The Munk Debates Podcast - Be it Resolved: Tariffs Are Terrific
Episode Date: January 1, 2020Is Trump winning the global trade war? One this episode of the Munk Debates Podcast, Jason Furman squares off against Alan Tonselson to debate the motion be it resolved, tariffs are terrific. SOU...RCES: CNN, AFPBecome a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.
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I think it's time for this toxic binary zero-sum madness to stop.
We're not an imperial power. We're a revolutionary power.
We are no longer in a world where you can plot out moves statesmen to statesmen like a chessboard.
You don't know anything about my background to where I came from.
It doesn't matter to you because fundamentally I'm a mean white man.
We can't do this to the next generation because America will cease to exist.
Welcome to the Monk Debate podcast. I'm your moderator.
Rudyard Griffiths. Our mission every episode is to provide you with civil and substantive debate
on the big issues of the day. Free of spin, focused on facts, and animated by smart conversation.
By the end of each debate, our hope is that you'll be armed with enough information to make up
your own mind about any given issue. On this episode, we debate the motion. Be it resolved,
tariffs are terrific. The main question that arises is not, should these should these
trade policies be fundamentally changed, but why did they remain in place so long to begin with?
Tariffs are regressive tax. They fall the highest on the families that have the hardest time
paying them. They don't do anything positive. The United States has been taken advantage of
by other countries, both friendly and not so friendly for many, many decades. And we have a trade
deficit of $800 billion a year. And that's not going to happen with me.
The U.S. White House believes that America has been the victim of unfair trading practices for far
too long, creating a global economy where foreign workers profit at the expense of American businesses.
Donald Trump is now bent on using tariffs to rewrite trade agreements to benefit U.S. workers
and the American economy. Advocates of free trade.
and economic globalization are sounding the alarm. They believe that Trump's tariff tantrums
with Europe, Mexico, Canada, and specifically China are pushing the U.S. economy into recession
and represent a fundamental misunderstanding of how the global economy works. On this installment
of the Monk Debates podcast, we challenge the essence of these arguments by debating the motion
tariffs are terrific. Arguing for the resolution is Alan Tonelson. He's the founder of
reality check, which covers U.S. economic technology and national security policy. Arguing against
the motion is Jason Furman, who served as chair of President Obama's Council of Economic Advisors.
Alan Tonneson, Jason Furman, welcome to the Monk Debates podcast. It's great to have you both here
for a spirited debate on trade, globalization, tariffs, a whole set of issues that are
swirling around our politics and swirling around our economies.
Alan, as is convention, the person arguing for the motion goes first.
So we're going to put three minutes on the clock.
Your time starts now.
Thanks so much for having me on.
Not to start out on a picky note, but although the Trump administration glosses over this distinction,
it's not simply foreign businesses and foreign governments that have profited at the expense
of U.S. industry and the U.S. working class.
Crucially, it's also U.S. owned multinational companies that have,
adopted offshoring-centric business models and whose domination of trade policy making
throughout the immediate pre-Trump decades bears direct blame for the trade policy catastrophes
we've experienced, like liberalizing commerce indiscriminately with China, that have not only
weakened the American economy but helped create a major threat to national security.
But recklessly enabling the rise of an economic rogue and rapidly strengthening geopolitical
rival like China, has only been one reason for fundamentally changing the course of U.S. trade
and also industrial policies.
The latter included because manufacturing still dominates America's trade flows and remains a prime
victim of trade policy mistakes.
Among the other truly epic failures of the pre-Trump approach, first, by focusing so tightly
on trade expansion and liberalization with very low-cost and low-income countries, these policies
inevitably fostered lopsided flows of goods and capital in particular. The most important
of these strap the United States with immense deficits that can only be financed with unprecedented
inflows of cheap foreign credit. Bloaded and intertwined consumption and housing bubbles inevitably
followed, as did their disastrous bursting in 2007 and 2008. Second big problem, just as this
credit flood and the Rube Goldberg finance had fostered over-financialized the American economy,
pre-Trump presidents' indifference to predatory foreign trade practices, which often benefited
U.S. multinationals that produced and exported from protectionist countries, undercut the manufacturing
sector that's the economy's productive heart. It stunted its growth and therefore its employment
creating and wage-earning opportunities. Third big problem, the ballooning trade deficits,
viewed with such indifference by the pre-Trump presidents, also slowed the entire economy's growth rate.
