Moody's Talks - Inside Economics - Trade, Taco Bowls, and Theme Parks

Episode Date: November 17, 2023

Fred Hochberg, Fmr. Chairman & President of the Export–Import Bank of the United States and author of Trade Is Not a Four-Letter Word: How Six Everyday Products Make the Case for Trade, joins the Inside Economics team to discuss all things related to global trade. The discussion takes up the U.S.-China relationship, the future of globalization, and how trade policy may change after the 2024 election. Marisa’s visit to Disneyland is a (largely irrelevant but entertaining) theme throughout. For more information on Fred Hochberg and his book click hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Mercia D. Natalea and Chris DeRides. Hi, guys. Mark. How's everyone? How's everyone? I understand, Mercy, you're not feeling so well today. I hit Disneyland a little hard yesterday. Or maybe Disneyland hit you hard. Yeah, that's right. Now, do you just, like, go to Disneyland or do you go? I went with two children. Okay, that makes sense. Okay.

All right. I thought maybe you went on your own. I didn't know. No, I mean, I have done that, I admit. But no, I went with a three-year-old and a seven-year-old. Oh, that must be so fun. Three-year-old's first time. Oh, that must have been so fun.

I think her mind was blown. Wow. Yeah. Yeah. Mr. Toad's wild ride? Do they start that? You know, it was so crowded. It was more crowded yesterday than I've ever seen it in my life.

And we didn't actually go on a lot. and she was scared of like everything. She was scared of any ride that was dark and inside. So we went on limited amount of rides, yeah. This is the three-year-old. This is the three-year-old. Okay. Yeah.

Yeah. So no haunted mansion. No, she actually, we were getting on and she had to be taken off. She had to be removed from haunted mansion. Wow. I'll tell you, I am so burned out by theme parks. My wife grew up in Daytona. Beach, Florida. And so we, every chance we'd get me be in Daytona Beach. And of course,

Daytona Beach is an hour and 15 minutes from every theme park on the planet. And I went to so many theme parks for so many years. I even had my favorite lunch place at the Islands of Adventure. I, you know, my favorite chicken nuggets. I'm not kidding. I wonder if it's still there. Now, now here's the weird thing. I haven't been in, you know, my kids are older. I haven't been there in, 20 years. I can't wait to go again with my grandkids. I want grandkids. Give me some grandkids. Yeah. Yeah. But I can't wait to wait to do that. Well, I'm mentioning it. It was at Disneyland that the Taco Bowl was sort of invented. Now, this is Fred Hockberg. He's like an interloper. I don't know, Fred, who invited you to this thing? I just crashed.

You just crashed. You couldn't resist. Okay. Okay. This goes to your book, right? Yes, it goes to the book, but I figured I could. Yeah, go far away. Far away. Yeah. Well, you know, one of the things I, my book is called trade is not a full letter word because frankly under particularly under President Trump and just generally trade, we got a bad rap in this country. And so I wrote a book about it.

But one of the things I did discover was the Taco Bowl, which President Trump made famous. Oh, that's right. I forgot that. Yeah. During his campaign about the Trump grill. But anyway, it was, it's the Taco Bowl, like many things we eat, was not invented in Mexico. It was actually invented at Disneyland. And so, and a lot of things that we eat may appear to be foreign, but they're not.

Like corned beef and cabbage was actually invented here in America from Irish immigrants who wanted to feel like they were home. And so they came up with corned beef and cabbage. So the Taco Balls won't, but that's actually at Disneyland. So that's why I butted into the country. Not at all. I should, I knew you couldn't resist. I should have introduced you earlier on, but it's wonderful to have you on inside economics, Fred. We keep running into each other, it feels like, well, I think the last time we were in New York at a New York economics club and Yes.

Lail Brynard was, Brainerd was there and had a conversation with her. And I think before that, we were in San Diego at a policy slash political function. Exactly. Yeah. Right. Right. And maybe you can give us we're going to talk about trade we're going to talk about globalization we're going to talk about china obviously a Biden Trump policy but in your book of course but maybe before we kind of move in that direction maybe you can give us a sense of your background you know sense of your career well sure anyway it's it's wonderful to be here and to find another way to see you mark and and to meet marissa and Chris so I was in business for about 20 years years. I come to call Lillian Vernon, which was a direct marketing, a catalog company, founded by

my mother named Lillian. And after the third marriage, she just changed her last name to Vernon and decided enough of these changes in my name. I'm going to just go with the name of my company. And it's named after the town we, the business was started in Mount Vernon, New York. And just as a little personal aside, you know, she started the business on our kitchen. table. And I made the comment recently that, you know, men start businesses in their garage because the car was kind of a locus of a boy's life. So you know in Silicon Valley. And many business started by women started on the kitchen table. And just recently, my brother and I donated that table to the Smithsonian Museum of America. Oh, that is so cool. So they have a, it's, it'll be up till

2040. So you have plenty of time to catch it if you haven't seen it yet. What happens after that? exhibit. What happens after 2040? Why 24? Well, the exhibit's up for like 30, 30 years. Oh, I see. They will probably do a real refresh after 30 years. I got it. It traces American enterprise and how it's shaped our country and how, you know, become such an economic powerhouse. And anyway, I did donate the kitchen table and it's there right now if anybody sees it. But so I was in business for 20 years. After that, I did a lot of work on LGBTQQ, uh, civil rights and then ultimately joined the Clinton administration. I was the deputy, the number two at the Small Business Administration, and for a short time, the acting administrator. And then I was a dean

at the new school, school public policy. And then I spent eight years with President Obama as chair of the Export Input Bank. And the Export Input Bank briefly was started by FDR, by Franklin, Roosevelt in the 30s, 1934 to be exact, with the realization that if we want to put more people to work, exports are one way to do that. Exports create jobs and they also bring revenue in. So I was fortunate to be selected to chair the bank. And I did it for two terms for the first and second term. So I'm the longest serving.

