tv Brookings Institution Discussion on Trade CSPAN October 9, 2018 3:40am-5:10am EDT
at german u-boat campaigns during world war i, starting with the 1918 u-boat attack that ss marack. barak -- friday, descendents of presidents ford, truman, mckinley come in theodore roosevelt share family stories at the kennedy center for performing arts. watch american history tv this weekend prime time on c-span 3. >> next, a look at the global impact of u.s. trade policy. economists and trade experts discuss trump's approach to foreign trade. from the brookings institution, this is an hour and a half.
>> good afternoon, everybody. i'm the director of the center for east asia policy studies. and it is a pleasure to welcome all of you to today's program. a new dawn for protectionism, question mark, between the trade war, and the mega trade agreement. you have probably noticed that we have a lot of panelists in the room today. so this program will be broadcast later on by nhk world and the global agenda. i would like to take a moment to thank nhk for the generous support to help make this possible and to the commitment to independence and underscore that the views represented here today are of the speakers only. so we have a terrific group of experts today willing to share their expertise. they come from very different fields, so i think it is going to be a very rich discussion, from economics, from political science, law, journalism. let me introduce them briefly for all of you.
tosedo nakimaya, professor from japan. edward alden, a senior fellow at the council on foreign relations here in town. a professor at the university of luven in belgium. and mark lewis, professor at harvard law school in boston. camebridge, actually. sorry. let me take a couple of minutes to set the scene, to highlight some of the important trends and issues that the speakers will be discussing in much more detail and we will certainly be taking questions from the audience so we can engage with you as well. i don't think it is too much of an exaggeration to say that we live in extraordinary times. and frequently, we don't know where the world is heading, and certainly we don't know where the international trading system is going. due to negotiation paralysis in the world trade organization, the wto, you can say that the route book on international
book onule international trade and investment has not been updated for the last almost 25 years. at the same time, there is concern that the actions and qualities are the two largest economies in the world could actually undermine the multi-lateral trading system. china's rise has not seen the emergence of a market economy, quite the opposite, many of the market-restoring policies have created very specific irritants in trade. we're talking about industrial, state-owned state-owned enterprises, over-capacity, the list of intellectual property. the list is long and i'm sure we are going to get into that in today's discussion. at the same time, the trump administration is calling for a complete reset of u.s. trade policy. it is skeptical of multi-lateral trade agreements, arguing that negotiating one-on-one is best for the united states and also has been very critical of the world trade organization, making
the case that it has not been fair to the united states. the trump administration has reverted to what we call managed trade tactics, and that is trying to set outcomes to try to reduce bilateral trade deficits. and it is very clear that the tool of choice is a tariff. so there is going to be a lot of discussion today i think on tariffs and quotas. and of course, we all know that the u.s.-china trade war has escalated very, very rapidly. now, while all of this is going on, while we see quotas and tariffs increasing, it is also true that governments are very actively negotiating trade agreements. so japan and the european union have made the case that they still believe that multi-lateral trade agreements are best. and they have actually negotiated some very large, what we call mega trade agreements. we have the comprehensive tpp, and of course, japan, the trade
japan-ed trade agreement. the trump administration was not very happy with the u.s. trade agreement or the north american free trade association but renegotiated them and we will discuss what has changed or not changed. and there is much more discussion about reform. so there is a lot happening in the world of international politics and we are going to try to address here some of the most important issues and what do we expect going forward. now, having laid out that background, let me then turn to the panelists and first, i think it is important to take stock as to how come we are at this juncture in international trade politics. why is protectionism on the rise? now, when you say protectionism, what first comes to mind are tariffs and quotas. and president trump is very fond of tariffs. he talks about them often.
and in a positive way. so i would like to first get a sense from the panel here about what is president trump trying to accomplish, and do you agree that tariffs are an effective powerful tool to bring about that re-setting of u.s. trading relations? so who would like to get us started? why does president trump like tariffs so much? >> i think tariffs could be an important instrument in this negotiation, because size matters in this respect. the u.s. has a very large internal domestic market. the chinese experts go for 20% to the u.s. the u.s. is importing 20% of its imports from china. the other way around, china is less reliant in terms of the u.s. for its imports. but the u.s. is very reliant on china for its imports. in terms of export market, the u.s. is not so reliant on china. so i think that sets the scene
where the u.s. is a larger market, and in that respect, i think retaliation through a tariff could bring about the changes that the u.s. is asking for. meaning to level the playing field. i think that is why they also ask for the reforms at the wto. there have been some occasions where the chinese have not been respecting some rules regarding lax enforcement of intellectual property rights, or some subsidization in industrial policy, mechanisms that the u.s. has not been happy about. they have been asking for reforms for the past decade already. so i think it is something that did not start with the trump regime but actually occurred already earlier under obama and so forth. and the eu and the japanese have given it a lukewarm welcome so far. i think the bargaining positions for them ve a ve the chinese are also something different. and the u.s. is in a position saying well, we will use the tariff instrument as a way to pressurize the reforms that we want at the level of the wto and leveling the playing field with respect to china.
>> i just think we all need to be clear that this is an historic gamble by the trump administration. the u.s. government made the decision, and it came after many years of heading in that direction, the mid 1990's, topush for the creation of binding dispute settlement in the world trade organization. a belief that u.s. interests were better served within a system where market power wouldn't determine outcome. where all countries, regardless of size, would behave by a common set of rules. that ann was an amazing thing for a country like the united states, the largest and most powerful economy in the world to support. we have now changed direction on that. and gone back to an earlier notion that because we are the biggest kid on the block, because we have the largest market, we can push others around to our benefit. that may well be true. but we shouldn't underestimate what a radical change that is from where the u.s. essentially spent 45, 50 years after the second world war arriving at. >> i would just like to share my
experience of sometimes people, people come to me, and they explain to me that what the president wants is tariffs. he just wants tariffs. and then 20 minutes later, someone else will come up to me, and they say, you see, the president really likes deals. and so i think we need to bear in mind that when thinking about the president's objectives or the president's strategy, that can be volatile, it can be changeable, but also just remember, always, when we are having this kind of debate that the trump administration is a collection of individuals, each of whom is vying for influence, and at the moment, it seems like the china hawks are in the ascendancy, and lighthizer, with the more tactable process, it seems like their dominance in terms of the trump administration's agenda, but previous instances when we saw the steel tariffs, that reflects a slightly different side, and
that could become more important at a later time. >> well, i guess, at the hart of it, this is political, i guess. because the maga, you know, make america great again, this trade, going against trade is at the heart of president trump's message. and of course, trade, many of the trade graemts is multilateral, and he is extremely skeptical and even antagonistic about the multilateral trade agreement. and it is not just the u.s. so i think going against trade is at the heart, at the core of the trump agenda. so we would have to somehow try to sort of tame mr. trump, sort of the political agenda, and try to treat this beyond just the trade issue.
