 I'm Carol Hincoe, Vice President. I didn't even know where the bell was, so I have a lot to learn. Isn't it gorgeous today? I think we're in the 30s tomorrow, but next week it's going to be in the 40s. I'm pretty excited. Anyway, so be it. It's Vermont. Please turn off your cell phones. And I'd like to ask Michael Orlansky of our fabulous program committee to come up today and please introduce our speaker, Michael. Thanks, Carol, and good afternoon. Today it is my great pleasure to introduce Obi Porteus, Assistant Professor of Economics at Middlebury College. Professor Porteus is a Californian. He earned his bachelor's degree at the University of Chicago and returned to California to earn his master's and PhD at the University of California Berkeley. His doctoral dissertation explored agricultural trade in Sub-Saharan Africa and it received the 2017 Outstanding Doctoral Dissertation Award from the Agricultural and Applied Economics Association. Quite an honor. Obi Porteus has an extensive international experience. He worked for five years at Action Against Hunger, a humanitarian organization. That work took him to Tajikistan, Uganda, Pakistan, Indonesia, and the Democratic Republic of the Congo. He's also had experiences with Oxfam in South Sudan, at the World Bank in Washington, and as a freelance journalist. His current research focuses on agricultural trade in Sub-Saharan Africa and at Middlebury he teaches courses on international economics, the economics of Africa, and international trade. All of this puts Professor Porteus in an excellent position to share with us an economist's perspectives on current US trade policy, a most timely and important topic these days, to be sure. Please join me in welcoming to Tripoli Professor Obi Porteus. Thank you. Okay, good afternoon, everyone, and thank you, Michael. Thanks to all of you for having me. Thank you, Michael, for that wonderful introduction. So as Michael said, I am an international trade economist. I teach international trade at Middlebury. And so as part of my teaching, I keep tabs on current US trade policy, but my research actually focuses on a different part of the world on Sub-Saharan Africa. So I couldn't help, but I couldn't resist the temptation to include just a first slide here from my research on Africa, which I think is helpful for illustrating the importance of trade and why the default position of most economists is generally in favor of international trade. Okay, so these graphs are of price series, equivalent price series for maize from equivalently spaced markets in Kenya and Tanzania, in East Africa, and in the US over the same five year time period with these extremely high prices of maize at the end of 2011 in Northern Kenya, corresponding to the Horn of Africa famine, the first UN declared famine in 30 years. Now this famine killed an estimated 260,000 people. And in looking at these price series, you immediately notice a couple of things. So first you notice that in the US, partly because we have better infrastructure and no policy barriers between these markets within our country, maize prices in any one location can never get too far above or below maize prices in any other location. The same is not true in Kenya. So in Northern Kenya, the area affected by this famine, we see prices far above, prices in Southern Kenya within the same country, as well as prices in neighboring country, Tanzania, as well as prices in the rest of the world. And that's due to a variety of things. Due to poor infrastructure, that's also due to policy barriers, like a tariff of 50% on maize imported from countries outside of Kenya. And so I think one of the things I've shown in my research is that the frequency of these high price famine type events in Sub-Saharan Africa would fall by over 90% if the trade costs, the costs of trade, the costs of moving maize from one location to another were brought down to an equivalent level to costs in the US and in the rest of the world. But that's not my topic for today. We'll save that for another lecture. My topic for today is US trade policy, current US trade policy. So in particular, trade policy under the current administration of President Trump. So President Trump's administration, as I'm sure you're aware and have read about in the news, has been very active in the field of trade policy. And I've identified five major components of the trade policies that have been implemented in the past couple of years. So the first was the withdrawal of the US from the Trans-Pacific Partnership, a new regional trade agreement that had been signed by President Obama, but not yet ratified by Congress. Second was the renegotiation of the North American Free Trade Agreement, or NAFTA. And it's replacement, there's been a sort of name change. It's replacement with the US, Mexico, Canada agreement. And then the third, fourth and fifth are a number of different tariffs. Now, you may think of these tariffs all in one category as tariffs, but in fact, there are three different flavors here. So one has been what are called safeguard tariffs, and I'll talk about each of these in turn, safeguard tariffs that have been implemented on solar panels and washing machines. A second category are national security tariffs on steel and aluminum, with the possibility for upcoming similar tariffs on automobiles. And then lastly, what's been perhaps most in the news have been the tariffs targeting China, which began as intellectual property tariffs, but have been escalated subsequently as the Chinese have retaliated with their own tariffs, and then the US has then retaliated with additional tariffs of its own, and we've ended up in what's been called a trade war. So I'm gonna talk about each of these policies in turn and give you sort of my take on them. But