, do a little bit of the history very quickly, but not because people don’t know what the – rather, they’ll want to know how we think about it, ‘cause I think that’s an important part of this, and knowing the history of it really is critical.

So, I would say, in the past, trade policy has been very often dictated by either foreign policy or foreign policy concerns, or I would say a philosophical commitment to finding efficiency, and some would say that’s free trade, and we can talk about what all that means. I would say President Trump’s view is more that it is an expedient to help people in America, working people, farmers and ranchers, and that it – we start with the proposition, what kind of community do we want, and then we work back to what our trade policy should be. As opposed to a philosophy that would be here is what maximises efficiency, now here’s the society you get, and if you follow that line, then, at the end of the day, you have to think about redistribution, because you’re not going to be in the position where you have the society you want. So – and we can talk more about that, I’m happy to.

The way we look at this, generally, the – kind of, the historic context that we put this in is, trade for hundreds of years, right? Trade has been going on for ever, and trade, for hundreds of years, really was very expedient-driven. It was driven by small communities and trying to figure out ways to help themselves, usually ways to get an edge, right? Then we would speed forward and we would talk about the American system, which we all know about and talk about, and that was basically using tariffs and internal promotion to create a strong, vibrant manufacturing and then services industry in the United States. The Germans did essentially the same thing.

Now, while we were doing that, you were leaving the Industrial Revolution, putting tariffs in place, and then you had your great debate in the 1840s, and then you ended up implementing the Corn Laws and doing the sorts of things that led to free trade. That was more or less free trade. What passed for free trade at that time, I guess. And then, that was more or less the state of play until the turn of the century, in which case you went through the debate again, alright? And then you came out more or less on the same side after a period of time, although people can talk about that. But even during this time, there were still, kind of, this ad – there were advantages to empire, there were imperial preferences, so it was free trade, but it was, kind of, like, free trade because we think we benefit maximum – maximised. It wasn’t really – in my view at least, it wasn’t just driven by some blind devotion to Adam Smith or David Ricardo, right? It was something more practical than that. Then we find ourselves now, we’re – and, by the way, we saw lots of trade, huge amounts of trade, and then we had World War I, and we – and from the very people who were arranging all the trade, and then we saw, you know, increases in trade after World War I, eventually, then we had our Depression, which basically got rid of all the trade, and then we had World War II.

So, now we’re at World War II, what basically happened? The way we see it – the way I see it, maybe I shouldn’t speak for other people, is that when World War II came along, at the end of the war, we’re the only industrial power of any real strength. We have a real obligation to the world to get people back on their feet, we have – communism is something we have to worry about, and so, there’s the decision, conscious or otherwise, made that geopolitical considerations are basically going to dictate what our policy is. We get together with everyone, and we start the basic foundation blocks of what we would consider to be the global system, not just trading system, but global system. Interestingly, the International Trade Organization was part of that, right? But the – but that didn’t get anywhere because the United States never ratified it. The United States didn’t ratify, they had – and then we – ‘cause people tend to forget this history, then we, kind of, migrated to this gap, which was just, kind of, sitting there, and then it morphed into something more than what it was. So, that’s the – the United States Congress never formally rejected the ITO, but it would have, so, it wasn’t given the chance.

Alright, so, that’s more or less where we are. We find ourselves in a system where now we have seven negotiating rounds. They start off very much tariff-driven, and then they get – as we go on and on and on, they go in more to deal with standards, which we can talk about and should talk about ‘cause it’s such an important part of where we are now. The la – the eighth one is the Uruguay Round, that sets up the WTO, and then we move forward from there. The next big thing is China joining the WTO, right? In 2001, we have China coming in, and now we really are in a different world. We look back, as Americans, or at least as Republicans, and I think Democrats also, as you alluded, certainly the President, we look back at the period since the Second World War and say that was the noble, right thing to do, and it had positive consequences for Europe and Japan and the United States, I would say the world. But it was at a price. The United States had to pay that price, and it was a substantial price.

We look at what happened, as things progressed, particularly when we get into the – and I can talk about the 80s also, I can talk about whatever period you want, but, sort of, like, into the 90s and going forward, we start seeing these enormous trade deficits about the United States. So, now we no longer have all these threats of com – of at least Soviet communism and the like, but the United States is running up bigger and bigger and bigger and bigger trade deficits. This was never anticipated by theorists about free trade, right? It wasn’t supposed to be like that. So, we’re not talking about 70/80 billion, we’re talking about six, seven, $800 billion, year-after-year-after-year, in trade deficits. At the same time, we see a loss of five million manufacturing jobs, in a fairly brief period of time, and you can blame a lot of things and I can argue that any way you like. Then you see the consequences that that has on our society, which has increased in suicides, and the breakdown of the family, to some extent, I don’t want to overstate that, but it’s a significant fact, you see drug overdoses and all that. I’m not saying that all this comes from trade, ‘cause I don’t believe it, but I think it’s a contributing factor to a lot of other things, and it’s something that we have to think about.

So, what did President Trump do? And I should say President – this loss that I’m articulating is mine, it’s his, it’s by coincidence that we both have the same one, it’s probably the reason that – or one of the reasons that he hired me, but he’s been talking about this since he was 35, right? He was talking about it when the problem was Japan and so he – this is not like it’s something we’ve just come up with because it’s, you know, sort of, expedient. The focus has to be more, in the end, what do you want, and then you move backwards, but it’s all got to be done with moderation, right? If you go too far one way, too far the other, if you overemphasise something in a complex equation, you’re going to end up with a bad result. So, when the President came in, he said, “We have to change these things, we have to man – we’ve lost a lot of manufacturing jobs, we’re starting to lose the services jobs, it is not good for the United States.” There’s no particular reason for us to carry this burden alone, and a lot of real inequities have crept into the system. So, let me talk just briefly about it, and then I’ll be quiet and listen to questions. So, where are the stress points? There are a lot of stress points, right, in this system.

