Remarks by Ambassador Michael Froman at the Washington International Trade Association
January 10, 2017
*As Prepared for Delivery*
Thank you for that kind introduction. Good morning and Happy New Year to you all.
It’s great to be here at WITA. I’ve always wondered what the trade prom would look like when they turned on the lights.
Let me begin with some words from Winston Churchill, who admitted, “I am an optimist. It does not seem too much use being anything else.” Anyone who knows me knows that I too am an eternal optimist. As a trade negotiator, optimism is an occupational hazard.
My staff and I drafted a beautiful, long speech about all of the Obama Administration’s trade accomplishments, but I think you all are well aware of them, so I am inclined just to share a few parting observations.
When President Kennedy created what was called STR back in 1962, it reflected a conscious effort to make sure the United States spoke with one voice on trade, one single place where all of the trade interests of the government came together in a single, coordinated effort, with no opportunity for forum shopping or contradictory agendas; that that voice be housed in the Executive Office of the President so that foreign trading partners knew that when it spoke, it spoke not just as a department, but for the President; that that voice represented both the domestic and the national security interests of the country; and that that voice was accountable both to the Executive and to Congress, given Congress’ Constitutional role in regulating commerce with foreign nations.
I could not be more proud of the work of USTR along each of these lines over the course of this Administration. Anyone who knows and has worked with its staff knows that they are the furthest thing from “political hacks”. They are the finest, most-dedicated, hardest-working, most-committed public servants to be found anywhere, focused like a laser on doing what’s right for American workers, farmers, ranchers and businesses of all sizes. They don’t expect to be thanked, but they do deserve our utmost respect.
We have just witnessed a remarkable period in trade politics, a period in which the gap between perception and reality was wider than ever before. Poll after poll show that Americans understand that we live in a global economy, that we cannot wall ourselves off from the forces of integration, and that as a whole, the opportunity to engage internationally, to open other markets to our goods and services, to raise standards around the world, has been good for America.
In fact, long-term surveys suggest that support for trade is higher now than at almost any time since the 1970s – and it is highest among young people who have grown up as global citizens in the Internet era. But, as the most recent campaign demonstrates, while public support for trade is high and widespread, it is largely passive, while opposition to trade – though perhaps held by only a minority -- is often vocal and passionate.
This is not solely a U.S. phenomenon. Witness Europe, where the rise in populism on the left and the right, the lagging economic recovery, the increasing concern about migration and the declining faith in European institutions – most directly reflected in Brexit -- has virtually paralyzed the European Union. We saw that in T-TIP where it became clear long before our election that there was stiff political resistance across much of Europe to moving forward with an ambitious agreement at this time. And we saw it in CETA, where the decision that trade agreements should require the approval not only of the European Commission, the European Council and the European Parliament, but also 38 regional parliaments has raised serious questions in the minds of the EU’s trading partners.
We, of course, have our own difficult trade politics, but at least we know that there is a clear process, laid out in TPA, for considering trade agreements. Now more than ever, we need a strong, effective Europe that is capable of showing leadership in the global trading system, particularly at a time when China and other major emerging economies have yet to assume responsibilities commensurate with their role in the global economy.
Let me say a word about China. Arguably, for 13 of the last 15 centuries, China was the dominant force in Asia. Only during the last two centuries did it find itself eclipsed by others. One of the defining features of our time is how to accommodate the rise of China into an international system that is far more interdependent – economically, politically and strategically -- than ever before. Our approach has been to give them a seat at the table and press them to be responsible participants in global governance, such as through the G-20, but at the same time, to use every tool at our disposal, including trade enforcement, to hold their feet to the fire when they fall short of that objective. There have been some notable achievements, such as the U.S.-China accord on climate change which laid the foundation for the Paris agreement. And there have been tough responses when China failed to live up to its responsibilities.