Although worsening trade balances don't always subtract from growth, they do have this effect
if alternative growth fostering tools like fiscal and monetary policy are actually or nearly
tapped out, and if global growth is sluggish.
Circumstances which all hold today, and the effects can be substantial.
Finally, the economic losses suffered by the white working class men in particular who have
nominated the manufacturing workforce, their families, and their communities have produced devastating
social consequences.
When you add the national security dangers fostered by the creation of China-centric supply
chains and high-tech industries and the wholesale transfer of defense-related technologies to
Chinese entities by U.S.-based multinationals, the main question that arises is not, should
these trade policies be fundamentally changed, but why did they remain in place so long to begin
with?
Great.
Alan, thank you. Okay, Jason Furman, over to you to get your statement against the resolution, be it resolved tariffs are terrific.
The 300 million American people who pay tariffs may not realize they're paying tariffs, but if they did, those people would not find those tariffs to be terrific.
We have a lot of problems in America. Wage growth is too slow. Inequality is too high. Equality is too high.
there's not enough opportunity.
If you asked me to go out and solve those problems,
I never would have said the right way to solve them
is to have a tariff on backpacks,
a tariff on sporting gloves,
a tariff on stainless steel spoons,
and by the way, no tariff on silver spoons,
a tariff on the clothing that people buy at a store like Walmart,
than the clothing that people buy at a high-end boutique in the Upper East Side of New York.
Tariffs are a regressive tax.
They fall the highest on the families that have the hardest time paying them.
They don't do anything positive.
Allen argued that tariffs reduce our trade deficit.
That's not true.
Brazil is a country with very high tariffs that actually also,
has a very high trade deficit.
Germany on the other side has very, very low tariffs
and runs a huge trade surplus.
Empirically, there's no relationship
between tariffs and the trade balance.
If you want to improve the trade balance,
then you'd have to get Americans to consume less
or get American businesses to invest less.
Either of those are mathematically
directly linked to what the trade balance would be.
The final thing I'd say is who would say that it was a bad idea that the container was invented?
Who would say that America's made a mistake by investing in our ports?
Both of those are equivalent to tariff reductions.
When you have a container, when you have better ports, it makes it cheaper and easier to export.
it makes it cheaper and easier to import.
The beneficiaries of that are disproportionately Americans consumers,
and in particular, low-income consumers,
who disproportionately buy the imported goods.
If we put rocks in our harbors, we ban the container,
that would reduce trade, but that wouldn't make Americans better off.
Jason, thank you for that opening statement.
Let's have your response to that.
Tom Thomelson. Well, first of all, it's certainly been an unusual experience being labeled as a critic of
infrastructure building. I have no problem with ports, which of course not only handle foreign
traffic, but handle purely American domestic traffic. There's no doubt that specific
tariff decisions can be criticized and should be criticized. And recent tariff decisions are certainly
no exception. But the idea that the tariffs that have been imposed so far by the Trump administration
have had anywhere near the effect, the damaging effect, on lower income or working class
Americans just doesn't pass the laugh test. What has really hammered their living standards and
their prospects has been the very substantial loss of manufacturing jobs throughout industry
that have historically provided these kinds of U.S. citizens and U.S. residents with their best
bet for achieving middle-class lifestyles, middle-class living standards, and generating even better
opportunities for their children.
We've lost over a fairly short period of time.
60,000 factories in our country, closed, shuttered, gone.
Six million jobs at least, gone.
And now they're starting to come back.
Finally, the notion that tariffs don't reduce trade deficits, as proven allegedly by the
example of Brazil or even Germany has absolutely no relevance to the current American experience
because what we have seen is that the very substantial Trump tariffs on Chinese imports
have dramatically reduced the American merchandise trade deficit with China by the order
of 20% year-to-date so far. That's a very considerable accomplishment.
A lot to unpack there, Alan. But Jason, let's have you respond to a key point that's
probably on many listeners' minds.
This idea that low tariffs, free trade, is responsible for the hollowing out of American
and other advanced economies, industrial cores, and has been negative in terms of its effect
on working class and blue-collar workers.
Do you accept that proposition?
No.