and i guess we have to see the political side of it as well. >> thank you. >> i will just add one last thought here. i think what has been most shocking, probably to many people, has been the willingness of the trump administration to go after stallwart u.s. allies. so imposing tariffs against japan, the eu, canada, and so forth. and the one thing i will add here is certainly i agree with everyone that has been said here, where part of this is political, part of this is competition against china, but the other thing going back to your opening comments, part of this is also just frustration that u.s. allies have not been pushing a reform agenda quite the same. and as we mentioned, eu interests, japanese interests are different, visavis china, but also in terms of how they con figure their supply chains. and i think part of what tariffs are designed to do is to get
allies on board, with the u.s. reform agenda. whether or not this is effective, we will see in the coming months. >> great. so this is a wonderful beginning. now i am a little bit surprised when i asked you all, what does the president want to achieve with tariffs that two of the most standard explanations did not come up, were not at the center of the conversation, and one was to reduce bilateral trade deficits, and where that is actually, whether that is actually doable or not, trade agreement, or meaning. we are talking about the bilateral trade deficit and then closer to what you were saying, really an agenda of economic nationalism, to bring home the supply chain, to be a force that is not an advocate of globalization but of re-nationalization. it could also be, as mark was saying, it is about pushing allies to be more, to take a side, and the thing is for them to really be serious about the wto reform.
now my opinion is that the president is not really doing this because he believes that he needs to be tough, to get others to be fair and to open their markets. he is not pushing for free trade, it seems to me, because i look at the outcome of the u.s. mexico canada agreement, and i see the ties remain. and it is not really about eliminating the protections. so reactions of this? >> another objective, to raise, which is tax revenue, which he seems very excited about, and is probably not going to be a primary result of the tariffs. so on the trade deficit point, i think there, it is possible that the trade deficit was helpful in terms of identifying, not helpful, but it was the thing that led to him identifying the trading partners that we go for. rather than it being a result that he is hoping to get out of the trade negotiation. so i think early on, in the nafta negotiations, it looked like there may have been, it
looked like they were going to go, like the trump administration was going to argue for something in the deal that would relate to the bilateral trade deficit, some kind of clause that would specifically reference that, and that isn't in the final deal. so it almost seems as though in a practical negotiations, perhaps some within the trump administration have realized that it is not something that you can write in to the trade deal. famous last words. maybe they will try to put it in some of the other trade deals. you about but i think it leds to identification for people to pick on. >> i mean i think this is, there is no question about economic nationalism, i think this is certainly in part about increasing production in the united states. i think you have to look at the tariffs and the trading partners as part of a larger tragedy that includes the tax cut. the center part of the tax cut is a bigger cut on corporate taxes and makes the united states potentially a more attractive investment place.
and it makes it cheaper and better to invest in the united states. so i think there is a strong economic nationalist agenda here. i think the administration believe that the scales have been tilted against the united states, to attractive to outsource and export back to the united states. i think they are trying to push the scale in the other direction. >> i think there is a sense that the u.s. is being ripped off, and especially among people who support trump, and he came to washington and said that i am going to fix things. and that is what he was precisely saying during the election. and that's what he is supposedly doing in the white house today as well. so it is an important political message to his supporters that i am going to reduce the deficits. i think he will keep on saying. that i think it will be a symbolic message but whether it turns things better, i think
that is a totally different story. >> let me build from. that because it is true there was a political instinct behind the trump campaign in the sense that the trade message resonated with enough people who are a part of his style of governing, how he is going to move along u.s. foreign policy and what i am trying to get at here is president trump might not be an outliar, and actually a combination of a longer-term plan, and we know that trade has become a more divisive issue in the united states. i think, you had remarked in the past, that trade agreements and trade was approved on a bipartisan basis and that seems such a remote world today. but the striking issue also is you think about one country that helped shape the trading system is the united states and the united states now seems to be willing to step out.
there has been a very, very important shift, that the united states will not be constrained as much by the mechanism, that the market size will determine the outcome. so for, you know, audiences here, but also abroad, i think they are trying to understand why has the united states gotten cold feet? why is no longer backing its own creation, and why it is now perhaps the country that very actively now is trying to shake things around and disrupt the way in which we have been conducting business? so what is happening in the united states that makes the trump administration seem less of an outliar and more of a combination of the threat? -- of a trend. -- of a trend? >> i think there are two things, especially for an overseas audience, it is important to
realize, one is that while advanced economies have been hit by the technological changes in the offshoring of jobs, the domestic support policies in the united states, when it comes to particularly health care, but also redistribution, retraining, and so forth, the united states is really an outlier, compared to many advanced economies, and that has led to a much larger sizable portion here that is upset, for the reasons ted was talking about, right? not just necessarily us, but looking and feeling as though they are being left behind. i think the other thing that has changed though of course is the impasse at the wto. it used to be global trade rules were updated at least every roughly decade or so. the dispute settlement, at least in the united states' view, was not quite as aggressive about pairing back trade revenue rules. and from where the u.s. sits, that has been a major change as well. so i think those are the two major shifts if i look at what has changed today from say the
1990's when the u.s. was really a leader in multilateralism that happened. that might not be quite apparent to folks overseas because in terms of where the wto body has been trading back trade remedy, other than europe, other countries have not necessarily felt the brunt of that to quite the same extent as the united states. >> go ahead. >> i was also thinking protectionism is a very possible tool. we know this. with protectionism, you can create domestic manufacturing. you can pull in inward fdi. you can bring in manufacturing, you know, business, back home. so for a politician to use protectionism to their advantage is something we know as economists works. so i'm pretty sure that the u.s. will be in a bit better shape on the books within just a couple of years, because of the protection policies. it is very difficult for a general audience to understand the benefits of free trade. if you see people losing their jobs, especially specific areas being targeted. and well, this is, i think, due by and large, a number of
issues, but mr. trump is pinpointing china as one of the guilty actors in this play. and so protectionism visavis china will bring certain benefits. it is just these are short-run games. we know as economists in the long run, there is a lot of risk involved which is why we are having bit of a today. getting reelected and using protectionism to his advantage as a politician is definitely part of the agenda. >> yes, i mean, let me add, i think in the long run, as you said, we have seen this erosion of support for trade agreement, over the years in the united states, you go back to 1979, when the tokyo round agreement was voted on by the congress, it passed in the house of representatives by a vote of 395-7 and in the senate a vote of 90-4. that's how popular trade was. even in the 1970's when we hadbegun to see the impact of
trade. and there was a steady erosion. and i think the other thing that happened was the 2000's, the great recession, and its aftermath. if you look at manufacturing jobs in particular, manufacturing is a shared u.s. employment, has been declining steady for years. that is mostly an automation story. but the actual numbers fell off the cliff in the 2000's, 17 million jobs to 11 million jobs and the places that got hardest hit, ohio, pennsylvania, michigan, north carolina, wisconsin, that's the places where, because of the pecularities of our electoral college system, donald trump won the 2016 election. so a lot of that i think was a delayed reaction to the economic impacts of the 2000's. >> on that point, it reminds me sort of, the relations, between the nra and gun control. because basically, the u.s. public is for some sort of gun control.
