Stephen C. Freidheim Symposium on Global Economics

FROMAN: Well, good morning, everybody, and welcome to the Council on Foreign Relations. I’m Mike Froman, president of the Council, and it’s great to see all of you here and the—I gather we have two hundred or so online listening as well. There will be an opportunity to ask questions both from here in the room and from people who are virtual as well.

It’s a great honor and real personal pleasure to have Kristalina Georgieva here, managing director of the IMF. I have enjoyed working with her in various capacities. And we’re honored, really, to have you here. And we’re honored to have you here for the Stephen C. Freidheim Symposium on Global Economics. And Stephen Freidheim is here, so thank you for being here. This—(applause)—Stephen’s a longtime member of the Council, a member of the board, chairman of our Investment Committee, and generous supporter of this—of this symposium, which is presented together with the Maurice Greenberg Center for Geoeconomic Studies. So thank you very much for all your—all your support.

Let me start with a just general question around the state of the global economy. Certainly there’s some good news, there’s some less-good news as some countries—U.S., Japan—seem to be having a certain degree of momentum, Europe seems to be a bit slow. China you’ve recently upgraded in terms of its growth prospects. But as a general matter, it feels like the global economy is going to be growing more slowly going forward than we’ve been used to for the last several decades or since—for the pre-pandemic era. What are your prospects? What do you see out there in terms of the global economy? What worries you? What keeps you up at night? And where do you think the opportunities are to see more global growth come?

GEORGIEVA: Well, thank you very much for the invitation, Michael. Great to be here.

We do project the world economy to go through this year and next year better than we feared some time ago, so let me start with the good news. Good news is the world economy has proven to be remarkably resilient. We have gone through unthinkable events—COVID, then Russia’s war in Ukraine, then cost-of-living crisis, now a very serious crisis in the—in the Middle East—and yet we are not experiencing a dramatic, dramatic economic shock.

When we—when COVID hit, just to bring us back in history, the initial predictions were for depression—in other words, 10 percent or more contraction of the world economy. It wasn’t good, but 3.1 percent contraction in relative terms is a demonstration of that resilience.

But there are three things that worry us. And frankly, you put the question right: What makes me wake up in the middle of the night in sweat?

The first thing that worries us tremendously is what you said, and it is slow growth over the medium term. We project 3 percent growth this year, and we stay around this 3 percent year after year after year. Why is this bad? Because when you look back pre-pandemic, it was average 3.8 percent. So losing almost a percentage point is quite dramatic.

FROMAN: Over time it adds up.

GEORGIEVA: Over time.

Secondly, what worries us even more than that is a very dangerous divergence that is taking place in the world economy. We have countries that are doing well, and you mentioned the United States definitely doing much better than pretty much almost all of the rest of the world. When we look at the recovery from COVID, U.S. is the only economy that has reached and exceeded its pre-COVID trajectory. Eurozone, 2 percent below. China, 4 percent below. The rest of the developing world, much worse—5, 6, 8 percent below pre-COVID trends. And as this divergence accumulates, what we should fear is not only economic trouble but also security trouble.

And, three, what worries us is that we are not quite yet seeing and understanding that in a world of more frequent shocks the only way to build resilience is to work more together. So the fragmentation in the world economy is real. We saw trade growth this year going to under 1 percent. When trade doesn’t grow, that has implications. Our calculations on the impact of—potentially of trade fragmentation are a big range, from 0.2 percent contraction in global GDP to 7 percent contraction. Now, what is so important is that we find the smarts to keep that impact of more attention to security of supplies so we stay in the lower end of the range, not in the higher.

FROMAN: So let’s—let me follow up on that. You wrote a(n) article in a relatively reputable journal/magazine called Foreign Affairs, which we have a certain relationship with—(laughter)—on fragmentation of trade and the impact that it can have on the global economy. We’re unlikely to return—to return to the period of hyper-globalization that existed for—in the ’90s and the—and the 2000s. The politics of trade have shifted, not just in the United States but certainly here first and foremost. There’s been this convergence of national security and economics, less attention or less focus on efficiency and more on resilience and the like of supply chains. How do you think about what the new principles might be going forward of the trading system that reflect these changes—can’t ignore them—but that allow us to maintain as much of the benefit of globalization in terms of global growth, poverty alleviation, inclusion as possible?

GEORGIEVA: Well, indeed, what we are living through is moving from globalization to “slowbalization,” and we are seeing the signs everywhere. I just want to mark one which is always one that we watch: trade restrictions. So we had 2017, before COVID, five hundred. And at that time, that was seen as a lot. 2019, one thousand. Now, three thousand. So that is happening.

And as you said, Michael—and I agree—it is happening for a reason. It’s not that people have become mean and they don’t want to trade with each other, and the reasons are two.

One, let’s face it, during the heights of globalization we were a bit too complacent that there are losers. It’s not that everybody wins. And those losers were not attended to. So if you are a community, and your jobs are gone, and nothing is done to help you adapt, you’re not going to like that, and of course you would be supporting policies that go the other way.

And the second reason is COVID and the war in particular. They told us something that actually I brave to say I have been talking about it for quite some time. We are in a more shock-prone world, and security of supplies cannot be guaranteed without attention to how we back up what is necessary to flow. So I am—I am on the view that not only we have to accept that there have to be course correction, but it will be healthy if we do it right.

Now, this being said, you asked THE most important question: What can be done? And in our view, what must be done is concentrate on the areas where without working together we are doomed. We are in the midst of the—of COP-28. Clearly, climate change is one of these areas. For the green transition, one of the most important instruments is going to be how is the world sharing the rare metals, the minerals that are necessary for the green transition? We did at the Fund a(n) analysis that shows that the level of concentration in the top three countries for lithium, nickel, for the things that we need, is actually much higher than oil. Oil, 40 percent concentration in the top three. But you take rare earths, it’s 90 percent concentration in the top three countries. So what we are highly interested is to see how we can get to sort of trade corridors for the green transition in which we recognize that here we cannot afford to be egotistical because, ultimately, we are all going to be cooked.

Then we look at debt, another area where it is self-interest to cooperate. When we have a debt landscape as we have it now, in which the multiplicity of sources of financing has become so, so diverse that no agreement can be reached without meaningful cooperation, it’s just not going to happen. We have the Common Framework. Good step. Not enough, but good step.

We have created, together with the World Bank and India as G-20, something which I think potentially can hold the key to the debt problem, and it is the Global Sovereign Debt Roundtable. Why it is essential? Because for the first time over the last decades we recognize we need to have around the table traditional lenders—Paris Club; new bilateral lenders—China, Saudi Arabia, India, Brazil; private-sector lenders; and the borrowing countries so we can have a meaningful discussion, identify obstacles for agreements, and then go systematically check, check, check. And of course, cooperation that may not be any more always all of us at the same time, as we now see in the trade area, so pragmatism that is well thought through and help us to avoid the world breaking into blocs.

