Christine McDaniel on Trade: A Tale of Two Presidents

international trade tariffs free trade protectionism national security donald trump globalization world trade organization president biden

 June 23, 2023

Christine McDaniel is a senior research fellow at the Mercatus Center at George Mason University with a focus on international trade and globalization. Today we talk about the different trade actions undertaken by recent presidents and what that means for the American public. We discuss tariffs, NAFTA, the WTO, and more. McDaniel also lays out the different trade relationships between the US and various geographic regions and countries.

Don't miss Kevin Lavery's Great Antidote Extra on this episode.

Want to explore more?
Christine McDaniel, Expensive Easter Eggs: What Happens When You Don't Import Much, at Forbes, March 31, 2023.
Douglas Irwin, A Brief History of International Trade Policy, at Econlib.
Jon Murphy, Does National Security Justify Tariffs? at Econlib.
Adam Smith, Of Restraints upon the Importation from Foreign Countries, in the Wealth of Nations.

Read the transcript.

Juliette Sellgren 
Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliette Sgn, and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit 

Welcome back. Today on May 25th, 2023, we're going to be talking about trade and some of the trade policies of our most recent presidents. Christine McDaniel is coming on to talk about this, and I'm so excited. She is a senior research fellow at the Mercatus Center at George Mason University. Her research focuses on international trade, globalization and intellectual property rights. Welcome on.

Christine McDaniel 
Thank you, Juliette. Great to be here.

Juliette Sellgren 
So before we get into trade, what is the most important thing that people my age or in my generation should know that we don't?
Christine McDaniel (1.06)

The most important thing people in your generation should know that you might not. I would think that would be that the net benefits of the government trying to protect domestic workers and producers from import competition are much smaller than the net costs of, of doing that. And while it might sound great to, you know, to you to really anybody, uh, you know, on the street, you know, hey, the government's gonna, you know, help protect you from, you know, import competition. The, uh, the, the, the net effects are, you know, are negative, right? So it does, it might help a small group of people, but the cost on everybody else is so much greater. And, uh, you know, just for instance, when the US put, put steel tariffs on, uh, the, during the last administration, you know, it did help, uh, a few US steel companies, right?

But there's higher, there are higher costs for all the companies. US companies, small, medium sized large companies in the US that use steel to make, you know, auto parts or cutlery or manufacturing equipment, all had to pay higher prices. And that means that, um, they didn't have, you know, the, uh, as much, uh, revenues, you know, net revenues to reinvest back in the company, to put back into their workers to hire more, to hire more workers. Not to mention they were less competitive in the US and abroad because they're competing with people who do have access to globally priced inputs. Right? Um, and then there's these studies out there that show something like each steel job saved in the US because the tariffs cost Americans about $650,000 per job. So be leery when you, when you hear of, uh, politicians promising to protect you from imports.

Juliette Sellgren (3.31)
Let's get right into it. I mean, we're already kind of in it. Um, Donald Trump's presidential bid was grounded in an anti-globalization platform. Some of what you were already talking about that included reviving American manufacturing jobs and steel and all of that, and saving the middle class from extinction with a special focus on cracking down on China. He attacked, um, the multilateral trading system that was built after World War II and unilaterally imposed tariffs on American purchases of steel, as you were mentioning, and redesigned NAFTA, the North American Free Trade Agreement, which we'll get into shortly. Um, and then he killed the transpacific partnership. There's a lot of stuff that was done. Um, he also refused to appoint new members to the WTO, the World Trade Organization's appellate body, which rendered, um, the, their, the World Trade Organizations dispute resolution mechanism entirely defunct. Um, he went to economic war with our allies and close trading partners in the name of America first, just some information. Um, so how much of a break from our previous approach to trade were President Trump's policies and kind of this new, maybe not new narrative?

