Trump and Trade Deficits

DATE: 1-2pm, 9 July 2018
VENUE: Committee Room 4, House of Lords
SPEAKER: Dr. Linda Yueh
EVENT CHAIR: The Lord Risby

The Lord Risby: Ladies and gentlemen, may I firstly welcome you here to the Palace of Westminster. I’ve just had a meeting with the Chief of Staff of the Prime Minister [inaudible] British politics [inaudible] delighted to [inaudible] and I know that we wish you on behalf of everybody here to thank the Henry Jackson Society which does a brilliant job here in our parliament bringing fascinating, brilliant and [inaudible] speakers from all over the world, who actually inform us. We are very grateful. And in that context I think we have a remarkable individual [inaudible] to talk to us. I think one of the issues of the times is, of course with the environment of the White House [inaudible] and President Trump of course, [inaudible] some of the rules that were, perhaps, thought to be inforce are changing [inaudible] trade, he talks about the deficit [inaudible] of course we have [inaudible] so what the speaker is going to be doing is talk about that in general terms and then specifically as he comes to Europe what the likely response [inaudible] we are [inaudible] France and Germany, but certainly his American First policy, we will be looking at these matters very carefully indeed. It really is the most enormous pleasure for me to introduce our speaker today Linda Yueh. She is a fellow in Economics at St. [inaudible] University, she is [inaudible] Professor of Economics at the London Business School and of course she is well known as somebody who commentates on TV and Radio [inaudible] the BBC and others. She is chair of the Royal Commonwealth Society and non-executive director of [inaudible] and others. She has written extensively, she has engaged with so many international organisations. When I said to one of my colleges in the House of Lords that I was chairing this he said, ‘I wish they had asked me.’ Linda, delighted that you are here, really your reputation precedes you, I know [inaudible] very relevant side [inaudible] ahead of the Presidents visit. I look forward a great deal to hearing what you have to say.