Bob, who has known me forever, knows that I take very much to heart the experience we have had with the—with the first Cold War, may it be the only one. When you—when you put a line and separate economies, the consequences are bad for everybody. We are all going to be poorer and less secure. And I can tell you, for those who live on the cold side—(laughs)—in a cold war, Michael, it is really cold out there. So let’s try to—let’s try to work constructively to prevent this from happening.

FROMAN: All right.

There’s a lot there I’d like to follow up on, but let me take your point on debt and the Common Framework. Zambia was supposed to be or was the first real test case of bringing traditional state lenders, new state lenders, and the private sector together. It seems to have run aground somewhat. What’s your assessment of how the Common Framework is being implemented? Will this roundtable perhaps fix it? I don’t know whether the private sector is part of this roundtable or not.

GEORGIEVA: Yeah. Yes.

FROMAN: And what are the lessons learned in terms of the role of the IMF from the Zambia experience of how to expand the applicability of the Common Framework to other countries?

GEORGIEVA: Well, first let me start with Zambia. I remain optimistic that an agreement will be reached on Zambia. The public-sector creditors are asking for the private sector to take a cut that is comparable to what the public sector is doing, and I do believe that there is value in being total in reaching a debt agreement of that complexity. Zambia is a very complex case. I think we will see over the next weeks an agreement on Zambia.

Why I’m so confident? Because everybody has gone 99 percent of the way. I don’t think it’s going to collapse for this 1 percent that is left.

I want to make two points here.

The first one is that we are seeing gradually, with every experience, an improvement in understanding of what are the issues and how they can be handled. Just to give you the statistics, Chad was the first case. It took eleven months from staff-level agreement that we got with Chad to getting financial assurances from the creditors—eleven months. Zambia, nine months. Sri Lanka, six months. Ghana, five months. So we are going faster because every next case builds on what we have learned from the—from the previous one.

But the very big problem we still face with the Common Framework is that it does not provide certainty to countries that are reaching out for it. So it’s like you get in a tunnel and you have no idea where is the end of the tunnel, where is the—where is the light. So we have to—we have to work hard to bring some predictability so when you start, you ask for it, you know how we are going to end.

And we are very strongly advocating for debt-service suspension once a country asks for treatment under the Common Framework. It makes no sense. If you’re asking, it means you’re broke. What’s the point of not giving the countries that incentive?

Because now, where we are—by the way, there is this sense that we are in a terrible place, that we have a big debt crisis. I want to clarify we have serious debt problems but in a relatively small number of countries at this point. We have eight—seven countries, potentially an eighth one coming, that are undergoing debt restructuring. They asked for it, four of them under the Common Framework, three outside of the Common Framework—Sri Lanka, Suriname, and Malawi out of the framework. The four under framework: Chad, Zambia, Ghana, Ethiopia. We have probably seven, eight countries that are in serious debt distress that potentially should ask for restructuring. The interest of these countries would be much higher to ask for Common Framework if they know how the process goes and if there is an incentive for them—they would get a debt-service suspension from the moment they asked.

On this Sovereign Debt Roundtable, it is proving to do the most important thing: getting different parties to trust each other more. Because debt resolution, ultimately, is also a matter of trust. We have seen—the way we run it is we have an agenda that says these are the issues we want to resolve, and then we report on resolution. And where we have made really essential progress was on a very, very tricky issue: What is the role of multilateral development banks in debt restructuring? It was a big issue for China, but not only for China, for others as well. Why? Because the multilateral development banks hold in some countries a significant share of debt, but it is not restructurable.

So the other people say, both the public and the private sector, they say, hey, what is this? You have 30 percent, 40 percent, but untouchable. And that was a very, very serious blocking point to make progress under the common framework. How easy it is being resolved? Very practical resolution. Multilateral development banks making a commitment for positive net flows in countries where there is debt restructuring, through grants or highly concessional loans.

Now we are dealing with the issue of compatibility of treatment between public and private sector, and some progress is being made. And I can tell you, I hear many people—and I want to say that as loudly and clearly as I can—I hear many people saying, oh, the common framework doesn’t work. Look at it. It’s so slow. My question is, tell me what is the alternative? If we don’t succeed to get to commonality of approach, what is going to happen? (Laughs.) What is going to happen is countries are going to be stuck. And let’s remind everybody, it is hard to be a low-income country, always. It has become much harder. Interest payments have tripled for these countries from 4 percent to 11 percent of their revenues. If we don’t find a pathway to debt resolution, how are they going to feed their people, transform their economies to green and digital, and broadly create better opportunities for their people?

So let me stop here, saying I’m committed for us to work. You asked for the Fund’s role? Our role is to drive a higher speed, higher quality of resolution by relentlessly pressing people to sit around the table, work together.

FROMAN: Terrific. You’ve just landed from Dubai. The COP-28. There was some important announcements there about the Loss and Damage Fund, some positive steps forward. But there still remains a pretty big gap between the estimates of what’s needed for the green transition, the energy transition, and the nature transition, and what’s currently available. IMF has this magical way of creating money called SDR, special drawing rights. You have this pool of SDRs. You’ve got this Resilience and Stability Trust that has mobilized some of them for some investments in this area.

What more can be done, do you think, to unlock that pool of resources—whether it’s through the MDBs or elsewhere? You know, people talked about SDR bonds still being applicable to country reserves, et cetera. What more can the IMF do, do you think, to make that pool of resources available for climate finance?

GEORGIEVA: Our most important contribution to accelerating the transition to the new climate economy is on the policy front. And in particular, first, helping countries drive a gradual reduction and elimination of fossil fuel subsidies. And, secondly, helping countries creating incentives for faster decarbonization by adopting price on carbon. And not necessarily as tax or even trade. Possibly through standards that make it so that green technologies are more competitive.

On the first issue, on subsidies, we periodically review what is the status of subsidies. And the latest review, not surprisingly because of the cost-of-living crisis and all the measures that were put in place to help households and businesses, it has reached the record high—$1.3 trillion direct subsidies. We used to say 500-600 billion (dollars), oh my God, that’s so much. One-point-three billion (dollars). If you take the indirect subsidies, in other words the health costs, the opportunity costs of not pricing carbon, then this goes all the way to $7.1 trillion. That’s a big number.

I want to be very, very upfront that dealing with subsidies is not an easy matter. Phasing out fossil fuel subsidies is only possible if countries at the same time look after their most vulnerable people, they have good social protection measures in place. Otherwise, we would have revolutions like we got in France with the Gilets Jaunes. So the work we do at the Fund in that aspect is to help countries think through how they can make it also palatable for their populations. But let’s face it, I mean, how can you justify in a poor country using 5-6 percent of your GDP to subsidize rich people driving their cars? That just makes no sense.