but nra is politically really effective. and if you see the recent global affairs poll, people are basically for trade, but there is intense opposition being organized, i think. and mr. trump was very effective in sort of organizing and making that into his political power. so i think that is the reason why, you know, there is, we feel like the protectionism is on the rise, but generally speaking, people are for it. but it is the same logic that sort of the nra prevents gun control. >> i am glad you bring that up. my reading of what has happened in the united states is that the united states basically embarked on globalization on the cheap, and that is it opened markets, but did not provide that safety net to allow people to cope with the faster pace of change, because of technology, and because of trade, and it is very clear, you look at the numbers and the united states does not invest in what we call active labor market policy, does not
invest in work force training. and it is true that we this huge economic shock, the global financial crisis, there are many, many who feel they are vulnerable and that's why they are going to respond this way. and we also know that protectionism can gain traction, politically, because it promises, you know, short-term gains, because the costs, you know, in terms of how much consumers pay, in terms of competitiveness, it takes longer to be realized, and it is harder to make the case for why free trade matters for the competitiveness and for the consumer welfare. and then people look at the popularity levels of the precedent. and they hear the president say in the inaugural speech, that protection leads to prosperity. and in my travels abroad, i do hear this question to what you were referring to and i would like to bring to the rest of the panel. the question is, does the
american public support protection nix? is the american public on board with the tariff war? or, we know about this, we know about that in the last two years, actually, the support for trade has gone up. but then how come the president is not experiencing high heat, because he is pursuing the tariffs, actually seems to be pleasing a lot of people in doing this. so how do we explain the discrepancy between what polls tell us and what is happening politically, in terms of being supported by his base. how do we square that up? >> i'm not 100% up to speed with the polls with the latest trade actions but i think there is a big difference between people's answers when you say do you like trade, and do you like trade deals. and so people are much more skeptical of trade deals than they are of trade. so interestingly, there was a recent pew poll that found that republican voters are now more in favor of trade than democrats, which is very surprising. and it is essentially because
people like trade whenever their guy is in power, where as if you look at people's attitudes towards past trade deals, that is much more republicans, republican voters are much more skeptical relative to democrat voters. so that is one of the kind of circles squared. mark: we live in such a polarized country today that i think it is so hard to disentangle what the president is doing on trade with support for the president overall. but i recognize i live in cambridge, massachusetts, which is not anywhere close to the idea of the rest of america, but i will point out two things i think on this point. i think one, there is a difference of attitude among the american public about actions on trade generally. and whether or not there is a need to get closer vis-a-vis china. and so i think when the polling doesn't sort of disentangle
that, there is some of that is captured there. the second point that i will just add is that i think when it comes to looking at the president's actions, there are many people, particularly in the heartland, who believe getting tough is part of the tactic to eventually getting us toward a deal. and right now, it is too early to tell whether or not a deal is going to happen, but for the general public, they just saw two deals that were just done in the last month, so they think this tactic is doing, even if it is hurting them. if more deals are not forthcoming, they might look at it differently. but at least on your question, why is this message resonating, because people are seeing a tactic and are seeing results and they don't go into greater details on that, than to think this is a president who got tough, who got more done vis-a-vis others did not. and i think that is driving om of it. but at the end of the day, it is a polarized view of do you like trump or do you not.
>> thank you. i am so glad you brought china up because we need to move just from talking about united states to talking about china. and frequently, china's integration into the trading system is described as shock. and in town, we hear more and more voices saying that it was a mistake to let china join the wto. so what are your views from that? what kind of opportunities? what kind of challenges has the immersion of china seen on the export powerhouse, and also for large foreign investors and so forth, had on the system? and was a deal made, the deal made at the time a good deal or not? >> trade policy is not a substitute for competition policy. and i think the world trading order has come to realize that. what do i mean by that? when china entered in 2001 wto, there were no guarantees on the competition policy.
