Speakers included a formal consultant from the office of the u. S. Trade representative and member of the White House Council of economic advisors. From the American Enterprise institute, this is two hours. Well start again. Good morning, ladies and gentlemen, im glad youre with us. Im alex pollock from the r street institute. And we welcome you on trade deficits and the Trump Administration. It goes without saying debates about trade, tariffs, other barriers to trade, balance of trade and payments and shifts in foreign exchanges, whether the flee of gold in old bays or reserves nominated in fiat currencies now have a long and controversial history in domestics and in politics. These debates feature the famous and essential contrast between the interests of producers on one side and those of consumers on the other, abiding asymmetry and pressures for adjustment between countries with persistent deficits like the u. S. Versus those with persistent surplus, germany for example. Naturally throughout this is the desire of politicians to get and remain in office. Political economy is certainly the accurate term here. Discussions of trade deficits cannot be divorced from the International Monetary system, levels of Exchange Rates or role of the u. S. Dollar as the dom nantz reserve currency or role of the United States as a seay haven for capital. We might say one of the key things the United States produced is a social system that does serve so well as a safe haven for saving some capital. You could say what john maken liked to call the wealth Storage Service effectively is traded internationally for net imports. Today, we have truly distinguished panel to address the economic questions of trade deficits against the current Political Forces in play. Each member of the panel will speak 13 to 15 minutes. Opening comments after which well give the panelists a chance to react to each others ideas or clarify their points. After that, well open the floor to your questions and we will adjourn promptly at 12 00. Let me introduce the panelists in the order in which they will speak. First will be jeff frankel, the james w. Harpo professor of Capital Growth and director the program in finance and macroeconomics at the National Bureau of Economic Research where hes on the Cycle Academy and Research Interests including international at finance commodities and financial issues. Next is ann krieger, professor of economics at Johns Hopkins university, senior fellow at the Stanford Center for International Development and senior fellow for the Hoover Institution and previously first deputy managing director of the International Monetary fund and past president of the American Economic association and published extensively on the topic of the day. Our third speaker, bob aliber is Professor Emeritus of economics and finance at the institute of Chicago School of business and bob has written extensively on economic finance and banking and Exchange Rates on the global flow of capital and its role in crisises, the coauthor of fifth to seventh editions of the class tick manias, panics and crashes and author of the International Money game. Next will be Claude Barfield a resident scholar at aei, specializing in International Trade policy. His work includes trade policy in china and east asia, world trade intellectual policy and books include free trade sovereignty democracy, the free World Trade Association swap how trade works and hightech protectionism, irrationality of antidumping laws. Our last speak, desmond lachman, International Economics and International Trade and the euro area and international crisis. Previously at smith barney and Deputy Director at the International Monetary fund and he has done a great job organizing this conference. Thank you, desmond. Jeff, welcome back to aei. You have the floor. Thank you, alex. Thank you all for coming. Its an honor to be leading off this very distinguished panel. I could try to cover all the things that President Trump has said and done in the area of trade that i would view as illadvised, but we have 15 minutes each so i cant really do that. I will say that the i dont think anyone but donald trump could threaten to cancel a u. S. Freetrade agreement in the midst of the worst Nuclear Crisis weve had in 55 years with north korea. But i am going to stick to five trade fallacies which are up on my slides when it comes up. I think you have to push your button. Advance it one and see if youre there. Very good. Thank you. These are fallacies, i mean theyre widely shared, not just donald trump. Fallacy number one, u. S. Trade negotiates have been outnegotiated by those from other countries. Wrong. Remember the president ial debate where tumble kept interrupting his opponent and saying, wrong with an exclamation point. I will do that a few times. In most trade negotiations significant ones in the last 20 years included tpp and before that, nafta, the United States has been able to get most of what it asked for overwhelmingly. Thats a side effect of being recognized as the leader of the International Order. Most countries have benefitted from the International Order and we have benefitted at least as much as everyone else and thats been recognized. I think its important to retain that role as leader of the International Order and one ground i would fault trump is he doesnt even think thats worth trying to keep. Lets get on the subject how capable our trade negotiates have been versus other countries. Most of these trade agreements resulted in other countries lowering barriers against our experts more than we have had to lower barriers against imports for the simple reason they started off with high tariffs on other barriers and we started off with low barriers. More recently agreements had to do with tariffs and deeper integration and u. S. Demands have driven the process and weve gotten most of what we wanted. People might talk about a different priority how important it is, something on this list is important, labor rights, environment, investor dispute settlement and Industrial Property rights. Weve been pushing that in the tpp. Were supposedly renegotiating nafta, a logical question since canada and mexico said, okay, lets do it. It can be modernized and so on, how would that be done . I have a list i wont go into the five or six different ways nafta can be modernized and expanded. Guess what, theyre all in the tpp. My advice there is go back to the tpp or else try to make nafta like the tepp. One of the funniest things trump has said tpp. The negotiators for germany have done a better job than the u. S. If you take it at face value he believes theres a Job Description for trade negotiate for germany. Germany outsourced that job long ago to a union and dont negotiate their own trade policy. I infer what he really means is he observes germany runs a lateral surplus visavis the u. S. We have a deficit. It reflects bad trade agreements. Wrong. Lets say we observe country a runs a bilateral trade deficit with country c it generally means a combination of their causes. A stands for america and c stands for china, all three of these are relevant. First, country a has a trade deficit overall. Second, country c has a trade surplus overall. Thats true of the u. S. And china. Three, country c needs to earn a structural surplus with countries like a in order to pay for a structural deficit with some other countries which in this case would be exporters of oil and other commodities. Ill show you a graph in a minute because it includes with china. If we were to stop importing some good Consumer Electronics from china we would import more from somewhere else, other Asian Countries, would not affect our overall trade deficit more relevant. I always tell my students about the folly of thinking bilateral trade imbalances are important. If i tell the guy who cuts my hair, i dont want to pay you any money, i want to give you a lecture in economics. He for some reason doesnt think thats right payment. He wants to me to pay in money and i earn my income teaching at harvard and they pay me and it all works out just fine. No need to look at bilateral balances. Heres just for china even though the trade surplus has come down quite a bit, they still have an overall slight trade surplus, moderate trade surplus, lets say, and they run a trade deficit in primary products and manufacturing products. Thats part of why they run a surplus visavis the United States and run a deficit with comment exporting countries. Fallacy number three. A trade deficit indicates the absence of a level playing field. Wrong. There is no correlation, at least mow positive correlation between countries tariff trades and trade balances overall or bilateral. I have a graph on that for you in a moment. Rather, trade deficits are macroeconomic phenomena. Im sure the people on the panel are going to agree with this. They are in a proximate sense influenced by the Exchange Rates and bedrock. More fundamental sense determined by National Saving and investment. The u. S. Has run a current account deficit since 1982 because National Saving has been low since 1982. Ill show you a graph on that. This is private savings compared to our past and other countries and low public savings namely budget deficit. We could think of examples along the way of the famous twin deficits. The period of 2001 to 2007 is a good example when we had big tax cuts, big increases in spending, both military and domestic. We converted a record trade surplus to record trade deficit and followed up as National Saving as well as a trade deficit. Incidentally, six months ago i had the privilege of being on a panel in december before donald trump took office. Many of us thought he would be repeating the fiscal policies of bush and reagan, leading to a bigger biggest deficit and bigger trade deficit. As of now since he doesnt have any legislation through congress its much harder to predict what will happen there. One of the questions we were asked to talk about, china, germany, japan, they all run large currency surpluses. One line reason for that is they have high National Savings rates, doesnt have to do with their trade policies. Heres a graph i promised, which is from carolyn froind. The vertical axis is the trade balance from zero to up is positive. A surplus and down is deficit. If theres any relationship at all, its an inverse one. This is illustrating that is not the case. The countries highly protectionsist have high trade surpluses. The free trade countries have the trade surpluses. On average, the countries with high tariff protection for some reason trade reason have trade probably because of other trade policy. Excessive deficit or something. We shouldnt need a graph, its a matter of National Savings identity. That the current account balance is equal to National Saving minus investment. You can see the graph that the only reason they differ is theres measured in different ways. The trend was strongly downwards in the current account. Sp swing with the business cycle. Downwards in National Saving. Fallacy number four, whatever the cause trade deficits are bad and subtract from growth. The trade balance. Seems like a rsubtracts from gt. If you cut the and creates jobs. Im not going to say wrong here. Its not always wrong. If you have excess capacity in the economy. Unemployment is high. A boost to export can add to employment. As of now and the last couple years were at full employment. I would say. And pz increase in export if it suck seepded in improving the trader balance wuf to pull workers away from other activity. And wouldnt add to the over all rate of out put and employment. Theres another respect in which its not always wrong. If countries that run current account deficits that means International Debt is rising. Kp for normal countries most countries eventually theres a day of reck noning. It impairing credit. The u. S. Seems to be immune. I was worried about this for a while. It didnt happen in 2008. If it didnt happen in 2008, it being foreigners worrying about u. S. Credit worthiness. Its going to take a lot more doing before we squander our position as elite International Currency and able to borrow easily at low Interest Rates on world markets. The important point here fallacy four is trade deficits are not always bad news. Trade surpluses are not always good news. So an example of a rise in the trade deficit that was actually good news was in the late 90s. It was a companied by the longest u. S. Economic expansion on record. Unemployment got down lower than it is today. I think 4. 