And let's just look at the last year as a great experiment to test this proposition.
We've ramped up tariffs on steel and aluminum.
We've ramped up tariffs on imports from China.
And what's happened in the last year?
We've lost manufacturing jobs.
The trade deficit with China has narrowed, but America's borrowing from the rest of the world,
its current account deficit overall, has actually risen and widened.
So why has all of this happened?
Half of our imports are consumer goods.
But half of our imports are intermediate goods that are used by American businesses.
American businesses import steel, they build cars, they sell those cars to Americans, and they even export those cars around the world.
When you raise the price that American businesses have to pay for steel, above the price that Japanese automakers have to pay for steel and German automakers pay for steel, American automakers have to pay for steel, American automakers have to pay more for steel,
than any automakers in the world, if they're making cars in America,
that disadvantages our manufacturing industries.
And you have about 40 jobs in industries that use steel for every job that's in steel.
And so for every steel job we've saved, we've paid a price of about $900,000, according to one study.
And we've actually lost jobs in other manufacturing industries.
So on net, this experiment that we've tried with higher tax.
tariffs to protect certain manufacturing industries has failed.
It's hurt American manufacturing, hurt the trade balance, and hurt the overall economy.
You're listening to the Monk Debates podcast.
Be it resolved, tariffs are terrific.
I'm your moderator, Rudyard Griffiths.
Alan, let's have you come back on Jason's argument here in a sense that the global economy is just too interconnected.
You cannot have a high tariff regime.
regime of kind of economic nationalist policy when it comes to trade because the trade-offs
just don't work, as Jason has elaborated in this example with Steele.
Do you accept that argument?
Not on the slightest.
First of all, crucial to remember that tariffs are not the only impediments to trade that
governments around the world use.
Non-tariff barriers, various measures that are very difficult to identify often, because
foreign governments often operate in very secretive ways, have become much more important than
tariff barriers. And countries that have either high tariffs or high non-tariff barriers or
some combination of those two have seen their manufacturing sectors thrive, and I would
include Germany, and I would include China, of course. Second, the idea that the last year's
experience with manufacturing in this country proves that tariffs don't work is just
It's just not serious.
For example, we had several technical manufacturing recessions during the previous administration
for which Jason worked.
And there was nothing like the level of tariffs imposed by President Obama as compared
with those imposed by President Trump.
We also had very substantial periods of manufacturing job loss and manufacturing job stagnation.
So, Jason...
It's not just tariffs by any means.
Jason Allen's talking about...
about an economic record that you were part of as a senior official in the Obama administration,
do you accept his argument that the low-terror regime, the neoliberal agenda that was pursued
by successive administrations, both Republican and Democrat, previous to Trump, had fundamentally
hurt American workers and American industrial capacity? Why is Alan wrong?
Let's look at China. In 1992, China had
tariffs that average 32%.
What you're calling the neoliberal
agenda pushed China
very hard, and by 2016,
its average tariffs were down to 3.5%.
Now, in the trade war, they've gone up
since then. Non-tariff barriers,
Alan is absolutely right.
They're a bigger deal than tariffs.
That's why we pushed quite hard
on that.
China's currency. They were
manipulating their currency. We push very
hard and got them to stop manipulating their currency as a result. Their currency rose a lot in value.
And China went from having a trade surplus or a current surplus with the entire world of 10% of
GDP to coming down to nearly balance. That was the result of constant pushing to get tariffs down,
to get non-tariff barriers down. And that's an example of actually increasing global
integration, not decreasing it.
With expanding power and prosperity also comes increased responsibilities.
And so we want to work with China to make sure that everybody is working by the same
rules of the road when it comes to the world economic system.
And that includes ensuring that there is a balanced trade flow between not only the United
States and China, but around the world.
We need to do more to get those non-tariff barriers down, but the idea that you're going to help American manufacturing by forcing American manufacturers to pay higher prices for steel just defies common sense.
So, Alan, let's move on to China, because this is a major piece of this debate.
It's somewhere where the politics and economics really get white-hawn at this moment.
What is the argument for Trump's tariff regime that is currently being imposed on China?
Because I'm sure Jason and others will argue it's having deleterious effects on the global economy.
It may well be pushing the U.S. economy into recession.
How is this in any way in the interest of American workers?
