Former Ambassador Emerson & World Trade Leaders Opine On Uncertain Future of Trade At VX2017

Issue: 
John Emerson

How will business activities, especially in the clean tech and innovation sector, be affected by federal policies? At VX2017, VerdeXchange and the World Trade Center-Los Angeles convened political leaders to discuss the importance of trade and investment to the region and the United States in general. In the excerpt below, former Ambassador to Germany John Emerson provides opening context regarding his experience and harnessing the  strong collaborations between US and Germany regarding clean energy and electric vehicles. After, Ambassador Emerson joined former US Secretary of Commerce and US Trade Representative Mickey Kantor, former Ambassador to Argentina Vilma Martinez, and World Trade Center-Los Angeles President Stephen Cheung for a conversation about whither international trade and the current political climate. 

 

John Emerson: On January 20, my family and I came home to Los Angeles after spending three and a half incredibly rewarding, but also challenging, years living in LA’s sister city, Berlin.

Our time in Germany was anything but uneventful. Consider the following: the NSA disclosures with Chancellor Merkel; the Russian incursion into Ukraine, and illegal annexation of Crimea; the civil war in Syria; the brutality of ISIL; the Greek financial crisis; Brexit; and the greatest movement of refugees through Europe since the Second World War.

By far my toughest task was explaining what happened in our Presidential election.  Many Germans are very worried about the implications of our election on American leadership, the international economy, and in particular on upcoming elections in France, Germany, and the EU.

Nevertheless, Chancellor Angela Merkel describes the transatlantic partnership as a cornerstone of German foreign policy. The European project, dating back to the Marshall Plan with the objective of creating a Europe that is whole, free and at peace, has been one of the great successes of world history. When Europe prospers, so too does the United States.

In today’s complex world, there is an intimate connection between prosperity and peace—between the creation of economic opportunity and the potential for political stability. Nothing sustains shared prosperity better than sustained economic growth.

The free trade system that America helped to create after World War II has helped to bring millions out of poverty across the world. It has also increased the vitality and dynamism of our economies at home. Accordingly, economic policy and foreign policy have become two sides of the same coin.

National security includes policies relating to the military, defense, and counter-terrorism, and also those addressing the economy, technology, trade, energy, and environmental issues. Three of those issues are pertinent to today’s discussion: climate change, energy, and trade.

During President Obama’s final trip to Europe, he spent two days in Berlin. At a small lunch I organized, one of the participants asked him to list the three things he was most worried about. Number one on the list: climate change. He fears that we are very close to flipping that trigger of irreversibility. Our changing climate is a threat, not only to the environment, but also to the stability and security of our world.

The impacts of climate change can intensify resource competition, threaten livelihoods, and increase the risk of instability and conflict, especially in places already suffering from economic, political, and social stress. In today’s interconnected world, instability anywhere can be a threat to security everywhere. Our military leaders call climate change a “threat multiplier”—making worse the problems that already exist. 

The prospect of a hotter, drier climate throughout the Middle East and parts of Africa will place more strain on water resources. We’ve seen wars over oil; we do not want to see wars over water. We have to integrate climate considerations into every aspect of our foreign and economic policy—from development and humanitarian aid to peace building, investment, and diplomacy.

The COP21 agreement set forth an ambitious vision for a global, rules-based approach to the challenge of climate change. In many respects, this agreement would not have been possible without strong leadership from Germany. And with the new administration’s aversion to policies addressing climate change, leadership from both California and businesses that recognize the enormous dangers and opportunities posed by our changing climate will be necessary to keep us moving in the right direction.

Regarding energy, few issues have gained as much attention in Europe as the famous German Energiewende, whereby Chancellor Merkel set a course to phase out Germany’s nuclear power and replace it with renewables.

Germany’s decision to transform its energy system has been successful in pushing renewable energy sources to over a third of its electricity mix and in generating jobs—more than 350,000 so far, even creating a new industrial sector. The Chancellor wants more than one million electric vehicles on the streets by the early 2020s, and auto manufacturers are taking up the challenge. Germans are proud of what they have accomplished, but they now face challenges in achieving the next phase.