There were certain days I was the long suffering chair of the ex-execis. Bank, but I was the longest serving chair of the Exported Impro Bank. And the Exported Impro Bank, basically, as I said, we help finance exports when conventional or standard banking isn't available. And we have the best banking system of the world, but it's best is not all, it doesn't do everything. So, you know, like two-thirds of the loans and guarantees that we made at the Export Improlet Bank, which are developing countries that have a less sophisticated taxation system, less sophisticated banking system, and therefore often needed external financing and banking in order to import power systems, aircraft, locomotives. Most of our goods were

more heavy capital goods, would be the preponderance, some services, but capital goods is sort of the quote-unquote bread and butter of the kind of work the export input bank does. And just to finish, there are now about 100 export input banks around the world. And even when I was just there over a decade ago, there were maybe 60. So it has grown enormously as country after countries realized we want to get our goods on the world stage. And if we need to help finance it, we'll do so. Yeah, you know, I'm sure you don't remember. Our first point of contact is when you were at the Exxon Bank.

You reached out. I remember vividly. Do you really? Oh, I'm so surprised. I know that's how he met. Yeah. That's the reason you answered my phone call. No, no, no, no.

I would have answered your phone call regardless. But I remember that conversation very well. And eight years, that's a long tenure, right? Did you say that's the longest? Yes, because it's a term job. So I had to be confirmed actually twice by the Senate for the job for the first four years and then confirmed again for another four years. and that is the longest serving.

Right. Well, there's a lot to unpack there, and I want to come, we're going to definitely come back, but since we have Marissa, and I'm not sure how long we have her, and the big economic news of the week was the Consumer Price Report. And I'm not going to tell anyone how I feel about that, but I'm pretty sure you know how I feel about that report. Anyway, Marissa, maybe you can give us a sense of the numbers and, you know, what you think they mean.

Sure. I'm sure you feel wonderful about this report, first of all. Let me say at the top. Slam dunk. I think we know exactly how you feel. It was a very good report. So this was the consumer price index for October. Prices overall were flat over the month.

By that, I mean, they were unchanged between September and October. This was even better than ours and consensus forecast, which was expecting a slight increase. And just as a reminder, in August and September, prices were up 0.6%, 0.4%. So this is a marked deceleration from previous months. Over the year, total prices are up 3.2%. That's down from 3.7% in September. And as a reminder, you know, we peaked at like 9% back in June of 2022.

So we're down by two thirds, basically. Energy prices drove the decline over the month for sure. So the CPI for energy fell two and a half percent. over the month. It had risen one and a half percent in September and was up 5.6 percent in August. Gas prices were down 5 percent. All energy commodities were down just about 5 percent as well. Domestic oil production has been responding to higher prices and that's helped to bring prices down. Let's see. Food prices, sticking with top line CPI, food prices. rose 0.3% over the month.

They are up 3.3% over the year. They had peaked around 11% year over year in August of 2022. Food prices at home were up 0.3%. That's actually an acceleration from the previous month. And food away from home rose 0.4% over the month, which was the same that they did in September. Actually, the food, you know, scouring the report, the only part of the report that might have been a little bit of a blemish would have been food prices. But other than that, felt like everything else was moving in the right direction, meaning less inflation.

Yeah, the only other thing, major category I saw that was an acceleration over the month was auto insurance. Oh, yeah, yeah, vehicle insurance. Yeah. Right. But you saw the new vehicle price. prices did fall. Right. Both new and used vehicle prices fell over the month.

That's right. Core CPI, let's talk about core rose 0.2% over the month. And that is a deceleration from the prior month when core rose 0.3%. Core's up 4% year over year, right? So we're talking 3.2% on total inflation year every year. is up 4%. This, again, just to put it into some context, core was up 6.6%,

which was sort of the post-pandemic peak in September of 2022. Goods prices within core are basically not contributing to core. It's really all coming from core services, the inflation in core. shelter, which we have been keeping an eye on, we know that that shelter prices are about 40% of core inflation. And they were up 0.3% month over month. That follows a 0.6% increase in September. Prices for owners equivalent rent, which we've had some discussion about in the past few podcasts. That was up. 0.4% down, deceleration from 0.6% increase in September.

And then rents, the CPI for rents, rose 0.5%. And that was the same as they had risen in the prior month. So we're looking at 7.2% was the peak of, of year-over-year rents in September. We're down to 6.7% year-over-year as of October. So still very high inflation coming from shelter, but it appears to be moving in the right direction, at least. Yeah, correct me if I'm wrong,

but if I take the CPI, the total index, and I exclude the shelter piece, we're back to Target. We're back to 2%-ish on inflation. I think that's right. Yeah. Yeah. That's if you take out food energy and shelter, right?

No. Oh, no, no. Just take the CPI. Just, just take the CPI. And of course, the energy price declines are helping here, you know, get CPI down. But the CPI X shelter, I think, is 2%. That's 1.5. Okay.

Even better. Even better. No, yeah, yeah. I have to find another statistic, by the way. Oh, sorry. Sorry. Okay, so, Mercer, what's your sense of it? I mean, take a step back and what do you think?

I mean, obviously, you know, if we're talking about headline CPI, energy is moving this thing all over the place from month to month since August, right? So we have this big run up as energy prices rose, and now we're on the backside of that with energy prices falling and detracting. But you strip away that. You look at core. It's coming down. And I mean, shelter is going to be stubborn to move, just given the way the BLS measures shelter inflation. We know. But everything looks like it is moving in the right direction.

It just, you know, the core services inflation and shelter are just going to take a bit longer to move down. And as we've said before, it may not be a linear movement, right? Like we might have some months where things pop up a little bit and then come down. But it's a really good report all around, I think. It's hard to find something bad in it. That's what I were, I wanted you to start that way. It's a really good report. I did start that.