before I get into the details, I wanna just give you a little bit of background information on tariffs and trade agreements. So first let's talk about tariffs. So what is a tariff? A tariff is a tax. It's collected on imports as they come into the country, either at land border, like our border with Canada here, or coming in through a port. So what are the effects of tariffs? Well, tariffs lead to higher domestic prices for the good itself. So consumers of these goods are going to be made worse off, domestic consumers are gonna be made worse off by the tariffs. Now domestic producers of the good itself, so say US steel and aluminum producers, are gonna be made better off by these higher prices for steel and aluminum. That's not necessarily true for all producers. There are also domestic producers who may use the goods, steel and aluminum is a good example, may use steel and aluminum as an input in what they produce. So the auto industry, for instance, I would imagine uses quite a bit of steel and aluminum. So these industries are gonna actually be made worse off because the price of their raw materials is increasing due to the tariffs. And then the government is going to gain some additional tax revenue. Now usually tariffs aren't implemented as a way of collecting additional, I mean that's not their primary motivation. There are more efficient ways to collect tax revenues, sales, taxes, income, taxes, et cetera. Now importantly, since tariffs are taxes on imports, it means that the goods that they are affecting are goods for which the US consumes more than it produces, right? So it's importing these goods. And as a result, the losses that consumers experience due to the tariffs exceed the gains that producers of these goods are experiencing at the same time. And these losses are very real. So this is not the best year to buy a washing machine. So this is a three month increase in the consumer price index for laundry equipment, primarily washing machines. And you can see that immediately upon introduction of the tariffs on washing machines last year, the price of washing machines jumped by around 16%. Far larger than any, this is quarter to quarter price increases over the last, what, 40 years. Now tariffs not only have an impact on the US or the country implementing them, right? They're also gonna have an impact on other countries, on the countries where these imports are coming from, right? So in general, just as tariffs raise prices in the US, tariffs are gonna lower prices in the other countries. Why? Because the US is purchasing fewer of these imports from other countries. So I think many of our washing machines are now imported from South Korea. So producers of washing machines in South Korea are gonna be made worse off by the US tariffs on washing machines. Now this might be good for South Korean consumers, lower prices for all of these washing machines that are produced and no longer being imported by the United States, maybe good for South Korean consumers. But because South Korea is a net exporter of washing machines, so it's producing more washing machines than it consumes, producers' losses in South Korea are gonna be larger than South Korean consumers gains due to this US tariff on washing machines. Now you can quickly imagine if all countries implemented tariffs, so if the US is putting a tariff on South Korean washing machines and South Korea is putting a tariff on say agricultural imports from the United States, South Korea currently imports about $6 billion a year of US agricultural goods, beef, pork, maize, fresh fruit, et cetera, that everyone, both South Korea and the US, is gonna wind up worse off. And in fact, this is the main motivation for trade agreements. So trade agreements can include many different provisions, but the primary motivation for trade agreements is to basically say, well, okay, if you agree not to implement tariffs on my goods, I agree not to implement tariffs on your goods. So you can think of a trade agreement as sort of saying, okay, all tie my hands when it comes to trade policy if you agree to tie your hands as well. Okay, so let's shift to start talking about these five different current US trade policies that I identified at the beginning of the talk. So the first trade policy, which I believe was President Trump's first act in office, fulfilling a campaign pledge, was to withdraw the US from the Trans-Pacific Partnership or TPP. The Trans-Pacific Partnership was a trade agreement negotiated over the course of 10 years, so negotiations started under the administration of President Bush and continued under the administration of President Obama between these countries shown in red, so including Canada, US Mexico, Peru, Chile, Australia, Singapore, Vietnam, Japan, Malaysia, et cetera. And had the prospect, there were a number of other countries shown in yellow that had shown interest in potentially joining this trade agreement in the future. I might take on the withdrawal from the Trans-Pacific Partnership is that it's a little bit of a missed opportunity for the US, so we had taken many years to negotiate this agreement and had included a lot of things like labor and environmental standards and intellectual property protections that many people felt were insufficient in the status quo trading system. When we withdrew from this agreement, what ended up happening is the other 11 countries, including Canada, went ahead and signed their own agreement. With just one modification, they cut out the 22 provisions that had been priorities of the US that the US had specifically negotiated for. So it remains to be seen whether some point in the future, the US might rejoin this agreement, but I think that ideally we should be out there proactively trying to be involved in writing the rules for