you have to understand the world trade organization is an organization about trading rules. let me just give you an example of the european integration. not to say that european integration doesn't have any flaws. but one thing i did, they did very well, was before they entered the ex-communist countries of central and eastern europe, into the single market, they made sure that these countries re-wrote their competition policies. so they made sure that the rules on competition these countries had were in line with what brussels was having, and all of the other countries was having. it is only after that they could enter the single market. and now a day, to be honest with you, we hear very little about, you know, some conflict with former eastern european countries which were also
communist countries. what happened with the china case, china got access to a club, a club of free trade country, called the wto, but there were no guarantees on how it would handle its competition policy. and the notion was that open markets would bring this about. trade policy will be a substitute for competition policy. but now, we are 20 years down the road and we are seeing that china is still subsidizing its companies. and i think that is the heart of the problem, where it lies of the world trade organization is not a world competition authority. so by and large, you have competition policies that are still very much on the national government. and the trade partner does not have any instrument to tackle it. because it is under the national policy of these countries of the only thing by construction the wto would allow you to do is to use tariffs to counter veil that. so if you are finding out that china is subsidizing on very particular products, you can use an anti-dumping tariff, for example, to counter that. but you have to know that anti-dumping is only 1% or 2% of our trade. all of the products covered by anti-dumping case, which the u.s. is using, which the eu is using, but is only 1% of trade. so i think what the traiks isump administration is doing we are going for a larger basket of goods and we will look at subsidization policies and hope it starts leveling the playing
field and we hope you stop doing that and that's my understanding of what is going on. >> do you want to jump in? >> i will say, and i will defer to mark on the china end of it. it has been interesting to watch the debate in the united states, which i have done quite closely going back to tiananmen square and bill clinton and the aftermath. the united states made an historic gamble with respect to china. the decision was made to welcome china into the existing trading order, on the hopes that china would embrace it, and over time, in a way become more like us. this was bob zelik's notion as china as a responsible stakeholder. if you go back to the debates over china's entering the wto, and the debates in congress about whether to give china normal permanent trade relations. clinton officials talked openly.
and there is a new book out about the challenge of integrating rising powers into the system. they were all quite conscious of this. and if you look at the debate now, there are a lot of folks in washington who feel like gilted suitors. we reached out to china. we offered china a stake in this wonderful system. and china has rejected it. they have become less like us. they have become less of a market economy. they have become more state dominated, less of a civil society, less free. and there is a real -- it seems to me quite sudden but it has been going for a long time, shift in the opinion in the official washington. this is not republican versus democrat. this is quite wide. that china just didn't pan out the way we expected. and that's where you get the debate over, was it a mistake even to encourage them to join the wto in the first place? i think the united states had no choice but the fact that that question is even asked tells you sort of the depth of the angst here in washington over what transpired. >> go ahead. >> i guess in 2001, there was a hope that we could sort of shape the rise of china. but this notion i think is collapsing in a very rapid
speed. and i think just last week, larry kudlow, here in d.c., used this term, trade coalition of the willing to contain china. so i think there is this emerging consensus here in washington that of course, before that, you know, people were talking about china being different from the soviet union, that yes, in terms of security, there are some threats, but in terms of the economy and trade, it is a possibility. and we can use that leverage, and then sort of shape china, in a positive way. i think that notion is collapsing at a rapid speed. and the trump administration is sort of jumping on that. and it is not just like you said, it is not just a republican thing. i see sort of a consensus there, of course difference in nuance but an emerging consensus about being tough on china, and trade is a very important component of that. >> i think that the debate that
is playing out is, at least in the west, a realization, to use your language, that the international rules, international law is not going to con strain or re-shape the rise of china. and i think from my travels overseas is that especially in asia, people sort of look at you to say how naive of you to have ever believed that that could have ever been the case. but there is a difference now in terms of tactics as to what to do now that this realization has dom fore. and most of aish, i think no one has ever expected that was going to be the case and there was a much longer time horizon and there was much more of a sense of this type of engagement. but caution. and sort of hedging against a china supremacy. that's the right type of approach. and they would like for the u.s. to maintain that type of hedge. and i think here in the u.s.,
there is a debate as to whether that is correct or not, or whether the u.s. is just being played by others, where at the end of the day, the u.s. does not want to return to a sovereignty-based trading order, or if it is going to return to that, inevitably, the sense in the u.s. here is while, we might as well play our cards while we still have the upper hand. so i think that is the debate that is being played out here. but what i sense from my own travels, that overseas, there was not that same type of recognition that china was going to somehow engage in this type of economic regime change. simply because they have joined the wto and a rules-based system could do that. i think in the u.s., we are just coming to terms of that. and my sense is also in europe, there is, as you mentioned, also a sense of now that the chinese are moving up the supply chain, into actually innovation-driven industry, and using these types of policies, what does that mean for europe's own security as a whole as well? that europe never debated
vis-a-vis china, only vis-a-vis russia. >> i want to move into the confrontation or the economic tension between the united states and china that preoccupies us so much. but before i do, that mark, i know that you have written extensively on this and that's why i wanted to bring it to the discussion here. the china challenge for the wto, and the sense that, if i remember correctly what you wrote, that there have been other nonmarket economies that were incorporated into the multilateral trading system, and the system could cope with them. but that the nature of the chinese challenge is different. and therefore, the wto is particularly challenged in trying to bring discipline to china's policies. could you elaborate a little bit on your argument? mark: sure. so as was mentioned, the wto has been part of a lot of different
types of economy, but the last major time they faced a challenge of this sort was when the soviet economy started to enter into the system, and creating this duality in terms of market economies and nonmarket economies. market economies being that like ourselves here in the u.s., but also even more corporate economies where at least market forces are dominant. and then you had this nonmarket economy, which is basically a command and control, or soviet-style types of economies. and that was the duality. that was more than 50 years ago. what we have seen is the emergence of a third ark type. that doesn't quite fit market forces. market forces are at play but the state retains key control over the trading structure and now the trading system is struggling over what to do with the third archetype that can't quite fit in the rules so tight limit and that's why i think the tensions are here and why the rules can't work with it. there are a lot of other flaws with the structures of the rules but these can be managed over the course of time. but that's what i see at the heart of the tension, is that there is a third type of economy
that has emerged that the rules haven't really anticipated. >> and just quickly, it is important not to miss the big picture here. china is really large. and therefore, if you can't incorporate china, the potential for disruption of the global trading system is so much bigger than with any other country that we've ever dealt with. >> and when you have the two largest economies in the world now locked into a trade war, we are trying to figure out what is going to come out of it. tactics, clearly, the tariffs, and they have escalated very, very quickly. sometimes it feels like the trump organization will tell them we will impose this tariff and if you retaliate, we will escalate this much and a tariff materializes in just a few months and it is very hard to make sense of what is happening because it is moving so fast. it is hard also because for a time there was no clarity as to what was the end goal. president trump talked about bilateral trade deficits because he cared about them and the ustr and the investigation into china's theft