One enormous stress point, and then we can just – we can talk about these in greater length. One is, why is that over all these rounds, Europe, Japan, the United States, ended up with very low tariffs, and a lot of the rest of the world ended up with very high tariffs, right? Poor negotiating is one possibility, but there are a lot of other possibilities. So, we have huge swings in tariffs that I’m happy to ar – you know, to go on and expand on that a little bit, that’s something that has to be addressed.

Two, we’re finding barriers to trade popping up. People are using – we would say non-scientific, but that’s not really accurate. People are using their own ideas of what society should be like to create barriers to trade. Some of those are like Europe with their geographical indications, right? I mean, there’s a lot of these things that are just being used, or how fast a tractor should stop, or how you prepare your meat, or things, right? And there’s a philosophical question issue, that can be protectionism, it may be worth it, it may not be worth it, but it is – clearly has that effect.

The third thing I would say, I think this tendency, a little bit by us, but mostly by Europe, to enter into massive numbers of free trade agreements, they are, like, 77 of them, I think that is one of the biggest challenges to the multilateral trading system. It really is, you can think of it almost as the imperial preference coming back. It’s almost like some kind of a trade colonialism, and why is it that they should have 77 people that they give better tariff rates to than the rest of the people, right? It’s very contrary to the whole notion. Now, I would distinguish, like, USMCA, which you just mentioned, or EFTA or something, I would distinguish that, where you have a group of people, continuous, that are trying to create more or less a market. That’s one thing, but going all over the world and basically trying to get an edge on everyone in hundreds – well, not hundreds, but 77 bilateral deals, I would suggest that’s a real challenge to the trade system. It’s never what was intended, and it’s Europeans acting in a very protectionist and anti-multilateral way. So, that’s something I want people to think about.

The fourth thing is, why is it that, since the Uruguay Round, we’ve had really no negotiations? We had a facilitation agreement, forget that, right? We have a negotiating going on now, one right now that’s on fisheries, and we have Europe and China basically blocking it because they want to subsidise. Why is that we haven’t had any negotiations for all of these years? I would say one of the principal reasons is, a dispute settlement system that was headed up until recently, as you suggest, by an appellant body, which created jurisprudence, and that jurisprudence took away benefits that members had negotiated and put new obligations on those people. Fundamentally different, it’s taking a negotiating forum and turning it into a court, turning it into a litigation forum. That – those are fundamentally different ideas, and it was a huge mistake, and we can talk about this huge settlement and [inaudible – 17:30]. But there’s no question that people have the view that I can file a lawsuit, and we’re very often the victims because we’re the biggest market, can file a lawsuit and give something I never could have gotten in a negotiation, and if I follow the lawsuit and lose, there’s no consequence, and you know something else? I’ll just file it again until I win. So, it’s – the whole appellant body creation of jurisprudence strikes me as foolish.

The next thing I would say is, and this is the final one, is China. The system does not deal with a massive economy that has state capitalism, technology transfer, huge subsidies and the like. It just isn’t created to deal with that, and that – I’m not saying I have the answer to all of these questions, but I think they’re really fundamental questions. There’s – as a subheading under China, I would put this, and it doesn’t just apply to China. There’s this notion that you can purchase a competitive advantage, right? So, let’s use an example, and just forget about China for a second. Korea, Korea has one of the most competitive steel industries in the world, but yet they don’t have any reason in the world to have a steel industry, except that they created one through government policy, and now – so, when do you have Ricardo kick in? At the beginning, at the end, in the mi – you follow what I mean? This – it’s a complicated problem.

So, what do we need? One, we need a reset on tariffs, just – for sure. Two, the jurisprudence idea has to go. Three, standards is very, very tricky, and we can talk about that. China is also, you know, a tricky thing and the FTAs, in my opinion, we should just get rid of ‘em. We should have a multilateral system or a bunch of bilateral systems, and, to be honest, I can go either way, but we can’t have people who, like the Pharisees, pro – you know, profess a multilateralism and then go around and basically being the biggest proponents of bilateralism. So, in any event, I’ll – if I haven’t incited enough anger, I’ll go on, but I’m assuming I have, so I’ll stop at this point.

Dr Robin Niblett CMG

You’ve laid it out very clearly, both historically and importantly, in terms of the steps that you [inaudible – 19:52] seen being taken currently. And you laid out a menu of these five topics, in particular the, kind of, reform of the WTO getting away from this making of law, which I suppose European countries, or EU member states at least, have more experience with because, in a way, that’s their systems slightly to allow law to be made through that system, but it’s not one that’s shared obviously, by the majority of countries around the world. And your comments obviously about China, very interesting points about the expansion of bilateral trade agreements, and that these, in a way, have undercut the multilateral system in any case, and we can come back to that.

We’ve got lots of good questions that have already been put into the mix, and so what I’m going to do is call on some of them in about ten minutes. But I just want to put a couple on the table for myself right at the beginning, because, for those of our guests, members, viewers, all of those joining this call today, I would recommend that they take a read of your article in foreign affairs, I think it lays out some of the points you made today. You’ve actually gone beyond it in some of the comments you made as well, but it’s a good reference point that – well, you had more time than you had in 12 minutes or 13 minutes to lay out the philosophy. But it refers back to your comment about this core priority for US trade policy been moving away from the emphasis on economic security, economic efficiency, and thinking more again about the dignity of work, helping people regain those manufacturing jobs, the pathway to the middle class, you mentioned farmers and ranchers as well in your comments there with this.