Christine McDaniel (4.59)
So, you know, I think there, there is something, there was this one quote, a friend of mine said, can I swear on this podcast? Yeah, okay. I, go ahead. I'm not a swearer, by the way. And if my kids are listening to this, I, I'm only quoting somebody else, but somebody once said about President Trump. Yeah, he's an asshole, but he's our asshole. You know? And I do think that that, um, that appealed to a lot of people that sort of, that outlook. Um, and, you know, it does, it does kind of feel good to have someone you know, who says they're gonna stand up for you and, uh, you know, and, and, uh, and, and get, get a better deal for you and all this. Um, but, you know, as everything, the deal, the devil’s in the details, and what really that meant was just a whole bunch of tariffs, uh, that were placed basically more taxes on us, imports, and then other countries retaliated.

And then of course, that meant, you know, us exporters were, were faced with, you know, those, um, those, those tariffs on, uh, on their goods when they were trying to sell abroad. So, and then that just boomeranged right back into, into, um, the US economy in a very bad way. So, um, so I would, um, also, you know, remind people that while President Trump move to, you know, on the, um, WTO appellate body membership was sort of the final nail in that coffin, at least for now. He wasn't the first to, to, um, you know, put that, put that nail in. So it actually, uh, began, uh, with, well, during the Bush administration, you know, 43, Bush 43, um, this, this started, this discussion started about how the appellate body was interpreting particular rules in ways that were not necessarily intended to be.

And there were some allegations that the apellate body went above and beyond what was in the text. Um, and, uh, in a way that gave China a lot more room to subsidize and, uh, more leeway on its state control of its economy. Uh, and, um, and then Obama, President Obama, uh, his team decided, uh, not to also not, you know, not to renew the, um, the appellate body member. And then, and so Trump just really kind of continued with that. But because of the timing, you know, um, it was, it, it became sort of, uh, paralyzed under the Trump administration. But his administration definitely wasn't the first to voice these concerns.

Juliette Sellgren (8.05)
Um, because I haven't actually done a lot of this on the podcast. Oh, excuse me. Um, I was wondering if you could give us kind of a, a brief overview of the W T O and its role in trade and America in relationship to that, just to, I don't know, get a more generalized understanding of how important this is.

Christine McDaniel (8.34)
Well, so, you know, trade, trade economists think trade is, is really very, very important. But in the big picture, trade is, you know, about, you know, it's about, it's less than 20% of GDP, far less. But that's largely because the US is such a big economy. But about half of the US trade is, uh, is business to business trade. So, um, small, medium, large-sized businesses depend on, you know, the ability to access intermediate inputs, you know, components they need to, to make their things, um, you know, they wanna be able to buy the best quality of the best price. And that might be the, the company down the street, but it also might be the con, uh, uh, you know, a company in different country, right? And so it's one of those things where you don't really realize how important it is until it's gone, or until it's really hard to do.

And that's why when we saw the tariffs go on, there were thousands and thousands of US companies that were complaining asking if they could get, you know, an exclusion from those tariffs. So, so trade, it affects every single worker, every single company in the United States, either directly or indirectly, just look around you, you know, uh, something that you're probably holding in your hand or looking at was, may have been designed in one country, but made in another, uh, if you're holding a smartphone, for instance, your iPhone that was designed in California, but assembled in China, right? So the, the ways that trade affect our lives every day, you know, are from when you wake up in the morning to, in terms of what you have for breakfast, your coffee, um, those ingredients are more likely than not to, uh, come from abroad. Um, you know, the, the clothes you wear, the cars you drive, um, the, uh, you know, it, it truly is, uh, global economy we're living in. And you can see this in, in everything that you eat and consume and use and do throughout the day.

Juliette Sellgren (10.57)
And what is the WTOs role in that? How does the WTO influence global trade?