of intellectual property. he talked about industrial possible run amock. and now, we've talked about his remarks, about kudlow saying we are trying to build a coalition, of willing to contain china and now we seem to be talking about disengagement. engagement has been a policy that the united states has pursued vis-a-vis china for decades, and now perhaps we may be at that critical juncture. so are we there on the verge of a cold war, an economic cold war with china? i mean if that's the case, there won't be any talks forthcoming. is this the new normal? >> there was a speech by vice president pence at the hudson
on china and some people say this is the full curtain moment. it might be. and so if the target is china, i think it is more effective to do it multilaterally. so tpp in a sense was a more effective tool. but i guess for the trump administration, these multilateralism framework would not work. so what is emerging is a sort of new type of consensus arm on china policy within the trump administration and that concerns a strategic component, a protectionism component, the religious freedom, which vice president pence is interested in, and sort of the basic hawkish attitude, represented by john bolton. and what mike pence laid out last week at hudson, sort of represents this tough policy on china. so i think this is a consensus. i think we would have to deal with it for a certain period of time. >> can i point out that the wto's problems is not just related to china. even before china's entry in 2001, there were already issues. because look how long it took to
conclude the uruguay round. it took about 10 years to conclude the trade talks in geneva. so we have to look deeper into what are the institutional things that are not working at the wto. part of the reason is i think about 50 years ago, there were about five players around the table that countries that participated in the global trade arena. you had the european union, the u.s., and you had japan, and maybe australia and canada. it was relatively easy to strike a deal with five countries. but then you have other players that were also sitting at the table and having their demands. those that newly entered the world trade arena like brazil, india, china, they all wanted a fair say, they all warranted to have the rules favorable for them. we know from public theory to strike a deal with a much larger
number of players around the table is much more difficult. which is why it take an individual of concluding the talks took so long. there are some people who say we maybe should be looking into a different model of trade talks all together. we are looking at the multilateralism but there is a alternative and people have suggested steppingstone theories where you first build trade agreements with the largest players in the world, say the largest ex porters and then you slowly take on board other countries that are sort of less important in terms of their trade share. is that a good alternative or not? i don't know. but i think we should ask ourselves the question, is multilateralism still viable today, being the case that every country, u.s., but also eu and other countries, are doing a lot of free trade agreements on their own. we just concluded one with japan. we have concluded one with south korea not so long ago. so we are all doing that. so it is called the spaghetti bowl of agreements. so basically, the
multilateralism has been under stress for a long time. it is not just the fault of china. i think china is seeing what is wrong with the rules and using it to their advantage. but i think there are deeper issues to consider. >> that is a very good point. we should not assume as i was perhaps doing in this conversation, when you talk about tensions in international trade, it is just the united states and china. it is a larger context. and it is very hard to negotiate beyond the border regulatory matters and when you're talking about 160-plus countries and when you have a settlement mechanism that does matter and it therefore means you have to abide by the rules. but nevertheless i think that the fact that the two largest economies are pursuing this trade tension and in a way eroding confidence in the multilateral trade system is significant. particularly we think that this is evolving into a longer-term conflict, of adversaries, looking at each other in that manner.
what do we know about how china is thinking about this? how is china responding to the trump administration's messaging, starting with trade, starting with deficits, and favors, and now after the hudson speech, it is a different thing all together. so how is china responding to this? >> i mean i can talk a little bit about the trade piece, which has been very interesting, because i think china's response out of the box was to retaliate equally against the united states. and target their retaliation. because of the agriculture sector. in ways that they thought would create some political pressure on president trump to change direction. that led to the scandal of the advertisements in the des moines paper about it. so that is what all trading partner does when they retaliate. the chinese were not unusual there. i think it did not have the effect that they had hoped for. mark had talked about even in
the farm country in the united states, it fair for the support of the president, being tough? china's reaction to the second round of tariffs was very interesting. they did not respond in equal measure. the proportion of tariffs was much smaller. >> and they also sent quite a deliberate message to u.s. companies. we want to you stay invested in china. there was a fear that they were going to go after u.s. companies in various ways and instead they began to send the opposite message, we want to you stay here, we want foreign investors to stay here. think there is a lot of worry about investors in china leaving to escape the tariffs. the chinese changed direction quite interestingly the second time and they put out a signal they want to negotiate. they are floating ideas all the time. will this satisfy the americans. will this satisfy the americans. the chinese do not want this fight, but it is not clear there is any way out of it at this point. i certainly at the moment don't see one. >> mark?
mark: i think there is a debate that is playing out in beijing over what are the americans after. and the debate that the chinese are asking themselves is pretty much this, are the americans out for economic regime change? because if that is what the americans are asking, that is just the first step that what they seek here is political regime change. so there is a group that i think, if that is the case, there is no point to negotiate. we should just stand firm, and we should try to drive wedges between the u.s. and its allies, and also at the end of the day, china benefits from a stable rules-based system to try to maintain that. so i think there is that group in china. and then there is another group that worries, to use your language, that this is the new normal. and if this is the new normal, even if china stands firm, this is going to constrain china's ability to carry out its own absolutely vital economic reform agenda. particularly in terms of contain can its step levels but also driving movement away from the
investment, led, to consumption-led growth model. and you can see that that group then says need to nepg. because if we don't do so, that will cripple our lon-term ability to sort of stay on task with the economic agenda. between those two debates the point that shouldn't be lost is right now, the amount of trade, even at the levels of 10%, even if this antes up to 25%, even if this third tranche comes on board, that is still, the chinese economy is quite not as dependent on exports and particularly on the u.s. market as it once was. so it can stomach this in the near term. but the bigger question is, what is the u.s. out after? and what impact is this going have on china's own reform agenda and to carry through what it needs to keep its economy charging ahead. >> thank you, mark. and i think the key question is the time horizon. as you said, this is perceived as a short-term, you know,
before the midterms, for maximum political message is one thing. if you think that the tariffs are now going to be in place for a long term, then you start talking about changes to the supply chain. and the question is, does this mean that these companies will come back to the united states? or will they just relocate somewhere else in southeast asia? and the goal of the trump administration to try to bring the certainty of that domestic manufacturer, it may be harder to achieve. so my question to all of you, it is truly, i don't have the answer to this, and i find it puzzling, is why is the language, that the language now is so hard, and the competition is highlighted on so many different fronts, from the u.s. side, why is the stock market discounting the impact of this rising tension between these two very large actors in the system? not that i'm wishing for the stock market to react. but i think it is puzzling that despite the fact that we keep hearing how this is going south, markets are fine.