My question that jumped out to me from that and from reading your article was, it feels to me like the administration, President Trump’s administration, is putting a huge amount of emphasis for remaking America around trade. As you yourself have noted, I think there’s 40 million jobs at risk of being offshored in the service sector, and I think you’ve noted yourself before, that’s more than three times the amount of American jobs in the manufacturing sector, so I don’t know what that means, 12 million jobs, something like that, in the US manufacturing sector, 250 million total, you know, in the entire US working capacity of its population. Isn’t this emphasis on manufacturing, on trying to get the field levelled out a bit more, for that particular group of the US electorate, being done at the expense of many other things, and relationships with allies, I know the service sector, I could – consumers, do you really believe that trade policy can make enough of a difference, when it’s focused on manufacturing, which is such a small proportion of US GDP? I’m – I think this is, like, a core part of the philosophy I wanted to check with you on. What are your thoughts on that, Ambassador?

Ambassador Robert E. Lighthizer

So, that’s an excellent question. I would say a couple things. First of all, with respect to all of these things, we – you know, we can’t, sort of, you know, reduce them to their most absurd, kind of, consequence, right? So, it’s all a spectrum, and we think we’ve gotten way out of whack in one area, and we’re trying to bring ‘em back. So, I don’t want to say that there’s no, for example, efficiency element in this, that would be crazy, and I don’t want to say that there’s no geopolitical element because that would also be crazy. Obviously, we have certain core relations with people and we have to keep that in mind. But the other side of that is, we shouldn’t be selling out too much for that either, and there are always people who are on that side.

Now, in terms of manufacturing, well, let’s look at our economy generally. As you say, services jobs are more – there are more services jobs. I would say a couple of things. One, if you look in services and you, kind of, dissect it, the biggest part of services is healthcare, right? So, in other words, when we talk about services, most trade people think financial services, right? And insurance and banking, but that’s really a tiny part of it. Even in the trade sphere, if you look at, like, our big trade in services with China, it’s travel, it’s tourism, it’s education, and so I’m not saying those jobs are not – aren’t important, they’re obviously very important, but I think trade policy doesn’t have a lot to do with healthcare jobs. It might have a lot to do with pharma products and beds and all of that kind of thing, I don’t suggest that, but I just say a lot of this is, kind of, outside of the sphere of what we’re talking about. Government jobs, there’s a lot of it that is when I hear the statistic, and manufacturing is more important than that, number one. Number two, manufacturing spins off other things, right? It spins off both other jobs, including services jobs, but it also spins off innovation, and when I say manufacturing, I mean producing things all in a continue – and include pharmas and the like in there. But it spins off innovation, it spins off leadership and the world, creating things, creating – so, I think it’s more important in a lot of ways.

Secondly, if you look at our workforce, about 50% of our workforce does not have a college degree, alright? What should those people do? How do those people get into the middleclass, how do they have husbands and wives and stay together and have families? That’s what the President’s focused on, and in all our communities, right? I mean, in all the communities of America. His job – his view is, “I want those people to be in the middleclass and to have families and have their kids do better than them and stay together and not get into drugs and all these kinds of things.” If you don’t have a college degree, manufacturing becomes very important, and the things that immediately spin out of manufacturing become important. So, I guess that’s more or less my answer, but I would say it’s manufacturing, but it’s also agriculture, it’s producing things, and I think, if you look at, you know, where’s the great Engineers and the great Scientists? They’re all producing things, right? So – and not all of ‘em but a lot of ‘em are, so, I think it’s a fair question, I think, you know, that’s more or less my response.

Dr Robin Niblett CMG

No, I think it’s a very – the one thing we know, even here in the UK, from the loss of manufacturing jobs is not just, you know, for every one manufacturing job you lose, you lose six, seven associated ones in all sorts of supply chains around them, and also in services, so I get that there is a multiplier effect. I’m just conscious that with so many dynamics of what would drive good manufacturing opportunities, and this is not just in the US by the way, this would apply to the UK as well, from infrastructure to education levels, etc., that it’s probably a big issue. Let me ask one other question, and then I’m going to – we’ve got so many questions coming in, I’ll turn to our guests and to a few of those. You’ve brought in the issue about China and, as you said, it has taken advantage of some very favourable early treatment for when it first joined the WTO, and this administration has seen itself as putting things right, and tried to level the playing field back up again.

One of the questions that’s always asked here in the UK and around Europe, and I didn’t see it on the list of questions, so I don’t think I’m asking anyone else’s question on this, is that it would be so much easier for the US to have a common front vis-à-vis China, to tackle these issues, whether in the WTO or whether even bilaterally in a US-EU common front, if you hadn’t started off as administration by hitting European countries, along with Canada, with steel and aluminium tariffs, based on national security requirements. It felt so much like a slap in the face to people over here that you’ve got a very suspicious, kind of, potential allied group, who, as you know, from the way things have gone the last year or two, probably do want to work with America on a lot of this stuff. There’s a lot of suspicion here in European capitals. Can you explain to me why the administration, kind of, lumped everyone together in that same basket at the beginning, given it has had a pretty negative knock-on effect?