Christine McDaniel (11.04)
Well, so the WTO, the World Trade Organization is, that is, um, a member driven organization. And the, basically pull, it was a, it was a chance for countries to come together in the mid-nineties and commit to, really clear rules on reciprocity. So in terms of, um, if you cut your trade barriers for me, I'll cut your, I'll cut my trade barriers for you. And then we, we commit to this, and we also say to each other, if we, if one of us breaks these rules, then we're okay with, um, the rule breaker getting kind of sued in court, if you will. And that's where the dispute settlement mechanism comes in, in the WTO, before the WTO, we just had the gat the general agreement on tariffs and trade. And that was really huge right after World War II, as you were saying in the beginning, Juliette.

And that was, really the first major international trade agreement, in terms of trade, in terms of, uh, countries committing to, lower tariffs through reciprocity, which is really brilliant when you think of it, right? Because how can you, how, how can you get countries to, to agree to lower their barriers? Well, economists will tell you, you know, it doesn't matter what the other country's doing, you should lower your barriers. And on paper, that's definitely true. But, you know, in practice, we don't see a lot of countries doing that. In practice, we see a lot of negotiations. And, and so the, the GATT was, a real movement forward in terms of reciprocity. And then the WTO brought, just brought in a lot more, um, to that, right? So not just tariffs, but a lot of non-tariff barriers, quotas, um, in terms on agriculture rules, on subsidies rules, uh, there was a whole chapter on subsidies around large civil aircraft, you know, Boeing and Airbus, um, a whole chapter on agriculture, uh, and, uh, chapter on services.

So, uh, the WTO not only locked in the tariff commitments, but a lot of non-tariff commitments. Um, and then the, the two big principles, the WTO, I guess it's hinges on, is one is called the most favored nations principle. That is, you can't treat any imports from one country, better or worse than you treat any imports from another country unless you have a, like a, a real legitimate trade agreement with them. Um, so there's that number one. Number two is something called the, uh, the national treatment principle. And that is you can't treat domestically produced goods any better than you treat imported goods, right? Or you can't treat imports any worse than you treat domestically produced goods. So basically, it just tries to level set everything right, in terms of, um, all, all your, uh, trading partners are on level ground, and then also your domestic products, goods and services are on level ground with imported goods and services, at least to the extent the agreement covers that. So it's, it's a nice, um, it's, it's, uh, democratizes trade in a way. Someone said that once, I guess it makes a lot of sense if you think about, uh, you know, it's, it's with WTO, all countries are on the same, on the same level. Big countries don't have it hold any more power than small countries. You know, Might doesn't really make right under WTO rules because everybody agreed to those rules, and everybody, um, is open to getting sued if they don't follow the rules.

Juliette Sellgren (15.22)
Huh. Thank you for that, uh, exposing and comprehensive, uh, ex explanation. Um, so back to Trump a little bit. Now, has he achieved his policy objectives? And I guess, what have the consequences been, if not, or if yes.

Christine McDaniel
The consequences of Trump in terms of trade?

Juliette Sellgren 
Yeah. Of, of his policies. Did the things he passed meet their objectives or not? And what happened as a consequence?

Christine McDaniel (15.55)
Well, so one thing he, so he did a lot in terms of on trade. One thing he did is he withdrew the United States from the Transpacific Partnership, which was a trading block, uh, between, uh, you know, almost a dozen countries and the Pacific that did not include China. And, you know, that that agreement was seen as a real opportunity for the US to write the rules on trade, especially with our Pacific Trading partners and not China write the rules on trade, right? So the WTO goes only so far, right? There's a lot of room to modernize our trading rules. And it's really hard to do this in the WTO because you need all 164 countries to agree. Uh, so we haven't had a WTO agreement in a really, really, really long time. Uh, but at the same time, there's lots of countries that are ready to do more liberalization or wanna get more clarity and transparency on key issues, like, for instance, e-commerce, right?