We heard a lot about the importance of being tough on China during this recent campaign. I agree. It’s important to be tough with China on trade, even as we find ways to work with them on challenges ranging from North Korea to Iran. This Administration has filed 15 disputes at the WTO against China over the past 8 years, more than any other country, and we have won every case decided so far – cases concerning barriers to U.S. auto exports, discriminatory taxes, export restraints on key materials, restrictions on cross-border services and more.
But here, I have to admit to being a little perplexed. There simply is no way to reconcile a get-tough-on-China policy with withdrawing from TPP. That would be the biggest gift any U.S. President could give China, one with broad and deep consequences, economic and strategic. It would be huge for China.
China has a regional strategy. It has the One Belt/One Road Initiative, the Silk Road Fund, the AIIB, its South China Sea excursions and RCEP – separate initiatives, but in combination designed to position China at the center of the Asia-Pacific. They are executing on their regional strategy; the question is whether we will execute on ours.
From our friends and allies in the region to our own military commanders, we have heard clearly that failure by the U.S. to move forward would be a debilitating blow to U.S. leadership and credibility in the region, one that would create a void that China is all too happy to fill, and one that would leave our closest military allies and partners no choice but to line up behind China. We see it happening in real time. What we feared and what we warned would come true is coming true before our eyes.
As New Zealand’s former Prime Minister John Key made clear: “if TPP fails to get ratified . . . it will be a massive lost opportunity for the United States both for their consumers and business, but also for the geopolitics of the region. Because, in the end, if that vacuum is not filled by the United States, it will be filled by someone else - it has to be.”
And as Singapore’s Prime Minister Lee has stated, “If the U.S. is “not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”
But perhaps most important is what the Commander of our Pacific Fleet, Admiral Harry Harris made clear when he said: “TPP would strengthen stability and security by deepening our relationships throughout the region and raising the bar to entry to protect the things that matter…And obviously, our partners who’ve signed up for TPP, see it as a vital demonstration of America’s enduring commitment to the region.”
Now, I can’t imagine why any President would want to abdicate our leadership in the Asia-Pacific, to be responsible for handing the keys of the castle to China, for driving our historic allies and China’s historic rivals into China’s arms. It would be a strategic miscalculation of enormous proportions.
Why would we cede our role as a Pacific power? Does anyone really think U.S. interests are better served if China, rather than the U.S., writes the rules of the road? Would anyone here prefer China’s approach to the piracy of intellectual property or the cybertheft of trade secrets? Does anyone think our technology companies or our manufacturers would flourish in a world bound by China’s definition of Internet freedom or its rules on the free flow of data? And for my progressive friends, does anyone think workers or wildlife or fish or oceans would be more protected under China’s rules than ours?
Those sorts of distinctions seemed to get lost in our recent debate, but our trading partners get it. Most of them are continuing down the path of domestic approvals in the hope that someday, either the U.S. will join or they will move on to put TPP in place without us.
The rest of the world is not standing still. The EU is implementing FTAs with Singapore and Vietnam and is negotiating FTAs with Japan, Mexico, Australia, New Zealand and Mercosur, among others. Australia has negotiated FTAs with Japan, Korea and China in the last few years. Peru announced that, if TPP did not move forward, it would seek negotiations with China and Russia. Chile and Canada have said the same about China. China is negotiating RCEP with 15 countries, a trilateral FTA with Japan and Korea and an array of other deals around the world.
So, where does that leave the United States? Well, as other countries move forward with their agreements, not only will we see opportunities lost, but we will see current market share eroded. Just talk to the cattlemen who are losing $400,000 to Japan in beef sales to Australia every day TPP is delayed.
But beyond the specific market access issues, there is something bigger at stake: American leadership. Over the past 70 years, the U.S. created, shaped and led the open, rules-based trading system. It is not too much to say that very little that is good in that system has happened without U.S. leadership.
Look back one generation. During the Reagan, Bush, and Clinton administrations, it was U.S. leadership that set down the global rules that today help America’s inventors and entertainment industry earn $125 billion a year, nearly 40% of all global IP royalty and license payments. That provide the foundation of fair and transparent sanitary and phytosanitary rules that underpin more than $130 billion in annual farm exports. And that prevent other countries from raising their tariffs so that we can export $1.3 trillion a year of airplanes, pharmaceuticals, automobiles, medical equipment, textiles, and other manufactured goods.