Dr. Linda Yueh: Thank you very much to the Lord Risby, to the Henry Jackson Society, thank you very much to Jordan for this event and the opportunity to speak to all of you. Can you hear me actually? [Yueh laughs] I very much look forward to your comments and discussions, so I’m just going to treat this as what it is: a very informed round table of which I will kick off with a few thoughts around President Trump and trade deficits and tariffs. So I am going to speak for about 15 minutes and then I look forward to a conversation with all of you, teasing out some of these issues, don’t be shy, we can talk about [inaudible], we can talk Free Trade Agreements (FTA) around the world, all of that is absolutely fine, the only thing I will not be keen to comment on is whether or not we will win on Wednesday. That is completely off the table because in my mind I cannot jinx it. So let me start off by saying a few words about trade deficits, so this kind of synopsis is what I actually write about in my latest book which is called ‘The Great Economists: How Their Ideas Can Help us Today’ so the second substantive chapter is called ‘do trade deficits matter?’ And before I came here I decided to take the pulse of the public, don’t worry I was not standing outside accosting tourist, but I did a twitter poll and it turned out that on this question do ‘do trade deficits matter’, 36% of my followers said ‘yes’, and then another quarter of so said ‘no’ and I’m really pleased with my twitter followers because most of them said it depends. And that actually is the case. So do trade deficits matter? It depends, it depends on whether or not the trade position reflects an underlying weakness of the economy. So for instances if you had a developing country which was running a very large current account deficit, which is the broadest measure of trade including investment flows, that is one of the deficits that has been a factor in crises in the past. In other words, if the trade deficit reflects an inability for a country to manage itself then it does matter. But if the trade deficit reflects the composition of the economy then it doesn’t matter as much. So in other words, lets take the United States which is obviously the country that we are going to be very focused on this week and in the coming days, the United States has had a current account deficit since at least World War 2, in other words it has had this large deficit for a number of reasons. One of which is that the United States is an attractive place for people to invest, so remember the current account is trade [inaudible] plus investment, so the fact that dollar eclipsed sterling as the worlds reserve currency during the interwar period means that the United States has been an attractive place for other countries to put their money and that is reflected in the current account position. By the way there was a really interesting historian, economic historian, at Oxford who told me that the transition from sterling to dollar was done in a coordinated way, so it wasn’t like one day the dollar became used, there was active partnership between Britain the U.S. and other countries to make sure the transition was very smooth. And that is kind of a theme here that you will here me come back to, which is the US [inaudible] composition is essentially why the US is in deficit [inaudible]. But it doesn’t mean that there is not scope for some of this deficit to be redressed through a more level playing field. So this is what I mean, the United States is like the British economy, about 3 quarters, 80%, is made up of services. Global trade in services is not nearly as [inaudible] as the global trade in goods. So worldwide, global GDP, 70% of GDP is services and yet services comprise about 25% of EU exports, to give you an example, for Britain it compromises less than half and in the US a very similar proportion. So given what the United States sells is not as easily sold on global markets then there is scope to open up global markets to sell more services. Now services are partly non-tradeable, in other words you consume services locally. So what I do, education, is a service, you consume that locally, except I’m flying to Dubai tonight so it is also exported. The example that is often given to me, is that to get your hair cuts locally, just like a restaurant. But I used that as an example of why services are partly not tradable, in other words you don’t expect to export all the services you produce. So to me a haircut seemed like a pretty good example that we could, you have to get your haircut locally. And this chief economist at this big bank, who I will not name said to me, turned around and said, ‘My wife gets her haircuts in Paris.’ So lots of services are tradeable. So in that sense the United States is probably, and Britain, are not selling as much as we can. Because GATS which is the WTO provision which oversees services trade, needs work. It is not nearly as open as GAT [inaudible] at the WTO. So there is some argument as to why the trade deficit, as we said, probably doesn’t matter, in the sense, that it isn’t going to lead to a crisis but it does matter if what it is showing you is what the economy is specializing in and what it is producing doesn’t really have as open global markets. The other thing that I should say about trade deficits is that we are speaking often about country vs country, but as we all know trade is actually done by businesses. So where the patterns in trade are changing substantially is not just in services, it is also in what we call intra-industry trade. In other words it is not just supply chains which is how often we thing about it but it is also distribution chains, its also e-commerce, it is also the way in which businesses invest in other countries, in different ways, they could set up a local affiliate, they could build a factory, they could set up an office and offer local services, they could sell e-commerce across borders. So investment decisions require a big part of what makes up local trade, so if American companies are taking advantage of supply chains around the world that is a big determinant of, for instance, why the United States imports so much [inaudible]. So, I think that, I wanted to raise that, because I am going to come to some of the worries around the trade war that has been fought [inaudible] over a number of months. If the Trump administration extends to us and to Europe what he has done to Chinese firms, which is restrict investment then we are in a very precarious position because investment decisions make up trade, restricting investment alters businesses ability to decide and ability to locate [inaudible] operations, and once you do that, then that is much harder to reverse than a tariff which can be imposed today, but be reversed tomorrow. Investment decisions [inaudible] have a much bigger impact on that, so that is my brief overview on trade deficits, when they matter and some issues we should be thinking about as President Trump visits. Now if we focus a little bit more on the UK and the US, so the UK, we are the second biggest exporter of services, after only the United States. Even with relatively closed markets, we punch above our weight. Slightly unfortunately for us, just for this week and I want to make that very clear, this is