Or the role of state-owned enterprises. And the, um, and so what the Transpacific Partnership, uh, was, was an opportunity to get more transparency and more clarity and more, um, openness, uh, commitments on digital trade e-commerce, and, uh, for countries to understand or kind of agree to what they could and could not do in terms of state run or state owned companies. And yeah, it was, it was really major and in terms of those rules and rule setting in terms of, um, a little bit more market access, um, but I think the TPP was more about the trade rules than it was about market access. Um, I mean, there's some market access in there, but it wasn't groundbreaking, um, except for Japan on in agriculture. So when he pulled us out of TPP, that was huge.

And then, um, and that was a big loss to, you know, uh, especially US agriculture because the, the extra market access that they were gonna get, especially in Japan and Vietnam was quite, um, quite notable. So, um, but they, uh, the Trump administration realized this, and they, um, they did a deal with Japan, uh, and they did get Japan to, uh, open up their ag market to the US to the extent that that would've happened through the T P P. And there's actually a, a wild backstory to that we can talk about if you want. But, so anyway, it was sort of like, sort of like two steps back, one step forward. I, I think, on the Trump and TPP thing. Um, and, uh, but you know, the, the thing is Australia and Japan are quietly leading the way on the Transpacific Partnership.

It's now called the comprehensive and progressive, uh, transpacific partnership. But those, um, those countries are, are still moving forward with that. And, um, and so in a lot of ways, you know, our, our, our goals are still being met there, we're just not at the table. And it's not being done exactly the way we have, we would've done it. But I think big picture, um, the fact that they're a lot of countries, the Pacific who are schools that the US had a big hand in writing, not China. That goal is to be accomplished. Um, another thing Trump did is, of course, the section 232 tariffs. I'll never forget that day in the office, he held the live press conference, the White House, or was it the, um, Eisenhower building, but White Press Conference had all the steel CEOs there and announced, uh, he was doing 25%, uh, steel tariffs, and then also seven and a half or 15% on aluminum.

And he was doing that in the name of National Security. And that was a, I think, a real game changer in terms of international trade rules, because that is, um, a real big no-no to do in the WTO. Uh, you only invoke, you know, security concerns, um, if, if, um, you have a, you know, very strong, legitimate case. It's not something to be taken lightly, given that the US steel industry is so politically influential in Washington and, and already, um, quote unquote enjoys so much, uh, protectionism from imports. The fact that he was doing this for steel was, um, you know, was quite suspect. And also the Secretary of Defense at the time had publicly stated that, uh, those terrorists were not even needed for US national security. So the case was pretty weak, uh, on national security grounds, uh, to the extent, you know, public information is available and, and experts in the area have spoken about it.

But, um, and of course, you know, um, other countries took the US to the WTO over that, we lost the case, and then the wto, uh, well, the US basically said, well, we're gonna go ahead with it anyway. And by the way, you shouldn't tell us what to do on our Social Security <laugh>. So, um, so this, I think, um, you know, will really be remembered as, um, a time where the us um, you know, may maybe could say abused, um, that particular national security provision in the WTO and now, um, you know, opens the door for other countries to do so as well, because what's to stop other countries from saying, oh, yeah, you know, those blue widgets we import, well, they're a national security threat, and we're now imposing 25% tariffs on them, or, you know, pick, pick a, pick a product, right?

So I think that was, um, that's a pretty big legacy. He, he left, um, and then, uh, right after those big tariffs, because those tariffss were on all US imports, what he did is said, oh, well now we're gonna do these, um, deals. So whoever wants to do a deal with us, um, you know, uh, let's talk. And so the EU, uh, carved out a deal. South Korea carved out a deal, Japan carved out a deal, Australia, um, they actually got off Scott free somehow. A so it was a lot of, uh, different deal making in the background, which, you know, really does go against the, the WTO principle of, um, treat everybody the same.

Juliette Sellgren (23.13)
So one, one thing that seems pretty, pretty clear is that Trump effectively made popular or not popular. Well, yes, maybe, but I meant to say protectionism popular again. Um, so now that there's President Biden, the new sheriff in town, have things changed? How do you compare their approaches?

