Ambassador Robert E. Lighthizer joins American Compass executive director Oren Cass for a conversation about his work as the U.S. Trade Representative, the overhaul of America’s economic relationship with China, successes achieved and lessons learned, and key challenges facing the Biden administration.
Oren Cass: I am delighted to welcome Ambassador Robert Lighthizer. He is an accomplished trade attorney and for the past four years has been our United States Trade Representative. He joined right at the start of the Trump administration and has been instrumental to shaping our trade policy for the last four years, which I think is certainly one of the most noteworthy areas where the Trump administration took action, and obviously an issue that’s going to be front and center for the Biden administration as well. So, Ambassador, thank you so much for joining us for this discussion.
Robert E. Lighthizer: Thank you for having me. It’s a pleasure to be here, Oren.
Oren Cass: I’d love to start by just asking you to look back a little bit at your work over the last four years and highlight for folks what you see as the real change that’s happened. What is most different in the world than four years ago in the realm of American trade policy and in the realm of how the economy is therefore operating?
Robert E. Lighthizer: Well, thank you. Let me, first of all, start by thanking you and American Compass for all you do. I’m a strong supporter. It’s an honor to be here. I think people who interject a different idea and a different way of thinking about these things is very, very important. So I’m supportive, and I want you to know that.
Secondly, I would say it’s going to take perspective to see how different the world is now in the trade sphere than it was four years ago. I would say it’s a cataclysmic change. If you asked me what, I’ll go back to the change part of it, but if you said, “What did we accomplish?” I think really the President, and me working with him, did two things. One, we reoriented trade policy away from this kind of globalist, corporatist, approach, which had so dominated. If you think for a second about the history of it after World War II, we basically engaged in a trade policy the real purpose of which was to globalize and to defeat communism and to rebuild Europe and Japan.
So we wanted to do both of those things, and that was important. That slowly evolved into this notion that consumer preference was the biggest advantage, and corporations making more and more profit and multinationals and the like, and that then became the philosophy. And it was kind of guided by some business organizations in Washington, and their kind of liegemen who operate various offices in town, and that really was what set the agenda. And that went on and on and on. President Trump’s view is that now what we need is a trade policy where every decision is made based on how it’s going to affect working people, how it’s going to bring manufacturing jobs back to the United States, how it’s going to put pressure on wages, to be honest, so that people make more money, and that is basically manufacturing, but also service jobs and working people. That was his objective.
So I think that’s the first, most important thing he did. And I think you’re hearing the same kind of language out of the Biden administration for which I’m grateful, and they’ve picked some good people, and so I’m hopeful there. And I always like to point out that President Biden did not run for election against our trade policy. Indeed, to the contrary. He was quite kind to it and he wants to have it be in his own spin and his own mark, and that’s what it should be. That’s reasonable. So he did not run against this working person approach, and that’s to be a lot of pressure on him to try to change. But right now I think he’s in a really good place and I’m hopeful.
And then the second thing we did, which is probably every bit as important, is that we made the country and then the world aware that China is a very significant competitor, not only of the United States, but of market economies and generally the way we think about the economy working. And they have one model and that model is state capitalism with characteristics that I would say are authoritarian. And we have a system that more or less is designed to have economic forces determine outcomes. So I think raising the flag, making people aware on China, I think that’s another thing that’s been wildly successful. If you think back about how people thought about this four years ago, you would say that this kind of partnership, moving manufacturing over there and all this sort of thing, sharing intellectual property, all that was a good thing. And I think people not only in the United States, but around the world have a different view of that now.
So I think those are the two most important things we did. The change has been, as I say, cataclysmic. Really, really different, and I’m happy about that. And I hope that it continues.
Oren Cass: The point about the change in thinking I think is an incredibly important one. There’s so much sort of revisionism going on now where you’ll hear, “Well, of course that’s how we always thought about China.” But as you said, that is not how policymakers and business people in the US and around the world were thinking at all until the past few years. And then obviously where the rubber meets the road is in change, in either business practices, or policies, and then ultimately in what happens in the real economy. And so it seems to me that the Trump administration started to do some work in that regard. At the same time, there’s obviously a long way to go. Are there particular signs that you would point to that you would say indicate a promising shift on the ground, or conversely signs you see that say, “Gosh, this problem is even harder than we thought. We’re going to have to keep honing our approach.”