Well, first of all, if anybody can seriously say that there is a U.S. recession coming any time,
soon. That's really pretty astonishing. There's absolutely no sign of that. Have there been signs
of slowdown? Absolutely. Have there been signs of manufacturing slowdown? And even a very mild
recession, absolutely. But again, the idea that tariffs have been mainly responsible simply flies
in the face of all the other evidence we have about all the other problems that the American
economy and the global economy have been experiencing that have nothing to do with President Trump's
tariffs, whatever. What the president really needs to drive home to the American people is that
the main purpose of these tariffs should be to hasten the decoupling of the U.S. and Chinese
economies that's already taken place and it's made very substantial progress since his inauguration.
This decoupling is necessary not only for economic but for national security reasons
because the United States high-tech base, the United States defense manufacturing base has developed very serious vulnerabilities regarding supplies of key Chinese products.
And that's got to end.
Jason, what's your take on the impact of Trump's significant tariffs on China and how that's affecting the American economy and how it speaks to this larger debate over whether tariffs are in America's economic interest in terms of the future of the U.S. economy?
Alan's saying fundamentally there needs to be a decoupling here because there is a growing geopolitical rivalry.
And it's a good thing that the Chinese and Chimerica is splitting as a result of the pressures of these tariffs.
Is that an argument that you would give us some credence to?
So the tariffs have been a net negative for the U.S. economy.
You can debate how big a net negative, but they're a net negative.
The U.S. economy is big and strong.
it's overcome that so far to continue to have solid job growth.
Part of how it's overcome it is an exceedingly unusual large reduction in the federal
funds rate, a monetary stimulus, which you would rarely see at this point in the economy.
Plus, we had a big fiscal stimulus last year in the form of a large spending increase and a
large tax cut.
So we've had very, very unusual macroeconomic policies which have kept
the economy going despite the negative weight of the higher tariffs.
That's in the short run.
The question is in the long run, could we decouple from China?
If the entire world wanted to decouple from China and we could have something like the
Cold War we had with the Soviet Union where we built an iron curtain around China and
on one side of it was Europe, the United States, Japan, and Australia.
and on the other side was China, there is a chance that would work.
I'm not sure that would work, but there is a chance.
That's not what's happening, though.
Europe is continuing to deepen its economic integration with China.
Australia, Japan, all of those countries are deeply engaged with China.
The United States has a decent amount of leverage in the world, but not an unlimited amount of leverage in the world.
And to the degree we try to decouple from China, that will just mean that the sales to China, the investments in China and the investments from China will go to Europe, we'll go to Japan, we'll go to Australia, that will leave the United States poorer, the United States weaker, the United States more isolated.
That's not a recipe for the success of manufacturing or any other part of the U.S. economy.
So, Ellen, come back on that point because it seems the preponderance of economic evidence suggests that the future of global economic growth in the decades to come is really in Asia, in Southeast Asia, fueled by China, fueled by the rise of Vietnam, a whole series of countries that are rapidly industrializing.
How is it in America's interest now to engage with China in a tariff war that, in a sense excludes America from the opportunities to access.
growth and the economic multiplier that that growth could have on the U.S. economy in the years to come.
Isn't this just counter to America's long-term economic interests?
What the preponderance of economic evidence also continues to forget is that the rise of this East Asia-Pacific region,
which has been very impressive economically by any stretch, has been heavily dependent on amassing enormous trade surpluses.
with the United States. And P.S., that's one big reason why Europe, Japan, and South Korea
have also profited from China's rise in ways that the United States hasn't, because in particular
China's export-oriented factories are filled with capital equipment from Germany, Japan, and South
Korea. And Trump's trade war has threatened to either turn off or greatly stanch this big spigot of revenues
that these ostensible U.S. allies have been profiting from for so long.
This is why U.S. trade curbs have had such a pronounced effect on the global economy,
because not only East Asia, but the entire global economy,
or at least that portion that really matters,
is heavily dependent for its growth on amassing gigantic trade surpluses with the United States.
We are just starting a negotiation with the European Union
because they really shut out our country to a lot of.
They have barriers that they can trade with us, but we can't trade with them.
They're very strong barriers.
They have very high tariffs.
We don't.
It's just not fair.
