[FULL TRANSCRIPT BELOW] “The economic growth of China is largely a wealth transfer from the United States,” says Robert Lighthizer. “You’re transferring the wealth of our children and grandchildren and their children overseas.”
Mr. Lighthizer served as the U.S. Trade Representative in the Trump administration and also served as deputy trade representative in the Reagan administration.
In this episode, we do a deep dive into his new book “No Trade Is Free: Changing Course, Taking on China, and Helping America’s Workers.”
“Nobody practices free trade. And for sure, if you look at the great countries that run the big surpluses, they don’t have free trade. China doesn’t have it, not remotely. It’s not even capitalism. And Germany doesn’t have free trade. Europe doesn’t have free trade…It’s all just a false god. It just literally doesn’t exist,” Lighthizer says.
Is the free trade ideal actually a myth? What should the U.S. do to tackle its massive trade deficits? Why should the U.S. strategically decouple from China and what would that actually like?
Watch the full interview: https://www.theepochtimes.com/whats-behind-the-push-to-stop-eating-beef-texas-slim_5399281.html
Jan Jekielek: Ambassador Robert Lighthizer, such a pleasure to have you on American Thought Leaders.
Robert Lighthizer: Thank you very much for having me.
Mr. Jekielek: Congratulations on your book, No Trade Is Free. I just finished reading the book and it’s one of the more important books I’ve read over the last few years. There’s a monumental change that has happened in American foreign policy over the last few years, and you document that to a significant extent in the book, and I felt like I got transported into the midst of it. There’s a moment where you as the U.S. Trade Representative are invited at the last moment to sit in front of Xi Jinping and basically tell him your thoughts about what the US-China trade relationship looks like. Please tell me about this moment, because it’s of profound historic significance.
Mr. Lighthizer: Yes, thank you. As I say, it’s a great pleasure to be here. That was a significant moment. It’s November of 2017, and I was on the President’s trip. There was a small pre-meeting that General Kelly was going to go to, but then he decided to have me go in his place. Then, we had the big meeting, which was in the Great Hall of the People, which I describe in the book. There are basically 12 people on one side of the table and 12 on the other side. These things are always done this way. You have the heads of state sitting in the middle, and people go by rank on either side of them. It is usually heavily scripted. Usually, the host reads, and then the other side, and they go back and forth.
At one point, both presidents and their foreign secretaries spoke, and then President Trump said, “Ambassador Lighthizer, tell them our position on trade.” I had been doing this for 40 years, so I had thought about it a lot. I spoke directly, but respectfully for several minutes and said, “Here’s how Americans see this unbalanced relationship. This is what we think it’s costing us and how bad it is for us.”
Of course, the reaction to candor in a context like that was, “Hold on. Time out. Who invited this guy?” But the meeting went on. Afterwards, the President asked, “Can I see your remarks?” I told him I didn’t have any remarks, and I’d been thinking about this for a long time. I just said what I usually say in the order that I usually say it, and once again, respectfully.
I viewed my role as to always be respectful to the other country, and these were obviously very important people. But the relationship has become terribly unbalanced to the point that it’s just a transfer of wealth from the United States to China, and to some other countries too, but nothing on the scale that it is with China. That was a dramatic moment. I never got any feedback on what their reaction was, but I can imagine they got together and said, “It’s not going to be business as usual going forward.”
Mr. Jekielek: And it wasn’t. That’s also fascinating to read about in the book. One theme is that a lot of different folks, not just communist China, had gotten used to dialogues and business-as-usual discussions, with not a lot of teeth to enact any of the decisions that had been made, or checking to see if they were actually being enacted. You brought a different way of working, which people were repeatedly surprised at. Is that how you would view it?
Mr. Lighthizer: Yes, that certainly is one of the themes. It certainly was a theme in our negotiations with the Chinese, but it was also a theme in our negotiations with a lot of people. These things tend to fall into patterns, and you can see them. I’m a trade guy and an economic guy, so I don’t get involved in the other areas. But by all accounts, it’s similar there too; you fall into a pattern, you say certain things, and people make vague commitments. They all have ambiguity running through them.