global trade. And so I think that this was a bit of a missed opportunity in that regard. The second major component of current trade policy in the US has been the renegotiation of the North American Free Trade Agreement, or NAFTA, and it's rechristening as the US, Mexico, Canada agreement. So this agreement was signed by the three countries in September of last year, but still needs to be ratified, would need to be ratified by the three countries to go into effect. And there's a lot of uncertainty around this ratification, particularly given the current political situation in the US. In looking at the revisions that were made to this agreement, they're mostly relatively minor and seem relatively good, right? So increased local content and labor requirements for automobiles, increased access to the Canadian market for US dairy farmers, including Vermont dairy farmers, and increased labor, environmental, and intellectual property protections. Okay, and then there's an agreement to review the agreement again after six years. So this agreement, the North American Free Trade Agreement has been around since the mid-1990s, and it sort of makes sense that 25 years in, there would be some things that the three countries would want to get together and revise. It seems like they've done that. And so this is one piece of current trade policy that seems like a positive development to me. And I like the new name, actually. So US-Mexico-Canada Agreement. It makes it sound a bit more like what it is, which is an agreement that each of these countries has voluntarily committed to because they think that it's in their own interest, that it's a good thing for them. Now, before I go further, I want to mention the, so the US is involved in regional trade agreements and some bilateral trade agreements, like NAFTA, the USMCA, the new USMCA, and what was sort of on track to be a member of this Trans-Pacific Partnership. But there's another class of trade agreements that the US is involved in, and these are global trade agreements. And the primary global trade agreement that the US is involved in is the World Trade Organization, or WTO. So I want to give you a little bit of background on the WTO. The WTO was the culmination of a series of agreements and negotiations that started at the end of World War II and culminated in 1995 with the World Trade Organization agreements. Currently, pretty much every economy in the world is party to these agreements. So the green are the WTO members. Europe here is in blue just because the European Union is considered a member, as are each of the member countries within the European Union. So you could just as easily have colored that green. The countries in yellow are those countries that are currently at some stage in the negotiation process of joining the WTO. So you may remember the multi-year process and negotiation process in the late 1990s that led to China's joining the WTO in 2001. Russia joined the WTO in 2011 or 2012. And you can see that a number of other countries in yellow working towards joining the WTO, which leaves really only North Korea, Turkmenistan and Eritrea as the three countries that are either not part of the WTO already or are not in some stage in joining the WTO. Now what are the WTO agreements? Well, you can think of them as having three components. So first, the World Trade Organization agreements set a minimum set of rules for international trade and trade policy. And they also set a maximum level of tariffs for each member's state. When each member joins the join to the WTO, they negotiated a certain level of tariffs and agreed not to increase tariffs above that level going forward. Okay, the reason I say minimum and maximum is of course individual countries can voluntarily abide by stricter rules or have lower tariffs. And in fact, regional trade agreements like those we mentioned, involve typically agreeing to within a region to a more stringent set of rules and to a lower set of tariffs. The other important components of the World Trade Organization is the dispute settlement mechanism. And this is a mechanism that a country can use to file a complaint when it thinks or it sees that another member is in violation of the rules that all the members have agreed to. Okay, so this brings me to the first category of tariffs that the US has implemented in the past couple of years. And these are what is called safeguard tariffs. So there is a clause under WTO rules that allows for the use of safeguard tariffs as a temporary response to a surge of imports, a surge of import competition. So the idea here is that a domestic firm or a domestic industry might be faced with a surge of import competition due to factors outside of its control. And these safeguard tariffs are intended to be temporary, perhaps lasting for a couple of years to give that domestic industry some breathing room and some time to make the innovations and changes necessary to be able to compete with its competing firms elsewhere in the world. These have been used successfully in the past. So the best example is actually in the 1980s the US implemented a safeguard tariff to protect Harley-Davidson from competition from Japanese motorcycle manufacturers. The tariff lasted three or four years, started at a relatively high level and then declined. And as a result, Harley-Davidson was able to stay open and is still open and as far as I know, doing fairly well today, okay? So this is the type of tariff that was announced last January on solar panels and washing machines. These are temporary tariffs for three to four years that start out, so there's different even subcategories within solar panels and washing machines, start out between 20 to 50% and decline to over those three or four years to 16 or 40% before being phased out, being