And by the way, if Europe and Japan and Australia, if they want to welcome Chinese investment,
whole hog, if they want to see China's state-run economy gain a much bigger foothold in their own economies,
If they're happy to see that happen, more power to them.
And that really calls into question how reliable they're going to be as U.S. allies and U.S. trade partners going forward.
They have some big questions that they've got to answer, whether they like Trump or not,
and they're not answering them very intelligently so far.
So look, we've been talking about Trump's application of tariffs to America's perceived adversaries, notably China.
But, Jason, what could be the rationale for applying tariffs to Europe, which is,
is arguably traditional American allies who share a common belief in the liberal international
order, who could be allies in a fight against China in terms of the growing great power rivalry
that we witness.
I mean, isn't this completely against American interests to poke Europe in the eye with tariffs
at this moment?
Yeah, I'd love to say one thing about China regarding what Alan just said, sure, and then get
to Europe, if that's okay.
Allen's analysis of Chinese trade surpluses is more than a decade out of date.
In 2005, China had a surplus that was 10% of its GDP.
That was massive.
Today, China is importing just as much as it's exporting.
It's not running a surplus with the world.
The United States has seen a widening of its trade deficit with
China, the same time it's seen a narrowing of its trade deficit with other Asian countries.
And some of this is just if the last stage in the production process is to assemble the
good in China, it gets recorded as an import from China, even if many of the parts of it
were made in other countries, some of them even in the United States.
So this has nothing to do with what the world looks like today and is a description of the
world over a decade ago.
I think what we want to look to is the future, where the future of jobs,
manufacturing has a role in that, but services has a very important role in that.
The United States runs a trade surplus in services,
trying to overcome some of the barriers to our services,
and help us build up the strength of our service economy, I think, is particularly important.
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Alan, let me come back to you. I think, try to bring this debate down to the perspective of, you know, an individual electrician, a steel worker, somebody who is not part of the knowledge economy.
talk to that person in terms of why they should welcome Trump's current focus on tariffs as not simply a geopolitical tool, but as a tool to refashion American industrial policy to advance the interests of blue-collar workers.
What is that argument?
The first point that I would make to these workers and to their families is that there is that there
is absolutely no reason to think that tariff policy or trade policy alone, including negotiating
new trade agreements like the U.S.-Mexico-Canada trade agreement, or any panacea to the kinds
of challenges that the American economy faces. There's no question that many reforms on the purely
domestic front need to be made also, and there's also no question that the need for these reforms
has been so far very sorely neglected by President Trump.
He needs to refocus on those very quickly.
At the same time, there's also no question that without a healthy U.S. manufacturing base,
there is absolutely no prospect that the United States can remain a leading global high-tech
power because so much of high-tech involves manufacturing and because manufacturing is responsible
for so much, in fact, the lion's share by far of private sector research and development that's conducted in this country every year.
So if the manufacturing base is not world class, and it certainly hasn't been recently, and hasn't been, frankly, for most of the immediate pre-Trump decades, there won't be a viable high-tech American economy.
So, Jason, why would that, let's say, blue-collar voters sitting in Kentucky or Ohio,
be wrong to think that President Trump's current seemingly economic nationalist policies isn't in their economic interest.
A worker in the Midwest can look around them and see that manufacturing jobs are being lost.
It's because the many reasons, one of which is the cost of inputs into manufacturing, like steel and aluminum, is going up.
That makes it hard to compete.
Some steel jobs have been saved by the tariffs.
Other steel jobs have actually been lost.
There's a lot of American steelworkers that are working in a foreign-owned factory.
If it weren't for that foreign investment, that factory wouldn't exist.
If it wasn't for the intermediate inputs of steel that they were importing and refashioning
into even better, higher value steel, that steel wouldn't exist.
you have steel workers that have lost their job because of steel tariffs,
and you have an awful lot of workers in every other industry in America that have lost their jobs.
So I'd say look around and say, do you like the trend that job growth is on in the last year?
If your answer is yes, then maybe you like the tariffs.
Second thing I'd say is do you shop for your family?
Do you buy backpacks for your children?
Do you buy dishes?
do you buy televisions?
The prices of all of these are higher because of these sorts of tariffs.
That's not helping you.
That's effectively like a wage cut on American workers.