3 . It was the one time median Family Income was rising strongly. The second half of the 1990s. Which is interesting because so many people including the Obama Administration had they were trying to advance tpp and would of course nafta wasnt to great. Everyone seems to agree nafta was damaging. It is interesting that in the half decade after nafta, the United States had the best economic record that we have had in the last 35 years. In terms of longest expansion, most strongest growth in productivity, strongest growth in wages, lowest Unemployment Rate. Most widely shared in terms of Income Distribution and so on. Im not saying thats because of nafta. It was largely because of an investment boom is what was driving that expansion. Brought unemployment 3. 8 . What did i say a minute ago . By 2000. And conversely you show me a country that has a sudden kbruchlt in the trade balance and ill show you a country thats gone into recession. Lower income means lower import. The main example of that, this is the last great the Great Recession of ten years ago. So this is a graph of growth rates, gdp growth rate is the blue line. The trade balance is the dotted red line. This is from michael clin. But the of course the one time when in recent decades when the trade balance abruptly fell in half was the period of the Great Recession. When income fell sharply so imports fell sharply. The point of that is trade deficits is one illustration. Trade deficits are not always bad news. Improvements in the trade balance are not always good news. Youre at five with one minute left. Last fallacy. Trade explains the stag nags in economic since the turn of probably wrong. Of course imports create winners and losers. That seems to be news to some people. Any big change does. If we block import thats will create winners and losers. Take the example of trumps moves against imports of steel and aluminum. Leave aside the fact that the section 232 this is a National Security issue is flimsy at best. If we did succeed in blocking imporlts of steel and aluminum that would raise cost to u. S. Manufacturing. Produce automobiles for example. Raise the cost of live lg in the United States. And hurt our exports. Various other ways in which blocking expoerts reduce imports. It really is the case that difference in imports and exports determined by Macro Economic grounds. If you block import youll reduce export through various channels. Yes specific industry ands localities suffer from import competition. Maybe we hadnt realized how long lasting and deep that is. It leaves out if were concerned about Income Distribution it leaves out two big factors on the plus side. Trade creates export jobs. Pay higher wages at other job ands lowers the price of consumer import goods. Its hard to say on net whether and how much trade raises inequalfy or lowers it. It increases the size of the pie. What is does to the distribution of the pie is an open question. Theres debate about it. I think its clearly not the major reason. The bigs reason for the increase in inequality we have had over 30 years or the fact median Family Income in the most recent figures even then has stagnated. For the last since the turn of the century. Its probably less support and Tech Knowledge progress and the fact education hasnt kept up with the demand for skilled workers and other factors. In my view, you dont actually need to be able to a portion the responsibility for the increase in equality among trade vs. Technology and other factors. Th list of policies that would be advisable to increase the pie and do it vmt regardless of how much emphasis you put on trade versus other factors. Thank you. Were going to be plagued a bit by im trying to ill let you. In any event. Anyway. There we go. I started with the same thing that jeff did. Namely its long standing issue. Theres a lot of confusion in the discussion between trade and the current account. The current account is the important in terms of current earnings vs. Current expenditure. Which includes services in which the u. S. Has been running a surplus. And to believe that out of the discussion is a problem because services are one of our big advantages in anything that is done on the other side is something thats going to Hurt Services in addition to the things that jeff talked about. As always the fallacy to pick one component of Something Like the trade deficit of the current account deficit because obviously i can pick one component and you can pick another one. I can say its really automobile and no, no its chemicals. Both could be right in the sense that each is about the same size or might be the same size as the deficit. So that kind of thinking i think is really erroneous and hurts in particular in the United States for manufacturing. Its bad when we talk about that. The main a one is a lot of what was counted as manufacturing is counted as services. Let me explain. In the census, everything is classified according to to the main activity. Of whats done. You go to a factory. Ill take 3 m as an example. Minnesota mining approximate manufacturing. Produces goods and services, right . It was mostly manufacturing at first. So the whole thing was counted. What happened over time was the various things were subcontracted. Subcontracted for example for the janitorial services. Contracted for the electronic maintenance of the various components in the building. Fire, security alarms, and i. The cafeteria until of course they subcontracted it where it became a service. Same people doing the same things as they were before. But the manufacturing done directly by 3 m as its counted went down so we lost jobs in manufacturing. In fact some of them went directly into services. I have a soninlaw who was at 3 m. Which is why i know it so well. Who was on the payroll in charge of the electronic repair unit. 40 or 50 employees. And one day he came to work and said he was called in and said well spin you off. Well dwif you all your tools and help you the financing. Now you go and take work for 3 m and anybody else you can find to do the work for. Basically they still serve 3 m but do other things. Whats wrong with that . Have we lost jobs in the process. They gained jobs because they got other work too. We call it something different. Its important to remember that. Services become bigger and bigger in the economy and we talk about the bad jobs. Theyre not. Business services are big and many are financed for example how paying. And not including that in whats going on is a huge mistake. Jeff already mentioned that obviously investment savings is a current account deficit should better to say in terms of our expenditures minus income. The same thing either way. And its accounting identity. And we have indeed been pending more on goods and services than we have been buying. Which is why the deficit. It doesnt explain a thing. Its an accounting identity. Last point. Borrowing from foreigners or importing capital in other ways can be enhancing to growth or reducing. And i have two examples on the slide. Korea in the 1960s. 13 at year. The adjusting for inflation. And average rate of growth was 13 a year. They were borrowing 10 of gdp every year for the ten years. Every year. On average. And of course the gdp ratio went down. Because they had productive investments and finally figured out how to get incentive right. They could afford to pay the nine, 10 rate on it. In korea was well over 25 . You could pay 10 on the borrowing and come out ahead. On the other hand if instead you were like mexico in the 1980s, mexico had the biggest windfall gain in term of trade. Because of the Oil Discoveries and the run up in the price of oil. They had a big party. They not only spent all the oil revenue, they spent more than the oil revenue. They built up debt and couldnt pay it. You cant judge the deficit alone by what was it is. You have to look and see why its what it is. Thats important. The deficit has been with us a long time. This is goods and services i put those numbers up in between 2005 and 2015. They are not quite comparable. I did not track down why. Theyre approximately. Its nothing new, it doesnt have to do with china, it doesnt have to do with germany in particular. It had a little bit to do with the inflation of the 70s. Which took away the comparative advantage. On the other hand, it certainly is not something that you can say it started in 2001 or Something Like that. It started the good growth years in the 90s and the bad growth years around 2008. Both we have the deficit. Its very much still there. We are spending more than we earn. Theres no doubt about it. Thats what we call a deficit. Third factor is just sort of going into that. What happened here . By lateral deficit. I put them on the board. You can see we have deficits with almost every region in the world. Few exceptions. But when we have deficits, what that tells you is that you cant solve it by putting one finger in the over here. Because the flow will increase over there. As just said. And the interesting question there is more than that. The interesting question is suppose somehow you could negotiate a deal with mexico which i hope we cannot do, they committed to somehow cutting down their imports in the United States. How are they going to do that . They either have to cut back drastically on expenditures and have a recession which doesnt make sense. Or they have to impose Exchange Control. How could they they dont want our imports. We dont want to Exchange Control throughout the world. Yet asking them to do it for