phased out completely. Now it's I guess important to note that both South Korea and China have filed formal disputes at the WTO and that these disputes are arguing that in fact the US tariffs don't qualify under the safeguard provision because the US has not been facing a surge of imports. So the WTO dispute settlement body has not yet made a ruling on this. It's a very legal process deciding whether or not the evidence suggests that the US is authorized to implement these safeguard tariffs in this situation. But I think this is actually a good sign of a healthy system, right? So we'd like to see the US implementing tariffs according to the rules. We'd like to see other countries having the possibility to dispute whether or not the tariffs are following the rules. And we'd like both countries to then abide by whatever decision is made at the WTO. Like those are all reasons why the WTO was set up and made to include this dispute settlement mechanism. Okay, now the second category of tariffs that have been implemented within the past year or two are a little bit different. So these are what we could call national security tariffs. So these were announced last March on steel and aluminum products. And they invoked a little used clause in the WTO agreement which says, well, I mean, it's like the, if anyone has insurance, right? It's house insurance. It's like the sort of act of God clause, right? You say, you need an emergency out, right? And it says that tariffs are allowed. You can implement whatever tariff you want if it's necessary for a national security reason. Now one of the reasons that this clause is very rarely used and in fact has never been used before by the US is that people have always been concerned that this would sort of open a Pandora's box of tariffs that once countries start justifying tariffs on national security grounds, then any country can justify almost any tariff with some connection to national security. And that's the primary reason why both myself and many economists have been quite concerned about this particular type of tariff that's been implemented by the US. Which partly because the connection to national security is pretty tenuous. More than 50% of the losses set to be incurred by these tariffs are actually from our allies. So Canada, EU, Japan, and South Korea, the Pentagon has come out opposed to the tariffs, partly because it's gonna make their equipment more expensive, right? Not being able to use or being forced to pay more expensive prices for steel and aluminum inputs into their equipment. What's also concerning is the temporary ad hoc exemptions that have been applied by the Trump administration to some countries, but not others, since these tariffs were originally announced. The kind of discretionary, almost discriminatory exemptions that the World Trade System as embodying the World Trade Organization is sort of set up to prevent. Non-discrimination is one of the key principles that are consistent throughout the trade agreements that have been made over the last half century. Now, since these tariffs were announced, there have been retaliatory tariffs put in place by a number of countries, including Canada, the EU, Mexico, Turkey, and China. Many of these have targeted agriculture. Agriculture is not only one of the US's major exports, but also a fairly politically sensitive target for retaliatory tariffs. The response of the administration has been to announce $12 billion in additional subsidies and payments to US farmers as compensation for their lost exports due to these retaliatory tariffs. Which reminds me of this famous cartoon, so just in case you can't read this in the back. So on the cow it's written protection and you have the man in the suit milking the cow. The bucket is labeled profit and the caption is the tariff cow, the farmer feeds her, the monopolist gets the milk. This cartoon is actually from 1888 when Andrew Carnegie was using the protection afforded by steel tariffs in the US to build the largest steel company in the world. And that's sort of what tariffs generally do. So they provide a lot of benefits to a few at the expense of everyone else. And so you could see this cartoon almost reprinted, 130 years later. Now looking ahead in terms of the steel and aluminum tariffs, so world trade organization disputes have been filed against these tariffs by a growing list of countries, so Canada, Mexico, the EU, Norway, China, Russia, India, Switzerland, and Turkey. Now the tricky thing here is it puts the WTO dispute settlement mechanism in a really, in kind of a bind, right? So this I think is the first time that they've had to decide or they've been asked to decide whether something qualifies as a national security sort of exemption or not under this clause. And it's almost sort of you're damned if you do, you're damned if you don't, right? So if they say yes, it's okay because it's up to a country to decide what's its own security issue, right? Then the concern is that opens the Pandora's box for any country seeking to implement any tariff to claim that it's in there. It's because of their national security and try to use this national security exemption. On the other hand, if they say no, this doesn't appear to be a national security issue or sufficient issue to justify these tariffs by the United States. You can imagine how a decision like that would play sort of politically in the United States. I mean, you could imagine the administration if it wanted to, to use that as a reason to withdraw the United States from the World Trade Organization, which I think would be very, have a lot of disastrous consequences economically. So it's a tricky situation. We'll see how it works out. There hasn't been a lot of movement on this particular issue in the last six months