On the carbon pricing side, we had an op-ed written by Ngozi, the head of World Trade Organization, and Ursula, the head of the European Commission. We call it the grandmothers’ op-ed—(laughter)—because between the three of us we have eleven grandchildren. And we were talking about the criticality of accelerating decarbonization for their future. And what we are—to put it very, very simply—I’m fairly, actually, optimistic. I’m not in the category of people who say, oh, that’s never going to happen, because we are seeing an increase of coverage.

Some fifty countries are now using carbon price, either tax or trade. We are seeing some twenty-plus other countries on the way of doing it. Coverage has increased. Now we have 25 percent coverage. And actually, price has gone up. For the emissions that are covered, the average price per ton is $20. This is not insignificant. The problem is, by 2030, we need to get to $85 a ton, average price. And we need to expand coverage quite significantly. So this is where our attention is on the fiscal side and on the incentive side.

But we are also financial institution. And, as you said, the Fund now does have an instrument to participate financially in accelerating the green transition. The Resilience and Sustainability Trust was created about a year ago. So here is the great story. What is the trust? We allocated in 2021 special drawing rights to all our members. They received it proportionate to their strength. So many countries that receive the SDRs don’t really need it. They have plenty of reserves on their own. For them, it is a dormant asset.

So the question we asked was, could we wake up this dormant asset? Could countries voluntarily own lend to the IMF a portion of their SDRs, so then we can lend on concessional terms in this time when concessional finance is so, so much needed? We now have about—over $90 billion of own lending to the Fund out of a hundred billion dollars’ commitment that was made. And we crafted, with now pledges of almost $42 billion, a long-term concessional instrument—first time in the history of the IMF—that offers policy lending—and I want to stress that we are not financing investment—create fiscal space for countries to do what they need to do, like phase out subsidies, but also built institutional capacity for private finance on scale.

And the amazing thing is that in one year we have already eleven programs. Six of these programs are in Africa, which is not trivial. Well, obviously, Africa needs a lot of sustainability financing. And demand is very high. And the miracle comes from us working with the World Bank, the Inter-American Development Bank, the African Development Bank, so we can put money into helping countries take the policy term. And these institutions then can invest more and on scale, because policy conditions are improved.

FROMAN: How much has been lent so far?

GEORGIEVA: We lent—so far, commitments are four and a half billion. This is more than 10 percent of what we have. In pipeline, we have close to fifteen programs. It is actually—for those who know development finance, we do it with an average speed of three months per program. So we move very quickly. And very important—I want to stress this—working with the multilateral development banks. We see—success means that the policies are right, and the investments are right. Our job is on the policy front.

FROMAN: So do you think it’s a mechanism for being able to put out tens or hundreds of billions of dollars over time?

GEORGIEVA: Over time? Yes. I mean, look, we—our target was forty billion (dollars). We have already exceeded the target. So there is interest in doing it. But let me—let me be very clear, because there is a lot of misunderstanding out there. SDRs are not the silver bullet. SDRs are reserve assets. So we can only use it when we protect the reserve asset quality of SDRs. And, obviously, this is small. Forty billion (dollars) is not a lot. Where it is helping is because it is long term, twenty years, ten and a half grace, and because it fits in an overall support that countries get from international institutions.

FROMAN: Wanted to ask you about Ukraine, but I’m going to open it up to the audience. So just very briefly on Ukraine, something very near and dear to your heart. The IMF has been quite creative in terms of how it’s supported Ukraine during the crisis for the last two years. What role do you see the IMF playing in its reconstruction? And are you in favor of using frozen Russian central bank assets to reconstruct Ukraine?

GEORGIEVA: To the first question, our concentration now is on keeping the Ukrainian economy in as good shape as possible, despite the war. And I want to give credit to the Ukrainians themselves, because they have been phenomenal. A war-affected economy that is collecting 36-37 percent tax to GDP, that is bringing inflation down in the—towards the single-digit numbers, that is able to provide pensions and social services to people, that is actually making commitments to us in a program and then fulfilling these commitments.

And I—for those who know you Ukraine, better than in the days there was no war. So I want to praise them for that. We just completed our second review on the Ukrainian program. They have made all their commitments under the review. We do—the problem is large, $122 billion over four years with slightly over sixteen billion (dollars) coming from the Fund. The rest is commitments from Ukraine’s partners.

You’re asking about reconstruction. The World Bank put over 400 billion (dollar) price tag on what it would take over ten years to reconstruct Ukraine. We are not a reconstruction agency. So we are not frontline for that. Our contribution is going to be, again, on the policy and institutional front, making sure that the country has the attractiveness for domestic and foreign investors, that we help make this reconstruction as efficient and effective as possible.

To your second question, this, of course, we have a duty of neutrality, as an institution. This is not a question that is for us to answer. What we can say is if there would be used, it has to be based on international foundation. And we have to be very mindful of what the risks and implications for monetary policy and for financial stability could be. What risks there may be, how they can be handled.

FROMAN: Thank you.

Let’s open it up for questions. First here in the room, and then online. Don’t be shy. Doug Rediker. Never shy. (Laughter.)

Q: Sometimes shy. Thank you, Michael. Thank you, Madam Director.

Two questions, if I may. The first is, Undersecretary of the Treasury Jay Shambaugh gave a speech back in October in which he expressed some concern over the Fund’s history of rolling over programs without actually seeing the fundamental changes and structural reforms that might warrant rolling over those programs, ad infinitum. I’m not sure he used the specific country references, but one could point to Argentina, Pakistan, Egypt, a slew of others that have had repeated fund programs and not demonstrated the actual progress in the end. Do you take Jay’s comments at their face as valid? And if so, what is the Fund’s approach to those countries and to that rollover history?

And the second is a more fundamental question. You mentioned the common framework, DSSI, and others. I’m always troubled by, not only the IMF, but a broad policy contradiction about its views of the private sector. Are private capital investors the problem or the solution?

GEORGIEVA: Well, the—should I—OK. I very much agree with Jay that it is indeed concerning when you have twenty programs, plus, and the country still needs more support, and the policy reforms are incomplete. Why is this the case? In each country there are different reasons. Some countries are actually performing in relative terms better than others. So I’m not going to go into the countries that you mentioned. I would say this. We have a tremendous responsibility to help countries stabilize their economies at the time of shock, and then, more importantly, build strong fundamentals. What we have seen over the last years is so obvious. Like people with strong immune systems during COVID, countries with strong fundamentals deal much better with shocks. And shocks are going to continue to come. So, yes, Jay is right. The Fund has to work on demanding from countries to perform.