one of the two things. Imposing a tariff on mexican imports is quite illegal anyway. Because of the rules. The same nondiscrimination. If we did that we have to do it everywhere. The damage to the own economy would be worse. Because we couldnt do what the autoparts that we were importing from mexico and another country at any lower price than before. Its not clear a tariff on all autoparts necessarily would cut down the import from mexico. You dont know. The idea this can be without tremendous damage to the other economies to our economy, i think is more than just fallacious. Has been the degree to which a third country behavior has almost completely wiped out whatever effect it might have. Its easy to shift sources of various things. Its rare to put sanctions on some country. The only case where it looks like it may have been reasonably effective is south africa. Iraq even in that case. Enormous despite the power of the u. S. Its difficult to enforce Something Like this. And ill advised and would damage our economy probably as much as the other one. So we go to is wto illegal. Our companies would be less competitive if Japanese Companies can get autoparts from the cheapest source, say mexico. And we cannot, how our company is less competitive. Well be less competitive and import more auto. We want to put import tariffs on them. How far does it go . Where do you stop . Is it enforceable at all. Do you get smuggling and other things going as a result. I dont know the answer. I know its a bad idea. And i know it will not correct the deficit. Okay what about jobs. As jeff mentioned briefly exports create jobs. And they create jobs not only directly but indirectly. We use import. Japanese exports of automobiles to United States increased in the 70s. For a variety of reasons. But which cheaper car the small car which the American Companies at that time wouldnt make. The cheaper cars there were more cars. Teenagers began getting cars which they didnt have before. Families that had previously been one car became two car families. And three cars and so on. What did that do . We imported the japanese cars. What about service stations . What about automechanics . What about the gentleman who imported the cars. The jobs associate td with the japanese export of cars. That set a considerable amount. One out of nine jobs in the u. S. Is related to the industry including production and including service. One in nine is a big number. Production is a very small part. The most of the jobs are in the others. If we have more cars on the road and so on thats good. They are safer. And that maybe bad thing. There arent so many jobs in hospitals. I dont think so. You might argue that way. If jobs are the only thing you care about. How am i dong on time . Three minutes. There are indirect effects. Financial services and so forth. Much of the Service Industries are based on businesses doing business abroad and the dollar being International Currency. You cant forget that. What do we do . Well, this is going to sound heretic. Especially i have come to the view that trying to talk about jobs in exports is foolish. For the reasons jeff suggested. And the best numbers ifr seen suggest between 85 and 90 of job displacement and probably due to technical change. Rather than trade. But having said that, theres a second component to that. That is the job turn over in the United States about 20 million jobs per year. And 20 million jobs per year is a lot larger than anybody can possibly attach to any kind of trade problems that we may have had. Even if you ignore technical change. The whole thing couldnt be that. We have a very fluid very flexible labor market. Which is a good thing. What should we do . Provide more support for people who are without work. Some of the European Countries in denmark seems to be in the lead. Im no expert. I try to follow a bit. Adopted policies called flex security. Any company that will lay off workers notifies the workers at the appropriate time. And notify the Labor Department. The Labor Department has job centers everywhere. Workers show up at the centers. They apply for unemployment. And are advised to the skill set, where there are jobs, where they are help provided if the jobs are in copen haggen and vice versa. They are given support. You dont have the qualification now because youre missing that training. Sometimes subsidized in training as necessary. Duration of unemployment was cut substantially. They have a low Unemployment Rate over all. They dont worry about why the job was cut. You cant. Suppose the company gez out of business somewhere in the United States. Probably in part because of poor management, some other country survived. Probably in part because of technical change, maybe Something Else came along. Probably in part because of import. So lets say all three contributed. Lets say 30 each. Lets line up all the workers who lost their jobs. Please tell me which third lost their jobs on account of trade. No way. No way you can do that. And yet why do we want to treat reasons who lost their jobs differently from another. Do whatever we think by way of a social safety net more generally. I could go further along the line. To treat workers is Something Special and different. Doesnt make sense because you dont know who lost it. You dont know. Indirect effect and who among those who lost it even within the firm lost it because of trade or otherwise. I would argue that we have to move away from the notion of trade adjustment and trade economist have been guilty of saying this because politically its so sensitive you have to do this. If we have to do something why not support all workers and give them. By the way in the danish case if they dont look for work they get cut off from Unemployment Compensation very fast. You can do that if you have a system that works. So come along. Well give them more unemployment comp. Theres evidence that prolongs the length of unemployment. It also helps people. Its not all bad. It prolongs unemployment and raises the cost. So let me just finish quickly because alex asked this question. Obviously incent i have increase savings public and private are important. Obviously productivity increasing measures are important. They would obviously increase kpartive advantage and deregulation and so on are clear. Tightening fiscal and monetary policy. Excess investment. Im not sure we do. I take other countries are using our dollar as a financial service. If you want to reduce it thats the way to do it. Not the by lateral deficit and so on. The imf tried in the 2000s to bring together the major six surplus of countries. To get them to agree on a package so the burden of adjustment which everybody said they wanted but would be split between surplus and deficit countries. Everybody agreed in how much the cut should be. No problem. But of course the chinese thought the u. S. Should adjust and the u. S. Thought the chinese should adjust and so forth. Theres no way and no mechanism to get the agreement split. In that process nothing happened. It may come about again. We get to a point where there can be mutual agreement as to okay, you have access to demand. We have excess supply. We can find a way. So far that hasnt been done. Im not optimistic until the nec time we come to some crisis point. Thank you. Going to bob. Bob . Thank you. Thanks to the organizers. Great to be here. For 100 years i taught second year mba at chicago. And at the beginning of ef class i would hand out a blue book. And ask the students to write down the answer to two questions. The first question i asked them to identify the course that they had taken in the previous quarter or the Previous Year that gotten the most out of. And then i asked them to write down the key ideas in that course. And i gave them a couple of minutes. Then i pointed in the front row and said, koel, how many ideas did you write down . There would be a long pause and he would say, two. So id go to the board and say coal, what was tuition for the course . He would say, 6,000. So we put the fraction 6,000 over two. 3,000 per idea. And then i sort of say just studying how many hours. 100. 100 over two. 50 hours an idea. I have 13 minutes and three ideas. So the first idea is that the trade deficit and i want to thank ann for introducing the distinction between the trade deficit and the current account deficit. When i say trade deficit i mean current account deficit. Its just a convenience. The trade deficit now 4 of u. S. Gp has caused us to lose a million to 2 million jobs. Its a nontrifl number. Its a large number. I come from Northern New England when i drive through towns i could cry. To see the devastation in the east communities. So thats my first idea. And ill come back to that. The second idea gets whats caused the trade deficit. So we come to the savings investment balance that both jeff and ann. In here ill introduce the distinction between crowding out and crowding in. If i listened to my colleagues on this panel, i hear theres a shortage of u. S. Savings. Maybe. Maybe theres an excess supply of foreign savings. Maybe the foreign savings is coming into the United States and driving up the price of u. S. Dollar and having an impact on savings rate. So that is the crowding out, crowding in distinction. And the third idea o that i want to get to, its involved in policy. And it gets involved in the Exchange Rate system. We have an Exchange Rate system in which mrs. Watt and mrs. Savings and investment habits lead to changes in the price of a dollar of 20 . Were allowing short term money movements, plays on the leads to drive the real exdhang rate. This is not a way to run a stable monetary system. This is the cause of instability. So let me come now to my first idea. How big is the job loss . Im really going to punt on the number. So somebody else can do it. Wub one of jeffs students. If you think value added per worker, and u. S. Manufacturing is 500,000, thats a very large number relative to the wages. Youd come to the conclusion that 100 billion. 