 TTIP, Washington Perspective on a UK-US bilateral trade deal, and then the Dermatis Personae, who are these people in the Trump administration that are trying to will do trade policy. These are all speculative topics, and it reminds me of a story about a conversation between Henry Kissinger and Joe Enlai in Beijing in 1971. Joe Enlai, you know, the Mandarin wise man, close associate of Mao Zedong, et cetera. And Kissinger asked Joe Enlai at a luncheon in Beijing, what do you think about the French Revolution? And as the story goes, Joe Enlai paused, looked up, and said to Kissinger, it's too soon to say. And so it might be a little bit with Trump trade policy too soon to say. But let's plunge ahead. And let me begin with a little bit of sort of the context for TTIP and US UK and all the rest. These are statements by Trump on trade. And I don't like to read, but just very briefly, from his inaugural address, in case you forgot, he said, Donald Trump, quote, we must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection, he said, will lead to prosperity and strength. And a little later on in his speech, he said, we will follow two simple rules, buy America and hire America. And as Dan said, I've been in Washington a while and never heard a president speak in a protectionist fashion like this in his inaugural address. In a way, I think this is of a piece with the dominant message in the election to the demographic group that supported him most vigorously, 75% of the white working men without college educations. He said to them, the global economy is not working for you. And international institutions are not working for you. And with 75% support, clearly that message resonated with them. Similarly, in the State of the Union message, he said, Donald Trump, my job is not to represent the world. My job is to represent the United States of America. And if you're like me, that sends chills down your back in terms of the willingness of the United States to be a leader in the world, not just in trade, but in many respects. Thus, in his first days in office, Trump withdrew from TPP. I think that's the greatest mistake in US trade policy since smooth holly. We can come back to that. And he notified the Mexicans and the Canadians that we were wanting to renegotiate NAFTA. So that's the context in which we come to TTIP. TTIP is now on a pause, as you know. And the question is whether some of it can be resurrected. In the fading days of the Obama administration, our US trade representative, Mike Froman, was, along with Cecilia Momstrom, were trying to negotiate a phase one of TTIP when they would focus on rules rather than tariffs. Things like SPS, TBT, sanitary and phytosanitary, technical barriers to trade, customs, things that are in the nature of rules and not tariffs. They ran out of time. So the question arises, can there be now be perhaps a TTIP light? I say probably not. And I turn again, if you will, to the words of Donald Trump, speaking about multilateral trade negotiations versus bilateral trade negotiations. And I know you're all thinking that the US-EU is bilateral, not in the mind of Donald Trump, not in the mind of some of his trade aides. They see it as a multilateral deal. He says multilaterals allow any country, no matter their size, to have the same stature as the United States. So we're basically on a par with very small countries getting access to an amazing market. The beautiful thing about bilateral, says Trump, is that if one party wants to get out, they can do so at any time. They can renegotiate if they feel like they're not being treated fairly. And here I think you're hearing an echo of a real estate negotiator, someone who himself has used the leverage of walking away from the table if he doesn't like the terms of the deal. But in multilaterals, says Trump, it's very difficult to get out. And he says then, that's not putting US interests first. So there is a distinct bias in Trump's mind and in some of his lieutenants in favor of bilaterals. And that does not include, in his mind, US-EU. Besides Trump's view, Congress, the Republicans in Congress who tend to be more trade-minded, are not sympathetically minded about TTIP right now, at least a couple of reasons. One, the question of flow of data from the EU to the US. You have different values concerning privacy. This hasn't been sorted out yet. From the US view, the EU has not been very forthcoming in terms of this aspect. And this is enormously important to US financial institutions and many others. Similarly, services. The EU has been insisting on defining services in such a way as would exclude all new services. This is a hugely important sector in our economy. And my point is that given this posture, Republicans in Congress are not now inclined to say, yeah, we need to go ahead with a TTIP deal. Even a TTIP light. And the prospects for Congress encouraging Trump to pursue TTIP, as I've mentioned, are not very good. Consider the Democratic side. There are some on the Democratic side who are more favorably minded. It's not dead, they say. Trump can easily be persuaded to change his