I started by saying that you thought it was a really good report. Chris, Chris, you're the. It's a solid report. Unless you care about tobacco prices, which didn't shoot up. But I didn't fall. follow that. They up a lot? I didn't think you would.

Oh, okay. Yeah. Is cannabis in the CPI report anywhere? In the basket? I don't know. It should be. It's not in the basket? Oh, that's an interesting question.

Probably not. Probably not. Okay. Well, it's still illegal federally. Oh, that's right. It's illegal federally. Yeah. Okay.

All right. All right. Hey, Fred, maybe I'll bring you in here. Marissa mentioned goods prices, and they, correct me if I'm wrong, Marissa, they're now falling pretty consistently, right? Yeah, I mean, there's almost no contribution coming from goods, really, to overall inflation. It's really all services. Yeah, and I think this kind of goes to one of your themes, right, Fred, about trade and prices.

I mean, because of globalization and the benefits of globalization, it brought down costs and translated into lower inflation. And here we are again. You know, of course, there was the pandemic and that messed things up. But on the other side of the pandemic, it feels like we are still seeing the benefits of globalization in terms of prices on goods. Right. I mean, you know, the fact is between automation, which is also a big factor and the fact that, and since we've talked a little bit about vehicles, you know, we don't really have lemons anymore, you know, and even in generally in products, you know, if closer to 100% of products produced are not flawed, you know, even dropping that by a tenth of a point makes a difference in cost because if a product

has to get recalled or is malfunctioning, that actually adds to cost. So between quality, automation, and globalization, you know, I mean, we're going to talk a little later about China, but China's been a big driver in keeping our inflation at bay for the last 20 years. and has been a source of low cost of goods and also a lot of substitution. So that imports have really helped us for many, many years, sort of keep inflation at day. And, you know, the amount that individuals, homeowners spend on sort of food and shelter, which Marissa was just talking about, has been steadily declining.

and then a lot of that has to do with imports and the fact that there is some globalization. Certainly with food, food, vegetables coming from Mexico. And, you know, just recently it turned out that our largest trading partner today is Mexico, not China, which is also a big shift. And part of that is also agriculture. Yeah, I mean, as I recall before the relationship with China kind of went off the rails, went sideways under the Trump administration. And, of course, we had the pandemic.

If you go back into the, kind of into the 2000s and the 2010s, we estimated that trade with primarily China, but globalization more generally reduced overall CPI inflation by about a quarter point per annum. So, you know, that would be instead of growing 2 and a quarter percent per annum, grow 2% because of the weight on goods prices caused by or as a result of the globalization that was occurring. So very powerful.

I think the, and I'm going to state this, but maybe ask if this resonates, it feels like the goods price weakness we're seeing now is less related to globalization. In fact, we might be going a bit backwards here on globalization. We'll talk about that. This is more about the strong value of the dollar. The dollar is very strong, and that's translating through. Yeah, you agree with that. I agree with that.

So, Chris, anything else you wanted to add on the CPI report? Any blemishes that, you know, Mercer mentioned motor vehicle insurance. I mentioned maybe a blemish on food, which is probably temporary. But anything else in there you saw that caused you any concern whatsoever? Not really. I mean, no. The shelter, the rents. Obviously, we'd like to see those come in a bit more quickly, but we know that's a process.

Other than that, no, it was, like I said, I think a very solid report, market reaction interpreted it as a solid report moving in the right direction. Yeah, I think I've said this before. I mean, we forecast lots of things. Some things we forecast we're not, we're confident in some not so much. This, the forecast that inflation is going to come back to the Fed's target in a reasonably timely way, let's say by this time next year, I feel very confident in that. I mean, if it's, if inflation ex-shelter is already there and all we need to do is get sheltered back, inflation back down to something that's more typical, it feels like that's what's going to happen because market rents are down and that's what drives the measured inflation for housing. Right. Okay. You would agree with that. Yeah. Okay. All right. Good. Can I say before we move on, you know, all the things we were nervous about with regard to the economy coming into the fourth quarter feel a lot less ominous all of a sudden to me. UAW strikes over. No government shutdown. The, you know, the student loan repayment doesn't feel like it's even been a blimp.

Oil prices are back down to 75 bucks a barrel, 75 bucks a barrel. Or even less, right? Well, I took the average of WTI and Brent, 75. Oh, yeah. Right? And the 10-year treasury yield, it's still, you know, a little elevate, but 4.45. It feels like all those headwinds we were worried about, they kind of just dissipated, right? So it feels really good. And that's the stock market, right?

And that's all the grain. Anyway, okay, let's move on. Let's play the game in the statistics game. we each put forward a statistic. The rest of the group tries to figure that out through questions and clues, deductive reasoning. The best statistic is one that Marissa never gets. No, just kidding. One that is not so easy.

We all get it quickly, not so hard that we never get it. And if it's apropos to the topic at hand, bonus. And Fred said he's going to play, but I'm going to go to Marissa first because that's tradition. So, Marissa, what's your statistic? My statistic is 13,000. 13,000. Statistics that came out this week? Yeah.

Government statistic. Yes. Related to inflation in any way? Not directly. Not directly. Related to trade. Not, no. No.

Is it a price? No. Is it a number of people? It is. Oh, geez. What the heck is that? Number of people that were at Disneyland yesterday. I think it was more than 13,000. Well, more. Talking about inflation, how much is a ticket to Disneyland?

Yeah, it's really out of control. And it's not just the ticket. I mean, it's like, probably 200 bucks a person and that includes for you know a three year old then you pay 35 bucks for parking then you buy all the food and all the things right yeah and it's astronomical yeah it's crazy uh okay back to the number 13000 is this like we're never going to get one of those this number are we should know are we can be embarrassed if we don't get it you so i'm taking a trans of something because I think if I gave you kind of the headline, you'd get it right away.

Oh. Oh. Is it U.I claims? Yes, it is. The increase in U.I claims. Yeah. It's the increase in U.I claims. Fred, Fred, I'm just saying how that's done.