1 billion trade deficit would lead to loss of 20,000 jobs. And 800 billion trade deficit would lead to a loss of. The numbers are large. We need to understand how large the job loss has been. Because of the trade deficit. We may not be able to identify who is lost the jobs, we we would all share the conclusion that if essentially the trade deficit were to gradually decline, employment in manufacturing broadly conceived would increase. Let me come now to my second issue. Incidentally the trade deficit begins as jeff said in the early 1980s. And its associated with the change i would say in the International Monetary system. And with the large variability that we have had in the price of the u. S. Dollar and first half of the 1980s the price of the u. S. Dollar went up 50 . A very large change. You will remember i was in the midwest. The midwest was being hollowed out. The iron belt became the rust belt. That was essentially part of the adjustment to the change the increase in the price of the u. S. Dollar. Now, when i think about the crowding out crowding in di tings im reminded of the question that must have been in this room or earlier counter part in the early 1990s. When somebody said, what would how would the u. S. Treasury finance its fiscal deaf fit is the doj werent willing to buy u. S. Dollar securities . So lets go through that. If the bank of japan didnt buy u. S. Dollars, the price of the u. S. Dollar would be lower. The price of the m would be higher. Yen would be higher. If the price of the yen were higher, japan would have a smaller trade surplus. And that case the u. S. Would have had a smaller trade deficit. If our trade deficit had been smaller, a fiscal revenue would have been higher. So our savings investment and balance in the United States is not independent of the foreign demand for u. S. Dollar security. Now when i lock at what i would call the cumulative u. S. Trade deficit since 1980, its about 14,000 billion. And i then have tried to identify which countries have the counter part trade surpluses. And i have sort of three broad categories. One category is sovereign wealth funds. Norway, chile, the singapores, the united arab em rits. Their accumulated savings is 7,000 to 8,000 billion. They have essentially are involved in consumption smoothing over time. And so they have exceptionally high savings rates. And large part of their savings are abroad. And significant part of the savings leads to an increase in the u. S. Trade deficit. The second part will be second component of the countrys that have large trade. Surpluses of countries that have excess what i would call excess reserve accumulation. What is happening in singapore is mindless. In terms of the the savings. The cumulative private and public savings rate. Current account surplus of 15 to 25 . For over 30 years. Other Asian Countries have extraordinarily high savings rates. And extraordinarily high levels of Foreign Investment. Then we have countries that are large reserve. China i find sort of fascinating its the only poor rapidly developing country. Amazing contrast with south korea. South korea who rapidly imported foreign savings, china grew rapidly in export. Thats the nontrivial part. Let me come now to what i would call the policy observation. Whats my objective . I want to stabilize the real price of a currency. I do not want play on the leads and lags to lead to massive changes in the real price of dollar. This gets to the comment of the reserve currency role of the dollar. Or the resiliency of u. S. Financial markets. So what i would be willing to do is to essentially adopt a version a version of the toeben tax. It aint fun to have a tax named after you. So well call this a version of the tax. When the price of the dollar gets high, as it did in 83 and 84, or as it did in 97 and 98. When the surplus becomes large. I want to minimize the surges in the current accounts. Sorry i misspoke. I want to minimize the capitol account surplus. And let me speak briefly on that. Were in the contractive phase of the fourth dollar cycle since 1980s. Each dollar cycle is expansive phase and declining phase. The expansive phase leads to a brilliant performance of the u. S. Economy. Because of con sur jens and consumption spending. Decline in the savings rate. And the contractive phase. The price of the dollar declines, capital account declines. And that ends up with a recession. 1990s was marvelous expansive phase. Due to the surge in the u. S. Capital account surplus. Peaked in april of 200. The inflow slowed the price of dollar fell significantly. And u. S. Stock markets fell significantly. The expansive phase of the third cycle begin ins 203. Peaks in the Fourth Quarter in 2006. We move into the contractive phase. House prices begin to fall. And we end up with the most severe recession ever. Due to the cross border currency movement. I want to tax foreign purchases of u. S. Dollar security. When the price of the u. S. Dollar gets high. And i want to essentially increase the tax over time. To charge for the housekeeping money housekeeping services. Because the burden of providing those services are on the millions of people who have lost their jobs because of the increase in the u. S. Trade deficit. Thank you, very much. Thank you, bob. Claude . Thank you. When they asked me to participate in in panel, i pointed out that by the time you got to me, my would have been lost totally. Because you have had three and im sure dez will continue. A fourth lesson in the fallacies of worrying about trade deficit. I suggest im going to go in another direction a bit. And talk about the United States trade position with china and trade policy towards china. Which we have the largest. But product deficit. And so im going to be very specific and i should tell you that some may have seen live here in washington. About three or four weeks ago, bob the economy writer for the Washington Post wrote a piece which he said on trade, trump and by example and bannen got one thing right. That was about china. I guess the theme that ill be following through with this morning, and i invite feed back from my fellow panelists, because this is in the spirit of what am i getting wrong here . Why shouldnt we do this . The theme would be can the evolution of a reluctant trade hawk or interventionist. And let me explain. Im also not im going examples of will be mostly involved with what would be losly called our hightech sectors and particularly hightech electronics. And internet related companies. Im not particularly concerned about steel and aluminum. As the Trump Administration is. And i should say in my writings since the Trump Administration has come in and before, i dont think i have agreed with anything they have done. I dont start out as a trump supporter and very much a critic. I think the situation i also have to jump to something ill be saying. Have always resisted under the tools of people like ann and others. Reciprocity. Strict reciprocity with other nations in terms of trade policy. All through the 1980s i thought the ideas of coming from the congress of the were a mistake. For reasons ill go into. I think china different because of its size and because of where they are putting their resources, and the way they are putting resources. Let me talk about where, what is it like the moment to be a google or apple trying to compete in china. At the moment, almost half of the 20 most popular web sites around the world are blocked in china. And that specifically hits u. S. Companies which have a competitive advantage in this area. And includes the google, facebook, microsoft, twitter, and also outside the New York Times economists. Not Companies Involved in it. But the point is that the these companies and this sector right now and since mostly this goes back to half a decade in some cases a full decade, have been blocked from competing in chinese markets. In the chinese market. The chinese say the blocks are because of public morals. They dont want information, National Security. There is a very clear if grow and look at history here, theres a clear industrial policy aspect. The chinese when the chinese blocked google, it was just at the time that baa due was coming up. Qualcomm you see the things competition with other Chinese Companies. So while the chinese claim this was an industrial policy something about public morals and security. Which is allowed under the wtl. Ill come back to that. Clearly the when you look at actually happened, there were other things going on here. And this has been this has increased since 2012. We had the chinese intervene to stop virtual private net works forcing all of the final out lets that people could get to the internet. To be closed or under government control. So you have that particular aspect. The other thing is that the chinese are mixing which makes it difficult in term of trade policy. Security policy very clearly with economic policy. Even beyond the closing of the internet. The new Cyber Security and National Security laws, the National Security law was passed two years ago. Cyber security law came into effect last summer. Clearly have major economy implications. The definition of security both Cyber Security or broader National Security is sweeping. It includes all kinds of economic activity. Culture activity, manufacturing. Services. Almost any aspect of the chinese economy has been swept up into the definition of their definition. At any rate of security. This immplications. There are certain obligations that companies assume both Chinese Companies i would say and foreign companies. Particularly important for foreign companies. It includes such things that Technology Must be controllable and secure. The companies also have an obligation under the laws to help and assist the government in all kinds of ways technology, source codes, in the name of security. As is typical of chinese law, the language is sweeping. But the administration is still being worked out. So the companies whether its apple or google or whatever. Even the Chinese Company like wa way. Still dont know what the ultimate obligation is going to be. So while they know that they have new obligations, they are just gradually coming down with the Chinese Government claiming were not going to do this in the competitive way, same time theyre moving forward in ways that will be anticompetitive and will hurt. Not just talking about u. S. Companies, im talking about all foreign companies. Who are which are investing in china. I should say that beyond that, if we look at the larger picture, and theres nothing new about what im saying. Most of you have read this at some point. The chinese are very clear about content. They dont tie the law to this. But the chinese are publicly saying that made in china 2025 means to the degree they can do so, they are going to substitute Domestic Technology for foreign technology. And whether youre talking about the Cyber Security law or National Security law or other domestic regulations put in place, it is all in this in the name of this particular goal. As i say, the chinese are very clear about that. Now, finally, what we do about this . There are a variety of possibilities. And i agree with those who are arguing for instance that we certainly should move forward quickly with a by lateral investment treaty with the chinese. Which would introduce some regulation. Which would stop some or remove some barriers. The problem i see is i dont think theres any chance in hell the chinese goth today is going to agree to the kind of details and meaningful reduction of barriers that would come in what would be a vital by lateral investment treaty. I dont see that happening. Second thing thats argued and i agree with it if we can do it and should do it. Use the world trade organization. Ill come back to one example. The problem you face there is for the sectors im talking about for the internet related companies and sectors and information technology, laws by and large dont or barely cover the kinds of issues that come up. The last to everyone, which obvious but you never think