Now, the question always about the counterfactual. What would happen if the Fund completely withdraws from a country that is systemically significant for a subregion, for a region, or just for the people in this country? And I can tell you, we don’t take these two demands on us lightly. One is, push hard for countries to reform. And the other one is, look at this balance of what happens if a country is to fall off the cliff, especially—and I actually had talked to people about that quite a lot—especially fall off the cliff at this very uncertain time that we are now operating.

Do we have a silver bullet, magic wand? No, we don’t. What we learned—and you know it, everybody in this room knows it—one thing we learned is that unless the country really wants it, it ain’t going to happen. We have to—so we have to continue to persist, persevere, and pray—(laughs)—for domestic ownership of strong reforms. As I’m sure you know, I come from a country that did have a fund program in the mid-’90s. It was painful, and successful. And I am a very big fan of doing the right thing on the policy front.

Your question concerning the private sector and common framework, look, who creates the jobs? It is the private sector. If we don’t—if we don’t use every opportunity to create conditions for private sector to thrive, including during debt restructuring, we are not going to get countries to step on their feet. So we will do debt restructuring and a couple of years later, oh, it wasn’t enough. We will do another one. But the private sector also steps into these risky environments, hopefully with eyes open. And when things go south, the private sector has an interest to help the country turn to in the right direction.

I’ll give you the case of Zambia. Zambia is phenomenal. This country has so much potential. Everything you can think of underground, everything you want to grow over, you can grow. And it is one of these rare cases of a country in Africa with a small population, but youthful population, eager to deploy their skills. And now they have a reform-minded government. So all of us, including private sector, has the interest of Zambia to stabilize. And that requires cutting the tumor of debt that the previous administration grew on the body of Zambia. So I am all for thinking of the private sector as part of the solution, because it is. And when we are faced with a debt sustainability problem, they’re also part of the solution.

FROMAN: Let’s go to our virtual audience for the next question.

OPERATOR: We’ll take the next question from Chris Yegen.

FROMAN: Go ahead, Chris.

OPERATOR: Mr. Yegen, please accept the unmute now button. We seem to be having technical difficulties. We’ll take our next question instead from Moushumi Khan.

Q: Hi. This is Moushumi Khan. I’m the U.S. alternate executive director at the Asian Development Bank and joining you from Manila. Thank you very much. It’s really a wonderful panel.

I actually wanted to develop your question on MDB coordination. So my question is regarding both the debt—really, relief coordination, but also debt transparency. And in particular, in Asia—let’s say for example, Sri Lanka, how would we work better together in terms of IMF, ADB, et cetera? So debt coordination and debt transparency. Thank you.

GEORGIEVA: Moushumi, thank you for bringing the point on debt transparency. And actually, I owe an apology to the whole audience. I didn’t bring it up.

One of the big problems we are wrestling with is just knowing how much debt is out there. And very often, you see the tip of the iceberg, but the iceberg is still quite hidden underwater. So the World Bank and the IMF have been working together to promote debt transparency and to make debt transparency big, big integral part of debt management in countries, in our engagement with countries. And for us, the only way we can get the country out of trouble, same applies to Sri Lanka, is if we all cooperate. There is no solution in which one donor—well, one creditor, one institution can succeed on its own.

Sri Lanka has made very good progress. We see this progress in the economy. I’m sure you see it from the Asian Development Bank. We are wrestling with how to put debt transparency on very sound footing for the future. (Laughs.) So not only now we get to a resolution, but we have it as we go forward. And when we all speak from the same page, when we all have the same tune, there is a better chance that countries will do what is in the interest of their own people, manage their economies responsibly.

FROMAN: Good. Questions here? Yes, please. If you’d identify yourself as well.

Q: Whitney Debevoise, from Arnold & Porter.

There’s been a lot of talk recently about the Global South. Is that a helpful terminology in the world of multilateralism?

GEORGIEVA: Thank you. Thank you very much, Whitney. Good to see you here.

I am not very much in favor of divisive terminology. And when you put labels, then you implicitly are going into dividing the world, not unifying the world. Plus, how do you—what is Global South? What is South? Is China part of the Global South? And not just geographically, but in terms of its economy? It is now a much more developed economy than it was ten, fifteen, twenty years ago. And what can we do to overcome that labeling that pigeonholes countries in camps? You know, for one, don’t use the term. And actually, work on seeing what unifies countries, where is the common interest? How can we promote this common interest in global conversations more?

FROMAN: Can I follow up and ask you about China? The Fund recently upgraded its growth projections for China. Earlier this week, Moody’s downgraded China. There does seem to be this sense of malaise in China around consumer confidence, investor confidence. Clearly foreign investment are falling off a cliff, for all the reasons we know. How confident are you that China, which has previously dealt with its economic challenges in a very robust way, that they have the tools available, and that they can use the tools to get themselves back on a faster growth trajectory and restore that kind of confidence?

Not just to foreign investors, but domestic investors. I remember, you know, one of the great indications of how economy is doing is where do people—where do domestic residents with capital decide to put their capital? Do they invest in their country or do they try and take it offshore? Certainly, everything we’re seeing, Chinese families that have money are trying to move them offshore. What’s your confidence level that the Chinese leadership will be able to deal with these challenges?

GEORGIEVA: So there are three elements in your question. The first element is, does China have the tools? They have the policy space and they do have the tools for bringing the economy to a more robust performance. We have done our analysis on potential growth in China, medium, long term. And what it shows is that there can be a very significant difference depending on China implementing reforms or not. And in terms of reforms, we have discussed quite in depth. Want the reforms to lift up medium term potential growth, are creating more incentives for domestic consumption, giving people more certainty for their old-age through pension reform, so they spend more and save less. Opening up the Chinese economy further.

The second part of your question—

FROMAN: Do you see momentum on those issues? Do you see two different ways that the Chinese government could respond to current challenges? What would be to go down that path towards all those reforms that we know that they need to make? Is there momentum there?

GEORGIEVA: We see a genuine concern about the potential drop. We are projecting growth to go down to under 4 percent. And, actually, our projections for medium-term growth are even a little bit more pessimistic than Moody’s projections. And that has created interest in changing direction. There is—there is a very important question for China, which is how fiscal relations are being defined between the central government and local governments. We know the big problem of local government debt. How this can be resolved, how it can be addressed over time.

The second part of your question is about confidence. Is confidence being eroded? And we certainly see that there has been some of that in China. And we need to recognize the following: China is a country that for forty years knew only one way—up, up, up. Now China is maturing as an economy, and it is going to turn into, let’s call it, a normal economy. There will be up, there will be down. The adjustment to this is not an easy process.

And the third aspect is something that we are all aware of, just demography. China is aging, and China is shrinking. And that requires complete change in mindset, vis-à-vis where the country was before. Is the Chinese leadership aware of these issues? Yes, they’re aware. And now the question is, how do you transition to being a normal economy with ups and downs from being an economy that only knows up, up, up? And that, of course, is happening in a fairly complex geopolitical environment.