They get up and don’t do anything and come back to the next meeting six months later and start the whole process over again. At the end of four years, or less than that in many cases, there’s a turnover of personnel in the United States and the person they’re dealing with now realizes that they have someone who doesn’t have a clue.
Then they start the whole process all over again, not even where it left off, but back at first base. That was never my view. In the first place, President Trump would not have tolerated it. He would have said, “What? Are you crazy? We’re not going to do this and have these meaningless dialogues over and over again, accomplishing literally nothing.” We tried to act and then have talks about the things we did when we were acting. We put tariffs in place, and we threatened to pull out of the US-Korean agreement and NAFTA [North American Free Trade Agreement].
In other words, our alternative usually was just as good for the United States as an agreement. I tried to get it to where if there was no agreement, the United States was going to be in a much better place than before we started the process. That was always my mode of negotiating. I was never interested in one of these things where the status quo favors the other side by definition, and as long as they can kick the can down the road, they’ll maintain that benefit and that transfer of wealth.
It’s in their interest to just keep going and going and going, and hope that eventually they will get somebody else in there that won’t know what’s going on. They will do that for another two or three years and then their term’s up. There’s been an awful lot of that in U.S. history.
Mr. Jekielek: In the realm of trade there are various slurs that are lobbed at people. I suppose one of the worst would be protectionist.
Mr. Lighthizer: What is a protectionist? Sometimes, I call myself a productionist. I’m for production in the United States. That word became a bad word in the ’70s or ’80s. If you asked the first 12 Republican presidents before Eisenhower, “Are you a protectionist?” They would have said, “Yes. We’re trying to protect American industry and build up American industry and jobs.” If you asked Teddy Roosevelt, he would have said, “Of course.” I have a quote in there about how free trade destroys the moral fiber of the country. If you asked Abraham Lincoln, he would have said, “Of course.” You can go through whatever heroes you have in that group and they all had that view.
Somehow, in the ’70s and ’80s, people didn’t want to say that anymore, but their policies were still pretty significant. You can look at what Nixon did when we had a real trade problem and basically a run on gold in 1971, he used laws. People said he didn’t have the authority, but he did it. He was challenged and ended up winning the lawsuits to put tariffs on the whole world until we could change the dollar value of gold. That was very significant. Otherwise, what would we have done?
You can look at Ronald Reagan and see the same thing. Ronald Reagan took action across the board to save American industry and American jobs, and yet he said he was a free trader. But his critics all thought he was a protectionist. It’s one of those words that’s probably irredeemable. But it never really bothered me to say that I’m trying to protect American jobs. That’s like a badge of honor, and not so much of a pejorative.
Mr. Jekielek: You mentioned that the biggest imbalance by a large margin is with China under the Chinese Communist Party. Based on a great many American Thought Leaders interviews, I contend that America paid its way into it. Can you chart the course of how that relationship changed, all the way from MFN [Most Favored Nation] or PNTR [Permanent Normal Trade Relations] status?
Mr. Lighthizer: I was in the Reagan administration and I had negotiations on a bilateral investment treaty with China, which they wanted. I sat down and looked at it and we had a few negotiating sessions. I told my team, “This is the end of this. This doesn’t make any sense for America at all.” We never did get a treaty, and still don’t have one. But China was insignificant then and their economy was tiny.
In the early years you had the Chinese philosophy really destroying their own economy. They were trying to figure out how to do it. Part of what they wanted was to be state-owned and state-planned, particularly under Mao. They were experimenting with various things, and some things worked and some things didn’t. The ones that worked they tried to bring to scale. When they brought them to scale, they had a lot of problems, including The Great Leap Forward and some of the greatest catastrophes in world history.
Then Mao dies and Deng Xiaoping comes in and his philosophy was no different than Mao’s, but his analysis was that they had to be a little more stealthy about it. The principles were the same, and you all know the term, “Hide your strength and bide your time.” During that period they built up their economy, but even then it was relatively small.