Robert E. Lighthizer: I would say, first of all, that there’s going to be an awful lot of pressure. You can see it everywhere you look, from this corporatist liegemen crowd, that we have to go back. This is an aberration. We have to go back. We can’t have tariffs on China. We can’t enforce our trade agreements. It’s funny, just in the last few days, you see these comments by the same people basically saying precisely the same thing that they said four years ago, literally, and then fought us all the way down the road.
But in terms of good signs, I would say, yes. We had a report that we did, we kept, wasn’t a public report, but of people moving jobs back to the United States, of people moving jobs to other places from China. My own view is that we’re better off if there’s more manufacturing for America in Mexico, for example. I would rather have more in America, but if we’re not going to have it there, Mexico has a kind of a direct influence on our own wellbeing, economic and otherwise.
So I think you’ve seen a shift. I think you’ve seen a realization that these long supply chains are a problem. I think you’ve seen a realization that short term corporate profits are not the do-all and end-all for corporations. You had a comment even by the Business Roundtable several months ago to this effect. So, I am hopeful that you see signs that this is changing. If you look just from, did our policy succeed, and you say from late February of last year, immediately pre-COVID, people will say, “Oh, it didn’t work.” The globalist will say, “It didn’t work,” and then they’ll point to numbers that happened during COVID. Right? Which is completely unfair and they know it, but they’re just making an argument. But if you look at the numbers before, there were 500,000 more manufacturing jobs through February of last year than on election day for President Trump in 2016.
That’s a big, big number, and we were all told those were jobs that were never coming back. So, that was a very encouraging sign, and that was in spite of the fact that… You’ll recall we had a month or a month and a half of auto strike at the end of 2019, which was a very significant factor. And we had Boeing basically offline for a long time. So, these numbers were really impressive. You had maybe six million jobs to that point created overall. You had a reduction in the trade deficit, which I think is important in five out of the six previous quarters through that time. And then probably most importantly, you saw that through 2019, the last numbers that we really have, median family income was up 6.8%, the highest in American history.
So, this idea of bringing jobs back, bringing manufacturing, but also other jobs back, putting pressure on wages, thinking about everything in terms of how it affects American workers, not how it affects corporations only. Now, and of course, efficiency in corporations are important. I don’t want to suggest they’re not, but they shouldn’t be the sole metric. So, I think there’s a lot of reason to be optimistic. I think this is working. I have every hope that it’ll continue in the new administration. I know I’ve talked to scores of Republican and Democratic congressmen and women who have told me specifically that their own ideas about how trade works and what its role is in creating strong communities in America has totally changed. And I’m very happy about that. I think that’s a really, really, really positive thing.
Oren Cass: Yeah. And if you draw lines from actual policies to the outcomes that you’re describing, are there ones that you think had the most effect? So, for instance, there are folks who would say, “Well, it’s actually the corporate tax cut that led to these various changes or more investment.” I’ve been very critical of that argument on the grounds that, in fact, we don’t actually see the investment increase, which is actually quite concerning. I think, then, when you get to the trade side of things, some people would say, “Well, it was the tariffs that had an effect,” or, “It was this or that,” and then people on the other side would say, “Well, but if you actually look at the effective trade deficit or where the manufacturing jobs were created, it’s not clear how strong that connection is.” So, I’m curious what you see as the clearest through line from change in policy to actual change in the behavior of companies at the end of the day.
Robert E. Lighthizer: Well, let me say, first of all, that I’m one who believes you want to have the appropriate tax policy and the appropriate regulatory policy, and for me, it’s a hell of a lot less regulation. And taxes, it’s not just reducing taxes, but doing it in a way that makes sense, and I have a whole theory on tax stuff that I won’t get into. But I wouldn’t say those things were not effective. I think they were. And whatever we do in trade, we have to do the right things economically to make sure that our companies are strong and that we’re making money and that we can compete in the global economy. So, to me, that’s really, really important.