It was very good to see President Biden and President Xi Jinping interacting in San Francisco. After all, these are the two big engines of the world economy. And the whole world has an interest of these engines to work well. Because when China loses momentum and it drops 1 percentage growth, that translates into 0.3 percent drop for Asia. So, you know—

FROMAN: And it has impact on Europe and everywhere else.

GEORGIEVA: Oh, of course. Now, on the more positive side, even when China drops to below 4 percent, based on our—I don’t know whether this is very positive. Anyway, based on our predictions for global growth around 3 percent, they would still be contributors to global growth. But obviously, you know, this is a very—it’s a change that is happening. And it is not—I mean, the property sector, we all know, is still not quite cured. So there is work to be done. Do they have the policy space? Yes. How effective they will be in deploying it? This is the question China faces now.

FROMAN: Great. Heidi Crebo-Rediker. Fellow here at the Council, among other things.

Q: Hi. Thank you so much for joining us today.

So the Fund has written quite a bit about the fragmentation of trade and the changes in trade flows. But we’ve seen already some upside for certain countries that have benefited tremendously from the reconstitution of trade and investment. Morocco, Mexico, Indonesia, Vietnam had seen, like, a tremendous amount of investment over the past sort of post-COVID period. It’s both companies that are looking to invest in a China-plus-one strategy, by and large, but also Chinese companies looking to separate their strategies. China for China, and then rest of the world for rest of the world. What are the highlights of the re-fragmentation of trade and investment flows that you look at?

GEORGIEVA: I so very much agree with the point you’re making, that the volume of trade—and this is something that Ngozi very often refers to—it hasn’t shrank. It has been redistributed. What is concerning is whether in this process of redistribution we are going to still have a(n) optimal economic performance. And that, we will have to see. Look, I’m very impressed by ASEAN, but specifically by Indonesia within ASEAN. And I want to make a point about Indonesia that is a broader point for the rest of the emerging market world. How is Indonesia succeeding and becoming so attractive for investors? First, by having very strong fundamentals. And this is what no country can go without. And, secondly, by revisiting their investment strategy by saying: Hey, we have Niko, but we don’t want any more to just export raw materials. We want processing in Indonesia.

And I believe we will see that kind of position taken by other developing economies that are rich, especially on the natural resources critical for the green transition. And we have to think about how we approach it, because actually, these are not only the countries that have materials. These are the countries that have labor force. They have youthful and growing population. So if we want growth in the world at the higher level than the 3 percent, two things have to happen. Investments have to go where we have the young people, and they have to go where we have the potential drivers for future growth.

So in that sense, the revamping of trade is important. But even more important is the revamping of global supply chains. And we have to think about what would make most sense in where production activities, investments are being—are being done. And you will hear this in economies across the emerging market world, that are in reach of these very, very valuable commodities for the future of our planet, both for the green transition and for the digital transition.

We didn’t talk about that artificial intelligence and, you know, probably we don’t have any more time to talk about artificial intelligence. But my broader point here is that not only trade relations are shifting, but we are at the cusp of a major transformation in how our economies are working. And the players in this transformation, of course, are also countries rich on the resources we need, both material and human resources. So it’s a good—it’s a good thing that is happening. And probably we should talk more about it. However, it does not eliminate the problem of getting frictions in the world economy that risk for it to be a less integrated economy than we have enjoyed in the last decades.

FROMAN: This gentleman right here, at the table.

Q: Good morning. Thank you, again, for being here. Luke Lindberg. I’m the CEO of South Dakota Trade. We navigate international trade for the state of South Dakota.

And I just wanted to follow up, because I do think there are certain emerging economies that are benefiting. You know, Mexico and Canada just took over as our two largest trade partners in the United States. We, as the state of South Dakota, send a lot of agricultural products overseas, as you can imagine, and had been overly reliant, in my opinion, on certain markets. So do—as we’re looking to diversify our exports around the world to new economies as these global supply chains shift, do you think that helps stabilize the long-term global economy to have more of a diversification? So you mentioned critical minerals. You know, 90 percent of our rare earths are processed in China. As we integrate in different ways, does that stabilize global growth, or at least provide some balance against some of the shocks we’ve seen? Thanks.

FROMAN: Let me ask Linda Robinson to ask the last question, over there. And then we’ll give the managing director the last word.

Q: Thank you, Madam Managing Director. I’m Linda Robinson, senior fellow for women in foreign policy here at the Council.

You’ve been a vocal proponent for reducing the many barriers to women’s participation in the labor force. I’d just like in the few minutes we have if you could give a quick update on what you think the major results have been from your gender strategy, released about fifteen months ago. Thanks.

GEORGIEVA: OK, great. To your question, yes, this is what we—what we are seeing in terms of diversification. Of course, it’s a good thing. You don’t—both COVID and the war in Ukraine told us that you cannot rely only on one source. We also saw it before when a climate disaster happened in Asia. Thailand was very effected, and it hit the whole world through supply chains. So vulnerability to these shocks tells us: Diversify.

I said something in the beginning that I want to repeat. We are going to see some cost of this securing supply, for good reason, strategy. The question is not whether we should do it. The question is how we do it. So the cost is kept lowest possible and the benefits as high as we can (rid them off ?). And that means—let me just be blunt here. It means that we do have to have agreements, multilateral, plurilateral agreements, that actually stick, that they are respected. Because a world without rules is just more vulnerable. And that is, you know, our point around fragmentation is not so much that we see the shifts, but that we see a departure from sticking to international order. And with so many countries, we need to have some of that in place.

Gender. So, yes, we stabilize—when we have this diversification, we stabilize the world; we don’t weaken in. Gender strategy of the Fund? Well, we are doing great.

First, in our engagement—why do we have a gender strategy? Because it is good economics. We have done all this research. Others have done research. When you have women participating in the labor force and they’re treated fairly, then you have an economy that is booming. In aging societies, there is no other way. How is Japan going to deal with labor market demands unless it taps into women? In the Middle East, it is remarkable what Saudi Arabia and the Emirates have been doing to expand participation of women.

We have promised to work with countries to identify fiscal policies that—and other elements that can help expand labor market participation of women. We have exceeded this commitment. We said we would have about a dozen countries. We have done more. And the receptivity in the membership is quite high.

From that economic standpoint, what can you do, for example, if you create conditions for kids to go to school—to go to preschool, to go to school, and that’s affordable and accessible? Then women can go to work. And that, by the way, applies to mature economies, not only to emerging markets.

We have also done it internally at the Fund, and it’s a very good place to end. So when I started in 2019, women were only 25 percent of our directors, of our senior crop. Now we are close to 40 percent. And for the first time in the history of the IMF, at the top of the IMF the five people—me and four deputies—three are women: myself; Gita Gopinath, who is brilliant as first deputy managing director; Antoinette Sayeh from Liberia, former finance minister. And we have two men.