Getting into the ’90s, depending on where you are, they’ve got a trillion dollar economy. That’s a fairly good-sized economy, but by no means one of the biggest. It was probably a fifth the size of Japan, for example, and not particularly export-oriented. In the ’90s they locked into this notion of getting U.S. investment in there and having U.S. plants move from the United States to China to take advantage of a variety of things. Some people would say lower wages, and there was an element of that, but it was much more than that. It was subsidies and laxer environmental rules and the like.
They locked on this as a strategy, and the biggest hurdle they had was that in U.S. law at that time, they had the favorable MFN tariffs. They had low tariffs. But the way the law worked, they could be taken away in a year if you had a vote in Congress. There was a lack of certainty on behalf of businesses moving to China.
Will you still have access to the biggest market in the world? If you’re an American brand and you want to go to China so that you can pick up a little savings on your manufacturing costs, could you build a $300 million plant next year and lose that advantage and be out of business? You wouldn’t want to do it.
They worked with some Republicans in the Clinton administration, and I wrote about this in the New York Times in 1997. It was my view that was their number one strategy; to get into the WTO, and to get most favored nation treatment and permanent low tariffs in the United States. That was obviously their biggest target market and the biggest market in the world. They worked very hard on that.
On his way out the door, President Clinton got that through Congress, with a lot of help from both Democrats and Republicans. A lot of Democrats opposed it, and some Republicans did. It was probably the biggest single mistake the United States had ever made in economic policy. Maybe an economist could come up with something else, but I certainly can’t.
Once that happened, you had this certainty. Granted, they changed the name. They thought it would be easier to sell—Permanent Normal Trade Relations, instead of MFN, Most Favored Nation. It was just a sales thing.
They changed that name. Before granting that, the deficit was in the $20 billion range, which in and of itself was unacceptable. Because they were really a developing country, and we shouldn’t be running a big deficit with a developing country like that.
Mr. Jekielek: Why would you say that?
Mr. Lighthizer: With a developing country relationship we should be buying primary material from them, and selling them manufacturing goods. We should then have a trade surplus, which should be used to invest there and develop that country. We should be exporting savings to a developing country, not the other way around. That is how it would normally be. It was how it was in the United States when we were developing with Great Britain. They had a surplus with us, and that would be the normal way you would look at it.
The models would say there would be a slight decrease in our trade deficit. In fact, it exploded because the models just didn’t take into account the real world. Very soon, we were running a $120 billion trade deficit with China. Initially, a lot of it was U.S. companies shifting their manufacturing there. The Chinese state planners then created an ecosystem, drew in other manufacturing, and began to do all the things you would expect them to do with technology, including forcing technology transfers and stealing technology. Pretty soon that number grew and grew and grew and grew to the point where last year it was at $380 billion, which is unsustainable.
It’s a horribly large deficit, but in our years it was quite large too. We put tariffs in place and it began to come down, and then Covid hit. When Covid hit, there was all this money pumped into the system, this trillion dollars to try to keep the economy going. You had the pumping in of consumer demand and a shutdown of manufacturing, and the result was to get the trade deficit back up again. Then the Biden people spent a couple of trillion dollars just for stimulus and the trade deficit exploded.
When we talk about the trade deficit, we actually don’t know what that number is. There are some technicalities that I won’t get into, but there’s a huge amount of what is sold by China to the United States that’s unaccounted for. It’s because of the way we keep our statistics. Individual packages shipped here don’t count at all, and those packages can contain up to $800 worth of products.
That was something stupid passed in 2015, but no one had any idea what would happen. Now, two million packages a day come from China and we don’t know what’s in them or what their real value is. Instead of $380 billion, the number might be $480 or $580 billion. It’s a huge number.