Christine McDaniel (23.38)
The actual policies haven't changed, but the, the tone that, uh, that by which they're deliberate has changed, I think in a lot of ways it's Biden's trade policy. It's like Trump wine in a Biden bottle. It's certainly the same thing, but, you know, it just has different packaging. So it really hasn't, um, changed if, if anything, you know, Biden has just taken it even further in terms of, um, even more tariffs and, um, and even more provisions that make it harder to import.

Juliette Sellgren (24.25)
So then how do you assess the impact of Trump's tariffs on China and other countries on our economy and our consumers? And I guess, like this is still happening with Biden, so should he keep them, remove them or modify them?

Christine McDaniel (24.44)
Well, now what's happened is the, you know, that there, there are some legitimate national security issues that have emerged. And, I mean, they were always there, but they've gotten much bigger, you know, um, you know, over the past five, 10 years. And, and now the, these legitimate national security issues are getting kind of, um, mixed up with veiled calls, you know, with protectionism. And, um, and that's one thing that Republicans Democrats agree on is the, the quote unquote China threat. And so, you know, we're, we're seeing a lot of efforts to, uh, our calls for protectionism measures, but in the name of national security, right? And so, uh, while Biden is still continuing with, you know, the, the China tariffs, for instance, um, and the steel aluminum tariffs, you know, it's, it's, uh, it's easier now to, to make the, or just claim that there's a national security case for it.

Um, you know, a lot easier to do that today than it would've been, you know, 10, 15, 20 years ago. So, um, so yeah, no, Biden's still doing it, but, but kind of dressing it up as a, you know, as a, national security slash you know, addressing the China threat, um, is, uh, response. And,  and that seems to be pretty popular with this Congress and the American public at the moment. But in terms of, you know, how it's affecting the us well, tariffs are one of those things where, one way to think about this is death by a thousand cuts, right? Because every time there's a new tariff on us, imports it, it either hits you at the checkout aisle or it hurts the US economy. In the US, companies now have to pay a higher price to get what they need, to make what they make, right?

And so those, all those import taxes make us manufacturers cost go up. They make US manufacturers less competitive, both here and abroad, and they either will lose sales or they'll take the hit in the markup, right? And, um, and you know, we do see this in, um, in the sectors where they've been more hit by tariffs. And, you know, it's not like, you know, it's, it's not a huge significant overnight effect. You know, it's something that slowly builds up. When we look at this in the data with rigorous methods, we, uh, and, and we disentangle the effects of the tariffs from everything else. We can see the effects in terms of higher producer prices. We also see the effects in terms of on US jobs. Because, you know, as firms you know, take the hit on markup, um, they will pull back in other areas like employment and then also on the retaliatory effects. Those, uh, US companies that got hit by retaliatory tariffs, did shrink their employment base. So that's how we're, we're kind of seeing the, the bad side of this pile up for America.

Juliette Sellgren (28.25)
And then, I I, I read a Peterson Institute study that, that noted that if we reduce tariffs, then inflation would actually decrease by a meaningful amount. Can you kind of explain that connection with us? Cuz I think that this relates to the death by a thousand cuts, because it feels like inflation every time I go to checkout, it's another cut. Mm-hmm. <affirmative>.

Christine McDaniel (28.50)
Yes. So, so if you look at the, uh, price index for US goods, and you break it down by tradable goods and non-trad goods, you see this huge difference in terms of US tradable goods have experienced stark stark deflation over the years, while the tradeable goods in the US have experienced pr, um, you know, a, a a steady march of, of upward price movement. So, so what the tariffs do is, you know, they reverse a little bit of that, and now they're putting a little bit more, uh, pressure on those prices of tradable goods. Um, reducing these tariffs will not solve the inflation issue at all. Uh, but it certainly wouldn't hurt, right? I mean, I've, I've seen some studies that show it might shave, shave, like maybe, you know, between the half and one and a half percentage points, uh, off, um, the most credible ones I've seen, it's probably less than one percentage point.