The second thing is, whenever you look at any of these metrics, I’m going to repeat what I said before, and that is you have to figure out a way to take COVID out of this. So, it takes a long time to have these policy changes, be reflected in the data. I hate to be trite, but it really is like turning a battleship, right? It really is. It’s not somebody that’s going to flip a switch. And these people… But everyone knows that it’s going to take years for this to change and years for it to be reflected in the data. So, I would say those are things we have to be very, very cautious about. You’re not going to see an instant change in where we’re manufacturing.
I would say, for example, if you look at manufacturing, let’s take automobiles, before we renegotiated NAFTA, eight of the previous 11 auto plants built in North America were built in Mexico. Right? We haven’t seen that now. We’ve seen announcements and the beginning of a lot of auto plants being built in America, not only across Alabama and across that belt, but also even up in the Northeast, which is where I’m from.
But if you say, “Now, why is that a direct link?” I’ll tell you. Take the rules of origin that we put in the USMCA, those rules of origin basically say you have to manufacture, A, a substantial amount more of these automobiles in North America, and at least 40% in the United States. Essentially, that’s how it is going forward. It could be Canada, but we all know it’s going to be the United States. That’s a very big change.
Look at the opposite of that, which is where the direction of the whole world was going, which is to reduce the rules of origin. The most recent example of that would be TPP, where they literally had a far weaker rules of origin for automobiles than was in NAFTA, and NAFTA was a disaster. So, you saw us moving one direction, putting emphasis, and really a requirement on more manufacturing in the region and in the United States.
TPP, which reflected the trend before that, was in exactly the opposite direction, so that, for example, you could have under TPP… And I only mention this because it is what the prevailing view would have been among this globalist corporatist crowd before we got here. Under that, you could literally make a car that was 45% made in Vietnam and 55% made in China, and that car could come into the United States and be treated the same as a car manufactured in the United States. Well, of course, that’s ludicrous, but that was the prevailing view of those people. And it scares me to think that we would ever go back to that, but I would say so auto rules of origin are pretty clear example of that.
I would say the China tariffs, you have seen people move plants away from China and in many cases to the United States because of those 25% tariffs. Now, that’s going to take time because people were hedging thinking they’d all go away, the corporatists were going away, but in the technology area, companies realize that their technology is vulnerable in a way they did but only in specific cases. Now people realize it’s a problem across the board, and they also don’t want to be in a position where they’re dependent on going through there. So, I think that’s an example. Another example, which is probably slightly more sophisticated, or at least complicated rather than sophisticated, is this issue of ISDS, investor-state dispute settlement. So in that case, you know, but I’ll just say very quickly for people who might not be aware, what that basically was a provision, it was part of the orthodoxy of globalism.
And the notion was, you could move a plant from the United States to another country, and then if, because for example, they had weak labor or environmental laws, just as an example, it could be other reasons too. And then if they put in place comparable, or even somewhat stronger environmental or labor laws, for example, you could sue them and have an arbitrator decide that you should get all your money back.
So that was nuts, in my opinion, completely crazy. But that was a basic tenet of these people, and still is. And what I always said was, listen, if you want that kind of insurance against activity for your investments outside of United States, buy political risk insurance. But the United States Government shouldn’t be giving free political risk insurance to encourage people to move their plants to another country. It’s just completely the opposite. It’s just a very good example. It’s completely the opposite of the way sensible people think. So the question is, are you interested in what happens to working people in America? If you are, then of course you don’t support ISDS. If your objective is for the investment class or for corporations to have an advantage in moving away and losing jobs in United States, then you would be in favor of ISDS.
Now that’s another notion where you can just flat see it. But there’s a whole, whole bunch of these things that you can see that go through what is the Trump trade policy, right? It’s not just tariffs on China, and it is raising the alarm, that we’re in a competition here that we cannot afford to lose and the world cannot afford to have us lose. And then on the other side, this focus on working people, we put sunset in, for example. A sunset provision that basically said, we’re not going to have these… The only thing eternal in the world is trade agreements. Well, how nonsensical is that? Why would that be? Right? Everything else is reviewed on a periodic basis. And if it doesn’t work, you change it.