about it in terms of what case. The last negotiation ended in 1995. Which was even the predawn you might say of the internet. So you could stretch and might be able to stretch some obligations that came under the Telecommunication Service ts agreement. It will be a stretch. The one case that i would rg argue the United States should move forward in. I think theres some possibility and we ought to take the chance. Is the direct attack on the great fire wall. The censorship wall china has put around the country. Theres some indication from earlier wto cases. One of which the United States lost correctly. In that the panel and the appellate body of the wto would say the following. All right, to china as an example, if theres a new york time article that you find offensive to your people or that somehow bit of information thats in the New York Times piece or economist, or something on facebook, you can certainly remove that. But what you cant do under law is then sweep all of the New York Times off of the web. Or all of facebook. Because that is violates an obligation to have the least protections means of getting to your goal. Even under National Security or with public morals. I think we ought to do that. But i dont think that takes us very far. It gets me finally to the reciprocity issue. I should say this, im distrustful of the Trump Administration being able to pull this off with any precision. They will probably tie i think mr. Ross is going it china in november. Hell tie it back to something the panelist have pointed out, as nonsense. To doing something about the trade deficit. What im arguing may or may not effect the trade deficit. We know there will be other things that will govern that. But still, having said that, i think that i would i do support the administration Going Forward with by lateral negotiation. With the chinese. And really doing it very specifically. These particular issues, what youre arguing we have to have a partner. The definition you have of Cyber Security we will not live with. Heres where we get to the no of the matter. I would envoek reciprocity not on the trade side but the investment side. Where the wto rules are less. I think rigorous. There are very few investment rules. And ratchet up the process there. Whether it would work, i dont know. I dont think the United States could standstill. This is a new position for me. In terms of other countries in terms of trade policy. One final thing i forgot and skipped over to end. Thats the, there is the movement in the congress which i support. To the degree i know what the will be to expand the Foreign Investment process by which we screen. I think senators bill the degree i know that i understand it, is an expansion that i think actually some pieces are working well. I wouldnt touch it. But theres pressure to do something. The pressure to do something because of china. The worry i have in the congress is that in trying to get at china, congress will go over board and really do things that really hurt Foreign Direct Investment beyond china. What theres now is not that bad. He does expand in the bill the process to joint ventures. Which gets the process into difficult territory. Where its not really possibly competent. I think if we can get away with that kind of amendment, i would be quite happy. And let me end by saying again to my fellow panelist, come back. What am i missing here . What have i got wrong . Thank you, very much. Thanks, claude. Thank you, alex. At this stage having heard three professors talk about trade, theres nothing much left for me to do. Im tempted to try to put the trump case. But im afraid if i try to do that, my university might ask me back for my diploma. So im not going to do that. I went to a university thats more strict with the standards. So what i want to do is just talk about four things. Fist i want to talk about the myths that jeff spoke about so well. Which i agree. Ill be very brief on that. The second thing i want to talk about is what seems to me is basic inconsistencies in the trump approach to the trade deficit. And ill elaborate on that a bit. That hes wanting to use import restrictions. Hes got a different kind of budget policy. And it doesnt all square. The third point i want to talk about a little bit is what i call the United States privilege. It comes to bobs point about capital flowing in to the United States. And the last thing i want to do is just raise the question as to whether the dollar might be losing its safe haven status. So just in terms of the myths, i have the same two charts as jeff put up. But i think they are worth repeating. This shows that theres no correlation or if there is, a negative correlation. So if you have 180 countries that over a 14 year period those with the high tariff didnt have low trade deficits and vice versa. So this is absolute nonsense that going the tariff route is the way to bring the trade deficit down. The second point correctly as jeff noted, is that it looks like theres a negative correlation between trade deficit and economic performance. That when the economy is already doing well when its strong, youre sucking in the imports. Youre riding a big trade deficit like wise when the economy is weak, thats the time you trade surplice. What this tales me is the Trump Administration is totally misguided to make the trade surplus or the trade deficit an objective of economic policy. Its only an intermediate stage. What you should be focusing on is what is the gdp growth like. What is the employment growth. Those are the targets they should be looking at and not what the trade balance is. The question now as to the inconsistency of trumps policy is that i too learned about the famous equation on bond. Y is equal to x minus m. And left with an identity that tells you you just rearrange that equation. That a current account balance is the result of the difference between a countrys savings and its investment rate. If it has high savings rate and low investment it will have a big trade surplus. If its got very high investment and low savings its going to be running a very big trade deficit. And as ann mentioned, just looking at the trade deficit you cant tell whether its good or bad. You have to ask whats really driving it. If its driven by high investment, that is a good trade deficit. Means the country will grow and be able to repay the debt later on. What we worry about is when the trade deficit is the result of very low savings. And what you have of course find is like ann mentioned, those countries that have very good trade performances that theyre running both current account surplus for instance are the countries generally that have high saving rates. China, germany, korea. Those really stand out. And are giving us problems. So let me mention why im really very concerned about the whole trump approach to trade. Is that what theyre saying is that if we have import restrictions, if we go off to currency manipulators and tear up trade agreements, thats really going to solve the trade deficit side. What the saving investment equation is telling you, is that immaterial on what they do on that score, you still running a trade deficit if your savings falls way short of your investment. My concern with the Trump Administration is that what theyre doing is at the same time that they pursuing the misguided policy on import restriction, what theyre doing is theyre proposing a budget policy that would be very expansion ri. So what they are proposing is a large unfunded tax cut. A proposing very big infrastructure expenditure. What one would assume is that that is going to give rise to larger budget deficit. If you have a larger budget deficit it means the country is saving less. If the country is saving less and at the same time through your deregulation policy and all the rest youre getting investment to pick up somehow, youre going to be getting a trade deficit that is going to be widening and then narrowing. My fear is that what they do if they manage to get their policies implemented which is another question, but if they do that, what theyll find is even though they put on the import restrictions, because they following a budget policy that is wrong to bring down the deficit, the deficit goes up. Theyll double up on the import restrictions. And that is really a key source of my concern. Let me go to the second point about the exorbitant. That is something that was made popular in the 60s by agencies. And what they did is complained that the United States had the exorbitant privilege. The dollar was the reserve current si. Everybody wanted to hold the dollar. Which meant the United States could go on indefinitely consuming more than it produced because people wanted to bring the money in to the United States. And thats essentially how we were financing the vietnam war. The truth of the matter is, as bob was eluding to, is that if you bought a freely floating system. If you bought a positive capital account, that necessarily means youre going to be having to have a deficit in your current account. The balance payment has to balance. Not intervening. Capitol is coming in. Youre going to have a trade deficit. If you try to stop that, by putting on import restrictions and the like. What youre likely to do is cause the dollar to depreciate further. In exchange the market you now got more dollars coming in. So Exchange Rate appreciates. That could cause the capital to flow fourther, so youre not going to really solve that problem. What i come to the conclusion of this, so long as you have got a huge amount of savings coming into the United States, the United States is going to be running a current account deficit. And what one would also be looking at is that the correction of the current account deficit, from the United States point of view, is that the United States should be trying to save more to finance its investment, but at the same time, ive got sympathy for the United States in saying that a country like germany, which is now running a 8 of gdp current account deficit surplus. Surplus. Its the largest surplus in absolute terms. Above 300 billion. As well as in terms of gdp. In fact, Something Like three times the level that china has. Theres an obligation on the germans to do their part. They cannot hide behind the fact that they dont have a currency, the ecb is running their currency or they have got a debt break on their budget, they cant do anything about their budget, this current account happens. I think theres responsibility on their side as well. Going anne point that what you need to do is get some kind of coordination of policies to address those imbalances. So let me make the last point i want to make, and its something thats been bothering me. Its about the dollars performance over the past year. You know, since trump came in, the chart will show is that since hes assumed office, the dollar has fallen by around about 12 . And this raises a question in my mind, is that at the start of the year, what people thought is that the United States was far further on the cycle in ceremtef