a great strength, but just for this week, we are one of the countries that have a surplus with the United States even though overall we run a deficit because we import more goods than we export services. So, I think in that sense we won’t be caught up that much as the Germans with the United States over trade, because President Trump is not very focused on services. He is much more focused on German cars, so he has said many times her really finds it, and I’m going ot use a polite word, irritating that there are more Mercedes in New York than American cars in Berlin. So, what can the Germans and Europeans do about it. One of the other take aways that I hope you take aways from this talk are that the better way to reduce a trade deficit, this is trading goods and services, is not to put a tax or tariff on imports, which makes it more expensive and therefore you import less, but to sell more exports. So the European discussion with the American administration is to reduce the tariff on cars sold to the United States, currently it is at 10% which is the WTO rule. But American’s only charge 2.5% on European cars so, the better way to improve the trade position is by opening up markets, not by imposing a tax. This rational is probably I think obvious to most people, but worth stressing of course [inaudible]. So in terms of the UK, we are a, in terms of on average, when you look at degree of market openness, I think it would be very difficult for the United States to claim that we are less open than they are. We are actually about the same. We are very open in regards to investment, remember that is a very large part of international trade. But where I think a discussion needs to happen is over greater opening up of services, and this is why I am stressing this. I think for the United States, beyond the rhetoric, the American officials have all focused on opening up markets whether it is in Europe or in China, this is what they are keen to do. And I think it is in Britain’s interest to discuss opening our services, and let’s be very clear as to what services is. Services are what most of us do. We work in offices, could be professional services, could be educational services, I started my career as a lawyer, it could be legal services, it could also be coding, programming, software. It is all very connected actually, to manicuring and trade, so the more you open up services, the more you actually open up [inaudible] manufacturing. So for instance, an OECD-WTO study showed more than half of the inputs into manufactured goods comes from the services sector for advanced economies. The conclusion of the world bank, on the back of this data, is that we could all sell more if would could align standards and regulations and have common understanding of what is called the non-tariff measures which is what impedes services. Services are [inaudible], it is actually about non-tariff measures. So, I want to finish off with a few thoughts about why I think Britain’s interest, not just to talk services with the United States, not just because of President Trumps visit, but actually as part of a longer term strategy. So globally there has been, since 2013, an effort to open up trades in services agreement, launched in 2013, between the United States, the UE, Japan and other advanced economies for reasons that I have described. It helps manufacturing, it actually opens up, facilitates trade and investment. The UK, I’m happy I saw the Chancellor mention this at the IMF World Bank meeting few months ago, this has stopped because it was an Obama era policy and so it has not been taken up by the current administration, but what it tells you is just that even for advanced countries for which there is already quite a lot of trade, even without an FTA there is scope, there are benefits to be had by further opening up services on top of the current WTO and current trading arrangements. Within the WTO rules this is allowed, it is called a pluralistic concessions, some of these trade terms if it doesn’t put you to sleep then you are a trooper, so it is quite possible to do selective opening, so the car tariff between the EU and the US, that would be an example of a pluralistic opening, you do not have to offer that to every body. So you can do selective opening of your market. TSET is exactly that, so if the UK were to open up services with the US – a bilateral version of TSET- a selectively opening, not a complete opening, and it is not a comprehensive FTA. The UK would be in a very very good position to have an FTA in this area, with the world’s biggest economy; we will have an FTA with the EU, as I’m hoping. [inaudible] But in the future we will have, we are in a good position as the biggest traders of services to be essentially a trading hub. So this is the piece that I have written for the LSE, which will come out shortly, which is the UK after Brexit can become a global trading hub, specially for services. Because that is where London is anyways, even without a global FTA, so if the UK were to have a services opening, with the US and eventually with the EU and with other countries, Japan is already a big part T-SET, they were one of the proponents, then what you have is a country which sits in the overlapping FTAs of the world. So what I mean by this is, multi-lateral trade is not free. A lot of countries do not have FT with each other, countries that FTAs with two countries that do not have FTAs with each other, becomes a hub. So Switzerland is a hub for EU-China trade because it has a FTA with China and the EU, Canada will be a hub for EU-US trade, because it has NAFTA with the US and CTA with the EU. It is in NAFTA for the moment, it is being renegotiated. I just wanted to conclude, I think that in the 21st century trade is much more digitalised services are provided through e-commerce in a less visible way than we think of physical goods, but today you can have me doing remote learning with students in Dubai because I can post materials on campus, I lectured last month and am going back there now. A lot of trade in the 21st century, is going to be driven by the same forces of digitalization that we have seen transforming [inaudible] in the computer age. And services, I think are an area that we are very good at and so is the United States and I think that is a way of moving the discussion away from tariffs and deficits and towards greater market opening which is of course, I mentioned at the beginning that I wrote a book called the Great Economists, they do not agree on very little, because the old joke about economists, they say on the one hand and then on the other, the joke that Harry Truman wanted a one handed economist [inaudible] but this is actually one thing that great economist agree on, that is to prosper you sh ould focus on opening up markets, we can talk about improving the status quo, helping the losers of globalization or some of the other issues in the system. But I think the conclusion is pretty evident which is, if you want to prosper, you need to trade and opening up markets, rather than distorting trade which is what tariffs ultimately are is a much better longer term strategy. I will pause there, thank you very much for your attention, I’m looking very much forward to your views and your comments and your questions thank you.