You see how that's done? That's got to be impressive, right? No. That's an impressive number. Okay, there. Very impressive. The number was impressive. Oh, that's funny.

I feels like weak tea to me Marissa I don't know go ahead tell me why I picked it because that they they popped up pretty significantly than we've seen in the past few months right I mean this is like it's not a crazy number so

UI claims last week were came in a 231,000 but that's significantly above they've been moving higher since the like mid beginning of October when they had fallen to about 200,000. So they're still low. There's still not really any reason to worry, but they do appear to be moving up a bit. So it's something to keep an eye on.

It's something I keep an eye on very closely to see if we're seeing any real signs of major weakening in the labor market. So far we've seen, you know, job openings come down, hiring come down, job growth weekend, right? But we really haven't seen layoffs pick up to any significant degree. So this is just something to watch. We think if we get to around about 270,000 a week, that would be time to worry. That would probably be the point at which you would see the unemployment rate rising due to layoffs. Yeah, I think we've just talked about in the past, but just to state it again. I mean, UI claims are a really good barometer, weekly data, very good barometer of kind of

the state of the labor market, but you got to be really careful week to week or even, you know, over a period of time, particularly post-pandemic because of seasonal adjustment issues. It's hard to, the pandemic really messed up the seasonal patterns and claims. And there is a great deal of seasonality and what's going on in the labor market. So you've got to be really, really careful. So I don't get overly exercised if it's below 200k, or it's closer to 250. Really, we have to see a definitive breakout here to north of 250, 275, something like that. Yeah, and the four-week moving average, you know, if you smooth it out with a four-week moving average, it's 220.

220, okay. Yeah. Still very low. Okay. Hey, Fred, you saw how it was done. You want to go next? Yes, I can go next. Does it have to be a statistic of this week or one other?

No, no. No. you can fire away. My statistic in the spirit of Marissa is $995 billion. Is that the increase? Well, that sounds like... Is that how much Disneyland made yesterday? On you.

That has to do something with a trade deficit, right? No. No? Okay. No. Okay, not the trade deficit. Is it dollars? Yeah.

It's a billion. $955 billion. dollars. That's close to a trillion dollars, right? Very close to a trillion dollars. And it's not anything paid. It's got to do a trade. It's got to do a trade. Oh, okay. It's just not the deficit. It's not the deficit. Is it trade with one country?

Is it trade with China? No, is it? No, it can't be. Is that maybe it is. Maybe it is. Exports plus imports, maybe. Or I'll give a clue. It's, it's, it's, it's, it's, it's, it's, it's, exports from one country. Oh, it has to be China, right? No, it's U.S. exports or not? No.

U.S.? This is a total exports, global exports from one country? Germany? Mexico? No. It's not China. It's not the U.S.

It's one country, not Germany. It sounds like a lot of exports. Saudi Arabia. Now, Saudi Arabia is about half of that. Oh, Saudi's half of that, $500 billion. Oh, this has got to be good. It's going to be something like Singapore or something, Hong Kong or something like that.

No? It's the Netherlands. The Netherlands. Oh. Which shocked me because we do our exports of $2.1 trillion. So they're almost half, and they're a lot, lot, lot smaller than we are. Yeah. I guess that's Rotterdam and.

Oh, okay. So it's trade coming through. It's coming through. Yeah, it's in and out. Yeah. Because Germany's $1.7 trillion. And the tiny Netherlands is 60% of what Germany exports. That's right, right. It needs a little more digging, but it was like a number that just like popped out of nowhere for a country that's very, very, very small.

Yeah. Yeah. Yeah, I think it must have to do with the Port of Rotterdam and just all the goods from Europe, travel through and somehow it gets determined as it's in the Netherlands. That's a great statistic. One of the problems with trade data in general is that, you know, if you don't dig down on how we keep score, it can be very misleading. Yeah, absolutely.

Yeah, absolutely. That was a good one. Chris, you're up. All right. So I had to switch up here. So this is a fun one. Okay. $61.17.

Are they all fun? They are all fun. $61 and what? $17. The price of chicken McNuggets, Coke, and fries at Disney World? Nope. No. Okay.

It is the price. It is a price of something. Something. Is it a product, a good? It is a set of products. A set of products. Is it food related? It is definitely food related.

Okay. Is it something to do with Thanksgiving? Oh, yes, yes, indeed. It's the cost of a Thanksgiving dinner. It is. Oh, ding, ding, ding, ding. We haven't done that in a while. That was fast.

Traditional holiday meal for 10. That sounds too cheap to me. Say that against Chris? Did you say a meal for 10? Yes. According to the American Farm Bureau Federation, they've been calculating this for decades, I think. That's, yeah, they have a basket of turkey and all the sides, right? So, yeah, calculate it's, it's, and that is down 5%.

Oh, really? From last year, right? So that's significant news. Price of turkey is down significantly because of the avian flu that we had last year. And then here's my link to trade. Cranberry sauce is down 18%. Most of our cranberries come from Canada. So there you go.

Oh, okay. Just strong dollar. What of facts here? Is that the strong dollar against the Canadian dollar? Possibly they also had a record harvest. Right. They did. Oh.

Or strong harvest. I don't know if it was a record. A good at Thanksgiving. Yeah, thank you, Canada. Thank you, Canada. There you go. There you go. It's funny thing about food prices.

When they go down, all people think is, I'm a smart shopper. I have a foxed everybody. That's right. There's no trade. And in fact, there's more turkeys, has nothing to do with this.

I'm really smart. I have a good shopper. Look at this. So maybe we'll get a boost in consumer confidence. There, that's a good one. But can I ask, do you know,

you probably don't, what was the increase last year in the cost of the Thanksgiving dinner? Oh, it was significant. Because this goes to what's going on out there. Inflation is moderating, but everyone's focused on what they're paying today compared to two or three years ago.