Ambassador Robert E. Lighthizer

So, that’s a lot of questions, and you promised you were only going to ask one, but I’m going to try to answer ‘em. I would say, first of all, on the issue of why don’t you work with your allies? I would say we are working with our allies. There’s a trilateral group that I’m a part of, and it involves Europe, it involves Japan, and it’s been helpful. I think as we put out six different statements, we’ve had several meetings, and I think we’ve made a lot of progress. We’re trying to work together on trying to make reform to the WTO, but also other things, like investment and technology control and the like, so I think we are trying to do that. Second, I would suggest that some of our allies, and probably I would put Europe in this space, there are people in Europe who view themselves as wanting to benefit from the fact that we have trouble with China, rather than trying to solve the problem, and you see a certain amount of that. So, if you see, like, the solution, the European solution to the appellant body thing is an alternative developed by Europe and China. When the United States had a fight with China on the 301 tariff, Europe was on China’s side, so, there are – and I could go on, there are a lot of other examples. I – and this is a whole nother issue, and I probably won’t get into it, but we’ll go down another rabbit hole, so I’ll let it go at that.

When you say and just the steel and aluminium by itself, so the first question is, did we have a crisis, right? And I would say the answer is, unquestionably, we did have a crisis, and if the President had not taken that action on using our national security, our 232, there’s no sense in getting into too many US laws, but get – if he hadn’t taken that action, I think we would have real jeopardy, particularly given where we are right now in our steel and aluminium and industry, and they are essential, right? And the United States is competitive in that area. If you said what’s the nature of the problem in both of ‘em, the nature of the problem is that China has created – this would – I can go back to, you know, our Ricardo competitive advantage now, they have purchased a competitive advantage, right? And that is that they don’t have to operate, based on normal economics.

So, in terms of the extent to which they have created a problem, I’ll give you an example, ‘cause I think this is stark. The United States’ effective capacity in steel, which is essential to all of us, a major economy like ours is, say 80 or 90 million tons. China’s is, like, 1.1 billion tons, and the excess capacity they have, I don’t keep up with these numbers like I used to in the old days, but it’s probably four or five times, total US consumption. So, there’s a problem in the world with steel, and it was coming to the United States in a way that was very threatening. The same thing is true, one on a smaller scale, on aluminium. So, I’m saying that action was justified. I would say it was essential now, particularly looking back at where we would be, if we hadn’t done something on it, so – and when you take an action like that, you almost have to take it on a global basis. And we managed to work out, by the way, we worked out problems with a lot of people, and, you know, hopefully, we’re in a better place right now.

Dr Robin Niblett CMG

Thank you very much on that. I’m going to bring in a few questions from our – my colleagues now. I’m going to turn first to Perry Boyle, ‘cause we were talking about China, I think has a question on China. Perry, hopefully you’re unmuted. Well, you’re about to be unmuted, otherwise I will have to ask your question for you. Go ahead, Perry.

Perry Boyle

I think I’m unmuted. Thank you, Ambassador. FBI Director Wray addressed, at the Hudson Institute, China’s intellectual property and technology thefts and called it the greatest wealth transfer in history. Given that perspective, how are you working on bilateral and multilateral trade to address that – the not playing by the rules, or the liberal world order rules, that you talked about a little bit earlier? Thank you.

Dr Robin Niblett CMG

Over to you, Ambassador.

Ambassador Robert E. Lighthizer

So, let me take a step back and talk about the China issue, ‘cause I think that was a really, really good question. I – in terms of the FBI Director, yes, if you look at what is the core of our trade policy on China right now, okay? The President, in August of 2017, directed me to undertake a – what we call a 301 investigation of tech transfer, failure to protect US intellectual property, cybertheft and the like. We did that study for eight months. It was a really good report we put out, I commend it to all. Doctor, I’ll send you a copy, but everybody else can find it online. So, that’s the core of our policy, this basic problem. From there, we then put tariffs in place, to offset the economic advantage they had and then that escalated and we got where we are, we had a long negotiation, and we now have a phase one deal, which I think is a very good deal.

The first thing I want to say – well, let me make two points. First, when people say China this or China that, it’s important that we remember that China is not a person, right? China is a complicated process of creating, of governing, just like all the rest of ‘em are, and now they have different rules, and they may be harsher than ours, but they’re basically trying to figure this out. So – and how to advance themselves and help themselves, alright? That’s what their objective is. Some of ‘em want to do something that’s constructive in this area, and some of ‘em are hawkish and don’t, and are – and have a much more mali – yeah, malignant sort of approach to us. So, I think we have to remember that we’re – that they’re just all one thing. I certainly agree with the FBI Director and others in my administration. I’ve been one who’s been quite critical of China over the years.

But there are several lanes now and I’m making my second point. There are several lanes. There’s an economic lane that I’m worrying that I’m in, but there’s a defence lane, there’s a se – broader security lane, there’s a cyber lane, there’s a lot of lanes in here. If I try to get in all of those lanes, then I’m just going to get run over, I’m not going to accomplish anything, so I’m trying to stay in my lane. So, what did we do in my lane? We have an agreement, which was – which I think is extremely significant, and I wish that people who are in this space [inaudible – 35:10] or you wouldn’t have asked this question. I hope you sit down and read the agreement.

So, what does it do? Is it a – the end of everything now, and it’s not what we had, and I could give the history going back, but what it does is, it stops forced technology transfer and it’s enforceable? It requires certain IP protections and it’s enforceable. It has certain financial services opening and it’s enforceable. It has certain changes in the agriculture area that are – you would think of ‘em as removing barriers to trade, yeah, and they are significant, alright? It has purchases, which we can talk about, and it keeps in place tariffs, I would say, that offset certain unfair practices. Altogether, this is an extraordinary agreement, the United States really didn’t have any agreement with China, and really hasn’t had anything in writing, really almost ever. When you see these references to agreements from time-to-time, they really weren’t even in writing, they were just a – you know, a talking point at press releases. So, I think that this agreement is a – is an important step for dealing with this technology process. It’s clearly not the end. It doesn’t get into things like cybertheft and the like, which I think still have to be dealt with.