On top of that, if you add whatever value you assign to technology transfer and technology theft, which is in the hundreds-of-billions of dollars, you can see pretty quickly the economic growth of China is largely a wealth transfer from the United States. When people look at the challenge between the United States and China, people have their own categories of what they look at. For a lot of people it’s national security, but for some people it’s human rights.
There’s a whole variety of things people look at in this challenge, but they’ll conclude that this is a problem. Then I’ll come in and say, “Then we shouldn’t transfer $600, $700, or $800 billion to them every year.” They say, “What do you mean? What’s wrong with that?” I say, “Are you listening to yourself talk?” If you know you have a problem, and if you are basically fueling the problem, then you need a policy change. That is basically what I talk about.
Mr. Jekielek: I want to talk about this de minimis loophole, because it’s amazing how a well-intentioned policy, if it’s not checked periodically, could turn into a massive problem. Can you explain briefly what that is? You have started already.
Mr. Lighthizer: The notion is that you have to bring things through customs, and do you want to have a customs form filled out for a dollar’s worth of stuff, or $20 worth of stuff? At some point, it’s more expensive and more difficult to do it. That’s the notion of de minimis. Most countries have it. In the case of Canada, it’s $100, which is not much.
In the case of Mexico, it’s less than that. We worked on this during the USMCA [United States-Mexico-Canada Agreement]. In the case of China, it’s tiny, tiny, tiny. In the United States, we have increased it from time to time, and we had it at $200 for many years. Then in 2015, they changed it to $800, which now is an enormous number.
At the same time, technology was changing. The notion wasn’t just you coming from a trip to Poland and bringing in $200 or $800 duty-free at Dulles Airport. It wasn’t just that. Now, you could get on the computer, make two clicks, and buy a $800 or $900 item from Shein in China, or Temu in China. Two clicks, and these items are not covered by customs. In some cases, they try to have a form, but in most cases it doesn’t work and it’s inaccurate.
If you go through the mail, you are less likely to need a form. If you go through one of the couriers, there’s at least some information, and people thought it was to facilitate for customs officials. It’s also probably driven by these courier companies, who thought they could make some money on it. Whatever it was, it went from a handful of packages a day seven or eight years ago, to two million a day now.
The CPA [Coalition for a Prosperous America] has an estimate of $180 billion, and almost all of that $180 billion is going to China. Since we don’t have any data, they did their estimates by going back to the companies and looking at how they reported their own profits and backed out to how much the value was. Their estimate is $180 billion, but we don’t even know what the actual number is.
In many cases there are counterfeits. In some cases it’s fentanyl, so there’s also a security element to it. But just on the straight economic money side, it’s probably another $150 to $180 billion a year that we’re shifting almost entirely to China. It’s a totally self-inflicted wound. There is literally no upside to it at all.
When you think about it, there’s another bad side to it. You want to buy a sweater. You walk into a store, and they sell you the sweater. They paid the duty on that sweater when they brought it in. You pay for the sweater and it includes the duty. If you buy it directly online, there’s no duty.
Depending on the duty, it might be 10, 15, 20, 30 percent cheaper to buy it directly. It’s made even more appalling by the fact that we subsidize our mail too. Taxpayers are paying to run our manufacturers and our brick and mortar stores out of business. It is just idiocy.
Mr. Jekielek: To even add to that, and your administration tried to handle this as well, the Universal Postal Union rules made it so that the U.S. would pay for most of the postage from China.
Mr. Lighthizer: We took action against that. We had a taskforce that was working on that, but we never got total satisfaction. With the de minimis thing, I tell members of Congress there ought to be a vote tomorrow morning at nine o’clock, and just see if anyone votes on the other side of it, because it’s so clearly a serious, self-inflicted wound.
Mr. Jekielek: I found it astounding how sizable a portion of the actual trade deficit that de minimis actually causes.
Mr. Lighthizer: Yes.
Mr. Jekielek: It’s a considerable part of something that’s already so massive.