recovery. Therefore what it meant was the fed was going to start to raise Interest Rates to reduce the size of its Balance Sheet, begin selling off some of the bonds which all of this is happening at a time when the japanese and europeans were printing money like it was going out of fashion. They were still engaged on a big scale. For that reason alone you would have expected the dollar to strengthen. The dollar in fact weakens. The second thing you would have expected the dollar to strengthen by past behavior is once geo political tensions rise around the world, youve got problems in russia, problems in china, problems in the gulf, generally what happens is money comes into the United States and pushes up the dollar. So those two considerations just raise a question in my mind whether something might not be going on that the United States is in the process of losing its allure as the place to bring money in times of trouble. And if that is the case, we really do have a problem, because then the adjustment is really going to be forced on us, just on this notion of if the capital doesnt come into the United States like any other country, we are going to be obliged to reduce your deficit. When what we are going to find out is when that occurs, we really arent going to no longer enjoy the option of consuming what were prosecutesing. Living standards are going to go down because we are going to be absorbing less than before when the current account deficit is forced out. Sew this might occur, but it dont be occurring in an organized proper fashion. Could be fairly disruptive and it would be occurring not because of President Trump, but despite him. Thank you, desmond. Thanks to all the pan lists for five, not only expert but interesting presentations. I want to give the panelists each a chance to either react to Something Else said or add ideas or even just repeat something if you want to. Maybe about two or three minutes each. Well just go down in about the same order. You get to three minutes, ill let you know. Jeff. Ill say one quick thing about each of my fellow panelists. First of all, claude, i agree that ipr, intellectual Property Rights is a place where the United States has proper complaints against china. Bob, we said current accounts is a mock ro economic phenomenon. Hes quite right that financial saving in other countries matter as well. I already mentioned very high saving rates in current account countries. In place is like singapore and maybe china and germany, im willing to say saving is too high. But its too high for their own good. Every country gets to choose the policies that suit them, whether rightly or wrongly and the great advantage of a floating rate system is that it facilitates each country running the policies that it thinks suits its situation. That doesnt mean we cant, shouldnt, and we do, talk about these issues in International Forum and make deals like the plaza accord and all that. I dont see an albility to do that today. For germany, its their partners in the European Union that need to bargain with them to cut down their fiscal austerity. Anne, im going build on something she said. She pointed to the downside of trade adjustment assistance and how can you tell when a worker is lost his or her job for trade versus Something Else like technology. Thats right, but i would add to that, why do we carry . Dont we want to provide the same safety net or help to workers regardless of whether they lost their jobs to trade or technology . She said Unemployment Insurance has a problem that it provide a disincentive to go back to work. I think the answer is wage insurance, which provides compensation while youre out of jobs but if you accept to go back to work at a lower wage, then the job you lost, the government makes up the difference. It was proposed by president obama in one of state of the union addresses. Its on my list of ten things we should be doing to assure prosperity and not leave the median worker behind. My list is fiscally adjusted. Theres other places to make up for it. Desmond, it is a question thats come up this year is the u. S. Dollar losing its safe haven status . Its well worth asking the question. Things we have been doing lately, you might think in the longer term that would happen, but so far, i dont think so. I dont think its happening. Its true that the dollar has deappreciated quite a bit since january, but theres a pretty ready explanation for that. Last year and the year before, the u. S. Was expanding and growing more rapidly than our trading partners and that seems to have reversed this year. That briefly is a major reason. Its true that geopolitical risks are huge, but indications are low that we are in a risk on environment. The risk as sets, like equities, and the Chinese Dollar are all up. Its not just the dollar. Swiss frank is down as well. I dont think thats changed. Anne. Lots and not much time. Couple of comments. The first one being your comments on lost jobs. Your calculation on lost jobs, by my reckons you said 1. 6 million jobs were lost. We have an Unemployment Rate of 4. 3 . How much lower do you think it would go . We lost jobs but gained them back elsewhere. There might be more jobs in tradeables but theres a net loss, i find hard to believe. There are pockets of concern. There are cities or areas where there have been difficulties, but i go back to we want uniform treatment of all people in those areas. On the tobin tax, i have questions of what weld tax. If you include everything, then you got a problem. Money is fungible even there. I bought seriously you could do very much. U. S. Companies hold a lot of as sets over sees as we know. The enforcement cost could be huge, and the benefits i suspect could be small if not negative. Money is fungible, after all. And to cut down on transactions in such a way that you dont you do enough to make a difference is going to mean the make enough difference so that theres an incentive for smuggling and evasion. That kind of thing. Many developing countries have been there. I i dont want the u. S. To be a developing country like that. Ill build on jeffs point for a minute, and that is that island go wage insurance, basic income guarantee, which is further, which is a big departure for me, but i would do it only if subsidies and other measures were cut off at the same time. You have a guaranteed income. The rich pay their taxes on it. Then we dont get into farm subsidies. Its no more costly than the wage insurance. Might even be less. There it is. You dont get into all these discussions about trade, what do and all these things. I have become convinced an Income Subsidy to everybody there are technical questions. Some of which im sympathetic with. Im not sure i want all 18yearolds to get it. Its not clear cut. And like i said, it would be if the other subsidies could be removed. And we know what congress likes to do with subsidies, increase them. But the sympathy for the worker would be much less if he had the basic income. I think theres something there worth looking at. A couple other countries are looking at and some other scandinavian countries are implementing it. Well see how it works. In the 1980s, japan was the one with the trade surplus. The japanese built a better super computer in the u. S. They had a better tv pixel count and so on. The argue. Was we needed to have our own Super Computers because of defense problems. Nobody thought that might hurt our defense. If theres a better super computer to be had, why shouldnt the military have it . The same on the tv screens, the ones that we had and japan did not. I think the best way to make sure were in deficit in the communications and high tech stuff would be to put it against the chinese. I think theyre hurting themselves far more than us. More the chinese want to protect all that you are technology and make sure they use it by 2025, the better off we are if we let everyone in your country use the best technology. Im sympathetic to the argument, well, they dont play fair, especially when it is a state enterprise, they have unlimited resources from the government, but protection is a solution, i worry we would do ourselves more harm than good by trying it. Thanks. Bob. Yes. We have talked a lot about the shortage of u. S. Savings, et cetera, as an explanation for the capital inflow. Ill buy lunch for anyone on the panel or in the group that can identify a country that increased its savings rate or diverted money to the United States at its own cost to help finance the u. S. Savings deficit. Thats it . Okay, good. How good a lunch . Claude. Just one thing. We can talk about the industrial policy thing in a minute. This is not my area, but you said in passing something to do with a trade adjustment assistance. If you look at the work of other young economists here, they are moving in that direction. Ill leave to you to get the details of that. This is not an ironic thing to say any longer. Just a couple of other things. On jeffs point about i didnt mention this. The administration has launched an investigation of ip theft. I am a little skeptical there. We had all these figures thrown around in the last few years. 600 billion we lost one commission said. Im skeptical for this reason. You cant just in the end i applaud the administration for starting it, but you cant just say without some sort of factual bases where the intellectual property has been stolen. You look foolish in the world. The 600 billion or whatever it is is a suffrage cost. We cant do much about that. What i dont see happening is what we did with the five Chinese Military offices, we had chapter and verse of what they had done. I dont think the administration is going to be able to come up with that. To do Something Like that, you would have to go to the fbi, the thats, the say, im skeptical of us doing that. I would also say others have said that we should try to do this with other nations. Im happy do that, but i cant see it. The other thing i didnt mention at the end is that the high tech sector, the High Tech Companies in the United States are deeply divided on this, so whatever the u. S. Government does, whether its trump or his successors, theyll have to do it on their own. You cant expect google or apple to step up here. It has to come from the u. S. Government itself. Thank you. Thanks. Desmo desmond. Ill just make three points. I pretty much agree with anne that if the United States is at 4. 