or so. The Trump administration is considering similar tariffs on automobiles, but I think they're getting some pushback from various quarters. And so that as well, haven't seen a lot of action on that in the last couple of months. This was sort of where things were. End of last summer beginning of fall and there are a lot of other things going on since then, there's been less attention given to this. And there haven't been any decisions made at the level of the World Trade Organization. Okay, so this brings me to the last piece of current U.S. trade policy, which are these intellectual property tariffs on China. So these are the tariffs that have been the most in the news over the past year. So it was just about a year ago, a year ago this week, that the U.S. trade representative released findings that China was unfairly forcing U.S. investors to turn over technology to Chinese firms as sort of a condition of being able to do business in China. So as a result of this report, the U.S. threatened to implement tariffs. China immediately threatened to implement retaliatory tariffs if the U.S. implemented its tariffs. The U.S. immediately threatened to implement retaliatory tariffs if China implemented the retaliatory tariffs. Now fortunately, it didn't all happen at once. These were just threats, but they were sort of time, I think there was like a three month time window and time ran out. And so starting on July 6th, the U.S. and China each imposed tariffs on $34 billion of each other's imports. Then what a month and a half later, they each imposed a second round of tariffs on $16 billion more of each other's imports. And then a month and a half or a month later, the U.S. imposed a third round of tariffs on $200 billion more of imports from China. And China responded with tariffs on $60 billion more of imports from the U.S. Now in the meantime, so the U.S. has filed a dispute at the WTO over China's intellectual property violations. There are some clauses on intellectual property in the WTO agreements. And China has filed a World Trade Organization dispute over the U.S. intellectual property tariffs. Okay, so definitely this is pretty much a textbook example of a trade war, and a tit for tat escalating tariffs. Now what's been going on since September? Well, in early November, the U.S. and Chinese presidents, so President Trump and President Xi Jinping of China, sort of announced a truce in the trade war to allow time for negotiation. And now what I'm hearing and what's being talked about is that potentially within, there've been a lot of negotiations going on, bilateral negotiations between the U.S. and China. And I'm expecting that within the next couple of weeks, so end of March, perhaps early April, there will be some kind of agreement announced and signed between the two countries to address many of the issues and remove these tariffs that have been put in place as part of this disagreement. Both sides are, I would say both sides are, my impression is both sides really want to reach an agreement, and both sides are being a little coy and saying that they're ready to walk away, but I'm expecting an agreement to be reached fairly soon. And so now the discussion has shifted to this, so this is an article just from last week's New York Times. Was it worth it? So many businesses, including some in Vermont, many businesses have been affected adversely by the various tariffs that have been put on within the last year as part of this trade war. Farmers in particular, soybean farmers in the Midwest of China stopped buying soybeans from the Midwest or applied very steep tariffs to them. And so I think the first few lines are fairly relevant here, so President Trump has used a blunt instrument, tariffs are a very blunt instrument, to get China to change its behavior, deploying punishing tariffs to win concessions, the pain of the trade war with China may soon be over, but American businesses and farmers are left wondering whether it was worth the trouble. And I can't help but wonder, we'll see what comes out of the agreement, certainly what's being talked about sounds like things that, well, maybe they could have sat down together last March and just sort of hashed it out without going into this sort of escalating spiral of tariffs, or perhaps even better, gone through this dispute settlement mechanism that has been launched and try to resolve it that way first, before sort of resorting to painful tariffs as a last resort, okay. Great, so I would like to wrap up and leave plenty of time for questions. I know this is a hot topic, so let me just show one last slide with my sort of, my take, or my, well, I'm always grading students, I guess my report card on US trade policy under President Trump. So withdrawal from the Trans-Pacific Partnership, my feeling is that this was a little bit of a missed opportunity, although certainly seemed to be a political imperative in 2016, 2017. The renegotiation of NAFTA and replacement with the USMCA, I see it's mostly a good thing. I've been, the changes have been relatively minor and seem positive. The safeguard tariffs on solar panels and washing machines, these are temporary protection that are theoretically allowed under the WTO rules. Obviously there's some costs to them, but these are temporary tariffs and I'm not gonna take a stand on whether a few years of higher prices for washing machines is worth it to potentially keep US washing machine manufacturers in business. It certainly seems like it could be, as it was for Harley Davidson in the 1980s. On the other hand, I'm more concerned about the national security tariffs on steel and aluminum because of this problematic use of the national security exception, that I really feel like should be kept as a very, very, very last resort rather than use