Although wind and solar energy technologies are now cost-competitive with conventional energy sources for new investments, challenges such as reducing high electricity prices, expanding the power grid, storing electricity, and digitalizing a smart power sector still exist. This ongoing energy transition offers US governments and industry an opportunity to partner with and learn from German counterparts, while avoiding the expensive price tag of Germany’s transition. In so doing, we could very well replicate Germany’s model in strengthening the industrial sector, creating well-paying jobs in communities, expanding exports in clean technologies, and increasing security through the expansion of competitive domestic energy sources.

Germany has also committed to reduce its greenhouse gas emissions by 80-95 percent of 1990 levels by 2050. But on the emissions front, the Energiewende has not been quite as successful. The enormous growth in renewables has had no detectable impact on Germany’s emissions in the electricity sector, because renewables have replaced nuclear generation rather than coal and fossil fuels. As we know, exiting from coal is highly politically challenging. So while our carbon footprint is heading downward, Germany’s has actually edged up.

Finally, regarding trade, my guess is that most of us here today believe that international trade, guided by high standard trade agreements, is a central component of global prosperity. It is also safe to say that, politically, the concept of international trade has become virtually radioactive. Why?

The complexity of our world, fueled by the rapid pace of globalization and technological change, has created a pervasive sense of unease. More concretely, there is no question that many workers have been hurt by the localized costs of globalization, automation, or of jobs shipped overseas, without necessarily feeling the benefits of trade. Opposition to global trade agreements has become a political proxy for that unease.

You can’t vote against the pace of globalization; and you can’t vote to stop that new generation of robots or technology. But if you feel the world is leaving you behind, you sure can register your opposition to a trade agreement that is being negotiated.

Consequently, while NAFTA and TPP became focal points for both the populist left and right in our presidential campaign, so too did the Transatlantic Trade and Investment Partnership (T-TIP) become a focal point of vocal grassroots opposition in Germany—this despite the fact that Germany benefits significantly from trade, and enjoys a large current account surplus.

Initially, the vocal opposition to T-TIP—from the one European country that virtually every study says would benefit most from it—was due to a surge of anti-Americanism related to the NSA and Snowden affairs. The public debate over T-TIP was dominated by generalized fears about globalization and corporations, rather than the realities of free and fair trade. As hard as we worked, negotiations stalled, and we did not get close to pushing this over the finish line.

When we finally do go forward, we need to do a much better job of making the case for trade—not just to stakeholders, but also to the general public. The fact is, the days when governments could announce a trade initiative, and then unveil the agreement to an eagerly awaiting public, are over. The effort to explain the purposes and benefits of a trade agreement needs to begin with a well-structured, well-funded, proactive campaign from day one.

There also needs to be greater transparency from day one—not conducting negotiations in public, but explaining what the objectives are, what is included in the negotiations and what is not, and where progress is being made and where it is not. Otherwise, as we saw in Europe, a vacuum of information is created which can be filled by anxiety-ridden fears and misinformation.

Finally, from the outset, the fact that every trade agreement will have some dislocating effects must be acknowledged. And our governments need to work just as hard at addressing the impact of that dislocation as they do at negotiating the actual agreement.

Stephen Cheung: It has been awe-inspiring to see how, because of the relationship that Ambassador Kantor has established with the world, government officials open their doors for us. That’s exactly what we need right now: long-term relationships that allow us to build better partnerships. Discuss the current state of affairs.

Mickey Kantor: I don’t want to hear the term “free trade” ever again.

Americans were isolated and insulated for so long, and not part of the global economy. We believed that when we had trade agreements, we were giving something away, and we called it “free” trade.

It is rules-based trade. It is trade that makes the playing field level. That is what we should talk about. We need to start talking in the correct language. What we want is enforceable and enforced trade agreements, which make the rules fair, and which address the issues we need to address.

One thing that is stunning about this new administration—and I can say this now—is that they ran around the country, during the campaign, talking about currency manipulation: They don’t like it; something ought to be done about it; they believe every trade deficit is a result of currency manipulation, or cheating.