More recently, it was U.S. leadership that helped navigate the WTO supertanker, with its 160+ captains, off the sandbar that was the Doha Round and onto a more productive course of pragmatic multilateralism. That led to the conclusion of the Trade Facilitation Agreement that has the potential to add an estimated $1 trillion to the global economy; and to the conclusion of the Information Technology Agreement, eliminating tariffs on $1 trillion of high-tech exports; and toward an Environmental Goods Agreement, a Trade in Services Agreement and a Fish Subsidies agreement.
And, of course, it was U.S. leadership that forged a consensus among nearly 40% of the global economy on the highest labor, environmental, IPR, SOE and digital economy standards in history.
But moving ahead, our capacity to deliver on these initiatives turns on our capacity to build support in the American public.
That brings us back to the debate in the United States. As the last 18 months demonstrate, there is a high degree of economic anxiety that has affected the political support for trade.
This anxiety reflects real and legitimate concerns. While wages have ticked up in the last two years and while we’ve seen the greatest decline in poverty in almost 50 years, this follows decades of wage stagnation and widening income inequality.
Now, any competent economist will tell you that technology has had a much greater impact on jobs and wages than trade has had. Some estimate that more than 80 percent of job loss comes from technology alone. But no candidate runs on doing away with computers, imposing a tax on new software or withdrawing from the cloud. We don’t get to vote on the next generation of technology. We don’t even get to vote on globalization, which is the function of a number of factors, such as the containerization of shipping and the spread of broadband.
But we do get to vote on trade agreements, so they become the vessel into which Americans pour their legitimate economic anxieties, the scapegoat for bigger forces and historical trends.
The fact is that trade agreements are how we shape globalization and ensure that its benefits are broadly shared. And the historical record on that looks pretty good, notwithstanding the rhetoric that is commonly passed around as fact. When the critics of open trade cite trade deficits as the litmus test, we need to remind them that, to the degree that trade deficits matter, we run a trade surplus with our FTA partners as a whole. Our major deficits are with countries with which we don’t have FTAs.
But the critics of trade are on to something: We do not do a particularly good job as a government or as a country in helping individuals and communities adversely affected by change – whether that change comes from technology, migration or globalization.
Indeed, if you talk to our technology community, you know that what we are experiencing is just the tip of the iceberg. Let me mention three examples:
What does 3D printing mean for the average manufacturing process? If you can print a product -- anywhere, anytime – do you need factories in the traditional sense of the word?
One of the top jobs for American men with a high school education is as a truck driver. Last year, we saw the first autonomous truck deliver a load of beer from Fort Collins to Colorado Springs. What are the economic, social and, yes, political implications -- in 5, 10, 20 years – of autonomous trucks potentially displacing millions of truck drivers?
And then, of course, there’s artificial intelligence, whose implications for the future of work as we know it are only beginning to be imagined. All we know, though, is that AI could disrupt huge swaths of the American work force, blue and white collar, manufacturing, services and knowledge-based jobs.
These are just three examples. All across our economy, we see technology disrupting the workplace. Our automotive industry produced about 12 million vehicles last year, a tremendous recovery from 2008 when it produced about half that number. They did it with 214,000 workers, while the auto industry of 1990 produced 9 million vehicles with 260,000 workers. Manufacturing is not alone in this. Amazon plans to open supermarkets where shoppers can walk in, pick up what they want and walk out, with no lines, no cash registers, no human contact.
Of course, as one type of job is made redundant, new types of jobs are created, but for the displaced workers, their families and communities, that transition can be uneven and difficult, and the skill level required for the new jobs is likely to exceed that of the old ones. How are we helping those affected by change? How are we preparing future generations for a rapidly changing economy?