And they're still pretty upset. And I'm guessing. If it goes up, if it's going up, you know, a modest, even 2%, but it still feels up, it's up 10% from which you remember, it feels high. Yeah. And I think that's President Biden's problem, big problem. Yeah, I don't have that specific. I do have this statistic that it costs 25% more.

than it did in 2019. Okay, there you go. Do you remember last year having this conversation around Thanksgiving? I remember us having this conversation on the podcast because I bought a turkey for $90. Oh, that's right. That's right. Yeah. Fred, she's not a good shopper.

No. Actually, I returned it. You returned it. I did. Yeah. You know, I thought you would put it up on eBay or something. You probably get it on $110. I remember how.

insane turkey prices were last year. And I remember that everybody was up in arms with it and it was getting so much press. And exactly, people were making it political, not realizing there was this avian flu, reducing the, you know, the bird population, right? And that's why turkey prices were up so much last year. But I remember we had this conversation around the same time. That's interesting. Okay. One more statistic very quickly. It's actually, I'll give you three numbers. They're all related. and I hope it's not too hard. Usually when I think it's hard, it's easy. 150, 1.24, 1.08.

I'll give you one more. 0.73. And no one chat GPT this. No chat's GPT. It wouldn't know anyway. Yeah. It's related to the topic at hand, trade. We've been talking about it.

The first number was 150? Yeah. To be even more precise, as of today, 149.5. That's a big hint. Okay. That's a big. What is on exchange rate? It's exchange rates.

Yeah, very good. Yeah, the yen dollar, 150. The pound, dollar 124, the Euro dollar 108. I think the Canadian, U.S. Canadian is 73 cents. So the dollar is about as strong as it's been in, you know, ever. You know, there are times when it has been stronger, but rarely. It's really, really strong. Obviously going to monetary policy here compared to the rest of the world. I mean, the U.S. economy has kind of led the way in terms of growth and the feds led the way in terms of increasing interest rates and higher for longer and,

you know, thus the strong dollar. But it's helping us in terms of inflation for sure, yes, those good prices. So, Mark, can I push back a little bit? Yeah, yeah, far away. The dollar being strong or weak because no one can be for something weak as opposed to the dollar's high or low. Okay, fair enough. You're adding a value judgment to where it is.

I I I that's that's that's reasonable pushback I should say is high as high relative to other currencies yeah you're right yeah absolutely uh good point all right let's uh let's Fred let's turn back uh to your book and I noticed I think it was published in January of 2020 good timing I'd say well the day actually the day before the impeachment trial so that it was not the easiest week to get television coverage But you got, I have to say, I was really impressed by the notes of praise you got. Jamie Diamond, Fred Smith of FedEx. You had Daniel Rubenstein of Christian Lagarde. Oh, I didn't see that.

Christian Lagarde. That's wonderful. Yeah. You must have been very happy to see get those kinds of words of praise. And Marl as well, I got. So it was great. Yeah, great. I was very, I was very fortunate.

And it's great, I haven't gotten through all of it, but I've gotten through a big chunk of it. And I love the history. You know, there's so much history there that I go, oh, I didn't know that. I find that history provides a great deal of context. So you kind of walk through your thinking around trade through the prism of six different products and service. And you mentioned the taco as one of them. But maybe it would be interesting. Of all those six, which one was your favorite one to do?

Oh, my God. Is that like asking, which is my favorite kid? By the way, people do have favorite kids. I do know that. It's okay. Is that right? You know, for different reasons. I mean, you know, I looked at the iPhone, for example.

because it illustrated so much. The iPhone, it takes 43 countries to sort of produce the iPhone, so it's sort of a perfect example of why trade actually adds value to all of our lives. Without trade, I don't know that you could have created the iPhone, frankly. You could not produce it all in the United States. So it's 43 different countries, almost seven. 750 suppliers. So, I mean, it is massive, you know, and I used to often would tell people, you know, if you like to count your steps, where you can thank the Netherlands, because they make the thing

that it goes in the iPhone, the counts your steps. And if you can turn it either upright or landscape, you should thank the Swiss because they make the gyroscope that does that. So all these different things go into the iPhone. And the other thing, it also, we were talking about, I threw out the idea of Netherlands having such a high trade number, you know, only less than $10 of the iPhone actually comes from China. And yet it's an import from China because that's the last stop. And that's where everything is put together. So we import about $16 to $18 billion worth of iPhones a year from China. And that goes into the quote unquote trade deficit with China. But only $10 out of the 300 or so dollars per iPhone is Chinese, but yet they get tagged with all of it.

So it's one of those things where it's one of the reason I think looking at the trade deficit is really not the most. It's like in politics, people look at how much money did you raise in the quarter? It's a data point. It's not, doesn't tell all and it has a lot of misleading characteristics to it. I like the iPhone. I like the iPhone partly because it would not exist otherwise. The other thing I also think it was interesting.

was cars, you know. We still export a lot of cars, but the top 10 cars in the United States in terms of content, now six of them are actually what we call American cars, and Tesla has four of those slots. But when I wrote the book, The Honda Odyssey was the number one car with U.S. content, and I actually went to the Honda Odyssey plant in Alabama to actually see how they put it together. But that for a long time was the had more U.S. content than anything. And the Ford 150 pickup truck was her last I looked was about 50%. So, you know, Pony just turns around your ideas. What's American?

What's not American? What's the value of an import? And my favorite was, which they also just thankfully discontinued, the Chevrolet Spark, which comes from Korea, was 1% American. But people say, oh, buying a Chevrolet, it must be an American. car feels better than, you know, I want to buy America and I'll buy a Chevy Spark. Well, actually, you'd be better off buying almost any Honda or Toyota or Kia than the Chevy Spark, for example.