There are a lot of very, very fundamental things that we had in our policy. And I think there is a direct line to activity and results. And then you have, as I say, you have this analytic problem of this crazy virus changing things in a variety of ways. And then that allows people who basically were against it all along say, “Yeah, it didn’t work. Look at COVID.” But to me, those are specific examples of things. And like any other shift, history is going to determine what the answer is, right? Whether we were right or wrong, when you have some perspective and some data points to look at. But this was an historic shift, and in very, very specific ways, in the direction of working people and making America stronger.
Oren Cass: Yeah. The political risk insurance example is such a fun one, because that’s one thing you see in these debates, is the assumption that the free trade or free market solution is somehow the small government one that doesn’t involve industry capture, and is how markets are supposed to work. And then you look at what’s actually in the trade agreements, of course. And they turn out to be longer than Obamacare in a lot of cases. And as you said, the interests protected are not always the interests that we probably should have front and center.
Robert E. Lighthizer: Well, people who are at the table, organized labor has a role, and it’s a good role, and it’s a constructive role, and they’re friends of mine and that’s wonderful. But other than through them, the only representation by real working men and women is a few members of Congress who agree like we do, or President Trump, right? That is the only person that goes in there and says, “Well, this is going to cost jobs here or there. Why are we doing that?”
And I’ve always said, there are literally tens of thousands of American workers who are out of work, descending from the middle class, and their basic assumption was, well, you’re just not well managed or you don’t work hard. You’re sort of inferior somehow. And none of that is true. What it really is, is that we reduced tariffs and we shouldn’t have. We allow people to make more money by manufacturing overseas than they do if they manufacture in the United States. We put more emphasis on the price of a t-shirt than we do on the safety of our communities. It’s just a completely crazy notion.
Now, if you go to the other side, obviously you could be extreme on the other side and get out of whack there too. But the direction we were going in before president Trump came along, and I believe fundamentally President Biden believes, as he’s basically a working class kind of person, too, that’s where his heart is, and some of the people he’s putting in place are really very good. And so I think this is going to be a permanent shift. The issue is going to be whether they can sustain the onslaught from these corporate interests that, combined with mainstream media, or at least the main newspapers, and foreign governments, all of whom are kind of a cabal designed to shift manufacturing overseas.
Oren Cass: Let’s look ahead. I think the metaphor to the slow turning of the ship is exactly right. Both because these things just take time and because so much comes down to the expectation of firms when they’re making their investments, and whether we have a credible claim that these policies are going to be maintained. So if you look ahead to what the Biden administration is facing, it sounds like one element is there’s sort of a stay the course and keep policies in place, but what do you see beyond that? What’s what is the next wave of either incoming challenges or policy debates that need to play out to continue to press in this direction in the coming years?
Robert E. Lighthizer: There’s a lot for them to do. And the first thing they’ve got to do is sustain what we did. And then they’ve got to move to the next level. One thing they have to do is, and I believe they will try to do this, is be absolutely firm in their commitment to enforcement of the rules of all our trade agreements, but particularly USMCA, which is by far the best trade agreement the United States has ever negotiated, from the point of view of working people.
And I would say, also, the environment, and the like. So to me, the first thing they really have to do is focus on enforcement, enforcement, enforcement. We tried to do that too. I think we did a really good job at that. We bought the first environmental case under our free trade agreements. We brought cases just across the board, not necessarily just at the WTO, but we brought 301 cases, used our actual authority, and force people to make change. So the first thing that have to do, really, is do enforcement, enforcement, enforcement. And I think they know that.
The second thing they have to do is, the China competition is still only in the early innings, right? I believe that this change is something that we needed. I think it’s really, really important. But that is not over yet. There’s a lot of challenges there. You see it every single day. Let me take a step back and say, did we make a difference? I think it was an enormously significant difference and an historic difference. We were helped though, by the fact that you see a lot of actions on behalf of China that also reinforced the message that we had that this is a problem. They did things themselves, and I think you’re going to see a testing and a probing on all those fronts by China.