this sort of an excuse for justification to implement tariffs in this sector. And finally, in terms of the intellectual property tariffs targeting China, that clearly brought China to the negotiating table to try to address a number of longstanding issues here between the US and China in their trade relationship. But let's see what the upcoming agreement is and whether or not it's worth the damage that has been incurred, both in the US economy and in the Chinese economy over the past a year or so. Okay, so thank you very much. I think we have plenty of time for questions and happy to talk afterwards as well. So there is a microphone. Yeah, thank you. Has the president had the benefit of this lecture? Well, what I'm getting at is, do you think that his level of understanding is at this level or exceeds it or unfortunately maybe not quite up to speed? So, am I still on here? So, I don't know who will see the video, right? So, we are being videotaped. My take is that, I mean, President Trump is by nature a negotiator, right? And he's used to using pretty hard ball tactics in negotiations. My concern maybe that international trade is a much more delicate arena maybe than the arenas he's used to using these hard ball negotiations in before. And my concern is that the hard ball will wreck some pieces and cause some lasting damage that may be unintended given his short term objectives. That was extremely diplomatic. I have two questions. The first one is, do you think there is the capacity of coming to an intellectual property agreement that China will observe? Because this is certainly a valid thing. And the second one is something I simply don't know. Does NAFTA hold while we're waiting for ratification of the other agreement? Yeah, great, those are two great questions. So first, I didn't go quite this far in the article, but you'll notice the next paragraph says, details of the emerging deal paint a familiar picture of Beijing making vague promises to change its economic practices that could be easy to delay and difficult to enforce. So, that's one of the concerns not only about this potential agreement, but about many agreements that have been made with China dating back to its accession to the WTO. There are many tools that China can use because of the extent to which the state is involved in its economy to even though it doesn't have the particular policy that's prohibited to still give its firms a leg up in another way. Right, so we'll see, I mean, I would love to see a more multilateral approach. These are not concerns that are unique to the US. So if the US can go in and get a bunch of countries together and really hammer out a long standing agreement with China, that would be great. But yeah, no easy solution there. In terms of NAFTA, so my understanding, so again, speaking of negotiation, hardball negotiation tactics, right? The negotiation tactic was we're going to withdraw from NAFTA unless you agree to X, Y, Z, right? And so they reached an agreement on X, Y, and Z and I believe that so the president has, is potentially using a similar tactic to try to get the ratification saying, okay, we've got this new agreement. If it's not ratified by X date, then I'll just withdraw from NAFTA. So I would need to confirm that 100% but that is what I believe that I have read recently. I'm not sure when that date is. Look for this debate in the coming weeks. I think it's starting to be discussed in Congress, the pros and cons of ratifying this new agreement. Most of the cons from what I've read seem to be that they would like more things negotiated and added to. So yeah, it's unclear how this will end up. We're going to give you the opportunity to meet with President Trump. Either in the Oval Office or at Mar-a-Lago. Mar-a-Lago might be a little more casual, at least for him, I don't know about you. What would you tell President Trump having to do with this balance of trade that he is so convinced that is necessary and put it in terms that even he can understand? Oh boy. No, you just opened Pandora's box. No, no, I mean, one thing I haven't mentioned today is the focus on the trade deficit and surplus. And that's sort of a whole topic for another lecture event. I think maybe one of the key points to make is that bilateral trade surpluses and deficits are often misleading. So there's been a lot of focus on the U.S. trade deficit with China rather than on the U.S. overall balance of trade with the rest of the world. And there's something important to understand which is that actually, so China, for instance, is assembling iPhones and exporting them to the U.S. And actually the added value that Chinese assembly labor is giving to those iPhones is very, very small because they're importing most of the components, not just the raw materials. They import a lot of raw materials as well. But here in this case for the iPhone, they're implementing a lot of ready-made components from Japan, from Germany, from South Korea, from countries all over the world, and then just assembling them together into the final iPhone and then that gets exported to the United States. And the way that shows up on the U.S. balance sheet is this $200 plus trade deficit with China, whereas actually only maybe $10 of that is actually imports from China, if you separate out the different components, right? These are actually imports from other countries that are being funneled through China. I think for a variety of reasons, I think there's too much focus in the current administration on the trade deficit and particularly the bilateral trade deficit with China. So I think maybe a priority would be encouraging a broader focus than just on that specific issue. What I've heard explained is that we are a rich country, we're a consuming country, and therefore the trade