In the TPP were provisions about currency manipulation—for the first time in any trade agreement in history. There were provisions on bribery and corruption—for the first time ever. And there were also provisions on the environment and the protection of labor.

They ran around the country saying we need these things, and they want to redo NAFTA because it doesn’t cover them. Well, guess who’s in the TPP? Mexico, Canada, and the United States. We could have amended NAFTA in one fell stroke of the pen, right there, and do the things this president said he wanted done.

So I’m a little confused. No—I’m not confused. Let me be very direct: What we’re doing is throwing up walls, not just to Mexico, but also to the world. We’re throwing up walls and barriers, becoming protectionists and isolationists—not to mention misogynists and racists. We have got to begin to turn America around. And each of you, in your countries, can help us do it.

We always look at America as a leader. Now, we need help. We need you to work with us—to talk about the world and how we can work together, how we’re joined at the hip, and how we go up or down together. We’re relying on you to help us over the next four years.

Stephen Cheung: Under Ambassador Martinez’s leadership, the Port of Los Angeles has reached new heights. In 2017, the Port reached their biggest year ever, with over 8.85 million 20-foot-equivalent units. That’s a lot of cargo coming in. International trade creates such a huge industry for the Southern California region.

Vilma Martinez: I never expected to be a United States Ambassador anywhere, but I was fortunate enough to be appointed by President Obama to serve in that capacity to Argentina—the first woman from the United States to hold that position.

One of the things I saw there was the power of trade, and what Secretary Clinton used to call the “power of proximity.” Well, geography will not change. We still have, certainly in the Western hemisphere, that power of proximity. We need all of us to exercise that power.

When I returned from Argentina, I tried to get some much-needed rest. Instead, I got a phone call from Mayor Garcetti asking if I would serve as president of the Board of Harbor Commissioners, which oversees the Port of LA. Given the very important role that international trade from the Asian nations and the whole Pacific Rim plays, not just in our region, but nationally and internationally, I could not say no—and I’m glad I didn’t.

Regardless of what we may think, institutions are fragile. Relationships between and among nations are thorny. They ebb and flow. But it is my firm belief that we—people—human beings—are strong.

Another thing I learned as ambassador is this: Yes, there is the formal government-to-government relationship. But beyond that, there’s the people-to-people relationship, the cultural relationship, the business-to-business relationship, and the NGO-to-NGO relationship. None of these important and influential actors are disappearing. All of these relationships need to be used so that we can continue to reap the benefits of this global community, of which we are all members, in the near and distant future.

Stephen Cheung: We’ve been hearing a proposal to renegotiate NAFTA. At the same time, this administration wants bilateral agreements. How are the three parties involved in NAFTA going to turn into bilateral agreements? What’s the mechanism behind that?

Mickey Kantor: We started negotiating NAFTA under the first Bush administration in 1989. It was finally finished in 1993 and passed in Congress that November. That was 23 years ago. A lot has happened since then.

There was no Internet, except on the sixth floor of the Commerce Department of the United States, in 1993. We didn’t carry cell phones in our pockets. We had those great big phones whose battery lasted about eight minutes. All the issues we face today with technology and data transfer did not exist.

We need, not to renegotiate, but to update all our trade agreements. They’re all out of date. All these big trade agreements—everything from NAFTA and the Uruguay Round, to APEC and so on—need to be redone, to take advantage of and write rules for all that’s happened between nations and with technology advancements over the last 23 years.

I’m for it: Let’s sit down and update NAFTA—out of respect for Canada and Mexico, too; they face these issues as well. And maybe then the president could back down a little bit: He’d get a renegotiation in some form, yet we could still move NAFTA forward. It would be a good deal for all of us.

Stephen Cheung: On his first day, the president pulled us out of discussions for TPP. China is stepping in with the Regional Comprehensive Economic Partnership (RCEP), which doesn’t include the United States.

China is our No. 1 trading partner, especially for the LA Customs District, which is the No. 1 Customs District in the United States. In 2015, we had $393 billion in two-way trade, and China was a big chunk of that. In fact, if you add up Nos. 2 through 13, it still doesn’t equate to the No. 1 spot. That’s how big China is to us.

What are the potential threats and opportunities for us in the future?