But that doesn't mean just because it's, you wouldn't solve it, we shouldn't do it, right? There's, um, there's usually never, um, just one solution to any, any problem. You do a lot of, excuse me, a lot of different things. And, you know, the inflation that US economy is experiencing is, is, due to a lot more than just the tariffs, but sure, I mean, cutting the tariffs, uh, definitely wouldn't hurt, and would actually help the, you know, lower income households the most because they're the ones that spend a higher share of their paycheck on the goods that are getting hit by, uh, most of the tariffs.

Juliette Sellgren (30.42)
So I guess obviously there's, there's national security, but are there any sort of prospects for any comprehensive US-China trade deal? Um, and I guess, what are the main areas of contention and cooperation between the two countries in terms of trade?

Christine McDaniel (31.02)
Well, a US-China trade deal would be absolutely amazing in terms of the economics, right? Because you get so much more out of trade deals when you do them with countries that are very different from you. Um, and, you know, just in terms of, um, and, and not to mention what, when you do them with larger countries in China, you know, just in terms of population over four times the size and in terms of economic makeup, you know, they have abundance in, uh, labor, especially lower, lower wage labor. And, and there's just a lot of room there for huge gains from trade. There's also a lot of room though for, um, there would be some pretty big adjustment costs in the us. Um, we, you know, with trade, there's, there's always gonna be winners and losers and, but, you know, but the US China trade, I mean, we've, the US economy has pretty much absorbed the brunt of the adjustment costs that we would be going through with China.

So, you know, there's, there's obviously still a lot more areas there, but it's, it's not so much about tariffs as it is. The, the room for improvement is more in other areas like, technology transfer rules, protecting intellectual property, protecting, um, you know, uh, legitimate, uh, technology transfers, cybersecurity and rules on state owned enterprises. Um, so I don't see a US China trade deal in our future anytime soon because they, um, you know, the American public just does not have the stomach to, um, to really freely open up, um, their market to a huge economy that is state run and will subsidize, you know, companies, um, for, for their own, reasons that, you know, don't comport with, with the principles of, of reciprocity. It can be very disruptive, you know, for, um, other trading partners when you start to subsidize your, um, your own industries. Um, so, um, so there's the economic and non-economic aspects of, of that potential US China trade deal. And then, did you say national security was the other question?

Juliette Sellgren (33.38)
Well, I, I said kind of aside from national security, cause obviously that plays into it, but that's, uh, we're running low on time and I'd like to touch on some other things, um, in, in particular. So, so we've talked about China, but what about, um, the US and the EU, especially with all these subsidies? Like what, what does that stage of trade look like?

Christine McDaniel (34.06)
The US and the EU are, you know, very strong, still very strong partners and allies and, and, um, and international trade. The, the US and EU are starting to cooperate very closely on particular key sectors. For instance, remember those steel tariffs? Well, the EU came to the US said, Hey, you know, can we sort out a deal here? You know, we, um, we're, we don't, we're not a, a target for you guys on, um, why you put, you know, we don't think our steel is a national security threat to you. So can we please work out a deal? And so, yes, the US and the EU worked out a deal, but they actually did more than that. They, they, they started writing their own rules on, on carbon intensity, and, and the greenhouse gas emissions of the production processes on steel.

And so it's almost as if they're starting to kind of create their own, um, trade bubble for steel. In other words, if you can, if you're inside this bubble and you can commit to making steel in a, you know, in an environmentally friendly way, and you can also commit to, you know, not doing X, Y, and Z, then um, we can have free and steal with each other, right? And so they're trying to get, you know, I think the idea is to get other countries to, to join that group as well. Um, so that's, that's been kind of interesting to watch for 40 years now, the United States and the European and the Europeans have, been trying to address a so-called overcapacity problem in, in the, in the world steel market. And, and, you know, which is basically a result of some countries subsidizing their steel sector.