So those are because some of my, my sort of favorites I pulled out. The other thing, you got me started, Mark. No, go far away. We always think about goods, you know, with iPhone, a car, services, or we have way of blessed. Farid Zakari once said, if you looked at an economy that's 70% services versus 70% manufacturing and say, I want to be in the service economy. And that's our economy. But we don't think about entertainment, higher education as really important exports. When foreign students come to America and they study here, they leave with an education. That's a service export. And we could we could

handle probably another million foreign students coming to our country, which would both benefit a lot private universities and public ones, and would also spread American thinking and American values to the rest of the world in a pronounced way, because if your parents send you to school just college for four years, that's a big investment. That's a big voter confidence in America. And I don't think we'd take enough advantage of that. So you wrote the book because there was growing angst around trade and what it meant for Americans. And, you know, obviously President Trump ran on a, from a very different prism in perspective. That's the four-letter word, you know, kind of came from. But there's some truth to it, too, right, in the sense that, you know,

China's entry in, and I pick on China because it's so massive and it came out of nowhere. I mean, after it entered into the World Trade Organization in 2001, it just came on the scene incredibly quickly. And it did, I think the evidence does show, and I'm curious if you disagree or not, but the evidence does show that that trade, the imports from China did hollow out big parts of U.S. manufacturing and did knock the wind out of many communities across the country that depended on that. manufacturing. And one could argue, and here's more, a little bit more of a stretch, but I'm just going to state it and get your opinion, that it may also have contributed kind of to the social, political issues we're suffering right now. You know, people felt that lost their jobs in as a result of trade and to some degree immigration, that they were disenfranchised and, and thus upset, rightly upset and said, hey, I, I, I, I, I, I don't know what's the right way forward, but I don't like the way we're on, so I'm going to vote for the person who's taking me in a different direction, whether that's good or bad. Does that all resonate with you? Without question.

I mean, you know, the benefits of trade are spread far and wide, including Marissa going shopping and saving money on her groceries. The pain or the deficits of trade are often felt very narrowly. As you said, when a factory closes, not just the economic hardship, but the social upheaval, the fact that a town, all of a sudden or a city begins to not have the job generated that paid taxes that paid for schooling, fire, police, and so forth. And as I think, as you said, Mark, where did this really be felt in places like Michigan, Wisconsin, Pennsylvania, Ohio?

And what are those states all have in common come 2024? they're all battleground states. So that's one of the reason that I think trade has been such a political issue, because the places that really got hurt happened to be battleground states. Just to make another analogy, I'm here in Miami Beach today. The Cuban population has been highly concentrated in southern Florida, and it's made Florida a battleground state, which is, I would use this word, is kept on Cuba policy somewhat hostage,

because no candidate wants to offend, you know, if Florida goes one or two points in either direction, Trump won by three, which was a landslide in Florida thinking, because normally the state's gone back. So close, yeah. So close. And so our Cuba policy has been, if the Cuban population was more spread throughout the country, that would probably have a different impact on our politics. And same with trade.

I think that trade has been such a part of presidential politics. because it's concentrated in a number of states that really got hurt, a little bit somewhat with NAFTA and certainly with China. Yeah. And the interesting thing is that now both political parties, Democrats and Republicans, have a very jaundiced view of trade. And, of course, China is the poster child for that angst. and it does feel like there's been a sea change in policy,

and it is having real implications. We've gone from globalization, increasing trade, increasing immigration, increasing capital flows, increasing foreign direct investment, all the way the global economy links itself together in the 2000s and the 2010s to, we have a debate about what the right word is, but you know, pick your word.

De-risk, I heard the president say yesterday when he was talking to the folks in San Francisco, de-globalization, you know, so forth and so on. And you can see it in the trade statistics. So if I go and I add a U.S. exports, imports, divides by GDP. That went from 10% of GDP kind of in after World War II in the 60s and 70s. Then it really took off and rose to about 25% by the 50%. financial crisis and, you know, since then it's been basically sideways at best. And more recently started to come down. And actually, trading patterns with China have shifted, you know, China,

we're trading less with China. And as you pointed out, we're now trading more with, with Mexico and Canada and Southeast Asia and so forth and so on. So it feels like this train has kind of left the station. You know, we're going down the path of declobalization. Does that Is that fair? I think that is fair. I think that is fair. I remember over a decade ago, I was, we were talking, I was with at that time, Secretary Geithner, Tim Geithner, and I said, I don't know why the Chinese don't just

buy us off. If they just spent another $100 billion on the U.S., they could buy Boeing airplanes and soybeans and hogs and become a great customer and take the pressure off the trade deficit, which I don't think is that important, but take the pressure off. And I think it would have eased a lot of relations the way Japan did. But China in their own way was, didn't like some of our policies and therefore wouldn't, you know, I think their politics gotten in the way of finding ways to smooth things with the United States. And they did nothing to fix that.

So, you know, they very much have a lone warrior kind of view of things. And that, and it should not shock us why where we are right now with China. But on the other hand, on a positive way, I would say, if I look at, if you look at U.S. China relations versus U.S. Soviet Union, you know, before the breakup of the Soviet Union, the advantage we have with China is we actually are more intertwined and have a lot more trade, and that has forced both sides to find some common ground from time to time. And frankly, I think the rest of the world is uncomfortable choosing between China and the U.S. On a number of things, certainly in places like Africa.

And that may force us to find a path because they're not going to want to have to continually choose. And so that's my optimism that that might be a path towards less of a collision course and more competitive. certainly competitive and somewhat cooperative at times. So just so I understand what you're saying is because Europe, because Africa, Southeast Asia, other parts of the world, they really don't want to get in the middle of this U.S.-China thing. They don't want to pick sides because that doesn't make sense from their own economic perspective.

And by so doing, that will put pressure on China in the U.S. to maybe come to terms may not be the right way to say it, but at least play nice. Play nice with each other. Don't hit each other over the head. Right. Yeah. Yeah.

Because if you hit each other, you can't expect everybody else to fall in line. Yeah. Yeah. It feels like what you're saying, it does feel like it's kind of sort of what's happening here to some degree. Right. Europeans are saying, hey, guys, really? Can't you just figure something out here?