3 unemployment, its difficult to see how much lower it could go. If we eliminate the trade deficit, we are not going get more employment, we are going get the economy overheating, the need for policies to bring down or level of consumption to be consistent with our level of employment. I dont see it as generating jobs. I think what it might do is generate inflation and we really dont want to do that. On the dollar, i dont think its losing its safe haven status, but i think theres a question mark rising there. This is a very important question for the federal reserve. What we have seen since the start of the year is the dollars deappreciated by 11 . With asset prices being so buoyant, i dont get why the fed is holding off on the next rate increase or moving ahead for quickly with the wind down of the assets. I think i have been here before, the fed getting behind the curve. Just the last point is i dont think countries should have the right to choose how much it is they save, as if theyre operating in isolation. Theyre operating in a global system. I think when a country like germany runs a current account surplus of 8 gdp, theyre part of the problem. Its not just the United States that has a problem on the deficit side. What we are wants to do is get the germans to move in the correct direction, help us correct these global imbalances by doing something, use the physical space you have got. My view would be get out of the euro, but thats another issue a. All of us could have a whole lot of fun just talking to each other for the next half hour or more, but instead we are going to open the floor to your questions. I want to remind you of the rules. You will have the first one in just a minute there. Which is please wait for the microphone. We are being recorded here, and then you will be preserved for posterity. Tell us your name, your affiliation and ask your question. If you feel an overwhelming urge to give a lecture before you ask your question, at one minute the chair will remind you that its time to ask your question instead. I have the first one here, and then we are going come to you second. Hi. Its ed shawndon from the financial times. I want to talk about something you havent talked about this morning. Thats the issue of measures trade flows and trade deficits and the work that the oed has been doing, the argument being that traditional measures of trade and trade deficits just are not up to it anymore, just dont reflect the modern realities of Global Supply chains and the way things move around the world. Can you talk us through a little bit that and how we should be thinking about that . Should we be paying attention to these numbers . Are these oldfashioned measurements that werent up to it anymore. Anne, you talked about it. How about the measurements . Measurements are better when regulations arent as strong, but thats a different issue. Simply because we are so big we have a smaller faction in trade. Singapo singapore, last i looked some time ago has a gdp is its oil exports are 180 of gdp, which tells you whats wrong with measures exports as gross value added. In the case of the auto parts, part of what mexico is exporting to the u. S. If the u. S. Were selling elsewhere, it would be better. In that regard, on the other hand, especially for the United States, i am not persuaded it would make that much difference. Igt might change the time series by a more or less proportional amount of time. For some other countries, singapore being a good example, it would be a huge difference. The effort is certainly well worth doing, and the effort is even more important given people do tend to say, thats an import, its hurting our economy, which isnt true in the first place. Showing that more clearly would help the debate, so im all for it. Meanwhile, we dont have the numbers to do it yet and the oecd is on the lead in it. Jeff, then to you. Just to clarify, the point about value added chains and computing value added and Global Supply chains makes a big difference for the bilateral chains. Most of the components in smartphones come from korea, the u. S. Or somewhere else, so it makes a huge difference if the bilateral balances, but i added we shouldnt carry about the bilateral balances any way. I think maybe we are overmeasuring the current account balances for technical reasons, but i dont agree with the issue the situation looks fundamentally different from what we should carry about which is the overall trade balance, which is if you paid detail attention to the value added chain. Claude. Jeff made the point i was going to make. The only thing i would say is we do face politically the issue that that is actually used and it does help to make the point that you made, that china really is just full of other parts and the final product comes to the United States as if it were a chinese export to the United States, when that really isnt true. Its good in the political sense, even though i understand you dont want to get involved in any debates about bilateral trade deficits. Question right here. Wait for the microphone. Its coming. Thank you. Ill start with a question and then explain why im asking the question. The question is, why is the wonderful science of economics not understood, the need, and developed a system of Balance Sheet accounting to complement the income accounting that has been so well developed . The reason why im asking the question, is because as i hear all of you say so many good things, i am finding some huge missing links in your analysis and in some of your conclusions. And just to name two huge missing links youre not accounting for human capital, appreciation and depreciation of human capital. When we have 1. 2 Million Immigrants that come into the United States every year, that is equivalent, some major Production Machinery having been gifted to us to start immediately. That is equivalent to about 200,000 of savings. I asked the question already. We have time limits. Make your second point quickly. The other is fonl capital. When you have 3 trillion to 4 trillion parked overseas, thats savings that is matching the production thats being put overseas and its reflected the exports and imports in u. S. Companies, because we do not measure assets and liabilities and mark them to market for the u. S. Economy as a whole. We are missing those links. Thank you. How about Balance Sheets and all this. Ill answer the first question, let the panel sorry, ill answer the second, let the panel deal with the first. So if apple has a claim, apple has a claim of 10 billion, has 10 billion of cash sitting in limerick, thats a u. S. Foreign investment. Its measured. Other comments on Balance Sheets . Anne . Im sorry. Two things. We have net investment position, which the imf is putting out. U. S. Position has become negative, but u. S. Net earnings from Foreign Investment is positive, so theres something in the measurement thats quite string there. I havent seen, although i dont look carefully any investment on human capital. One of the other things we didnt mention today is it is true that u. S. Companies are holding a lot of dollars overseas because of tax kpefrp profits. One of the interesting questions would be why not do anything about the tobin profits tax . That would make a difference. Youre quite right about that one. Any other comments from the panel . Next question right here please. Wait for the microphones coming. John soliday. Independent economist. I sense an incongruency. Then there was a suggestion that we might guarantee wages, subsidize wages or guarantee income, and i was wondering this goes back to nick ebberstats work on low Labor Force Participation and men without work if that indeed is not the problem and there might be a problem with providing income support with this issue of Labor Force Participation and these people that have been pulled out. The only reason i mention this is that people may tend to confuse trade issues with this underlying structural problem. Okay. Somebody want to take that up . Jeff . Just to agree that when we say that we are at full employment or the natural rate of employment, we dont mean that 5 is as low as weld like it to be. Clearly, there is this problem that prime age males, white males are out of the labor force. Whether you want to blame video games or the Opioid Crisis or alcoholism or what, theres clearly a problem, and it should be addressed. But macroeconomics cant address it. Fiscal stimulus cant address it. Economics cant address it. Anybody else . I would just like to speak briefly to that issue. So desmond picks on me, and desmond said we are at full employment, what would happen if the trade deficit declines . So lets go down that route and follow that mental experiment. Why are we at full employment . We have a large fiscal deficit. In my general equill inree yum view, the trade deficit has meant a loss of jobs with we had to provide a lot of work for people by having a larger fiscal deficit. I dont want any abrupt changes in the economy, but i would like to get a gradual decline in the trade deficit and my model would create more jobs in the tradeable goods sector and a smaller fiscal deficit. Thank you for the question. Another question right here, please. Danny bachman. I would like the panelists to react to the fact that chinese demographics are of course remarkable in the future that essentially we are heading towards a china with a huge number of old people and no way to support them. Im wondering if you could reflect on this panel 20 years from now and how it would think about the chinese surplus and how to wlans a surplus with the United States and whether thats roadwaylated to the fact that nobody talked about the japanese surplus with the United States 20 years ago that would have been the main topic. We have that interesting shift from our previous agonies about japan. But how about chinese demographics and how this works . I think this is just a great question. We get great insights from the japanese experience. For the last five years i have been predicting an implosion of the chinese Property Price bubble, and the bastards keep pu pushing it off, but its going to occur. Just like japan. There is a massive Property Price bubble, and at that stage, what we see happening is that the chinese demand for imports will decline sharply. Chinese exports will surge this is japan 1991, 1992 repeated. And china will have a massive trade surplus and washington will no longer be able to justify that large trade surplus, because its the biggest Aircraft Carrier we have. The trade issues are just going to become immensely intense when the combination of the surge, the excess supply of how husingd the demographics hit. Any other comments . Theres another scenario because the chinese havent built that much of a pension system. Thats a lot more work to be done, which explains the high savings rate in china. If you go along that route their labor force is constant. Its not rising any more. If theres an increase in value added, unless they get the productivity up from where it is now, they will have problems. At the moment, they dont seem to be taking axes that will increase the productivity side. So in the near term, their surplus is going diminish as is the demand for the services domestically as the demographics changes. I agree with bob in the sense that theres both of these forces at work and could be different depending on how they play out. Reading what little ive read on it, the pressure for more social services will outweigh the pressures for the other way. Thank you. Desmond. You obviously had a stimulating question. Youre pointing to an important issue to the extent it