And that matters. I can tell you, I walk the corridors of the Fund regularly, and every time there would be some young woman who would stop me and would say: Thank you for giving us more voice and more space at the Fund.

The result? It is a more energized place and voices of everybody contribute to the decisions we make. So very good story.

FROMAN: Very last question. You spent senior time at the World Bank and the IMF. Which is better? (Laughter.) Which did you enjoy more? Where were you having more fun? (Laughter.)

GEORGIEVA: OK. Of course, I enjoyed them a lot. They’re different institutions.

Where I felt that fate brought me to the right place, it is actually the Fund. Why? Because I started October 2019. 2020 beginning, we were hit by COVID. I came to the Fund with experience as a crisis commissioner in Europe and, of course, a lot of experience from dealing with shocks from the World Bank. So that equipped me quite uniquely.

And I am extremely proud of what the Fund has done to respond to shocks. We have injected a trillion dollars in liquidity and reserves in the world economy since COVID. And we have increased the speed and I would say the depth of engagement—ninety-six programs done by the Fund, $350 billion in lending, 650 billion (dollars) the SDRs. And now Office of Evaluation—Independent Evaluation gave us very high marks for what we have done.

But I also can tell you I have not—well, I love the Bank, Bob. You know that. (Laughter.) You know that. I love the Bank. I genuinely love the Bank. But I felt that for this moment, when you needed somebody who knows how to deal with crisis fast—(laughs)—I ended up being the right person in the job. And I can also tell you that I have accumulated so many hours of not having slept—(laughs)—one day—yeah, I would—one day I would have to catch up.

FROMAN: We are honored to have you at this Stephen Freidheim Symposium. Please join me in thanking the managing director with your applause. (Applause.)

GEORGIEVA: Thank you. (Applause.)

FROMAN: And please—and please stay tuned for the next panel, where we’ve got Bob Zoellick, Caroline Atkinson, and Adam Posen, Jerry Seib to continue this conversation. Thank you.

GEORGIEVA: Thank you, Michael. (Applause.)

FROMAN: Thanks.

GEORGIEVA: Thank you. (Applause.)

(END)

SEIB: Hi, everybody. Welcome to round two. I’m Jerry Seib of the Wall Street Journal and CSIS, and I’m presiding over this half of today’s conversation. The first hour was a great setup for what we’re going to talk about here.

I just wanted to remind people this symposium is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is made possible through the generous support of Council board member Steve Freidheim, who’s right there. So thank you very much for doing that, and thank you all for being here.

We’re joined today by not just all of you in the room, but also a virtual audience.

And my job as moderator has been made much easier by the Council because they’ve provided me with an all-star team: Caroline Atkinson, senior global strategist of Rock Creek Group and former deputy national security advisor for international economics; Robert Zoellick, former U.S. trade representative, former president of the World Bank Group, and former U.S. deputy and undersecretary of state; and in larger-than-life form over there is Adam Posen, president of the Peterson Institute for International Economics. Thank you all for being here.

I wanted to start with a point that Mike raised in the initial conversation, which is basically this, that I think we all, it’s fair to say, came of age at a time when U.S. international economic leadership was predicated on American support for free trade and free movement of capital. And I also think it’s fair to say that both of those levels of support have declined, if not in some quarters of America collapsed, in recent years. The Chicago Council did a survey a couple years ago and found that 60 percent of Americans said they favored tariffs on industries that compete with U.S. industries, including 75 percent of Republicans.

Bob, let me start with you. Under those circumstances, how does the U.S. lead? And why was the—why has this collapse of American support for free trade and free movement of capital happened in the last ten years or so?

ZOELLICK: OK. But let me first thank Steve again for sponsoring this. As we were discussing, I think it’s really important for the Council to have a(n) economic dimension as well as the political and security dimension. And in a way your question is a natural lead for that because it’s impossible to conceive of how the United States can play a leadership role or a catalyzing role unless it has a(n) integrated international economic policy that, of course, has domestic political support.

But I want to put your question in a little bit of a perspective. So—(laughs)—let me share with you a story. In 1947, when the United States had about 50 percent of the world’s production and supposed to be on top of the world, a man named Will Clayton was in Geneva trying to create the launch of what became the GATT, the General Agreement on Tariff(s) and Trade, later the WTO. And there were twenty-three countries, and the U.S. Congress passed a 50 percent wool tariff. And the Australians, at that time heavy producers of wool, said, well, if this goes forward, we’re going to walk. And then Britain, with the imperial preferences in the Commonwealth, said, well, if they walk, we’ll have to walk. And then the Europeans, who were looking to Britain, said, well, we’ll leave too.

So poor Will Clayton goes all the way back to Washington. Harry Truman gives him fifteen minutes, gives the secretary of agriculture fifteen minutes. And I’ve been in meetings like this, and your question poses it. (Laughs.) Secretary of agriculture says, Mr. President, if you don’t sign this bill for the wool tariff, you’re going to lose seven states in 1948, simple as that. Poor Will Clayton has to make the argument for international trade, and rules-based system, and things Kristalina was talking about, giving it a chance. The next day, Truman calls and says, I’m going to veto the wool tariff bill and, actually, you can cut 25 percent of the tariff. The Australians—since we all know Australians—wanted more, but nevertheless—(laughs)—the agreement went through and I think you ended up cutting 45,000 different tariff items that had huge impact on sort of the world economy. And by the way, Harry Truman won the 1948 election.

So I know that sometimes people feel this is a little simple for an answer, but in the U.S. system, given Congress and the fragmentation of representing constituencies and then states, it really does depend on presidential leadership. It does depend on the president explaining it.

Now, Kristalina mentioned you have to help people adapt to change. You have to sort of make the arguments. But I’m, frankly, somewhat concerned that, particularly in the trade area, if you have a combination of Trump’s protectionism and then Biden basically endorsing it, you’re really moving the political system away from the liberalization, and I think that’s going to have a huge cost.

SEIB: But, Caroline, let me—let me pick that up because it’s—there’s a reason for this. I mean, a lot of Americans do think that globalization has not worked for them; that they’ve seen industrial facilities hollowed out, their own standard of life has gone down. We did a survey at the Wall Street Journal in the spring and, amazingly, more than 70 percent of Americans said they don’t think their children’s generation will do better than their generation. So there is a reason for this that transcends the political system. In that context, do you need to recreate support for free trade and free movement of people and capital?

ATKINSON: I think you do, and I—because I think that, ultimately, that’s better for the U.S. economy and it’s better for—you know, the U.S. economy has flourished in a world of openness and that it has pursued.