does anybody have an idea of what is happening here? soumaya: well, first of all, caveat when reading the stock market, it is tea leaves. so first there's the -- i'm going to pivot slightly and talk about the way that there seems to be this disagreement among economists that you actually need -- you need to hit the economy with fairly severe assumptions before you start to see a macroeconomic effect of your trade war. there's a bunch of papers that say if you have tariffs of 1000%, you'll get growth. the trade talks seem to be much more extreme than anything that is going to be put into place yet. china is a fraction of american trade. you know, so in the big -- in context of the u.s. economy,
just a simple point that chinese trade is not that large. the kind of the -- the counterpoint to that is to say, well, so far, if this stays as a tariff war, if this stays as a kind of conventional war of tit for tat tariffs, then make the downside isn't so bad in the long run. the big uncertainty is whether things start to become more dangerous and whether you see -- so imagine if the chinese said we're going to restrict, you or supposing they put bans on exports -- at the moment we are thinking in terms of conventional tariff tax pools,
where things become a little bit more expensive. if you changes to binary, on/off switches, then i think it is possible that particularly some companies could be worse affected than the markets are assuming. but, yes. our stockbrokers are doing fine in the u.s. and europe and elsewhere. we are seeing new records precisely for the reason being articulated. likes --ness really dislikes his uncertainty. the chinese stock market is not bear territory. if you look at key emerging economies, if anyone is holding an index toward key emerging economies, those are being hit by this and that is where the shocks are playing out in the supply chain. we are seeing different effects in different parts of the world. >> a question for all of you.
the coalition of the willing to contain china. allies have been hit. articulating national security risks. they is the potential could encroach on automobiles. we are talking about high economic stakes. u.s.nk that japan and the working closely with the united states in codifying new rules to address china's market this morning on their policies. they want to work on the rule not buyt they might into a tariff war, they might not buy into containing china. abouterybody is talking the u.s.-mexico-canada trade
agreement or revised trade agreement having the clause that has been described as an anti-china clause, making it harder for china and -- canada and mexico to consider negotiating with china. the eu does not have a negotiating -- agreement with china. the uniteded that if states is hands-off trading with china, will they say yes? given that they may want to protect autonomy in trade policy? >> i think the tariffs are very much part of the trade initiative. the european union, the japanese government would never say they support the policy of tariffs. the european union
>> when it is the metal and the aluminum and they are being hit -- >> it has been impressive the level of compartmentalization of those issues. so far, the eu and japan have managed to separate those things out. i don't think it has been helpful, but i don't think it has interfered at a practical level. if there were to be terrorists on automobiles, that could fs one -- terrace -- tarif automobiles, that would be a blow of a different magnitude. so far, it has been an irritant rather than a block. thes other views on how
world is looking at u.s.-china trade war. the japanese government has dealt with the trump pressure quite effectively. as far as tariffs on cars, they managed to marginalize the issue right now. since we are a direct neighbor to china, i think the threat perception, not just in terms of trade economy, but in terms of security, the threat perception so, when vice president mike pence reacted in a very tough manner last week, there was a sense of welcome in japan. whether the tools that mr. trump , whether that is effective, we are not sure. there is a sense that now when the white house come you see a tough president who is trying to deal with china in a very
serious way, in a very different way than the other leaders used to do. it is a very ambivalent sort of feeling. although, there are worries about the coming issues with tariffs. i think the right language would be a coalition of the unwilling. canada and mexico felt they had .o choice to do a deal i think they would prefer not to have to choose to be able to try to maintain a broader network of trade relationships, but if the united states is going to force them to choose and that looks like that is the case increasingly, then the choices are pretty obvious. >> i think the three sides in
the trilateral share a common diagnosis of the problem. go back to the previous point, i think it is important to realize the diagnosis of the problems is not necessarily shared by the rest of the world. u.s., there is this very realist recommendation -- recognition that that is the case. why bother to work through the wto when you know this is going to be held hostage over a time i think the japan and the eu have been much more committed to the rules and procedure based mechanism. that is at the crux of the disagreement and we will see how far they are able to bridge those differences over the coming months. as the trilateral continues to work on the issue. >> you can agree new rules between these three countries, but there is a massive inconsistent the -- inconsistency between that policy and undermining the wto.
what is the point of agreeing new rules if you have also gutted your system of enforcing them? >> and also the national security tariffs. the trump administration retains the discretion to bring up new cases and the tariffs can go up regardless of the deal that was struck with the different partners. related to this, the european union reached a cease-fire, thou it is -- that is how it is called, with the trump administration in july to work on this dynamic of tariffs and counterterrorist -- counter-tariffs and so forth. the american side likes to call it a full blonde trade -- full-blown trade agreement with japan. there is a discrepancy there. what are the prospects for the
negotiations? are they going to be big negotiations because of the size of the economies involved? if there is going to be pushed back because of the watering down of the settlement, using export quotas, all of these things that are being weaved into the template of the agreement, it might be of to the europeans and the japanese because they are larger players. are they up to the task? are they going to say no to these things? because they don't want to have the friction with the united states, they will make concessions? how are things looking for the negotiations from your point of view? , thefore this agreement governance was seen as engaged as a delay tactic. because we wanted a return to tpp and the japanese government is pretty good.
now that they are engaged on trade deals, we do not want it a friction difference between the u.s. i would imagine wantboth governments would to fix it in a quick manner. japan can open up its agricultural market at a tpp center and emphasize creating jobs within the u.s. that kind of agreement. then focus more on the security side, prepare for china's rise. that is what the japanese government extended to do. in a much longer term, we are reentryed in providing -- the difficult thing is that if we agree with the u.s., it would be --
reemphasize the tpp. that is the dilemma for us. that dilemma is going to remain. >> what i hear in tokyo is that people are thinking, let's wrap up the negotiations with the united states quickly and that is why they insist is if the scope is limited, it is a trade agreement on goods, because they don't want to -- they want to move past that. certainly, the trilateral less agenda. security there are issues like currency manipulation. part of the trilateral. i would imagine that larger
countries don't want to be told with who they can negotiate, even if they share the diagnosis on china i think that those are the intentions. i think the u.s. and japan have a history of protracted negotiations. if you like very good at deflecting. out of the negotiations look from your point of view? >> i keep may be insisting the point that i believe that size matters. size matters for your bargaining position. it will never trigger a trade war with a company that is bigger than you. small totinctly too make that point. you are asking about the coalition of the willing.