So before we go to closing statements for you both, Alan, I want you just to think about the last half hour so that we've spent together.
And is there anything that Jason has said that would lead you to rethink one of your core arguments or propositions today?
Or do you remain completely unconvinced?
Well, Jason's a very fine economist.
There's no question about that.
But I was especially distressed by his focus on the Trans-Pacific Partnership,
which really strongly indicates to me that he unfortunately hasn't learned too many of the lessons of U.S. trade policy failures.
And I'll just make two points about that very quickly.
TPP, as negotiated by the Obama administration, contained a wide-open backdoor
for lots of goods with lots of Chinese content.
So the idea that's been widely bandied about that TPP would have been a much more effective curb on China's rise than President Trump's tariffs has completely ignored the crucial details of TPP, which would have created enormous new opportunities for China.
Alan, you're foiling my attempt here for a brief moan of conciliation at the end of this podcast.
But no, I enjoy the spirit of debate.
But Jason, similar question to you.
Anything that Alan has said today that would give you kind of pause for thought in terms of your own views and opinions on our debate resolution?
Sure, Alan only mentioned it briefly, but there's a lot we need to do to invest in America, to invest in American infrastructure, to invest in American R&D, the manufacturing sector, punch.
is well above its weight in terms of R&D, so more to subsidize businesses doing R&D, whether
they're in manufacturing or not. That's an idea that would disproportionately help manufacturing
firms. So I think there are a lot of investments that we need to make in America. We can't just
assume you let the economy alone, you have no government, and all of a sudden it's all going to
take care of itself and thrive. There's a lot we need to do. I just don't think what we need
is to have a bunch of lobbyists come in and pick and choose at random what tariffs to place on goods coming from abroad.
Fair point. Well, let's go to closing statement. So Alan Tunelson, we're going to put two minutes on the clock. Let's have your closing summation for this debate.
As I said before, there is no shortage of grounds to criticize President Trump's execution of America First Trade policies.
In particular, he can and should be faulted for not announcing a clear China strategy,
for not explaining the economic and strategic stakes comprehensively,
and for the on-again, off-again nature of his tariffs,
which, by the way, have certainly been a significant contributor to business uncertainty in this country,
and that certainly have slowed growth.
Finally, absolutely invest in this country, in science, in technology.
But this renewed and badly needed focus will greatly underperform our expectations if foreign
governments remain free to steal or extort intellectual property and other valuable
technology and to subsidize and dump key industries out of existence.
So, again, no question that purely domestic reforms are needed to fully revive the American
economy, but substantially different trade policies along America first lines have to
to be a major ingredient too.
Alan Tunelson, thank you for those closing remarks.
Jason Furman, we're going to give you the last word with two minutes on the clock.
In many ways, President Trump has done a useful service to advance the debate on globalization
because he has advanced an anti-globalization agenda and it's become increasingly clear
that it hasn't worked.
And it's not just the execution of his agenda.
It's the premises underlying it.
Those premises include that.
China's running large trade surpluses at the expense of the United States and the rest of the world?
Well, that's false because China's actually running balanced trade.
And you see countries with large trade deficits that do well and countries with large trade
suppuses that do poorly.
It's based on the premise that the items we import solely can be understood as displacing American
jobs when much of what we import is actually an input.
into American manufacturing and into American production.
It's based on the premise that American consumers don't matter or won't be paying the tariffs.
That's false.
American consumers do pay the tariffs.
In fact, it's disproportionately low-income American consumers that pay the tariffs that the United States has overall right now.
Instead of some of these false and backward-looking premises, I think it's much more important.
not to be distracted by thinking that America's problems were made in China, that Americans' problems
were made overseas, but instead, look at what we've done here in America to make those problems
and contribute to them by underinvesting in infrastructure, by under investing in research,
by underinvesting in education. So instead of distracting ourselves and finding a convenient
foreign enemy, let's focus domestically, make America more productive, make it more
competitive and make sure more American workers share in those benefits. Thank you. Jason,
thank you for those closing remarks. Alan Jason, thank you for a substantive, civil and informative
debate. I think this is exactly the type of thoughtful conversation we need on these hot topics
to expand our minds to reflect on the big issues of the day and to come away with a new, appreciated
shared understanding. So thank you both for your time today. The Monk Debates podcast is a place for
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