Yeah. Yeah. And Europe is much more tied into their. They export a lot more to China than we do. So that's a trickier issue for them. certainly for Germany. Right. The thing that makes it a little more complicated with China, though, from a U.S. perspective,

and perhaps for the rest of the world, too, is it doesn't feel like they play fair. And maybe that's just my American bias. No, they don't play fair. And they are a bad actor. You know, the fact that, you know, the thing that President Biden, two of the deliverables or outcomes from that meeting with, the sheet was about fentanyl finding a way to sort of reduce that and make sure we have some military communications so we don't have a near miss or an accident that causes a problem

that China broke that off you know that didn't have to happen and on fentanyl I don't know what the reasons are but whether China could crack could have cracked down before maybe they like the fact that see the United States they can tell their population the US can't to control their own population. They're all drug addicted and shopping addicted. And so they may have in a certain way looked the other way deliberately. But my point is they could have done more to stop. And they also, I mean, when we look at trade, one of things, Mark, is we're just coming out of the pandemic, you know, were it not for trade, companies like Pfizer would have had a much harder time. It was a German-U.S. collaboration that created that spectacular vaccine.

China, not wanting that, went their own way with a far inferior product and with real detrimental health and higher death rates because they did not have that. So there are ways we got, you know, it's not so simple. Yeah. Oh, no. Yeah. And in case of China, the fact that their vaccine didn't work was one reason where they shut down for much longer and why their economy came to the precipice, I think.

And they just, finally went from a zero COVID to zero policy. Yeah, like overnight. Overnight. They saw the social unrest developing and they go, oh, okay, you can't, this can't stand. So just to be a bit forward looking here, you know, again, the history is rapid globalization in the 2000, 2010s. a kind of financial crisis and then President Trump and now President Biden's kind of following similar policies. Globalization has gone sideways at best. What is the future hold here? I mean,

is it continued sideways or are we going to be able to kick in again and enjoy the benefits of globalization? Or what's the future hold here, do you think? I mean, I think the challenge, I think you comment on the mark, as you know, politically, if you look at Congress, for years when Democrats wanted to get a trade bill passed, they relied on Republicans. And when we look at the Trans-Pacific Partnership or TPP, it lost votes. You know, there were no votes on either side of the aisle, both Republicans and Democrats. So I think trade deals are really very hard going forward. And I think that's why the one of the reason the Biden administration and Secretary Romando and others have worked on, it's not a great, we don't have good acronyms in the government, IPEF, the Indo-Pacific economic framework. Right.

Clearly, we don't have marketing people working on these code names. But anyway, so that's why I try not to use too many. Actually, in my book, I have about 30, 20 pages of explaining what these acronyms. I saw that. Yeah. complicated. So I think the Indo-Pacific economic framework is a response to saying, all right, we're not going to pass a trade deal, but we have to find a way to work better on logistics, on supply chains, on harmonizing those things. And that's still running into some difficulties right now, certainly on digital trade and the trade pillar of that. But that's, I think, I think that makes good

sense, I think it's the best we can do right now. And if people don't think it's good enough, then we're going to have to re-examine where we stand on trade. But I don't think we're ready to do that. So my read on what you're saying is you're optimistic that we don't necessarily need to go down a darker path here, that the kind of tensions between the U.S. and China don't need to unravel into something more serious. And there's good reasons to think that would be the case. You're also saying pretty difficult, at least in the foreseeable future, to see any kind of trade deal or other effort to kickstart globalization again. We're kind of on the de-globalization, de-risking path here, at least for the foreseeable future.

Yeah. I mean, listen, we trade with a lot of countries without a trade deal. You don't need to have a trade pact, a trade agreement in order to trade. We've been trading with Vietnam for years without a free trade agreement. That's not required. It adds some certainty. It reduces trade barriers and tariffs, and it makes trade easier and more harmonizing, but you can trade regardless.

And, you know, I think one thing that really separates us from China is, you know, China has this China 2025 policy. They really don't want to, they would like to be almost an art-talkie, you know, not importing anything if they could. And the COVID vaccine is a good example. We thankfully, we are still the most open country in the world and foreign goods, whether it's cranberries, back to Chris, or avocados, which I put in the book and so forth, you know, come into our country. And we live a better life as a row. We have more choices, lower prices.

I think we're now in a period, and it came with the Inflation Reduction Act, of also balancing jobs and imports. When it came to electric vehicles, there was a real tax preference if the electric vehicles were manufactured here with American components. So there are some trade-offs, and partly what I was hoping my book would do

is there are always a trade-off. You know, we can say, yes, we want those jobs. That may mean we have fewer electric vehicles immediately. but we've made that choice. There's a lot of different things I want to go ask you about, but we are running short on time, and I do want to turn the conversation back to Chris and Marissa.

Chris, maybe, is there anything you want to explore while we have Fred? Maybe one thing. Nick, early on in your comments, Fred, you mentioned, it's not just de-globalization that's going on. We also have a period of potentially enormous technological change, And I'm curious if you think those two trends are linked, right? So one theory could be well if we were going down the path of technological innovation, more 3D printing, right? Maybe globalization was already going to be pulling back, independent of the politics here.

We're going to just manufacture more things in the U.S. or locally because technology enables it. Do you see that as a factor in all of this? Or how is that? Absolutely. I'll give you, since you guys like statistics, you know, and I joined the Export Inboard Bank, we used to calculate how many jobs were generated by a billion dollars worth of exports. And it was like 7,400 jobs when I started. By the time I left eight years later, it was in the 5,000s. And just to put your point, I think with technological changes, and that labor is a smaller and smaller portion of manufactured goods.

there's less of a reason that companies would be looking for a low-cost labor environment. I'm not saying none. I'm just saying less, as you pointed, and 3D printing and so forth. So those things contribute to it. The other thing that also contributes in the automation and technological is greater customization. People are talking of a point in time where you could customize your own sneaker with colors and so forth. Well, there's a real advantage of doing that right here because people want to order it, and you're probably going to locate next to a UPS or a FedEx hub so that you can deliver within days.