Yes, we have Trade Adjustment Assistance and some other modest programs, but if we’re honest with one another, we have to admit that they are necessary but insufficient to the task. Certainly one silver lining of this election campaign is that there is now an increasing chorus among Republicans, not just Democrats, arguing that we need to do more for workers and communities adversely affected by change.
The good news is that we don’t have to reinvent the wheel. There is experience in life-long learning, demand-driven training, community college access and apprenticeships to draw from. There are ideas about wage insurance and relocation assistance to dig into. Thoughtful people like Senator Mark Warner are delving into the future of work in America, with ideas on portability of insurance benefits, modernization of the social safety net, and incentives for businesses to invest more in training and skills development in an era of multiple job shifts and career changes. A number of these ideas have been proposed in President Obama’s budgets; maybe now they will see action. And, of course, the ACA has made an important contribution to health insurance portability.
We can draw lessons from programs that have earned high marks, such as New Hampshire Works, which matches potential employees with private businesses for on-the-job training. Or from Maine, where the Thornton Academy and Pratt & Whitney partner to give students concurrent high school degrees and certification in tooling industries that qualify them for high-tech manufacturing work in aircraft parts.
Or from Singapore, where they have the Skills Future program, which provides continuing education to workers at every stage of life, and helps to direct workers in declining-employment industries to growth areas for skilled jobs such as nursing and logistics. Korea is redesigning its high school vocational training program to place greater emphasis on much-in-demand scientific and technological skills. Australia uses a competitive system of employment services firms and non-profits to move dislocated workers into new jobs, with Yelp-style ratings and financial incentives for the most successful placement services. In Germany, they have mastered the art of the apprentice, taking high-school age students into the work force and teaching them a marketable skill for globally competitive small and medium-sized manufacturing businesses. And in Scandinavia, a broader conception of the role of worker association makes unions key players in moving their members from one job to the next throughout their careers.
Young people entering the workforce straight out of high school should have access to education that trains them to operate the computers and robots that are key to doing the work in factories nowadays. So should people of all sorts trying to build new careers –from long-term military veterans to older displaced workers to people exiting the criminal justice system.
This challenge is not for the Federal government alone, but for governments at all levels, the business community, high schools and colleges, unions and civil society. We are going to need to tackle this challenge if we are to rebuild the social compact in an age of rapid technological change, but it will also be relevant to making Americans feel more secure and confident in the global economy.
And that brings me to my last observation: the importance of public engagement about trade, and what’s at stake for each and every American.
We in this room all know that increased exports mean more and better jobs with higher wages. We all know that the U.S. is already an open economy, but that our businesses – and the workers they employ – face significant barriers and unfair practices abroad. We all know that we cannot maintain a strong middle class and reaffirm the American dream if we isolate ourselves, selling our products to just 5% of global consumers.
But it is not enough that we have the facts on our side. Gone are the days when a handful of trade associations could chip in a few dollars, hire a few consultants in the months leading up to a specific vote, and get trade done. As we saw with TPP, the vote will never come unless the groundwork is laid in advance. And if the ground is allowed to be poisoned by half-truths, it is very difficult to recover.
Back when people got paychecks in the mail, one company inserted a note that said something like: 40% of this company’s revenues come from exports; 40% of your paycheck is dependent on exports; we need trade agreements to open markets for our exports.
Companies need to talk to their workers about how much they have to gain from open markets and higher standards around the world. And we all should help families appreciate just how strongly their living standards, and often their employers’ competitiveness, depend on open markets.
I remember meeting with a labor council for a Member of Congress in the Midwest. All the participants had their sheet of talking points from their national offices with the reasons to oppose TPP. They went through their points and then gave me a chance to respond. I went through what was actually in TPP, and I remember one union member speaking up, saying, “If what you’re saying is true” – clearly assuming that it wasn’t – “we should be supporting TPP, not opposing it.” Of course, everything I said was true and was ultimately available online, for anyone to check.