deficit is gonna be unbalanced. If China were to have an improvement in its economy as it has over the last 15 years or so, except for the last year or so, that they also would be a consuming country, and we might find that they're consuming more and more of our products, so there might become a balance of trade, but it would be more coincidental than methodical, if you will. Yeah, in general, I'm getting back to sort of an economist perspective. The economist perspective on trade surpluses and deficits is that it's good to be able to run a trade surplus or a trade deficit from time to time, right? So we're one other factor here. So when you're running a trade deficit, you're consuming more than you're earning. You're consuming more than your income, right? Well, demography has a factor here, so as the US population ages, I mean, I assume most of the people in this room are consuming more than your income in this year. Now, you used to be saving up for your retirement, consuming less than your income, and when you retire, people stop earning income and are now consuming more than their income. So a country with an aging population, for instance, we would expect to run a trade deficit. China's population is not only starting to consume more, but also starting to age rapidly. The one child policy was implemented around 1980, right? So every child born since 1980 is an only child. The population's going to be aging in the coming years and both the increased consumption and increased aging would likely push China more in the direction of a trade, away from a trade surplus towards a trade deficit. And actually China's numbers have come down quite a bit in the last five or 10 years. It's in the decade of the 2000s where they were running a really big trade surplus, and for a variety of reasons like these, their trade is much more balanced now. When you look at it for the country as a whole, they still have this bilateral trade surplus with the US, but a lot of that is things being imported from elsewhere and then put together and exported to the US. All right, hello. Back to the original commentary that you made about the TPP and its impact and what the progression has been since it started, could you please make a comment on whether or not that whole campaign promise, it seems where I first heard of it, that the great negotiator was going to really get into and right all those wrongs. Were any of those things, what were they? What were the wrongs? And were any of those things legitimate? Is there some basis for this, other than a kind of a populist, I'm for you guys, the worker, the American business people, we're gonna get this done and you vote for me and I'll set you free kind of thing. Yeah, no, thanks for the question. I mean, so I would much, so it's one thing I forgot to say, so I mean, I would really have liked to see this approach used for the TPP. So here's this agreement that's been hammered out over 10 years. Okay, if there's a reason to oppose it, let's figure out what the specific reasons are, go back to the negotiating table and try to get those reasons fixed. All of the other member countries are eager to have this agreement come to fruition. So I would have rather that approach been used, but as I said, as you said, it was a campaign province and promise fulfilled withdrawing from the Trans-Pacific Partnership. It's worth pointing out that all sides, all the major presidential candidates were pretty much opposed to the TPP during that election cycle. I mean, I think they would have taken different approaches to it and that surprised me to some extent and I think it surprised me because so many of the concerns seem to be about things where the TPP was getting it better than previous trade agreements. So environmental protections, labor protection, intellectual property protections. So there were some, about half of environmental groups came out supporting and half opposed. The half supporting said, you know, this is a lot better than we've been able to get before and the half opposed said, well, we really need to go further than this. So I'd rather have the glass half full than no glass, you know, than completely empty, so. But I know many people, you know, might disagree with that and I don't, yeah, that's what I can say for now, yeah. It's my understanding, it's my understanding that China owns a lot of our debt and I would think that if we get China really mad at us that they could call in that debt and is there, and my second question would have to do with Trump's use of sanctions on several countries in place of trade agreements. What are you thinking about in particular, which countries are? He's placed sanctions on several countries and wants to negotiate, you know, he says, okay, we're gonna play hardball here. Right, right, right, yeah. And as it seems to be a system that he's using in place of diplomacy. Right. So China's debt and diplomacy are my two questions. Sure, yeah. Yeah, I mean, on this diplomacy one, I think it goes back to things we were talking about earlier that that's his style and the way he's used to doing business and has worked in some, I mean, works better in some situations and less in others. In terms of the debt, yeah. So, I mean, that's, you know, the global economy is really intertwined, right? And I think, you know, one thing that both sides have come to realize over the past year, both China and the US, the officials are involved in these negotiations is, you know, how many different ways the two economies and two countries interact and how many different levers there are when you need leverage where you can push down that lever and put pressure on the other. So, Chinese ownership of US debt is one, you know, the whole situation with North Korea which is really a sort of political