I think Kristalina was absolutely right in commenting that too little attention was paid to the losers of trade. And that was kind of known, but again, as Bob says, the politics of getting the money agreed, and put out, and then without too many strings, trade assistance packages or whatever it was called was not pursued seriously enough.

I also think that what happened—and you mentioned the last decade. If we go back to the financial crisis, which is, of course, more than a decade ago now—but immediately following the global financial crisis, a couple of things happened. One was that unemployment went up to 10 percent. And there was very slow growth out of that for a combination of I think economic misunderstandings and political difficulties in the U.S. There was the European crisis, which was badly handled. And that meant that we didn’t grow nearly as much as we could have and living standards were depressed in that decade. And then, on top of that, that was true for many people and for most people, but it was not true for the very wealthy. And it was not true, also, for those who had presided over the major institutions; they did not—unlike in the savings-and-loan crisis, they didn’t—there were not high-profile trials or payments. So I think that contributed to a sense of, well, I’m not better off, my children won’t be better off, and a sense of division and annoyance, which was then blamed on trade.

And I think—going to your point about Biden, I think that Hillary Clinton’s loss to Trump was internalized as sort of being driven a lot by a push against globalization. And I think it was a push against many things—although, actually, of course, she did get more votes than he did—(laughter)—which we tend to forget. But it was a push against people not feeling hope and not having done well. And then it’s always easy to blame the other or the outside world.

SEIB: So, Adam, let me ask you, is it possible to reconcile these two things? In other words, can you both recognize the legitimate concern that a lot of Americans have about the affect of globalization and free trade on their lives and their livelihoods while also establishing the virtues of those ideas, as Caroline suggested, because they’ve made America more prosperous? How do you reconcile those two things?

POSEN: It’s hard, Gerald.

Let me just say that I’m very grateful to be on a panel with Bob and Caroline, who, when the U.S. did exercise economic leadership at periods, they were the ones setting the strategy, and negotiating on behalf of the U.S., and pushing in those interagency meetings with the secretary of agriculture for the right policies.

And I also want to thank Steve Freidheim. Wherever Steve goes, whether it’s the Council, Peterson Institute for International Economics, the Tobin Center at Yale, or many other venues, he upgrades the level of public discourse on economic issues with the general welfare in mind.

And that bridges me back to your question. At some point, sometimes voters and people don’t perceive things correctly and you have to humbly but honestly state the facts. And there’s a lot of facts out there about how much U.S. engagement with globalization benefited the average American household to a trillion dollars a year—not each household—(laughs)—how much the tariffs and the cutoff of migration—legal migration reductions and the restrictions on flow of capital outward are impacting the wellbeing of average Americans through their pension plans, not just rich people. I think it’s also important, as Caroline and Bob have done and others at the Council like Mike Froman have done, to talk about how the—if you’re concerned about not having to send American young people into combat or people we care about around the world being subjected to violence and threat, having a more inclusive economic policy that makes our allies feel stronger and reduces unnecessary conflicts is in our interest. So there are a lot of things that you can’t lie to people. You can’t just pander.

And I think, additionally, one of the connections that has to be made is about how this is more about freedom of choice in some ways than about the idea that losers are being compensated or not, or people are getting rich. I mean, we’re going to start seeing—we already do—the restrictions on people’s ability to pursue what they want to do, to buy things they want to buy, to have a choice of options when they’re making consumption decisions and investment decisions that are being constrained by the backlash against globalization. So it’s a lonely thing to make that case, but sometimes you do have to remind people there are facts.

SEIB: Bob, go ahead.

ZOELLICK: I want to push back a little bit because what you—your question reflects the current conventional wisdom and I want to be a little contrarian here, OK?

SEIB: That’s a new position for you, being contrarian, I know. (Laughter.)

ZOELLICK: You mentioned the Chicago Council on Global Affairs. If you look at that study, it also says about 75 to 80 percent of the people want to have more trade. So is it likely that people say, yes, we like to have tariffs to protect some industry? Yes, of course. By the way, what do they do when they go to the store? Do they like to pay more? My impression is, if anything, the Biden administration kind of overlooked the effect of prices and inflation on people’s attitudes. So how does that express itself?

Or let me give you another example, NAFTA. OK, so everybody was complaining about NAFTA. Trump wanted to kill NAFTA. He couldn’t kill NAFTA. Now, why was that? Not because he and Bob Lighthizer didn’t figure out a way to try, but it was so embedded into the North American economy and the benefits for people were so obvious that they decided to retool it in some different aspects.

And so—and then you come back to some of the views that have been espoused on the damage to the U.S. economy. The U.S. is about 40 percent larger than Europe. You want to have Japan’s economy? Look at what’s happening with China.

The reason I’m highlighting these points is that the biggest mistake we can make is to give up our traditional advantage about being open to ideas and capital and people, and to follow sort of the Chinese process. And this is a real issue today that we can come back to on the whole issue of data and digital. The U.S. just did another protectionist pullback. And in a world of AI, we’re putting ourselves out of the game in terms of East Asia and the other data development.

So, you know, if you think about unemployment in the—in the ’90s, supposedly with all the problems with the WTO, well, I don’t know, it was, what, 2 ½, 3 percent? I mean, so there’s a certain handwringing quality here of people that say, oh, you know, woe is me, so on and so forth. I’m not sure that reflects the heartland of America. Frankly, I think the politics that you’re talking about are driven more by identity than they are economic.

SEIB: You know, it’s always hard to look for consistency in public polling, because I saw a survey recently where 70 percent of people said they wanted politicians to compromise more and 70 percent said they were tired of politicians who compromised on their principles—(laughter)—so I don’t know.

But to move beyond conventional wisdom to current reality, you both mentioned the Biden administration. Jake Sullivan, the national security adviser, gave a speech at the Brookings Institution a few months ago in which he described Biden administration international economic policy and struck some what I would say are notably nationalist tones. He said, essentially, an approach that relies on private markets and low tariffs is too simplistic for today’s world. He advocated for what he called a modern industrial strategy. He said we’re protecting our critical technologies with a small yard surrounded by a high fence. And he said the administration is going to address outbound investments in sensitive technologies. Larry Summers responded to that by saying, essentially, well, he’s got a point. Is the administration on the right track here, given the political atmosphere that they’re in?

ATKINSON: I’m glad to say that they’ve pulled back quite a bit. They took a long time to define the yard and the fence because they wanted, actually, when they spoke to the private sector, to make it a very, very small yard. I don’t agree with either Larry or Jake on this. I think that there is a problem if we shut ourselves off to the rest of the world.