Dr Robin Niblett CMG

Thank you very much for answering that question. You know, we’ve got a whole string of questions coming and I’m going to come to them in a minute, but just because you – if I could just insert one of my own here, ‘cause I think it fits. Obviously, tariffs is – and you mentioned it yourself in terms of China being one of the key tools that your administration and you have been using in this process. I’m wondering, how sustainable is this? I mean, who pays the price of tariffs? I know President Trump has made the point often that we’ve made this much money from the tariffs. It strikes me, and I’m not a trade Lawyer or Litigator, but the price tends to be paid either by the importer or the consumer, principally. Are you worried that there’s going to be a negative effect that may outweigh the positive effect? I suppose I’m asking Robert Moreland’s question, so, Robert, I apologise for doing this rather than bringing you in, but Robert Moreland, one of our members, asked the question, you know, are you focusing not enough on consumers and too much on a very targeted part of the workforce? Both are middleclass in many cases, both groups are struggling sometimes with low incomes. Tariffs, surely, are a very blunt instrument to try to achieve this outcome. You’re muted, sorry, Ambassador, thanks.

Ambassador Robert E. Lighthizer

I told you, you were going to have to do that. I start talking and then I press later. I mean, those are a couple of different questions. First of all, this question of are we focusing too much on production and not enough on the consumer? I mean, that’s a fair question. I would say we’re swinging back from an extreme free trade position. And I think, in the United States, the most extreme way I would state this is if you go around your community, I think it’s probably true in the UK, and say to working people, “Would you pay another dollar for a T-shirt in order to have a better community?” Most of ‘em would say yes. So, I think there’s been way too much emphasis on the consumer. Now, it’s fair to say, oh, yeah, but if you go the other way, then you have a difficult situation too. So, I guess what I’m saying is there’s a balance there, the balance had swung way too far in the level of saving a penny here or a penny there and moving half your manufacturing to China and the other half to Vietnam. You’re saving a little bit here, you’ve got a – you know, a CEO who’s got a 24-month horizon and everybody’s trying to save a dime in 24 months, so I’m – it is fair to say, you can go too far. I don’t think we’re close to that, in terms of the effect that this balance between the consumer and efficiency, but I do think that’s a fair point.

On the question of tariffs, you know, are tariffs a perfect instrument? No, but is there another instrument? I don’t know of it, right? So, in terms of who pays the tariffs, I know Economists take the view that it’s always paid by the consumer. You know, we don’t buy that, what happens in a situation where the foreign country devalues its own currency? What happens in a position where the seller actually reduces his own profit? I mean, there – so, there – it’s a more – a far more complicated thing than this simple comment that, well, it’s always paid by the consumers. So, I just – you know, I don’t buy it, and I say even if it was the time I – what I said before, most consumers would say, “I’m not interested in having the cheapest T-shirt, that’s really not what I’m interested in,” and they might think that, you know, at the Harvard School of Economics, but it’s not what I think. So – but I take the point on consumers, and I think that time may come when we can sit back and say, “Well, have we gone too far the other way?” and then that’s how policy is made between back and forth.

Dr Robin Niblett CMG

No, I obviously get the rebalancing element that you’ve been talking about here as well. I warned you that you’d get a question on WTO from a different angle. I suspected we’d get – we’ve had several, actually, and it’s been upvoted, so I’m going to let, in a minute, Graham Lanktree, ask this question himself, who’s with Politico, but I would add that Ambassador Andrés Rosental, former Deputy Foreign Minister of Mexico, who’s on our panel of Senior Advisors, was asking a similar question. But, Graham, if we’ve got you unmuted, Graham Lanktree, could you ask your question, which the Ambassador will handle with aplomb, I’m sure. Go ahead, Graham.

Graham Lanktree

Yes, Robert Lighthizer, can you hear me fine? Yeah.

Dr Robin Niblett CMG

We can hear you well.

Graham Lanktree

Thank you so much. Yeah, so, I was just wondering if the US is going to support the UK’s nomination of Liam Fox to be Director-General of the WTO, seeing as how there’s some increased interest and alignment between the UK and US?

Dr Robin Niblett CMG

Easy one for you.

Ambassador Robert E. Lighthizer

Yeah, yeah, well, I mean, I’m – no-one on this call thinks I’m going to answer that. Graham, I know you don’t think I’m going to answer it, but you hope to learn something by how I don’t answer it. So, I would say, first of all, I know Liam Fox well. I’m an admirer of his. I have had many a conversation with him. I’ve even had the occasional cocktail with him, and I enjoy him. He’s smart. He knows the area. He has a good philosophy, but there are other good candidates in this group, too. I know some of the others quite well, some of ‘em I don’t know as well, but they have fine reputations. This is a decision that we’re going to come to. There are a lot of factors that come into this. It’s not just a question of, like, who my closest friend is in the group, so I – it’s something that the United States is looking at and will consider.

We think – if you say what are we looking for? Number one, we have someone who understands that we have fundamental need for reform. I mean real, real fundament, and it’s the kind of thing that I talked about, and I can spin out a little bit on that more, if someone’s interested. And also, someone who understands that the second largest economy in the world, and by the way, substantially bigger than the third largest economy in the world, is state capitalism, which is really not something that can be dealt with, I think, effectively in the organisation the way it is now. So, these are big questions, it’s clearly, you know, at a turning point. I think we’ll end up with an organisation that does something helpful, but whether it’ll be the WTO or something like it, who knows. So, I mean, that’s – it’s that big of – important a time and we really need a really good person, and, since, you know, Liam’s probably watching, he’s very smart, and a friend, and, you know, he certainly is one of the – you know, one of the favourites.