And, and they haven't been able to do it. So this is kind of the EU in the US taking matters into their own hands and saying, well, we're gonna go ahead and we're gonna create this, this bubble with these rules, and, you know, whoever else wants to join you can talk to us. Right? So that's, I think, a space to watch. And then on technology, so with, um, advanced technology and computer chips, you know, the semi monolithic integrated circuit, the, um, these are, this is an area where, um, increasingly can be used for military uses. And so, countries want to make sure they are not putting a lot of effort into this high tech stuff and then selling it to countries that will turn around and use it against them militarily, right? So, uh, there's been a number of, um, new announcements, uh, against, uh, selling particular items, um, dual use items, uh, like high tech items to China and Russia, but that takes a lot of Cooper cooperation. And we're also seeing there a lot of cooperation between the United States and the European Union. So there's a lot of, um, deep cooperation, um, across the Atlantic. And, um, and it's, it's been, it's been really kind of exciting to watch.

Juliette Sellgren (37.45)
And then, um, how about Canada and Mexico, right? So we had NAFTA which was the force between, behind the creation of this remarkable North American supply chain. So I guess, what was NAFTA and what did it accomplish? And then what is the U S M C A and how is it different from NAFTAand how do you evaluate that?

Christine McDaniel (38.11)
Okay, so NAFTA was basically, well before NAFTA, we had a US Canada free trade agreement, right? So, um, so NAFTA was basically just bringing Mexico into the US Canada free trade space. And it was a match made in heaven. I mean, you had, you know, Mexico very different, economic makeup than Canada and the US so Mexico could focus on certain parts of the supply chain. Canada in the US could focus on other parts, you know, and it was a win-win, it was a win-win conversation. I mean, a, a win-win, the economic partnership, the US being so productive in, in agriculture, you know, and, and now has, you know, Canada and Mexico as their number one, export. Uh, well, they're very top export markets. So these three countries just very close in terms of, trade partnership, but then it also, more or less, and also in terms of how they see the role of the state and, um, and their commitment to openness.

So we have seen though, in the, with this current Mexican government, the, um, a a bit of a, a u-turn on some of that, which has been, concerning. But, you know, all, all countries kind of go through their, you know, a kind of ebb and flow in their, their commitment to openness just like the United States. So, um, but it's a constant, you know, it's one of those things where like, think of it like you're on a mountain and you're gonna, if you're not trying to, to keep walking up, you're just gonna kind of slide back down, right? So, um, there's always gonna be forces there to pull you back down. <laugh>, there's always gonna be, sectors, you know, in, in, in the economy that, feel like they need special protection or, or, they're trying to curry favors.

And so governments are constantly trying to, uh, do this balancing act. And, but overall the North American, trade and economic partnership is still very tight, very close, and, and it's so important to all three countries. You asked about the, and then, yeah, you asked about the US Mexico Canada agreement, that's supposed to be an update of NAFTA. NAFTA was definitely in need of an update because it didn't have a lot of the new economy stuff. Like it didn't have rules on digital trade or e-commerce, for instance. And so, um, because, well, you know, in the mid nineties when NAFTA was being signed, the, there was this little company called Amazon <laugh>, and they were selling used books online, and they went public in 1997, right? So e-commerce wasn't really a thing then, but today it's the lifeblood of the global economy, right?