The Lord Risby: Thank you very much (applause). I just thought that I may say so just to kick off to a little bit of turning this country into a total [inaudible] centre. It is compelling and I think that it is something which kind of would elevate thinking and the discussion, in fact, I just hope that somebody like yourself is having conversations with the President and the department of international trade to actually do because this it does so much of the debate, for example at the moment with the EU in a the context of a changing world and its actually very depressing you can see it in security and defence for example and I am hoping it can certainly happen. And if I can say one thing I happen to be the one of the Prime Minister’s trade envoys and there is quite a few of us now. I have to tell you when it comes to service its the [inaudible] of other countries to actually go for logic or as [inaudible] said which actually adds to their prosperity and use to the world is extraordinarily powerful whether it be insurance or banking or anything else. But back to our guest. Now I am sure there is going to be lots of questions if you could just indicate who you are it would be terrific. This gentleman over here.

Anthony Martin: My name is Anthony Martin, I am from a company called PDL Lmtd. There were reports over the weekend that apparently came from the American Ambassador to the UK that Trump is going to offer us a zero tariff trade deal when he comes over. Is there any likelihood that that is going to happen other than causing further rift between us and the EU.

Dr. Linda Yueh: Anything I say about President Trump my caveat is: it only holds until the next tweet. So, as I look at the clock he might be tweeting now so anything I say may not hold. I think that essentially tariffs are almost zero on average anyway. So our average effective tariff rate, of course we are part of the EU so the effective tariff rate of the EU is 3.1% the US is 2.4% so to cut that down to 0% is not actually a massive problem. And he does not have problems with British cars. So I actually think is a good thing. Whether that will cause a rift with the EU I think it just depends on whether or not it adds more to their existence to essentially thinking that if they gave us a customs, a facilitated customs partnership agreement. But say it was only on goods but we were still able to do our own free trade agreements then would that look bad for other European countries who may want to go and have a similar deal so

Anthony Martin: So are negotiations may become more difficult

Dr. Linda Yueh: Slightly, except for the tariffs are so low anyways on average, but so say we have the same external facing tariff, which essentially is what a customs union is, and the US decides that they are going to offer us a zero percent deal that essentially would apply to all of the EU under the current arrangement. Canada has a zero percent tariff on duties on goods coming into the EU. So America having the same deal as Canada this is not a massive game changer. But it just might because the Europeans are always worried about their luxuries

Anthony Martin: We could actually sat that if we leave the EU, then there will be a zero tariff deal.

Dr. Linda Yueh: Yes, and I think that that raises the question around what was discussed on Friday at Chequers, which was what to do about the Irish border and when can the technology sector sort things like pre-verification kick in to prevent a hard border and if you look at some of the technologies they are pretty advanced. But during the Chequers agreement on Friday the one thing I did notice with regards to food. At the moment with EU regulations, which can always be changed, say that food has to be checked at the border. So if you exclude agricultural products, there is a very good chance you can do away with the border. And if you have pre-verification done through technology and maybe random spot checks at the border then that would be a largely technology facilitated solution to the border. But the question is there might be technologists in the room who can say where that actually stands. That isn’t the case in the moment even for the US & Canada border. So there was a poor French woman who apparently jogged across the US border from Canada and was in prison for two weeks while they tried to work out (laughter) whether she was carrying some banned industrial goods that required a tariff. I mean it just sounds ridiculous.