Dr Robin Niblett CMG

Thank you for taking the question in its true spirit, including on those you said, the qualities that you’re looking for, and I think you laid out the two issues in particular, real reform and how to manage state capitalism within a body like the WTO, which I think was an important answer to give. In terms of another issue that’s on the US-EU agenda, let me turn to Kat Lucero, Kat, if I’ve pronounced your last name right. Kat, hopefully you are able to ask your question now, over to you, Kat. And if Kat can’t, I will ask her question for her. Is Kat there?

Kat Lucero

Oh, yes, I am, can you hear me?

Dr Robin Niblett CMG

Yes, we can hear you. Thank you, Kat.

Kat Lucero

Okay.

Dr Robin Niblett CMG

Please go ahead.

Kat Lucero

Sure, terrific. Thank you. Hello, Mr Lighthizer. My question is, is that how are these digital services tax plans that the UK has proposed, Brazil, the EU, India, how did they play it into trade negotiations with the US?

Dr Robin Niblett CMG

And you’ve called these unfair trade practices, Ambassador, and so, yeah, very important question, I think.

Ambassador Robert E. Lighthizer

It was a – it’s a fundamental – it’s a – it is an important question. Most of you know people put ‘em in place, France put it in place. We started a 301 investigation. We’re going to announce that we’re going to take certain sanctions against France, suspending them like they’re suspending collection of the taxes right now. And now we have Europe wanting to do it, and a bunch of other countries, and we started 301 investigations on about a dozen of ‘em, so that’s the state of play generally. There was a legendary German of the tax-writing committee in the Senate, who used to say, “Don’t tax you, don’t tax me, tax the man behind the tree,” with the effect to Europe and other people, the man behind the tree is American technology companies. These digital services tax the way they were designed, they didn’t even do a clever job of veiling the fact that they were just trying to get into the pocket of US companies. There was no – for the most part, until very recently, they didn’t even pretend like they were anything other than discriminatory against the United States. So, it’s something that the United States can’t be in a position that we tolerate.

Now, if you said is there an issue on taxation in this area? I would say yeah, without question there’s an issue in taxation generally, and I would say it’s not just with respect to digital services and this is – once again, I’m not speaking for the administration, in my own way I think about these things. There is a problem with companies that make a lot of profit in a country, don’t have a nexus and don’t get taxed in the country. That’s not just a digital platform problem. That’s a problem that could be in trading goods and other things. So, I think there has to be some agreement among countries. It’s something that the Secretary of Treasury, Secretary Mnuchin, is the lead on and I’m not the lead on, but it’s something where I think we do have to take some steps to deal with the situation where our country makes a lot of profit in another country, has no connection to that country and doesn’t pay taxes. So, I think it’s a problem, but the answer, in my judgment, is not figure out some way to jury-rig away the screws from American companies who just happen to be, you know, successful, and not politically connected in your own system. So, the problem I agree with generally, I think it’s a broader problem, but I think this solution is a very unfair and discriminatory system, and the United States won’t tolerate it.

Dr Robin Niblett CMG

Thank you very much. I’m going to bring in Martin O’Neill now, who’s got, I think, quite a good targeted question, which really gets to the heart of this business of offshoring, and I think what you mentioned, Ambassador, were some of the perverse incentives in the system that you’re working on right now. Martin, if you’re there, could you please unmute and ask your question, please?

Martin O’Neill

Yes, can you hear me?

Dr Robin Niblett CMG

Yeah, we’ve got you.

Martin O’Neill

Ambassador, thank you very much for your comments so far, I’m about five times smarter on these issues than when you started. But my question was something that is more directly under the control of the United States, or at least the Congress of the United States, which is this system that’s been in place for years, where US companies can set up subsidiaries, branches, whatever, abroad, you know, earn profits, not pay taxes to the US Treasury on those profits, and, in fact, there’s an incentive for them to keep those profits offshore, which obviously, what any businessman’s going to do when he – that has the opportunity to invest, to expand capacity, is going to use the profits offshore and not pay taxes and build something else offshore yet again. And, you know, your – the point you made about what kind of society do we want, 50% of the workforce not having college degrees, hence the importance of manufacturing, I mean, I know this was on the table at one point in the tax bill of 19 – of 2017/18, but I think it’s slipped through again. I mean, it – is this something that – it just seems such an obvious one that could be amended, fixed, and – or do you think it would make any difference whatsoever, in terms of some of these trade positions?

Ambassador Robert E. Lighthizer

So, I’m one who – Martin, who thinks it’s a very big issue. I do have to note, a) the American accent, but b) the O’Neill part, since the – Ireland is probably the biggest beneficiary of what could only be called really, really stupid US trade or tax policy. So, I – as you say, it seems like something that ought to be fixed. There’s a couple of sides to it. One is the issue of border adjustability, which we can talk about. The other is this issue of being able to park your IP overseas, and take your profit where your IP is, just pay back licence fees and some R&D, and it’s a big, big issue. If you look at Ireland right now, and these numbers are approximate, but Ireland right now has about 450 to $500 billion worth of profit in Ireland of US companies, and it drives manufacturing, too, because people will do so in the manufacturing that they have there. So, it’s a completely stupid policy. That’s part of it, there was some attempt to fix that.