Vilma Martinez: I’m very disappointed that TPP didn’t pass, but I’m not surprised. However, we still have 40 shipping lines calling at the port. The consumer market here has not changed, and will not change. The reality that we will continue to engage in very positive and serious trade.

NAFTA links more than 480 million people. US trade and goods and services with Canada and Mexico accounts for $1.3 trillion of our nation’s $5 trillion in international goods and services.

The point is that we are already a globalized community. It’s a reality. Whatever political storms might occur, the economic benefits are very real and have not gone away, so I expect that trade to persist.

I’m disappointed that we did not have the good sense to see that TPP updated NAFTA, and was a much more compelling agreement tailored to the present day’s reality. But the political reality is that we have to find a way to persevere, and I think we will.

Fabiola Padilla (Office of the Embassy of Mexico): With the Trump administration, how do you see us moving forward, and being part of the resistance to some of the policies he’s pushing forward in terms of trade and commerce?

Mickey Kantor: All of you consul generals, ambassadors, and governments can have an enormous effect on this administration by bringing home reality, which I don’t think President Trump understands.

Take Mexico, for instance. They’re the second-largest export market for the United States of America. They dwarf most countries, including those like Great Britain and Germany, in terms of an export market for our goods. 40 percent of all goods coming from Mexico to the United States have US components in them. This myth that we are hurt by NAFTA, or that Mexico is taking advantage of the United States, would be laughable if it weren’t so serious.

All of us have to communicate, not just those of us on the outs right now or those of us in NGOs. Those of us in all nations have to say: International trade is going to go forward whether we like it or not. The only question is: Are we going to have enforceable rules that make it fair for everyone?

Jorge Tagle (Consul General of Chile): How engaged is the private sector on the environment and climate change?

John Emerson: One concern that I have about an administration that now has a climate denier as the nominated head of the Environmental Protection Agency is this: It takes a long time to change rules and regulations in our process, but it just takes a minute to change enforcement policy. You can see violations of the rules and just decide not to enforce them, or to enforce them with a slap on the hand.

What I believe about business and climate change is that by and large, business gets it. Even Rex Tillerson, the nominee for Secretary of State coming out of Exxon, has been preaching climate change for a while. Business understands where the reality is heading, where government is heading, and where governments are heading.

If you’re running a multinational corporation or a Fortune 500 company, and you’re trying to move toward a greener, lower-carbon footprint dynamic, you’re not going to turn around on a dime because a guy who’s going to be in office for four years might change that—because in four more years, there may be somebody else who’s even tougher on it. You’ve made a decision, you’ve invested money, and you’re marketing yourself, probably, as a green company. You’re going to want to continue on that trajectory.

Even though the United States may slip back a little bit in terms of pressure from the top, I actually think that the business community is going to be ahead of the government, in this administration.

Vilma Martinez: Green products and technology are among the 12 key export categories identified in the LA Regional Export Plan—for example, water and drought control equipment, water purification systems, and air quality-related equipment. All of that is not going to just stop happening tomorrow.

Stephen Cheung: Let’s close by responding to the call to action from the ambassadors.

The Foreign Direct Investment Report was released at SelectLA last year. It collected information about all the foreign-owned establishments in Southern California: 9,105 companies, creating 366,000 jobs, and contributing $23.6 billion in wages.

That’s the story we need to tell. That’s what’s going to get the attention of this administration: Foreign companies and our international partners are building jobs and helping us here.

Now, we’re partnering with Cal State Dominguez Hills to reach out to these 9,105 companies to find out exactly what they’re doing, how we can make sure that they’re happy, and how we can increase their presence in Los Angeles and Southern California.

Let’s take advantage of all the partnerships that are available here, like our friends over at the sister cities, to make sure that we utilize those people-to-people relationships; to make us stronger; and to make Los Angeles a glowing example of what international communities should be like, and what happens when we have the whole world together in one location.

"We need, not to renegotiate, but to update all our big trade agreements for all that’s happened between nations and in technology over the last 23 years." –Mickey Kantor
"I think that the business community is going to be ahead of the government on climate change in this administration". –John Emerson