mind. Consider, for example, during the campaign, he was repeatedly bashing Japan. Then we had a visit of Prime Minister Abe to Washington. His tone changed quickly and decisively. And indeed, they became such good buddies that he invited Prime Minister Abe to his golf course in Florida, Mar-a-Lago. So on this and on other subjects, we can come back to this. It's hard to know which part of his rhetoric represents strong commitments, which part, things that he's prepared to give up or give back. Also, the Democrats in Congress point to the fact that there's less wage disparity between the EU and the US. So the question of job loss is not the kind of issue it is on other trade deals. And if we can manage to harmonize our rules, big exports are possible, so that means more jobs. Of course, despite Trump's view about MTN, and here I'm giving you my view, there are very distinct advantages to them. For example, in TPP, it was very helpful to have Australia, New Zealand, Canada, Mexico at the table for the United States when the US wanted to persuade Vietnam to come forward with stronger standards on labor and the environment. So coalitions can be built in the multilateral setting. Economies of scale, of course. You have more countries at the table. You can get a bigger bang for the buck. Also, very important regional security aspects of TPP. Consider Southeast Asia, consider China, very important dimension of regional trade deals. And speaking of TPP, on March 14 and 15, there will be a summit in Chile called by Santiago of all the TPP countries, including the US, plus China, Korea, and Colombia. US has not yet accepted that invitation. And so there's a big question mark on what Trump's policy on TPP, let alone TTIP, is going to be. So overall, I suggest that the environment for TTIP in Washington is not promising. And of course, Washington is aware that there are German, Dutch, and French elections in 2017. So overall, not a good year for TTIP. So let's look at US, UK. Maybe there's something more positive to be found there. And indeed, on the face of it, Trump and Congress and business are favorably disposed toward a US, UK deal. Trump invited Theresa May as his first visitor. He said, in distinction to what Obama had said, that the UK should not be at the back of the queue. They should be first in line in terms of making a trade deal. And as a result, the UK and the US have a working group in a dialogue now trying to identify some areas, rules areas, not tariff areas, such as SPS, TBT, I've mentioned this, customs, the open skies agreement, professional services, licensing professionals. So areas where the US and the UK, if you will, can cherry pick some of the least difficult areas and start to foresee a way that they can go forward. Congress is also supportive on US, UK trade. Within days of Brexit, the two most important members of Congress, Senator Hatch, Chairman of Senate Finance, Congressman Kevin Brady, a head of House Ways and Means, introduced a joint resolution, calling on the president to begin negotiating immediately with the United Kingdom on a bilateral trade deal. And on the Democratic side, the most important Democrat on trade said, we want to move the US, Richard Neal. We want to move the US and UK forward before Brexit. He said, don't prioritize, but don't penalize. Also, and this may not be already known to you, the business community has been active in support of the US, UK deal. The Chamber of Commerce of the United States in Washington has organized a new US, UK business council to be a platform in Washington, as well as Brussels and London, on US business concerns about Brexit. And this is not an insubstantial group. It has on its board of directors Coca-Cola, IBM, Dow Chemical, Eli Lilly, Microsoft, the usual suspects. And their goals, as you know, include the financial passport, open skies, the reach chemical standards, data protection standards, which we've mentioned, a united energy standard so that there's not one energy standard for the EU and another one for the UK. The point is that business, Congress, and Trump support the idea of a US, UK trade deal. However, there will be difficult timing and sequence issues. The baseline for the United States for negotiations with the UK is going to be made up of two parts. One, what deal does the UK make with the EU? And two, what deal does the UK make with the WTO? And so domestic regulations in the UK may change as a result of these. And the US does not want to be putting concessions forward when it is unclear exactly what the regime is going to be in the United Kingdom. As you know, some of these negotiations can take years, particularly, and here I want to be clear, the WTO is not simply a backstop position. When the UK negotiates with the 161 members of the WTO, they are going to have to negotiate a new schedule of concessions. And before, when the UK was in the EU, there was an entirely different set of economic circumstances. And so now the Chinese, the Indians, the Brazils may be asking the UK for new concessions to have continued access to their markets. And the WTO works by consensus. If any