in a wider coalition and we don't know what is going to happen, i think this could be the outcome that the eu is turning to its old ally. think they want better outcomes than they are today. look at german trade to china, germany is exporting 6% to china. u.s., 10% ofs the exports are going to the u.s.. -- u.s. is a very export important export market. it puts you in a situation somewhat in the middle of the bend, i would say. on thebers are much more equilibrium. a you are looking for
coalition, it is easier than to take the lead in a coalition of your own. i'm kind of hopeful that what we are seeing today is not going to result in a cold war with china. to try to ensure that the level playing field is restored. are a lot of benefits that be have from china entering the global trade arena. it is not all bad news. we have a lot of cheap consumer goods, especially for people with low incomes. they have access to goods they never had before. china is a big potential export market. we want china to be part of that world order. we wanted to play by a good set of rules. maybe it is the history, maybe it is passed dependent. that has been lingering. maybe it is time that they grow up and become more like we and
play by a set of rules that we think are the right set of rules. -- once they do, i'm quite hopeful. i would just like to remind everyone that tpp was not the most popular thing that the eu ever did. supposing that some kind of negotiation to think about the process of getting that past and think about how easy it would be for a european politician to say, i'm taking this on trump. >> with all of those elements on the table, how will this play in wto reform? in the last few months, we have no much more focused energy on really changing the way wto is
working. i think there is a widely shared perception that it started with a stalled negotiation process and it has moved to a crisis. has felt thattes there has been overreach and they are blocking appointments. they have now reached a level where they will continue to function and it may not in the near future. there are different proposals out there. they're different countries involved in the negotiation. the european union has released a blueprint. japan and the united states and out talking about w ta reform. there is a paper and they are convening countries. the question is what do you change and who should be leading the effort. is this a conversation or china is part of changing the rules?
should we have other countries draft rules and seek china to accept those rules? had we think realistically about a new wto? who's going to deliver it and what will it look like? >> i think there is a distinction between how the rules are written and how they are enforced. the dispute resolution body, one way to think about it could be to think about the philosophical difference in a way that europeans think about law and americans think about law, and am going to allow mark to correct any hideous mcallister -- hideous make it -- hideous mischaracterizations. european style is much more happier to interpret the intent of the people who wrote the law. you start to think that the way that decisions have been enforced is this european-style way of thinking
that is essentially imposing obligations on them. all of the proposals that have been released so far, they are a mix of procedural fixes. there are things you could change if you want to. i have not seen a fix to this disagreement about rights and obligations. lose a dispute, you are annoyed. what it is relative to what you signed up for is in the eye of the beholder. i don't see that there is a procedural fix. >> if i understand correctly, the united states wins far more than it loses. casee wto, when you take a
, the u.s. has lost a particular subset of cases. i'm going to add some more to that. we are still in the very early stages when it comes to wto reform. abouts really an issue how do you enforce the rules? this is a court where you go and basically, if they apologize, we call it a day. and they stop doing it. are when they stop doing it you allowed to take action.
that resorts to these other types of unilateral measures. countervailing duties, antidumping duties. concernede u.s. is past china vis-à-vis settlements, they are concerned this is going to get rolled back. i think that is one of the issues. but we should not lose track of the fact that there are two other ones. one is that there are a whole bunch of developing countries that for look there was a negotiation agenda that was set out in 2001 that people have not delivered on. until you deliver on that, we are going to block everything. what is in it for us? it is not just the big powers trying to rebuild the rules and all that. even if you could get these first two pieces worked out,
even if you could get the americans and europeans to bridge the difference, even if you could address some of these development issues, at the end of the day, you have to put yourself in the choose of the chinese. are we really talking about the 19 century, where the americans, the japanese, and the europeans are going to come into beijing and tell us what to do? put yourself in that domestic political situation. i really don't see wto reform carrying itself out in the next two or three years. the process of discussion right is much more active and that is something to be welcome in geneva. >> just quickly, it won't be a popular opinion, but in march, when president trump announced tariffs, and aluminum i wrote that that was that it
wto died. i think the wto is dead and i think it is going to be very hard to revive it. it does not mean trade rules are the wto was essentially a utopian notion and i think it is over. stopat made my heart because we are transitioning to my market power rules scenario. we talk about coalitions of the willing, like-minded countries. at the same day, this escalation of tariffs and counterterrorist , ifast -- counter-tariffs the united states has taken this , if chinarent role
might not be interested in genuine reform, there is a lot of attention on what other people might do. japan and eu managed to deliver a third of the world, are they really going to carry the torch? do we see that leadership potential. after that, i will bring the audience for q and a. >> i think it is going to be extremely difficult without the u.s. tpp. welcomed the it was sort of a surprise for us . we were not used to taking leadership. we would continue. eu iseps with the something else. but there are many multilateral
forums were japan is doubling down. it is important for us and we think it is important for the world. that is premised on the u.s. coming back at some point. we don't think we can carry the burden alone. somehow, what we are trying at difficult in be the short-term, but in the midterm thinking is that the u.s. has to return. without it, it is going to be extremely difficult. other comments on this? who carries the torch? >> i think the difference, there are certain things -- there are certain policies that the trump administration will probably expire with his presidency and one of those is his willingness to alienate allies and rip up the diplomatic playbook. the tension between the u.s. and china is unlikely to expire.
but the idea that we are going to have an american president in the future who is going to see the value of these partnerships, i think that will happen. >> so, you have been very, very patient. it is time to take your questions. identify yourself at the microphone and a very concrete question so we have time to entertain many. i see two gentlemen here. i will take two questions at a time. >> thank you. this is for all of the panelists , anyone who cares to answer. in view of the pence speech and the broader tensions, the recent claims of election interference on tensions in the south china sea, concerns about human rights in western china, the larger geo-strategic implications, do any of the panelists see the trump administration moving beyond just tariffs and into a broader sanctions regime similar
i that on russia or iran and think there is legislation pending in congress to that effect? >> thank you. should we take one more or do you want to enter that? we will go to the gentleman behind you. >> thank you, my name is matthew perry. administration -- it is easy to see the many ways in which they could do lasting damage to the global trade order, but i wonder if the panel thought they could in some way leave some positives or have some sort of positive effect on the global trade order? i think of the political legitimacy of trade, i think of enforceable labor and environmental standards in labor and trade agreements, ists. legacies intive trade from the trump administration or perhaps a broader set of sanctions.