Digital flows of, of information, uh, financial transactions. Uh, and the, these agreements that we signed back in the nineties really all need to be updated now to account for, you know, just the reality of our new modern economy. So that's one thing that USMCA [Editor’s note: United States Mexico Canada Agreement] did, and then that was a good thing. And then there were other things too that sort of took us a little bit backwards. Uh, the U S M C A put some really strict rules in, in terms of the rules on auto production, uh, with an eye on electric vehicles. So to keep North American auto trade, free trade, um, countries had to commit to using more North American content. And they also, Mexican had to commit to, um, some labor, labor laws. So, um, that was a little bit of a, a backslide there in terms of the original intent of, of NAFTA, um, in some people's eyes. But,  but overall, you know, I, I think it's fair to say that, you know, the, the e-commerce, digital trade chapter and U S M C A, um, you know, made it worth it.

Juliette Sellgren (42.47)
So I have one last question for you before our actual last question. If you were the absolute ruler of the United States for a day on trade, maybe, maybe not everything, that's a lot. What reforms would you implement with respect to trade? Would you go for unilateral free trade, or would you start with low hanging fruit? Or I guess what would you do?

Christine McDaniel 
You mean in, in today's world?

Juliette Sellgren 

Christine McDaniel 
So you have to, um, so I'd have to, um, face the current situation

Juliette Sellgren 
Yeah, yeah.

Christine McDaniel (43.24)
<laugh> that, that's so rough. Rough. That's a really hard question. Um, as an economist, I mean, you know, it's that, that's a really hard question because obviously the, an obvious answer would be unilateral free trade, but then of course, you give up a lot of your leverage, your negotiating leverage, right? Because there's a lot of things that we want other countries to do, um, but they will only do it if they get something from us, right? So we kind of have to, to, um, we have to have some, some leverage, right? Have, keep some special cards in our back pocket, um, that other countries will want. So, um, I, you know, I, I think one thing, um, I think that has been pretty clear is the, the, um, lack of, um, effectiveness of, of industrial policy. So undoing some of these by American provisions that, have been tacked on to some of these bigger efforts in terms of our infrastructure, efforts, big bills on infrastructure, a lot of money going into computer chips, and the energy transition. I would claw back all those by America provisions, um, and really focus on why we were doing in the first place. And that usually gets you to the point of, you know, just investing, sure, invest in infrastructure and, and education and research and development, but, but don't try to micromanage, you know, how US companies and entities, can do it.

Juliette Sellgren (45.22)
I see. Um, all right, so I have one last question for you. Thank you so much for taking the time to share and to talk to us about all of this. Um, I've learned so much. What is one thing that you believed at one time in your life that you later changed your position on and why?

Christine McDaniel (45.40)
That would be the reason for free trade, right? So the, the case for free trade, you can make a pretty strong efficiency case, right? I mean, the, the efficiency case for free trade is clear in terms of allocative efficiency, and I won't bore you without any, but that's all indisputable. There's, but the reason to trade is I've come to, to, believe it's not efficiency, right? It's that over time each generation gets a chance to mold its skills to the dynamism of an economy that has trade that's open to the world, right? And so if you don't do that, you get people stuck into these stagnant situations. But when you're open to goods and services and ideas and people from around the world, it encourages innovation, encourages human flourishing. And it's true, you know, at any point in time there, there, there will be people that struggle, right?

Because that's just inevitable, whether it's from trader technology, but the next generation, right? Their children are going to do better, right? And then I guess, the other, the other big reason, that I didn't, that I didn't see earlier was just that the alternative to, to free trade, right? The alternative to free trade isn’t protectionism, it's favoritism. And you just end up with this activist trade policy where you are encouraging companies and trade associations to try to, you know, um, special, special treatment. It's called rent seeking. They're trying to create favor. So, you know, even if we can't do the redistribution, ideally, you know, ensure there are gonna be some winners and losers from trade and technology, um, but you still need to look at the counterfactual, right? And so we ultimately cannot protect every single American worker from global competition, right? But all we can do though is help write the rules that we believe in, and then you gotta let people run the race.

Juliette Sellgren (48.08)
Once again, I'd like to thank my guest for their time and insight, and I'd like to thank you for listening to the Great Antidote podcast. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at the great antidote Thank you.