one of those countries is not happy with the deal, it's not going to go forward. So my point is that the WTO is not a simple fallback position for the UK going forward. Moreover, of course, there are potential delays in Washington. The last FTAs that we did were with Columbia and Panama. Those took three years to negotiate, plus another, if you'll forgive me, five years for Congress to approve them. So while the atmosphere for US-UK may be good on its face, it's going to be a slow slog and a time-consuming process. OK, let's turn to then who the players are in the Trump administration. On paper, there are three at the top in the organization chart, if you will. First and foremost among them is Bob Lighthizer, whose name you haven't heard so much yet because he's not yet been confirmed by the Senate. Who is Bob Lighthizer? He is a trade lawyer, protectionist trade lawyer. He spent most of his career seeking for US steel companies, anti-dupping duties against foreign steel coming into the United States. He was also a deputy US trade representative under President Reagan. At that time, he negotiated so-called voluntary restraint agreements with Japan, with Korea, on automobiles, on semiconductors. Also, if I recall correctly, with the UK on steel. So this is someone who, by experience and background, has been very much about protecting American companies from international competition. He said recently, we need to file more trade cases against China. We need to make currency manipulation a subsidy under US law. If you know that triggers a whole statutory framework, we can come back to that. He said, and I quote, markets do not work well when manufacturing shifts to China because of actions of the Chinese government. He's talking about state capitalism. Just nominated as Lighthizer's number one lieutenant general counsel is Steve Vaughn, who is a clone of Lighthizer, also a trade lawyer whose career was about protectionism. So he's number one, and he will be the most important, in part because statutory law in Washington gives US trade representative the lead on trade policy. And Congress, of course, is so very important on trade because under the Commerce Clause of our Constitution, it is Congress, not the executive branch, which has all power on trade. And any power which the executive branch has has been designated by Congress to the executive branch. And when trade goes as Congress doesn't like, it will be Lighthizer, who's called on the carpet to testify in Congress to explain why not. So, second in this troika, if you will, and second in importance, I think, will be Wilbur Ross. Wilbur Ross is the elder of the group. He's 79 years old. He was known on Wall Street as the king of bankruptcy. He bought, fixed up, and sold big companies, Bethlehem Steel, Ling, Tempova in Ohio, coal companies, textile companies, auto parts companies. And ironically, when he fixed them up or slimmed them down, if you will, and you know this perhaps from his investments in the Bank of Ireland, this involved laying people off. It also involved moving plants to Mexico to take advantage of something called NAFTA. And of course, he's now saying along with Trump, oh, NAFTA's bad, we need to reform NAFTA. Here are a couple of statements from his confirmation hearing. One, I am not anti-trade. I am pro-sensible trade that is not the disadvantage of the American worker in the American manufacturing community. We should give access to our market by those who play fair, play by the rules. Those who do not, should not get away with it. They should be punished and punished severely. On China, he said China is the most protectionist of large countries with very high tariffs, high non-tariff barriers. They talk much more about free trade than actually practice it. We want to bring the practice closer to the rhetoric. On restrictive tariffs, he said, and the concern that they might disrupt global supply chains. He said tariffs are a good negotiating tool, but the best way to improve U.S. trade policy is to encourage more exports and to incentivize American manufacturing companies to build manufacturing plants in the United States. And he hastened to add the tax and regulatory policies are going to be a big part of that. His deputy has just been nominated, named Gil Kaplan. He's a former Reagan type of protectionist, protectionist trade lawyer. He says that the main goal of trade negotiations should be to level the playing field for American manufacturing. And he also says the respective roles of this Troika, he, Lighthizer, and Navarro, will be a collaborator of effort. I don't think so. I'm betting on Lighthizer to be first and foremost, number one, Navarro to be number two. Sorry, Ross to be number two, and Navarro to be third, a junior partner. Who is Navarro? Navarro is Anik Peter Navarro, an economist, University of California, wrote a book called Death by China, which if you look at it, I think you'd agree is highly exaggerated and argues that we are at economic war with China and we need to be more aggressive about China. During the campaign, Donald Trump mentioned in a radio interview that