The other part is this issue of just general border adjustability, which is – which was also partially – which was supposed to be fixed in the last tax bill and it ended up not being fixed for a lot of US political reasons. But I think that the notion that a country can have a value added tax and border adjust it, but have an income tax and not border adjust it doesn’t make any sense, didn’t make any sense when it was determined to be such at the GAT and it makes no sense now. There’s a whole infrastructure of interested parties built up around that and it makes it hard to change. But I agree completely with the sentiment that you say, it seems like something that ought to be fixable, it has not been ‘til now. I know it’s something that the President is very upset about, this notion that we have our own policies, in many cases, that are absolutely having a negative effect on manufacturing in America.

Dr Robin Niblett CMG

Thanks for taking on that very specific issue. Now, we are getting into the twilight moment of this discussion. Thank you, Ambassador, for taking so many questions, I’m going to squeeze a few more in, but at some point, I may need to do them myself, just to, sort of, agglomerate them a little bit at the end. But there’s one at the top of the list, which you will not be surprised by. I’ll let Dina Mufti ask the question first and then I’m going to – if that works, I’m going to let Wilson Delsacoro follow-up on it. So, Ambassador, I’m going to get two questions to you, ‘cause, in a way, they’re connected, and you’re very good at handling multiple questions, ‘cause I seem to keep throwing them at you myself. So, Dina, if we could unmute you, we’ll go to Dina first.

Dina Mufti

Thank you, Dr Robin. Mr Ambassador, what has been agreed on between the US and the UK regarding a post-Brexit trade deal?

Dr Robin Niblett CMG

So, if you could hold your answer for a second, Ambassador. Wilson, I think you’re in the room, we thought we might have to ask the question for you, but if we can unmute Wilson Delsacoro. Wilson, could you ask your question?

Wilson Delsacoro

Yes, thank you, Robin. Mr Ambassador, the UK is leaving the EU following commercial policy on 31 December. You’ve just launched the FDA – FTA talks with the UK. With this backdrop, could there be a bilateral resolution on the Airbus-Boeing dispute between the UK and US, perhaps outside of what seems to be a protracted conversation between the US and EU, and what do you think the UK needs to do to deliver that?

Dr Robin Niblett CMG

Just in case you didn’t get all of the second question, Ambassador, ‘cause I’ve seen it written as well. The key thing is, do you think there’s room in the ongoing UK-US negotiation right now to come up with a bilateral agreement on the Airbus issue with the UK specifically, even if you haven’t completed one with the EU as a whole? So, two questions on the UK – potential UK agreement that’s been negotiated.

Ambassador Robert E. Lighthizer

So, the first question was just what was the status of it? That – I couldn’t quite hear all of that, just the status of it? So, we…

Dr Robin Niblett CMG

And precisely.

Ambassador Robert E. Lighthizer

Yeah, we have started those talks. We have laid down a lot of text. We expect to have all the text laid down, which is really when you start focusing on things. It’s going to be – I mean, I am optimistic that we’ll have an agreement in due course. These things normally take a long time. We’re trying to do it as quickly as we can. There are a number of very, very significant issues that we have to come to grips with. It’s going to be tough, but I believe we’ll work our way through it, and we’ll have an agreement in due course. We are making good headway. It’s one of those things I would say also, where COVID is having an impact. I’m one who doesn’t think you’re ultimately going to do a really complicated, tough deal like this, without spending a few hours in the same room together and talking things out and listening to what real needs are and what real explanations are, so we’re being held back a little bit. My counterpart, Liz Truss, I think is doing a terrific job. She knows the material, she’s tough, and yet very pleasant, so I have a good – you know, I have a good feeling about it. The President and the Prime Minister have a good relationship, they both want to get it done, and if you ask me what’s the most important single thing in getting a deal done, it’s that, it’s having support, and momentum from the top. So – but it’s going to take time and there are some issues that are – that we’re going to have to come to grips with that are tough.

This question of Airbus, is it possible to have a solution with the UK that does not include Europe? Well, I think that’s an answer. So, I guess I’d say I think it’s possible, but it’s tricky. So, what’s at stake here? What is at stake here is we have – first place, we have a condemnation of the WTO, ‘cause it’s 15 years of litigation, right? So, it’s, kind of, a – not another example why the WTO is – disputes settlement process, it’s all screwed up, but we have a massive subsidy, which had a very significant unfair advantage for Airbus and against the US company. It’s going to require commitments not to do it again, but also paying back some element of the subsidy, and that’s tricky because people don’t have the same number.

Let me drop just a last point down there, too, I know you’re looking at your clock and so am I, but I would just say this creation of a competitive advantage, Airbus is a good example of that, right? That was just – it’s a very good company that makes a very good product, it didn’t exist except for government just deciding they wanted to do it. It didn’t come up out of industry or anything else, so it’s another example of that. But if the ques – is it possible? I think it’s possible, but I think it’s tricky.

Dr Robin Niblett CMG

Neat way of putting it at the end. I’m going to ask you one question myself quickly now, and then I’m going to bring two in at the end, and I think that’ll take us to our close. I’ll let you manage the closing time, Ambassador. But an important question, ‘cause it hasn’t come up yet, and I apologise, we’ve got so many questions on the list, it might be in there, but I’d better ask it myself. Getting an agreement with the EU, which I know is also on your dossier right now, is an absolute priority. To be able to get the two most likeminded parts of the world together into a new formal agreement, as you’ve already done in your own hemisphere, would be a huge achievement. Could you just give us a sense of what you think the status is of the US-EU negotiations, and if I can piggyback into that the issue I mentioned to you earlier, carbon border adjustment mechanism. If the EU goes ahead with wanting to put in place, you know, in essence, a tax that takes into account the carbon content, is this something that you would see as an aggressive act, something that you hope to be able to work out in collaboration with the EU? Is that anywhere in your mix with your negotiation?