Mr. Lighthizer: Yes. If our overall goods deficit last year was $1.2 trillion and probably closer to $1.4 trillion, if you want to get economic growth, you need to cut the trade deficit in half. The GDP [Gross Domestic Product] is one of the last things you add. You add consumption and investment, and then the last thing you add is the net trade. You can pick up a couple of percent of GDP growth in a heartbeat by just cutting the trade deficit in half.
Mr. Jekielek: Just prior to Covid, for the first time, the trade deficit started to go down. But then fast-forward with a couple of years of Covid, and it has ballooned. Why is that?
Mr. Lighthizer: First of all, production was shut down with Covid. Secondly, they pumped out $3 trillion or more and just gave it to people. The Biden administration pumped out $2 billion as an economic stimulus when we already knew we didn’t need it. They ended up stimulating countries around the world.
People spent the money overseas, because they had the money, and the technology was there to buy it overseas. We shut down production and irrationally pumped out money to create demand. When you do that, what do you think is going to happen? You will end up with the trade deficit going up, and we certainly saw that it did.
Mr. Jekielek: You describe your philosophy of trade as being worker-centered. I forget the exact term you used, but it focuses on the American worker and their wellbeing and flourishing. Please tell me what that means. What does that look like?
Mr. Lighthizer: Free traders think the most important thing is consumption and they say, “We want to optimize prices. The cheapest television is better. We want to optimize prices.” That’s kind of a side benefit to optimize corporate profits. In my view that’s totally wrong.
First of all, we don’t have a lack of consumption problem in America. If anything, we have too much consumption. Let’s just be honest. Price optimization doesn’t do much to lure me, number one. Number two, I view Americans first as producers and not as consumers. When I say producers, there is a dignity inherent in the individual that comes from work and supporting your family and making a contribution to society. That has actual value, and we’ve lost some of that.
Pope Leo the 13th talked about this in his encyclical, “Rerum Novarum.” OAnother example I like to give is St. Benedict who said, “Pray and work.” Work is an important part of what it means to have self-confidence and to have a good opinion of yourself and to have your children have a good opinion of you. We’ve kind of lost that.
My view is that we have to think of ourselves as producers first. We need good jobs, more jobs, and higher pay. I’m all in favor of trade, and we have to have trade. One of the things I say in the book that’s been quoted in some reviews is, “Trade is good, more trade is better.”
It’s essential that it be fair, but it absolutely has to be balanced. You just cannot transfer wealth overseas. You run up these high trade deficits by focusing on consumption. The result is that you’re transferring the wealth of our children and grandchildren overseas. It’s a foolish, foolish policy. We lose both our jobs and our wealth, and it’s not good for us.
Mr. Jekielek: What does trade balance really mean? Is it just as simple as on average there’s no surplus or no deficit between the countries? What does that mean?
Mr. Lighthizer: If you talk about trade deficits, for years people said, “They don’t matter. It’s just the other side of the capital account.” We can talk about that. First of all, bilateral trade deficits largely don’t matter, it’s the multilateral ones that matter. The only reason most don’t matter is because a bilateral trade deficit between the United States and China that favors China is transferring technology.
That’s a component of it, but as a general matter, you can say bilateral deficits really don’t matter. You can say having a deficit one year and a surplus the next doesn’t matter. Who cares? But what we have seen in the United States is decades of trade deficits of hundreds and hundreds of billions of dollars.
Had you asked them, the classical economists would all have said, “It’s not possible, so don’t worry about it. It can’t happen.” But yet it has happened. For whatever reason, our currency hasn’t adjusted and other things have happened so that the United States has basically become the end consumer for all products all over the world. Interestingly, the United States is the biggest one by far, but it’s also the UK, Canada, and Australia. These four make up the vast majority of all the deficits.
In our case, which is what I focus on, the United States has these enormous deficits, and once again, bilateral. For one year, it’s okay. But if you’re transferring trillions and trillions of dollars over the course of decades, that is not acceptable. You have to get back to where you sell about what you get in.