affects savings, what we have been saying before is that is going to have an impact on current account balances because its going impact the savings, not necessarily the investment. But when youre looking at this from a question of how is it going to affect that particular countrys current account balance, you have got to take into account that demographics are going on in other countries as well. You know, so you have got many countries that are aging at rapid rates, and i guess i would think that the country thats going to have its current account hit the most through this means is the country thats aging at the most rapid rate so, i would be really concerned i dont know about china has much as im concerned about japan, because japan has got this huge amount of debt, public debt. Theyre still running a big fiscal deficit and the population is aging like crazy. You would imagine that in the same way as when they were anticipating their retirement, they saved a lot, but once theyre in the retirement, they begin to dissave. So you could get big movements in the japan over the next few years. Jeff. I agree with what the others have said. Two countries that are looking forward aging the most rapidly in the world are korea and singapore. I think you would see the affect that as people retire the savings rate will go down and current account surplus will go down. On china, i agree with anne. Just to crystallize it, i agree very much with the japanese, with the press sent. And i think its already happened, desmond. In the 80s when everybody was so upset about japanese surpluses, we gave the same speeches. Audiences were skeptical. It seemed so abstract. But surely the reason japan is running surplus has to do with semiconductors and trade negotiations. We just cant believe its driven by savings and adjustment. We knew japan was at the time the most rapidly aging country in the world. As they aged the current surplus could come down. That is what happened. I think economists had it right and i think the same were not always right. Not everybody works out that well, but i think on this one we got it right. I think its the same on these other countries. Okay, bob, go ahead. In the japanese experience, there was an immediate experience as the prices fell, and that led to a surge in the current account, right . In the china case, when Property Prices fall, Household Net Worth is going to decline by 50 and its predicted there will be a i want to take the privilege of the next question myself. Bob, do you share desmonds concern about the potential loss of safe haven status for the American Securities markets and of the u. S. Dollar . No, not its premature, desmond. Well come back to the issue in 20 years. I have a contract. My question is what would be the alternative. Its not going to be china. Where else would you go . They are going to places like the euro, the swiss frank, or the japanese yen. You just gave a list of japan. Might be telling us how bad the markets are thinking about the United States. But the other side of that and i am somewhat worried. The other side is if indeed the kind of infrastructure expenditures and Tax Deductions come into effect, already from what ive heard and seen overseas, theres a fair amount of greater concern about stability of the United States than there was. If inflation takes off, given we are close to full employment the consumer was 3. 4 for the last month. If thats taking off now and then that came in, i can imagine people could say, ill take it out of dollars and put it into yen. But i can imagine theyll keep it in their home currency instead of putting it in dollars. Especially in germany where theres belief of stability. In europe, theres holding of u. S. Assets. We need to have some increase in that holding to hold our macro together. Once that stops, concern there would be a reversal and then getting out. Could happen. As always when these things happen, its not something that happens slowly. It happens over the precipice. Okay. Other questions from you all . Right here, please. Hi. Im from public citizen. I wanted to see if i could get some of the pan lists to respond to the contention over here a little bit more clearly about crowding in, crowding out, in terms of s minus side not being independent of foreign demand of u. S. Securities. Why dont we hear economists talk about that . If you do agree, why dont we hear economists talk about that a little more. Over comments on crowding in, crowding out. No one has taken me up on my offer of lunch. Do you mean a country that has voluntary decreased savings to do the u. S. A favor . No. In all of these sort of scenarios, the United States is the bad guy. We drink too much, save too little, et cetera, et cetera, and the lone ranger from switzerland or wherever coming to the rescue and send us savings, so its increased its savings rate or added to the United States for a cost of residence. Name the country for a free lunch. I think the bottom line is when the u. S. Is at its natural rate of unemployment, whether its a low u. S. Savings or tariffs or whatever you think it is, its not going affect increasing the trade deficit from here on will not affect employment and growth. You have to take the resources away from somewhere else. We are up against a constraint. It was true at the turn of century and its true now. To add to that, if indeed somehow by some miracle of congress did decide to do something today that did somehow, as bob wants us to do to cut the trade deficit, of course that makes a difference, but thats because the trade deficit is cut and not going to come up in the form of anything like youre wanting. Its going to come out in the form of less inflation than we will have because we have this much demand already in the system and lower taxes and more infrastructure. We could increase pressure for price increases. I would guess the true alternative now is to get some degree of collection in the aggregate supply demand balance in the u. S. Or we are going to have more inflation in the future. Its just beginning now, and even the fed is beginning to look at all the increased inflation. Go ahead, claude. I have a question, so go ahead and finish. Just to amplify that point, go back to the 1990s. Why was that the longest expansion . U. S. History . Part of it was the fed allowed to run without u. S. Interest rates because they didnt worry about inflation. Because we had this safety valve. Instead of overheating the economy, high imports and low prices for imports kept inflation down and they were able to get the growth one for longer. I think we may be back in that situation again. I just have a question in term offense future trade policy around the world. In terms of all the things we talked about this morning, the savings, the investment of aging populations various other issues, what impact is any of this going to have on, lets say, the next ten years and world trade policy . Will it move or not nations to go in bilaterals the the trump people want to do . Has it any implication at all . Claude, thats a great Bigger Picture question for usment we are going end on it giving the other panelists a chance. What about the whole other global regime of trade as we look over the next decade. Comments on what will happen or what should happen . It seems to me that at the moment, given what we think we hear the president saying about trade protectionism, if he is able to and follows that route to anything like even an intermediate degree, he doesnt have to fulfill every policy, but he goes protectionist, thats going to be far more important in driving the trade policy because we were to our credit, at before this, the leader in opening up the trading system to everybodys benefit. If now we retreat, there is no obvious natural successor. I regret to say. Some countries are beginning to try to change their policy to try to put together coalitions that might work, but so far, i dont see anything that offers a lot of promise to offset people want to be protectioni protectionists. If the u. S. Becomes protectionist that chinese surplus was going down. Thats not changing things. Thats not the argument that people are having right now. Anybody else . Desmond . Lets give jeff a moment, and then desmond, as the organizer in chief, well give you the last word. As the organizer, i might override you. I agree, its very corisome. We used to have this policy that if trade didnt move forward, we would fall over and move back ward. Im not sure if that theory is correct, but i think we are falling over or moving back ward. I also think its part of a general pattern, the policy of u. S. Abdication in the world. Not because we cant afford it, but because we are throwing it away for no good reason. I think it not just applies to trade, but international finance, interNational Security, science, the climate agreements and so on. Desmond, last word. Well, i hate to end on a down note you would be out of character, otherwise. Where have you been . I would just observe that it has to be of concern that we have got these kind of trade frictions at that time that we are experiencing a synchronized global recovery. Employment looked good in a lot of places. The world is getting on. The question you have to ask is what happens if the Central Banks, through the huge amount of monetary easying over the past eight years, they have increased their Balance Sheets by 10 trillion. What they have done is created a bubble. Greenspan is talking about a bond bubble. Schiller is talk about equity at values. There are a lot of fault lines in the global economy. You have to ask, if we have got problems now, whats going to happen in the next downturn . It looks to me is what the Central Banks is done is they have set the stage for another major downturn going ahead. On that happy note, i thank you for all coming. Thank you for coming and lets hoe our appreciation for the panel. Join us this weekend as the cspan city tour takes book tv and history tv to New Hampshire as he highlight the granite city. Well feature a look at how New Hampshire became the first in the nation primary state with author danty scala. We still see ourselves as a place where a candidate can rise up from being a Virtual National unknown to becoming a contender for the nomination. On sunday at 2 00 p. M. Eastern on american eastern tv, well tour the New Hampshire statehouse, taking a look at the history of building and state legislature. We have the oldest continuously used in america. Here is the room where the largest state legislature in the United States works and meets. Then the visit to the home of franklin pierce. Watch sad saturday at noon eastern. Working with our cable affiliates and visiting cities across the country. Next, the confirmation hearing for nominees picked to serve at under secretary for state of management and ambassadors to afghanistan and bahrain. They were asked about the security in embassies of staff abroad. In addition they heard a nominee to head the african committee. This is two hours and 20 minutes