The Lord Risby: Perhaps a friend of Justin Trudeau.

Dr. Linda Yueh: That would explain it

Ewan Grant: Thank you very much. Ewan Grant, Institute of Statecraft, talking here in a personal capacity a former customs officer who worked on matters relating to the Northern Ireland border including time of the conflict and I am phoning towards your comment that the technology and indeed the capacity to use it proactively, that is still not perfect and you put the caveat. And my question is: you have highlighted the growing digitisation of services, not that many services include goods, is that behind a lot of the confusion behind trade and economic statistics. We have more data but what that data actually means, is there any particular international organisations or major national organisations that you think are ahead of the curve in understanding this and realising its implications and also like bureaucracies attempt to super tankers

Dr. Linda Yueh: That is actually a very good analogy. That’s like how economies are like super tankers too. Takes a while to shift direction. There is research done at Harvard University by Ricardo Houseman and he looks specifically at measuring services more accurately. Jonathan Haskell at Imperial Business School who just joined the MPC at the Bank of England. His latest book is called Capitalism without Capital, which is a really good title. Both of those researchers are very much in this area of trying to better measure services. Ricardo Houseman’s work is absolutely fascinating, I should write about it in my book in hopes that the administration might notice. His research says that in the US if you measure services properly doesn’t run a trade deficit. So not the current account, which is investment flow that I described earlier but the trade position so basically the goods and services because services are to be fair he is calling well its very catchy stuff what he is writing about services are called the invisible balance because you cant see when it is traded. Well he kind of likens it well I kinda liken it to dark matter, dark energy. It encompasses 5% of the universe and we cant see it. Given how difficult it is to measure services his argument is once you take all of it into account. The US is probably in a better position than it thinks it is and Britain I would say similarly. So let me give you an example of how difficult it is to measure services one I write about in my book with the consultancy that I am at. They told they sold the consultancy report the same report in 2008 during the recession and then in the recovery so in 2015 but they doubled the size of the report even though this actually the same report so services growth over that period would have been like 100% so it is really badly measured. And a more concrete example, most of us work in services so when you are sitting in your office how many of you have been thinking this is an utter waste of time, but there are other meetings you go to that are absolutely fantastic brainstorming sessions, you walk away with deals and ideas; ready to move forward. How do you measure that as a services output. So services are really badly measured. So I sort of think the trade position because that is based on domestic services is also bad and I actually think it also partly explains our productivity slow down because if you don’t measure services, services we know are harder to measure many fracturing countries have had less than a productivity slowdown because many fracturing countries have more factors that are measurable. So it may be a thing that the productivity slowdown across vast economies is because they are becoming increasingly services based due to industrialization so if we measure services better maybe the productivity paradox would be less of one as well. So I think there are lots of people at the world bank as well as national statisticians looking at this but it is a very difficult one to get our heads around and I am sure we will because this is where most of our economic activity resides so

Andrew Lo: Thanks Linda for sharing your insights with us. My name is Andrew Lo, independent charter strategist. I would like to follow up on the topic of these talks about services but I would like to broaden it to the interface with trade and goods and manufactured goods. Herein lies the [inaudible] of President Trump’s demands of China the big in China in 2015 which talk based on a lot of technology innovation which are services on the other hand drive manufacturing and trade of goods between the US and China up. So especially [inaudible] trade, bans and services amongst advanced countries because they normally, a great portion of their economy, are in services. Between relationships, trade relationships, between advanced countries between that of the US and that of China of course President Trump does not talk about the imbalance of services because there is a huge surplus in services rather than a deficit in services with China. So my question to you is that in this escalating conflict between the US and China which of course does not only affect the US and China it affects the UK as well amongst many other countries is it possible to come around in shipment of services for example, in the shipment of services for example, the subsidies, the professional subsidies, in particular to stable enterprises, in fact it is in Chinas interest to form a [inaudible]. In the case of subsidies towards the services in the hopes of innovative technologies and indeed the opening up markets. So my question to you would you see this confrontation between the US and China eventually getting solved because this kind of standoff cannot last forever and with both countries’ fights coming round in the treatment of services in the hopes of technology which can inform manufacturing?