I tell that story because I think one lesson of the last 18 months is that we must do a better job explaining trade earlier in the process and to the broadest possible audience: employees, suppliers, small businesses, neighbors, local leaders, faith leaders, civil society leaders.
When it came to TPP, governors and mayors got it. So did virtually the entire agricultural, manufacturing and service sectors. Creative and innovative industries dependent on intellectual property rights protect got it, as did the technology community.
In fact, one of the things I am most proud of is that we insisted on leaving no sector behind: Both the textile producers and the apparel importers support it; the footwear manufacturers and the footwear importers support it. Content providers – such as the motion picture companies – and the Internet companies get it -- and they don’t tend to agree on anything!
Generals and admirals and national security experts have been among the most supportive. Virtually every editorial board and columnist endorsed TPP. Indeed, half of President-elect Trump’s Cabinet appointees did as well.
But we collectively need to do more to convey the importance of trade broadly – not just around a specific vote or even a single agreement. I have zero doubt that we have the facts on our side, but it’s easy to blame foreign trade for all our ills – even though in our hearts we know that just isn’t true.
In fact, the opposite is true.
We need to make it clear that disrupting trade means cell phones will only be for the wealthy, not for the single mother working two jobs and using her cell phone to FaceTime with her kids during her break.
We need to make it clear that disrupting trade means working class Americans paying more for the basics of life: food, clothing, shoes. Tariffs are among the most regressive of all taxes. They disproportionately affect working class Americans, not the wealthy. Increasing tariffs on imports means increasing costs on those who can least afford it.
We need to make it clear that much of what we take for granted in the United States – in terms of fair rules, the free flow of information, transparency in regulation – are actually under threat by other countries that do not share our interests or our values.
We need an all-out, long-term, public engagement effort, not unlike the ones that made the public aware of the importance of recycling and the health effects of smoking. Not one that oversells the benefits of trade, but that situates trade in the context of a broader set of domestic policies designed to ensure that the benefits of trade are broadly shared and that those affected by change will have a path toward success. And that’s where all of you, the trade community, can play a vital role.
As Tom Friedman and Walter Russell Mead have noted, the Russians have a phrase that it’s easier to turn an aquarium into fish soup than fish soup into an aquarium. It’s much easier to tear down than to build. But in the absence of forward movement by us, the rest of world moves on, and we are left behind. Failure to lead, retreat, is a decision – one with serious consequences.
I am proud of what we have accomplished together and the foundation we have laid for the future. The incoming Administration will have a number of critical decisions to make – decisions that will affect first and foremost the well-beings of Americans, but also the health and welfare of communities around the world.
Trade is not a panacea for the world’s problems, but it certainly isn’t the cause of them either. We don’t do trade for trade’s sake. We do trade because trade, done right, is a powerful tool for improving the lives of people across the United States and around the world.
I saw that when I visited Jet Incorporated in Cleveland. Jet’s 32 employees make wastewater treatment systems and export them to 33 countries. Ron Swinko, the CEO, told us he was looking forward to trade agreements to simplify standards and eliminate tariffs on his products. I saw it when I visited Concord Supply Company in San Antonio. It makes, among other things, a solution that reduces the environmental damage of oil spills. Concord’s CEO, Victor Quinones, told me that exports accounted for 90 percent of the company’s sales and that the more he sells abroad, the more he can hire at home. I saw it in Omaha, where I met with the Kimberly family who told me that one out of three rows of soybeans they grow are destined for export and 20 percent of farm incomes comes from exports.
And I saw it in Rwanda, where I spoke to women who are making it possible for their children to go to school by making Kate Spade bags that you can buy at City Center a few blocks from here.
I’ve had the unique opportunity to meet many of these people in person over these past eight years, and each story is an inspiration. It is people like these who remind me why we do what we do: To support those who are working to earn a decent living, create jobs and strengthen their communities. Their journey is the journey of America, proud, strong and yes, great.
It has been an honor to serve, to make some small contribution and to join you all on this journey. I look forward to seeing where and how the journey takes us from here.
Thank you very much.