he had read Death by China and he thought it was an excellent book. And of course, Mr. Navarro, ambitious academic as he is, used that as an opportunity to get a meeting with Mr. Trump and became Mr. Trump's Svangali for being tougher on China. And Trump of course sold this again and again to the American voters. So his reward for this loyal support is that he is made the head of a new entity called the National Trade Council. It's not, we haven't had it before, it's supposed to be similar to and parallel to the National Security Council, National Economic Council, but so far he has one staffer. Bob Lighthizer at USDR has 200 staffers. Wilbur Ross at the Commerce Department has 10 or 15 and Wilbur Ross is Wilbur Ross. So my suspicion again is that Navarro will be the junior partner. But he did interestingly say in an informal conversation with Congress, the US will increase agriculture, this is Navarro, and manufacturing exports to TPP in Asia. Through bilateral deals, and the first of those deals will be with Japan and the others will follow along. And his job at the National Trade Council is to boost American manufacturing through higher, by America, higher America, and also through infrastructure spending and defense spending. So those are the three on top, but there are three others to keep an eye on. All three of them, it turns out, come from Goldman Sachs. And I can talk a little about Goldman Sachs later if you like. They are Steve Bannon, Gary Kohn, and Steve Mnuchin. Steve Mnuchin, of course, is the Treasury Secretary. Steve Bannon, you've heard a lot about him. He is the Rasputin, if you will, in the White House. He is the title of Chief Strategist and he's unprecedented for such a political character, been made a part of the National Security Council, which of course is Secretary of Defense, Secretary of State, et cetera. And after his career making some money at Goldman Sachs, he became an antagonist to the global and financial elite. He revamped the right-wing online news outfit called Breitbart News, which many think is racist and anti-Semitic and sexist. He is the key author, was the key author of the ill-fated immigration borders, which have now been redone, and also of the inaugural address. And one of the central ideas, which he obviously has sold Trump on, is to equate trade with a kind of nationalism. Here's what he said recently. We are a nation with an economy. We are not just some open marketplace with open borders, but we are a nation with a culture and some reason for being. So he's equating what's special and unique about the United States from separation economically from other countries. He also seeks what he calls the deconstruction of the administrative state system of taxes and regulations and trade packs that he says have stymied economic growth and impinged on US sovereignty. He thinks that the post-World War II consensus political and economic is failing, should be replaced with a system that, as he put it, empowers ordinary people over coastal elites and international institutions. So that's Steve Bannon. Gary Cohen and Steve Mnuchin, I think are more mature, less ideological thinkers about international economic issues and will be a restraining force, I hope, on Trump. Cohen was the chief operating officer at Goldman Sachs. Last December, he was introduced to Trump, came to Trump Tower, made a presentation to Trump on combining public and private funding for nationwide infrastructure. Trump was very impressed and Mr. Cohen has become the chair of the National Economic Council, whose job is to coordinate economic input from all of those agencies that advise the president on economics, a very important job. And his name, surface last week, by the way, correcting our friend Mr. Navarro on certain misstatements that Navarro had made about trade policy. I think that's a light motif you may hear again. Steve Mnuchin, also from Goldman Sachs, Secretary of the Treasury, founded several hedge funds after he left Goldman Sachs, bought a failed residential lender in California, fixed it up in the best Wilbur Ross tradition, and then sold it, made a fortune. And he was also national finance chair for Trump in his campaign. It is the Secretary of Treasury who designates countries as currency manipulators. And you may recall that Trump said many times during the election, on day one, I'm going to designate China a currency manipulator. Well, we're now on day what? Day 40, day 41. And last week, it was Steve Mnuchin who said, we will follow we in Treasury, which is responsible for China currency. We will follow the ordinary process, and that takes months, and indeed we'll culminate now in April. So here's a case where despite Trump rhetoric, statutes, and senior mature people are thinking more carefully. So I close by saying to you that in all my time in Washington, I've observed 10 different presidents. I've never seen one whose statements are less credible than the statements of Donald Trump. So I encourage you, as you think about trade policy, listen very carefully to what key cabinet advisors and leading legislators say about trade policy.