Dr. Linda Yueh: I am always hopeful that the current trade tensions between the US and China will pile down but everytime another headline hits I think: oh dear. So we had we started with tariffs on steal and aluminium which moved to $50 billion worth of tariffs now moved to $250 billion worth of tariffs which now moved to $50 0 billion worth of tariffs which is the latest [inaudible] from Washington. That is everything that China sells to the United States. So the Chinese hae an interest in deescalting this because their tit for tat strategy wouldn’t work because it they only import 160 billion from the US from the last year. So they have been doing tit for tat but when the numbers get this big there is no tact in the, you know what I mean, I think in that case China will have to think of a different way forward. In the last couple months I have remained hopeful because I always think rationality in these matters should prevail. There has been talks between Stephen Mnuchin and his Chinese counterparts and the power within China is much more central than the president. One you have [inaudible] who can basically run an economic policy and there has been conversations with americans around how they can open up China’s financial services sector so that the Americans can have greater access and sell more services and it is in China’s interest because the financial sector is dominated by state owned enterprises which are not very efficient and could use the competition that wont be possible by relying upon domestic players. That is what they have been doing for 2- years and hasn’t truly worked. But no idea why the latest round hasn’t made any progress and now we are looking at trade, not just trade tariffs but also investment restrictions. So to me the worst scenario of the Chinese and American trade tensions is the WTO eventually rules against the US for imposing on tariffs on steel and aluminium, by the way which they have done across the world, because it is not justified under the national security exemption that has been claimed then President trump then decides to ignore the WTO, that to me is the worst case scenario. So then, you are basically debasing the rules based system that the us helped set up. So hopefully we won’t get there but I think China unlike Europe is a relatively closed market. And then Chinese have been trying to develop the services sector and the services sector are bigger than manufacturing it is clearly an area in which China could leap from and learn just like it did in the 80s and 90s and partly with form firms and America by the way if it opens up for America chances are it will make more sense open it up to us because we are not America. We are more agreeable in which case that also a good basis for services agreement between China and us. But you know I am not suggesting at all these agreements are easy. You know we know President trump likes to win it is a big deal he likes to win the Chinese are tough and in good shape you know the joke people say when dealing with Chinese business person when the Chinese say they want a win-win deal it normally means that China wins twice. So you are dealing with economic superpowers it is not going to be easy. But what I’m is suggesting this is how trade is actually evolving. It is a way of reducing some of the current trade dimensions and moving forward which I am grateful of rather than undermining the WTO.

The Lord Risby: This gentleman over here, thank you

Archibald: My name is Archibald [inaudible] thank you for the my question was under two main areas. If you are able to help this is more or less from the supply demand side and the trade issue. Why the shift to consumers and the demand for it to change and if that is the case will the trade agreements rules be in effect now as the events unfold. And secondly, you mentioned the WTO and I think it will be effective so trump ignoring the rules that obviously is just exposing the weakness in the WTO as it states now. Do you think a mechanical change will eventually unfold in the WTO system?