international relations type situation, you've seen some repercussions or connection to the economic negotiations between the US and China where, you know, if the US is ready to give some economic concessions, China is willing to put a little bit more political pressure on North Korea, North Korea being very dependent on China. I mean, I don't, so, you know, if China, you know, it's, if China were to try to dump its US debt and the US security, price of US securities went down a lot, China would stand to lose a lot of money, right? So, they're, you know, as much as they could, they probably don't want to and but, you know, if push comes to shove, there's plenty of ways the two economies, the two countries could hurt each other. Hopefully it won't go too much further. I have a cyber security question regarding China and the US and how it would affect us economically. In particular, the Wei Wei 5G situation where the US is saying, don't buy anything from Wei Wei. So, I don't really understand what the implications of that might be, but it sounds like it might be dangerous. Yeah, no, thanks. Yeah, I have to say, I don't know a whole lot about that in particular other than things that I've read over the, you know, in the news over the past couple of months. I think that, you know, in some, to some degree, the angst or the renewed concerns about China on the part of the US are coming from the fact that as China is growing and developing, it's transitioning out of goods like textiles where the US doesn't really produce much textiles anymore and we're happy to import cheap textiles from China and more towards higher and higher technology goods where the US is really invested and has a lot of interest in and is, you know, is gonna be affected by increased competition from China. Now, that said, I mean, this particular issue has also this security component to it. I can't say, so I think the idea is that perhaps the Chinese government has been involved in with Huawei and somehow, you know, some capacity to surveil information going through their devices. I can't say I'm 100% confident in our own government given the various national security agency things that have been revealed in over the past of the recent years. I'm probably more confident though than in the Chinese government. So I, you know, that's a tough technology type issue. You know, Europe has gone towards much, over the past couple of years, much greater regulation of the internet and you open a webpage in Europe and you immediately get a warning notice that this webpage would like to install cookies on your machine. Do you agree or not? And you have the option to disagree, which we don't have, you know, currently in the U.S. So it's possible we might, that might be a way to go towards in the future if we're concerned not only about being surveilled by the Chinese government but maybe about being surveilled by our own government or others. So yeah, yeah, but yeah, technology, yeah, yeah. You've got me thinking about Venezuela. They are our biggest source of copper, which is becoming more and more important because of battery operated cars. And now we're messing with Venezuela. Do we have an agreement with them about copper? I don't know the details of that per se. And I will say that, you know, Venezuela's biggest export is oil, right? And they've been in periods of high oil prices, oil rich countries can spend a lot and provide a lot of subsidies and support their populations. And any kind of government can support itself, right? And the cracks start to emerge when the price of oil falls and the price of oil has been relatively low since 2014 with the transition to renewable energy. Chance, I mean, that price may continue to stay low in the long term. So a last plug for my research, I'm actually one of the things I'm really interested in right now is I'm looking at a couple of oil rich African economies, so both Nigeria and Angola, and looking at how they're dealing with low oil prices and the potential global transition away from oil, opening up some space, but also quite challenging for those economies to deal with. So that wasn't a direct answer to your question, but what came to mind? I'm gonna take you from Mar-a-Lago now to Sub-Saharan Africa. And the fact that the America First policy is resulting in are reducing the amount of international development and other countries, I'm thinking of Russia and China maybe others you would probably know more than I would, are filling that vacuum in the African countries in terms of developing water systems, electricity through power dams, et cetera, et cetera. Could you comment on that? Yeah, no, that's definitely the case, especially with China, there's a lot of interest on the part of China in Africa and a lot of all kinds of different investment, et cetera, infrastructure in particular being built by China across Africa. To the extent that there's sort of, this means that there's more investment in Africa and more kind of competition for investment in Africa so African countries can choose the highest bidder and get the best outcome for them. That seems like a good thing. There have been some concerns, particularly recently of countries becoming indebted to China and then China has taken over a couple of ports in East Africa quite recently, taken over the management of the ports, which raises a lot of concerns both in Africa and elsewhere about more of a nefarious kind of colonial intentions there, like get the resources and the trade routes and that that's their primary interest. But so it could go either way, but to the extent that this creates more investment in Africa and more competitive and better outcomes for investment in Africa could be a good thing. Obi, thank you so much. This couldn't be more timely. Thank you.