I think this new crowd is up to the task, but they’re going to have to be forever vigilant because we really did engineer with that 301 technology and that phase one agreement to use the phase one agreement to say these are the rules and to enforce the phase one agreement right down the line. Keep the tariffs in place, add new tariffs where appropriate. So the whole China thing has to be thought out and continued and put their own spin on it. I’m not suggesting that we had the right answer to every single detail.
Another thing that people have to really think about is the WTO. The WTO, I’ve said many, many times, is a failed organization. It’s not just a waste in the sense that it hasn’t had any negotiations in 25 years of any significance. We’ve gotten ourselves into a funny spot where we have a dispute settlement process which we now have stopped for a year and some months. It’s had no detrimental effect on any single working person in the world, certainly not in America. So it just put a lie to the fact that this is somehow essential. I hope that they stay the course on that, on just radical reform of the WTO and just keep getting rid of this notion that you can pick seven people who will honestly sit down, interpret an agreement, and do it in an objective way. It’s a nutty notion, and I think it’s going to be a big, big thing for them to worry about it. I’m happy to go on and talk more about the WTO if you think people are interested.
Then I’d say the final big thing that people have to think about, and I’ve tried to talk about this a lot, we have gotten ourselves in a position in global trade generally, which let’s take a step backwards, really means the economy, the global economy. We’ve gotten ourselves in a position where we have extremely low tariffs. So does Europe, and so does Japan, but the rest of the world, it’s just basically not true. You have these wild, wild swings with big economies. The way this system has grown up, it’s permanent. There’s no way to change that. To me, that’s just completely wrong-headed. We ought to be sitting back. We ought to have a complete reset of tariffs. Tariffs are far more important to me than all this non-tariff barrier stuff we talk about. That’s significant, but it’s hard to put your hands on it. We talk about standards and this and that, and we fire our way through it. It’s hard to put your finger on it.
The reality is, we should be funding more of our government with tariffs. People should pay a price for making profit in the United States, and we need a reset. We need everyone to have approximately the same tariffs, except for a very small percentage of their economy, where there are sensitivities that would basically bring down the system. Notionally, everyone ought to have whatever the number is, 10 or 12 or whatever the number is, percent tariffs on everything, with a small group of things where you have some protection. Otherwise, that’s what it is across the board. That’s the price you pay for access, for example, to the biggest market in the world.
To me, I think the fact that India’s … a third of their lines aren’t even bound. Their bound tariffs are, in many, many cases, at 100%. Their applied tariffs even now on average, or whatever … I can’t remember the number, but it’s 18% or 19%, and ours is between 2% and 3%. That’s a real, real problem.
The whole notion was that we wanted to rebuild these people, rebuild these countries. In the ’40s and during the various eight rounds, we, the United States and Europe and Japan, in fairness, had cut tariffs more to basically help these other countries. That’s got to change. We need a reset on tariffs. We need to look at the WTO. We’ve got to do real, real, real enforcement, and we have to keep facing the China challenge and win that competition.
I mean, those are big things, but I think that the incoming administration is in an infinitely better place in dealing with those things than we were when we came in. Because we have done an awful lot to turn that, let’s call it the aircraft carrier now—I don’t even like battleship, so that aircraft carrier—we’ve done an awful lot to turn it. There’s a lot more understanding of these issues on the Hill, understanding of these issues among the public, and they can build on all that and hopefully continue with that work.
Oren Cass: Well, we have burned through our 30 minutes. I’m regretting we hadn’t made this maybe a two-hour conversation, but I’ll have to drag you back here maybe in six months once we see a little bit more of what the Biden administration’s been up to.
Regardless, I’m so grateful that you joined us here and also for all of your work in recent years, serving with distinction in what must have been an incredibly difficult role. So thank you for joining us today, and I hope much more to come. We are looking forward to hearing from you a lot on this question of where American trade policy should go from here.
Robert E. Lighthizer: Well, I appreciate that, Oren. Once again, I’m a fan of American Compass. I wish you every success. I’m always available to talk, and I’m looking forward to continuing not only dealing with you but with others too to keep the spotlight on these issues, which I think really are, they are so fundamental, they go to what kind of communities we’re going to live in and we’re going to raise our children in. That’s what’s at stake here, so thank you very much.
Oren Cass: Thank you, and thank you to everyone for joining us.