Dr. Linda Yueh: They are both very good points. They are both related. So the multilateral system has made progress but not as much as most people hoped as in opening up multilateral trade. So I had dinner the other night sitting next to the deputy director of the WTO and somebody at the dinner tabled turned around and said: what have you been doing for the past 17 years? You know because the frustrations around the WTO, which was launched in 2001 hasn’t, made sufficient progress now he is a lovely chap and I certainly spoke up in his defence that there are two things that the WTO has done very well. One is public trade with facilitated with a facilitation agreement so they have actually moved towards harmonising these standards on manufactured goods. And countries like, developing countries, it reduced the holding time for processing goods in a place like I think London the example he gave. Which cut from about 21 days to about three, which is substantial. So they have done that. But the other main thing that the WTO has done is called the DSU, the dispute settlement mechanism, it’s called the u because it is supposed to be understanding. It is a supplementary to wish to be but the DSU needs you to bring in action by countries against another country and getting heard through expert analysist and it is the only aspect of the economic law that actually forcible, really in this area. It has dissolved, it has reduced tensions across countries rather than two countries trying to fight it out themselves with politics involved. It goes before this impartial body. Problem is it takes a long time and countries and countries are only banned if they wish to be. So the, one of the reasons the WTO is important because it is a rules based system that is always important as markets become more interlinked with the frustrations around the lack of trade opening is why have a lot of regional free trade agreements that have strung up and why TSA was launched in 2013 because that hope with that group of 23 countries is eventually TSA if it gets widely adopted becomes the next multilateral ground for the WTO. In the way the WTO never really was. So you start with the core group then you [inaudible] you want to be in that core group. Because as you know if you are in the group you set the rules and there are different rules for certain trades that are linked to manufactured trade and it is very true if you look inside the industrial standards British business talk about balancing standards that affects goods but also has implications for how you harmonize standards if your talking about countries different legal systems. There is one set of standards for the Europeans, one set of standards for the americans, the Chinese hsave their own standards. Is the harmonize of this would be helpful.

Alan Evans: Thank you very much, thank you Linda for that fascinating and interesting as always. My name is Alan Evans, part of the British [inaudible]. This actually a pervasive question. It seems to me that President Trump has a very superficial understanding of trade and commerce and economics. As an example, his comments about German cars, you see all the German cars on the streets, it reminds me of this, besides at the airports, a lot of german cars are prodiuced in America. There also pridcued in mexico and then imported under nafta and American cars are not necessarily in York for example. [inaudible] and when you got someone forming thse views on such limited views and I mainly hope, this is what my republicans friends express horror he is saying this and hoping he would listen to his advisors, does he really listen to his advisor and are his views as good as he thinks they are?

Dr. Linda Yueh: Great questions Alan. I should declare Alan and I were executive directors before at JP Morgan, so I know your questions are always on point. I think there was a really great anecdote but of course President trump would say this its fake news but it came through US news organization. Do you remember early his presidency he tweeted: “the strong dollar is hurting American companies, telling companies abroad this is terrible and apparently his advisor spoke to him and then he ran up Michael flynn who is obviously an old friend but is not in the administration\: Michael do we want a strong or weak dollar? And then the next day apparently he changed his tune. And thought you know a strong dollar for a mostly consumer based consumption based consumption makes our inmports cheaper a strong dollar makes a countries investment, there is a lot of reasons why the US has had a strong dollar policy for a long time so I should just say in this book I have just written which is 200 years of economic history there is just one quote that comes to mind: Paul Samuelson who is a great economist, he was an advisor to JFK and other there is a great quote where he says: I cant think of a President who wa overburden by knowledge of economics and I would say President Trump is no exception and I suppose the question is I have, there are plenty, plenty of I think especially diplomats and others that behind the scene underneath the political rhetoric to do some of this market opening that I discuss in fact that pretty much I thin is how we should inspect the US policy to head. In other words there should be I think you know the rhetoric is one thing but actually what is being done behind the scenes is much as u would hope which is the playing field is not levelled we now have this fixation on cars, which as you rightly say maybe one of the reasons there may be more German cars is because they are pretty darn good cars and the US big three auto makers were all rescuesd a decade ago and they are not competing terribly well against the new cars. So you know there are obviously other things other than tariffs but whether it is a tax actually think it is not a bad thing, making that tax lower or equalizing it.

Unnamed: Thank you, thank you again, for your insight. I think one of the things that strikes me, coming from a comms background is that President Trump’s tweets are not necessarily talking to us. Months away from the midterm elections in the US, etc. Ect. When you talk about cars and when he talks about cars the because of manufacturing and the symbol of that in areas where he is focused are crucial. There is another aspect of the meetings we have seen this week which we haven’t touched on and maybe we don’t want to but of course we mentioned NATO, security buy-ins, possible a bid will occur on that, do you see in your [inaudible] President Trump turning around to the prime minister and saying: we will give you these zero tariffs incentives but there is a respect there, something to sign on to. Something like we will need to purchase more American goods in the private sector. Will that even be in the realm of?

