David Westin, the host of Wall Street's week, joining us every day at this time.
And David, we've been talking a lot here about economic conditions and more
importantly, I've been talking about the resiliency and consumer spending that's
holding up. Yeah, which is great for the economy.
And although the inflation's also holding up a bit, which is troubling.
But one of things we look at and well, sure, we can sort of the longer term
trends and one of them is the so-called multipolar world and what that really
would make mean for global growth in the long term.
So we turn to somebody with a lot of experience, both in international
economics as well as the private sector. Michael Froman, he's now vice chair of
MasterCard. He's the former U.S.
traders and he's about to become president of the Council on Foreign
Relations. We asked him whether in the future we're
going to have one globe when it comes to trade and investment.
The days of what might be called hyper globalization, where everything was
integrated under the WTO into kind of a single rules based system that is
probably receding. And we are seeing regional arrangements,
arrangements of different countries around different sets of issues.
What I call plural literalism, open plural naturalism, which may the the the
new frontier of where the global trading system goes.
Does that inevitably mean slower growth? Because there is more friction around
the world, it will potentially lead to slower growth and higher prices.
But I think it's a reflection of the fact that up to now, the whole focus of
the global trading system has been around efficiency and the efficient
supply chains. That's been good for intermediate inputs
that go into manufacturing. It's been good for the consumer is able
to buy more of the basic needs that they have for less of their disposable
income. But it does come and we've seen this not
only in United States, but around the world at the cost of dislocation.
And governments have not been terribly well positioned to a terribly effective
at dealing with the dislocation that comes from that.
So now we're seeing people concern not just about efficiency that can say that
they're worried about resilience, redundancy.
They want to move supply chains closer to their markets, more friends shoring,
some restoring back to their back to their home markets.
Inevitably, less efficiency means higher prices.
And it'll be an interesting experiment to see what people's tolerances for
higher prices in an already inflationary environment.
At least some of the developing countries find that a bit threatening.
They hear resiliency. They hear supply chain and say that
means you're going to take it away from us and you're giving it back
domestically or just right next door, like, for example, the United States,
Canada and Mexico. That leaves out the rest of us.
Doesn't mean necessarily so. The developing country countries lose.
Well, I think it means we'll be some reshuffling.
And first of all, I don't think we're seeing the wholesale change of global
supply chains in their entirety. I think what we're seeing is at the
margins when companies are deciding where to put their next plans or how to
ensure that they're not overly dependent on one market for production, they'll
look for a second or third market to put their next plant and to expand their
their supply chains. So Vietnam has been a huge beneficiary
in Asia as people have looked beyond China.
Malaysia has been a huge beneficiary. And yes, while Mexico and Canada are the
most obvious near shoring for the U.S., Central America, South America are also
benefiting. So I don't think it means a wholesale
movement away from developing countries and emerging markets, but it may involve
some reordering of the supply chain. What does this mean potentially for Wall
Street? Forgive me.
People on Wall Street, but also the companies that are involved.
And we knew sort of what the rules were before.
We knew the globalization was a good thing, that we could grow our business
by going overseas. Is that still the case?
Where where do I invest my money now? That's the safest and the most likely to
return profits. I think the environment is going to be
much more complex going forward. We already see it.
First of all, we see a return to war in Europe, which is we haven't seen in 75
years. We see a degree of decoupling, although
sometimes that's exaggerated, but at least in over some of the more sensitive
technology sectors and we see a lot of political movement around nationalism
and localization requirements that are requiring CEOs and investors to really
think through how much more complex the international system is than it used to
be. I think I've also seen come out of those
World Bank IMF meetings a couple of weeks ago.
The growth at the global level is quite varied.
It's not there's some high growth countries.
Still, there are much slower growth countries and particularly the
developing countries and the emerging economies that have a lot of debt ran up
a lot of debt, particularly around Covid as they were spending money and
borrowing and spend money on supporting their people in their small businesses.
Those countries are having to deal with that burden in a rising rate
environment. And so that, I think is another issue
that investors and companies are gonna have to look at very carefully.
How much was, say, will China having all of this?
I mean, obviously, the China U.S. relation is something we talk about
every single day. The same time, even when you talk about,
for example, so the debt might lose some of the less developed countries.
China has a lot of that debt. Not clear what's going to happen with
it. How much does China get to determine
what the new structure looks like? Well, China is going to be absolutely
critical to this one. They still account for a very
significant percentage of global growth. And if they're not growing, then the
global economy is not going to be able to grow as much either.
With all the dependence on their their market and their demand for commodities
and other other products. Secondly, as you said, they are a major
creditor and particular to developing countries, not just in Asia, but around
the world, Africa and elsewhere. Oh, a lot of money to China.
So what role China plays at the table of debt restructuring is going to be
absolutely critical. And there's no consensus at this point.
There was a big discussion in Washington over the last couple of weeks about that
around the IMF World Bank meetings. Would China play a constructive role in
restructuring some of their belt and road debt and other debt so that these.
You can get out from underneath that burden and no resolution was reached.
So you were USTR, you've dealt in this international arena and in Washington
for a long time. As a practical matter, does U.S.
have to do sort of sort out with China? What are rules of the road between those
two countries before you can really move to the rest of the world?
Because right now it's very unclear exactly where those rules are.
I think that's right. I mean, I think you have to take a step
further back. We're not having a lot of communication
at this point, whether it's about military issues and and potential areas
of conflict around the economic issues and areas of how to de-escalate some of
the tension that has been created while also protecting our national economic
interests or our national economic security interests, as well as on the
issues that we need to work together on, whether it's climate change or
nonproliferation, North Korea, elsewhere.
So first thing first, we've got to get people back to the table.
And while there's a broad consensus in Washington and elsewhere about the
nature of the challenge that China poses to the U.S., there's much less
consensus, much less work being done on what is the new equilibrium that we're
trying to achieve with China. What is going to look like going
forward? Is it a new Cold War?
Is it some other kind of relationship? It's probably not going back to the 70s
and 80s and 90s of engagement and hoping that that produces a different result.
But we don't know what the new model is.