any comments on that? >> i can take the second one. i do think there could be some positive legacy. there has been a serious breakdown in any bipartisan support for trade and it has been years in the making. to me the most interesting things about the new u.s. mca agreement is that almost all of the initiatives are aimed at the complaints we have heard from organized labor, the democratic left. the weakening of dispute settlement, the rules of origin aimed at domestic manufacturing workers, the provisions on currency manipulation, we are going to have to push those strongly, so if things are could be elements that will help rebuild some domestic. the other potentially good point are the conversations on china needed to take place. we were in a holding pattern that was not going to stay held for very long. i have criticisms about the tactics, but i think the conversation about how the u.s. and china are going to get along economically was a long-overdue one that was not being conducted
very effectively. jack ma at ali bob said this said this is going to be a 20 year trade negotiation, so starting earlier. >> i think it was not a sustainable one. maybe this is the language china understands. economy works in very different ways than democratic society. they are the leader. if a leader that is tougher and stronger than you tells you something to do, maybe it goes down better in society than it would in truly democratic societies. where you do not accept too much interference from the outside. maybe what we are reserving -- observing is some cultural shift. and maybe that is an opinion not shared by all. the i look in europe and younger generation, there is a cultural shift going on.
the curiosity is somewhat down, people are valuing the local world where they live. it is slow, but there are some signs suggesting that people are fed up with globalization. hasalization to them brought some good things and some bad things. there seem to be some cultural shifts going on. thehould not forget all of good things that globalization has brought us. cultural shifts also have to do with evolutions of society. you can always think about the intangible value. , once theyl values are satisfied, it is ok to care about softer values in life as long as your material values are satisfied, you have jobs, consumption, goods in the world at a price you can afford. and say it isat not so bad at home after all.
maybe that is the state the younger generation tends to go toward. all of the wealth and growth we see today is thanks to the globalization. every country can do policies at others, i think that is a way to go about it. i think that is a path in some people's minds in europe. i can't speak to the u.s. >> very interesting. >> the cultural aspect of things. i think at the heart of it, i think this is an identity issue. ,hen people think about trade especially in youngstown, ohio, the jobs are going abroad. the communities are collapsing. jobs are being lost.
their sons and daughters are not coming back. it, it is anof identity issue. degree. there will be a competition of these totally different cultures, one aspiring for a global community but then again, this economic nationalism based on identity is quite a strong and i don't think we should underestimate the strength of this identity oriented policy issue. >> can't help myself. is question i think globalization rejected or taken for granted? whot of these youngsters may be thinking, local sourcing is best, but all of us are carrying our iphone. we would not want to pay three to four times more for that gadget. it could also be that we don't
see how embedded we are in this. thatrries me a little bit we might not realize the profound cost of detection is him as well. in terms of jobs lost, there have been a number of studies that estimate if parties and partners recalibrate -- retaliate, save the auto issue, there will be a lot of jobs lost in this country as well. these inward looking policies, i think that one of the things that drove the desire to create a rules-based system was to create friction. the inward looking nationalism is powerful but it also worries me tremendously. sorry. committee question -- you had a question? >> i was going to try to answer the first question. with anything, there is always a chance the war could get worse. your question is could it bleed
over into the noneconomic realm? i think the possibility exists. if so far all sides have been cautious to do so, but what might trigger it was one of the questions you asked. if we see some of the cooperation and the other noneconomic but particularly security elements deteriorate. we will start to see the issues play themselves out. the reparation -- nuclear proliferation. i want to add the rosy, optimistic version would be to say we step to the break but we all realize what that state before we jump. we might hope that that is the case, but these are complicated political economies. i think there is a sense of, it's not cliff, let's walked out a little bit. and the other side is, let's give them a little shop. the one thing we should keep in
mind as there is a generation of i dide that have grown up not experience the cultural revolution. they have taken globalization for granted. willhis crisis plays out affect their view of what type of stakeholder they want to be in the global system. so, i think that will be as critical toward determining the shape of 21st century global coverage, their attitudes. i think her attitudes will be shaped by this trade war that i expect will carry itself out for several years. this will be the defining moment where they think about what is china's relationship to the world? >> we've time for two more questions. in the front and then in the middle. hello. i'm a student at the george washington university it i'm curious if you could comment on emerging markets and how the emerging markets play into the
trade war and global trend and any vacuum that might be left from less u.s. trade globally, theicularly regarding staunchest defenders of international trade. curious if you could comment on that. >> and when were question in the back. meeting,ly, at the imf if the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and evolving economies. what is the danger of that precipitating another global recession? were ending on all the positive notes. answers from the panelists? >> on the first one i just had a memory of being in buenos aires for the last ministerial meeting and hearing every leader in the
world fall over themselves to name themselves as the new champion of free trade. don't worry, they were going to step into the void and it was all going to be fine. there was a bit of a fake gap between the rhetoric in some -- what is it mean to be a leader in the global trading system? it means to be putting in a bit more than you are eating out. making compromises for the good of the system. statements,actical people are still thinking of their own national interest. to get theame two conversation added. for the near term, and some emerging companies it is a capital flow. dollar-denominated
debt or we would expect the dollar to strengthen with trade tensions and as that happens we would see emerging economy currencies collapse because their capital position isn't quite sustainable for the current sea level. that is one danger. woulds a danger that happen in turkey could filter into other areas. we have started seeing warning signs with argentina, south africa, and the like. the second danger is a you areion type, but if talking about lots of uncertainty, underinvestment in light of the absurdity on what this means for supply chain. demand will go down and if you are a supplier to the upstream, this will deliver a shock, particularly for commodity growth.xpert -- export also for companies -- for countries trying to embed themselves in supply chains. some countries are well
positioned to benefit from this. vietnam, cambodia, and others are certainly taking aggressive stances to take advantage of trade tensions to reconfigure supply chains. it depends on the particular, unique situation of each emerging market. >> think you much. this has been a very rich, eliminating discussion. i want to thank all the panelists for sharing their expertise. thank you all for your questions and for joining us today. [applause] [captions copyright national cable satellite corp. 2018] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]
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