Dr. Linda Yueh: I think in general he is going to push for buying more American stuff. The reason I say ‘stuff’ is we a;ready buy a lot of manufactured good, if he had a longer term arising he would t be focused on getting them to buy more manufactured goods because that is very easy to ship. Almost everything is produced in a supply chain so if you really wanted to prove. If you wanted to change your purchases for one year, you buy more, if you bought more stuff for bowling a couple items will change your trade. It is pretty easy for a year. The longer term solution is why do you run a surplus with the US in services and is it because I think it would be very difficult to argue this it is because British markets are somehow closed to American markets. I do not think that is the case. I think Britain is very good at selling certain services and there are a lot of linkages between countries here and companies in America. I think the only worry in the next couple years surrounds this. The loss of financial passporting, American companies are not going to be based here as much probably and they will be based in the EU. Which may actually worsen our trade position with the US if we are doing the same business as in the US. May be less

Unnamed: If Goldman Sachs goes to Frankfurt.

Dr. Linda Yueh: Yes. I think that that’s my only worry so I think that the key thing and I think the city has done this very very well. I chaired a London Business event with the city’s EU representative. They are very much focused on just reminding people, including a certain US president, that the city is very growable and what the city does is a globally, internationally run business. We have very high standards in term of regulation and this is one of the reasons why Britain is so strong in services. That’s actually something I meant tell them this, I remembered it is not easy to dislodge. There have been once you have the expertise in an area its almost unheard to lose kind of deep seated expertise. There is a reason why we are an international financial centre and other cities find it difficult to be what we are. Really good competition against NY. If you think about it outside of the financial space, Hollywood is a Hollywood for a reason. You have all these specialists who work there. The other thing, final thing to say on this, a lot of my teaching we look at international financial centres or countries that we want to have international financial centres or other countries that want to have big financial centres. I talk to my students and a lot of them go into [inaudible] fewer finance and one of the big criteria is where you want ot live. It is fine to say you are going to create an international financial centre but do you want to live in London or do you want live in Country X or Country Y? That is why it is hard to dislodge expertise once you have it. So I think that should be something that also means the city EU representative strives to, we cannot be a [inaudible] we have to set our own standards in services for this reason.

Lord Risby: Unfortunately we have to be out of here by a certain time we have time for two more questions but they have to be very short because someone will fling open the door and fling me out

Unnamed: About trading standards, since 2010 CfC11, has been banned around the world, as an ozone, it breaks the chemicals, it has recently been proved that China is producing the stuff is there any way the world can stop China using a banned chemical such as that destroying the ozone?

The Lord Risby: One more question.

Unnamed: On services, there seems to be very little discussion on services in the EU and how they can transfer and there potential [inaudible] and what can be done?

Dr. Linda Yueh: On the first question, I think it is more pressure. I started my career as a lawyer and very few things can bind a sovereign nation it is almost all voluntary and condemnation is more of how you get things done in the international sphere. And even as I say, as you have the WTO which can only be enforced if the country accepts it. So sovereign nations are I think, we have to bare that in mind. The EU has an imperfect services market. This is the next stage in liberalisation. The EU is very keen to push before Brexit, the brexit vote. I think there is huge scope to countinue this push. And to me this is the commerce of the 21st century and it is very tied up in the high tech manufacturing which we are also very good at. So I also think we are one of the few countries well positioned to do this. An advantage not to not be an economic superpower when people dislike you for all sorts of reasons. Its much better to be the fifth biggest economy with a good history of being fair so that is my final thought.

The Lord Risby: I just wanted to thank you all again for coming and also to thank the Henry Jackson Society again for the absolutely stellar and fascinating discussion we had. This has been wonderful because you have borderline subject which for many people may be quite arrogant. You explained it so brilliantly with the context of where the world is going and what we need to do. So all I can say is that, I read economics at university and I wish I had you as a professor early on in my age to actually teach me in the way that you have brilliantly expressed yourself. Thank you so much, it really has been terrific.


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