Ambassador Robert E. Lighthizer

So, we only have a couple of minutes, and you now say what about Europe, alright? So, that’s – by its nature, that’s very unfair. I would say the United States and Europe is – we are working on an agreement. It’s not a massive agreement, at this stage. It’s trying to take care of Europe and show ‘em and move progress. In terms of a full FTA, we’re not talking about that at all. I would suggest that really what is needed is probably some kind of coalescing around what it is to fix the WTO, and reset the things that I talk about, which is to say stop this FTA business, reset tariffs. Europe is probably the leading anti-multinational force in the world right now on the issue of standards, one of which is this one you talk about, and I think it is very complicated, and I don’t want to suggest that I’m on one extreme or the other. I think it’s fair to say that it’s not a legitimate competitive advantage to be able to dump lead into that ocean, right? That’s not an advantage. So, the notion that you’re going to have economic standards that are going to – that you’re going to deal with is something that I, at least, accept at some level.

On the other hand, oftentimes, they’re nothing more than thinly veiled protectionism, and that’s something in the area of SPS, in the area of food safety, in the area of environment, right across the board. Somebody’s got to give real thinking to where that line is between going extreme, really way beyond science, but extreme that’s really protectionism versus doing sensible things that we ought to do to protect the planet. So, I don’t want to suggest that I have the answer in that, I really don’t, but discrimination against America is something we’re not going to tolerate, nor should anyone else.

Dr Robin Niblett CMG

Right, so, exactly, but I think the principles are the most important thing we hear. I’m going to get one last question from the audience, then we’ll bring it to a close. I’m going to invite Torsen Jelonik, who’s going to bring us back, in a way, to where we started on China, but I think he has a good way of phrasing the question. Torsen, hopefully you are unmuted, and I can get you to ask your question.

Torsen Jelonik

Yes, thank you. You can hear me, I guess?

Ambassador Robert E. Lighthizer

Yeah, yes.

Torsen Jelonik

Mr Ambassador, it’s much better to hear what you say than to read that, so it was very clear. Yeah, my question I think is pretty straightforward, but maybe the answer a bit tricky. What is the end goal, the overall goal of US’s China strategy beyond the principle for realism, what we’ve heard about? Thank you.

Dr Robin Niblett CMG

What’s the overall goal? I think this idea of what’s…

Ambassador Robert E. Lighthizer

So…

Dr Robin Niblett CMG

…the end state, yeah.

Ambassador Robert E. Lighthizer

Well, let me say, first of all, I have to note that instead of saying your name, it showed your high school picture, so I want you to know what was on the screen when you were talking and everyone else was looking. When I said look at, I don’t know what the end goal is. Right now, we need to stop an aggressive force in my lane, that is to say the economic, right? We need to create rules that work for us, that is to say those who have essentially market-driven economies in a state-run capitalist system. So, we have to figure out new rules. What phase one is, is an attempt to find those kinds of rules, and these rules, setting aside all the aggression in India and all – and in Hong Kong and all – setting all of that aside, cause I guess, in this one sphere, to the extent you can do it, creating rules that benefit all of us is on our interest. We haven’t done that yet, but the notion is, we should have rules that accommodate for the fact that some people operate on a basis that’s not market driven and economic. So, what we’re trying to do is develop those rules. If it’s possible, we’ll do it. They have to benefit everyone. If it’s not, we’ll just have a situation where we end up with chaos. So, in my sphere, that’s basically my objective, and I don’t know if that means going outside of the WTO or not. It may very well mean that.

Dr Robin Niblett CMG

You’ve taken us, you know, in a full hour, and I’m conscious there are many, many questions we weren’t able to get to. What I would simply say is, I’d encourage people, if they have been, to have a read through the questions. In fact, Ambassador, we might even be able to send a link over to your office and your staff, just so you can see some of the questions that were in the mix, they might find them interesting ‘cause I think there’s some very good ones, which I’m afraid I was not able to get to. But that wasn’t because you didn’t answer a lot, you really did us the pleasure of taking on a huge amount and taking them very square on and not going round the edge of them. Only one, which I think was an understandable one, on the Director-General position, which is well appreciated.

What I will say is a huge thank you, on behalf of Chatham House, all of our members, for taking the time, in your very busy schedule, to join us at a very important time. As you and I were discussing just before we started this call, world trade is something that Chatham House has been involved in since its inception, and as we’re 100 years on, and this is a moment where everyone’s rethinking things, especially ‘cause of COVID, it’s really important to be thinking things from first principles. You’ve taken us through a first principles take on trade that I think is healthy, and it’s given us a huge amount of food for thought. I note that my colleague, Marianne Petsinger, doing a huge amount of work on trade with our own trade policy forum. Hopefully, we can engage some of your staff in that, in what will be expanded agenda, and my colleague, Creon Butler, doing some similar work as well, about protectionism and investment. So, we will have this at the heart of our agenda, and we look forward to engaging with you and your colleagues, as you carry on with your agenda over the coming months, and, depending on what happens, years, potentially. We’ll see what happens later on this year. But, again, I can’t do much more because this is where it all gets very remote. We’ve got many hundred people looking in on this call, and I will simply say thank you very much on all of their behalf, and look forward to keeping in touch. Thank you, Ambassador Lighthizer, for taking the time.

Ambassador Robert E. Lighthizer

Thank you for having me, it’s an honour to be here.

Dr Robin Niblett CMG

We look forward to having you over in London when we can, and thank you again for everyone who joined us this evening. Keep safe, keep well, and goodbye.

Ambassador Robert E. Lighthizer

Goodbye.

Dr Robin Niblett CMG

Alright. Bye, bye.