There’s 3 ways to do that. I wrote an article in The Economist a couple of years ago that really expanded on a piece that Warren Buffet, who I greatly admire, wrote in 2003, because he saw the same problem that I see. His approach would be to get export certificates and import certificates. Do you want to import sweaters from China? Good. Give me an export certificate of someone who exported something, and that way you’ll get a balanced rate.
Another is to put in a capital access charge, where if the money’s coming back into the United States, charge them a fee so that they can’t buy 100 cents worth of stuff when the dollar comes back, and that will get you to balance. The third way is tariffs. I would accept all of them tomorrow morning at nine o’clock, and I’d be happy. Tariffs are easier for people to understand. You can adjust tariffs and get to the point where you have balanced trade.
Mr. Jekielek: Is the purpose of tariffs simply to achieve balance? In other words, it’s just a tool.
Mr. Lighthizer: Yes. Tariffs are like any other economic tool. They could be good or they could be bad. If you have this imbalance, then you have to do something about it. You can’t correct the imbalance in other ways, because if we could, we presumably would. By definition, we’re being taken advantage of because we have run deficits for decades. By definition, countries that run surpluses like China, Germany, and Japan to some extent, are doing something protectionist.
They are the protectionists. They have a system that is designed to get them to surplus. Essentially, you could think of it as taking assets away from their consumers and giving them to their producing class, and then taking that excess production and selling it to us in order to get wealth for their own purposes. It’s not just China, it’s also Germany and Japan. Those are the significant ones.
Tariffs are just a tool, like anything else. You raise tariffs on certain things imported from other places, or you make them at home. Making them at home is the best option. Importing them, for example, from Mexico, would be the second-best option. Mexico is another friendly country where we have an economic stake in their success.
You can adjust tariffs, and you can move them around. They’re just a tool. You can put them on some things and not on other things. You can drive production where you want to drive it, and at least drive the wealth transfer away from where it’s going.
Mr. Jekielek: By definition, if we’re running this massive deficit over decades, we’re being taken advantage of. The response to that is simply, “Hey, we’re getting all this great stuff.” In a sense, we’re taking advantage of people.
Mr. Lighthizer: Let’s analyze that. This is what’s in that article. What happens to these trade deficits and these surpluses for the other countries? Ultimately, that money comes back to the United States. This is why the economists say, “It’s the other side of the capital account. It comes back to the United States in the form of purchasing equities, debt, or real estate. It’s all going to come back here”.
We are getting these T-shirts and our third and fourth televisions cheaper, but we’re paying for it by transferring assets of our country overseas. That’s a bad deal, that’s not a good deal. In many cases it’s current consumption for a long term loss of value. You ask, “How big a problem is it?”
When Mr. Buffet wrote his article, the net investment position of the country, which means how much all Americans own all over the world versus how much everywhere in the world owns here, for most of our history, that was a very large positive number. When he wrote his article almost 20 years ago, that number was a negative $2 trillion. It’s now a negative $17 trillion.
To give you an idea, with $17 trillion you could buy most of the 100 biggest companies in America. That’s how much other people own versus what we own. That is a net transfer of wealth that no one had ever thought even possible in the history of the world. What we get in return is cheaper T-shirts, and it’s a fool’s bargain.
Mr. Jekielek: You talk about the ideology of free trade. You describe it almost like a faith. It’s almost like a quasi-religion. Indeed, when I think about tariffs, I have a negative visceral response. I’ve been watching how I’ve been trained to believe certain things. I’ve been trained to believe that free trade is structurally good and correct. You’re arguing that this kind of deep belief has played a significant role in all this.
Mr. Lighthizer: That’s right, and I think it’s a false religion. But the first way to think about free trade is that it really doesn’t exist anywhere in the world. There’s literally no place where it exists in the world today.
People say, “Here’s something that I believe will happen in a Petri dish somewhere in a lab and doesn’t happen in the real world, and I think it’s good.” My first reaction is we’ll never know, because it’s just a theoretical principle that doesn’t really exist anywhere. Clearly, using tariffs could be bad or it could be good.