So those kind of trends will certainly be more on-shoring and nearshoring as a result. And that's, and, you know, that plus I think China's under President Xi is seen as too unstable, both unstable internally because of Xi is such a strong-handed and strong man. And B, U.S.-China relations are so fraught that I think that has certainly contributed. A lot of Chinese companies are opening in Mexico because it's deemed a more reliable trading partner with the U.S. than China is right now. Mercy, anything you wanted to bring up? Well, Fred, you mentioned at the top of our conversation that Mexico is now our biggest trade partner.

So I'm wondering also, we spend so much time focused on China and the relationship with China, but how does the fact that we're trading more with other partners kind of change the geopolitical landscape and our priorities abroad, do you think? That's a great question also. One of the things I learned when I was chaired the Export-Import Bank under President Obama, and that was many said to me, you know, the U.S. has ignored central Latin America. you know and frankly china made large inroads into those places so hopefully that does change that dynamic and um you know we share a large a long border with mexico um there are large

numbers of mexican americans and so forth so i would think that begins to change that dynamic uh very much so um and you know so that has a role on on geopolitical politics and how those relationships. I mean, just the way he also said, the fact that I think we have a different working relationship, even as poor as it may be at the moment with China, but partly trade is one thing that has kept a little bit that glued together and has created some way of, even if we de-risk, we're not going to be able to totally decouple. You know, we had very little trade or other relations with the social. Soviet Union. You know, Pepsi and Stolich-Naya vodka. I mean, there were not a lot in those early

days. And I think that made for a more brittle relationship. I give you another example I discovered in my book, you know, we don't do a lot of trade with Turkey. And as a result, it's often been a more brittle relationship. We don't have as much trade, including education, tourism, and so forth. So there's just less non-governmental interaction that would maybe keep both sides sort of on the, you know, provides some guardrails. Oh, that's an interesting point. I wonder if there's, I'm guessing there must be studies kind of looking deeply into that point.

You know, if you have deeper economic ties, you have more stable political ties, too. That's an interesting point. No, of course, you know, Russia and gas to Germany that did not. That was not the case there, but it doesn't mean it's perfect. But it does have some value. Well, I want to end the conversation this way. We got an election coming, a big one. It feels like every election I think it's the biggest one in my lifetime.

But I think this is going to be the biggest one in our lifetime. It feels like it's going to be Biden v. Trump. Let's just assume that it is for sake of a conversation. what does trade policy in the world look like on the other side of the election if Biden wins re-election or Trump wins re-election? How are you thinking about that? Well, I think that if... Or are you thinking about that?

Is that on the radar screen? Say that again? Is that on the radar screen? Is that something you've been thinking about? Somewhat. I mean, let me say this. I guess I haven't really wanted to think too much about President Trump re-entering the White House from a whole host of reasons, but including trade. I think that, you know, it exacerbated and made worse our relations with some of our closest allies like Canada.

You know, to say Canada posed a national security threat to the United States is somewhat laughable in Germany as well. you know so if we want to find ways to improve things with china for example which is certainly are the largest the most important relationship we have finding ways to do that with other countries that we are close to is the best way of doing that if china can't pit us against France and Germany the EU that would be that's a good thing so I think president Biden is far as far as changed the entire dynamic of a relations with those European partners and with developed world. One of the areas that we face a real problem, I think, is what everybody called the global

South, but or developing nations. And I think the rift between the developed world and the developing world has gotten wider and wider. And COVID did not help. Immigration and migration policies were seen as part of that in terms of how the world trade Ukrainian refugees versus refugees from, say, Africa and the Middle East, those things are really fraught. And I don't see if President Trump was reelected. There's no way that gets better. That only gets worse. And it gets worse at our peril because countries like Russia and China are

delighted at that rift between some of what we thought of as our natural allies and partners. And so President Biden is far better position to try and stitch that back together and to heal that, which would be far better for us in the long run. I mean, Africa is going to be one of the largest continents in population in our, well, maybe not my lifetime, but in our lifetime before the mid-century. And we, you know, we know what President Trump called African nations. Yeah. Not to be repeated because we don't want an R rating on this podcast.

right right well we're going to have to have you back because i had a lot of other directions i wanted to go but we just don't have time to do that uh just uh out of courtesy because i i you know i kind of led the discussion in a certain direction that that might be frustrating you a little bit is there something you wanted to say that we're focused on that we haven't done that this is an open-ended question do do we miss anything you want to chat about yes trade is not a full letter word is a great christmas gift and a stop it should be on the list. Absolutely. And I concur with that. Yeah. I will tell you what George Will did say when the book came out in 2020, George Will and the Washington Post said, this is the one book present Biden needs to read

about trade. So that was pretty good. That's a great one. Great one. Yeah, very good. Yeah, indeed, a strong endorsement for me. So everyone should read it. Again, it's the thing I find really interesting about it is it's well written, but the history. The history is so cool. You really learn a lot. And like lots of the historical background, very important. Okay. You don't want to read. You could get the audible and you'll have to listen to my voice. That's all. You know, you got a malefluous voice. Yeah. Yeah. Okay. Voice for radio. Voice for podcast. Well, it was great to have you on, Fred. Thanks so much. Thank you. Thank you, Marissa. Thank you, Chris. Thank you, Mark, for inviting me. It was a lot.

of fun. And Marissa, thank you for toughing it out. I hung on. Yeah. Thank you for doing that. I really appreciate it. The whole Disney thing was really critical to the conversation. So, I really appreciate that. Yes, thank you for the Disney plug. It helped me get it, jump in the conversation early. Yeah, exactly. Exactly. All right, right. Well, with that dear listener, we're going to call it a podcast. Talk to you next week.