And I want to pick up on a point on resilience that Kristalina mentioned and maybe a bit contrarian. I think a lot of people look at what happened with Europe’s dependence on Russia and Russian oil in the wake of Ukraine and thought that is terrible. That’s fair enough. Diversification of supply is important. But that problem ended up being much less bad than people had expected. One reason was it was a relatively warm winter in Europe, but another important reason was that the U.S. was open to exporting its—our gas and fossil fuels. That decision had been taken about exporting—freeing up exports of U.S. energy in the mid—in 2015, 2014. So I remember the discussions. People were very worried about allowing that export would push up gasoline prices, and so on, and so on. But it went ahead, and there were LNG exports to Asia which were diverted, then—were sold back to Europe, where they were more valuable.

That is how you get resilience, in my view. You get it by—not by restricting exports and so on, but by allowing—the market is so powerful. So if you try to—it’s like water. If you try to put in some dams, you may end up with the water going somewhere that you weren’t expecting. And I think that part of what’s happened with the industrial strategy is that, yes, maybe you get some great factories starting somewhere and manufacturing investment has gone up hugely, but I think it’s 6 percent of the American workforce are in manufacturing. So it’s a powerful statement of culture. It’s a little bit like farmers in the old days. Yes, there’s a lot of political support for those subsidies. But if you really work out how much you’re paying for each job, I’m not sure that you get that political support.

SEIB: Adam, I want to turn to you and talk about China, which is the elephant in every room in these conversations, in a second.

But first, Bob, I wanted to come back to you because one thing that occurred to me as you were making the point you did about, you know, the—perhaps the economic pessimism not being as great as it seems on the surface. One of the problems—and you know this from your work in the political world—one of the problems any politician has is convincing somebody that they should feel better than they do. It’s a pretty tough job. And how do you do it? How do you—how do you make the sale to people that the policies that you’ve supported, and you’ve supported, and Adam’s supported have actually benefited them in ways they don’t necessarily understand?

ZOELLICK: There’s a micro and a macro way.

At the micro point, as sort of Adam was mentioning, you have to do this at sort of—at the grassroots level. So when I was USTR, Roy Blunt at that time was in the Republican House leadership. He then went on to the Senate, has now stepped down. We organized something in his district where we spent a day and we went to small companies, each with a slightly different media market, to talk about how exports were important to them, kind of their business and their future. That’s partly at the grassroots level. And ultimately, this is going to be dependent a lot on businesses and whether they’re committed, which brings you back, see, to my leadership point. They’re not going to invest the effort in it unless there’s something to get done. So one reason I pushed all the free trade agreement is it allowed them to sort of get behind something. But they’re not going to waste their time on sort of general assumptions moving forward.

Then, kind of at the macro level, I think that there’s an argument—going back to Ronald Reagan, but not looking at it from the left or right but kind of looking at it for moving forward—how do you try to put this in an optimistic note? How do you—do you have the confidence in America? As opposed to sort of the Trump view that, you know, we’re moving into some terrible decay and damage, which I think Tony—or, I think Jake, you know, unfortunately, kind of echoed. I mean, the American economy that he was describing doesn’t look at all like the one that I’ve seen or that the rest of the world has seen, and on any basis then builds it on sort of this industrial policy, which—I separate the research and I separate some of the early stage stuff. That’s very, very important. Trust me, you’re going to—(laughs)—within five years, you’re going to have a huge series of negative stories about the companies you picked and how they didn’t work in different areas.

And then you also have to ask the coherence in this. So, for example, if you want to support solar energy, which I do, why would we put tariffs on solar panels? But national security, I’ve been in the national security world. I’ve been part of, actually, some wars. How exactly will the solar panels affect the national security of the United States? And so part of this, I think, is the administration, for the political reasons, I think, that you heard here, convinced themselves this had to be part of their anti-Trump Upper Midwest industrial strategy. I don’t expect there will be any changes in the course of 2024, but people ought to be thinking about what happens after that.

SEIB: So, Adam, let’s talk about China for a minute, because the topic on the table for us today is American international economic leadership. I think the fear has been in recent years that China aspires to become at least a coequal, if not a superior leader of the world economy.

Two questions for you on that front. First, how much do you think China’s current problems internally economically are impinging on its ability to be a rival to U.S. leadership? And secondly, what is the best approach to China that both—for an American government that both reflects the need to interact with China but also doesn’t just look past its predatory behaviors?

POSEN: Thanks, Jerry.

So picking up on some of the things Bob said, I think when we think about China’s ability to lead or to displace the U.S. as a leader, there’s two components, right? There is a component of simply just how well their economy’s doing, how much they can marshal resources towards buying friends or investing in friends. And then there’s the question of how much they seem like a model and that their effect on the world is one that’s more inclusive than the poor people than—in the so-called Global South than what the U.S. is doing. And Caroline, I think, has spoken in the past very eloquently about the battles we have, the competition we have in winning the hearts and minds of leaders and businesspeople and average people in those countries.

So on the first point, China’s not doing that well. I think that the economic problems there, as I argued recently in Foreign Affairs, are what I call economic long COVID, that Xi has changed the game. He’s been more interventionist. He’s put more resources into the state-owned enterprises sector. And most importantly, he’s been in the face of the average Chinese people in a way that preceding communist leaders since Deng have avoided doing. And this is having great repercussions on the vitality downwards of the Chinese economy, on the response of Chinese people and households and small business to government.

On the model side, it’s—the problem is that neither the U.S. nor China is doing much that is attractive right now. I mean, one of the reasons why, building on what Bob was saying and Caroline, that I oppose very much the main thrust of Jake Sullivan’s speech wasn’t even about the economics and the waste of it; it was because it’s essentially saying high-tech is a game played by the biggest economies—U.S., China, Europe—we’ll subsidize, we’ll cheat, we’ll put up barriers. And it goes against what Kristalina Georgieva was saying about countries like Indonesia wanting to not just have their deals to export their minerals, but also get a chance for development and growth. And neither China nor the U.S. are doing very well on this.

And this is why institutions like the World Bank and the IMF and the WTO exist, is that you don’t want countries around the world and the people in them to have to make everything a foreign policy decision—whether they’re going to be allowed to grow, whether they’re going to get access to a market, whether a business can expand, whether their people will be paid a living wage. This is why we have international institutions, and this is the big thing that the Trump and to a lesser degree but still the Biden administration have done, which is withdraw from the international institutions, and not support them, and not act as though sometimes the institutions can impose burdens on us.

In terms of bilateral relationship with China, what I would argue is small yard, high fence, et cetera, fine. I think we should be reorienting from sanctions—(inaudible)—that the U.S. is going to be relatively more attractive to Chinese people and to people around the world as Xi goes down this path of greater autocracy. And we should be trying to make it clear that our opposition isn’t to the economic development of China, isn’t to the average Chinese person; it is to aggression from the Chinese Communist Party leadership. And so if we subtly but clearly say we will take in your people, we will take in your capital, we will take in—we will be open to your ideas, that puts pressure on the Chinese regime in a way that is less costly to the U.S. than the sanctions regime, more effective in scaring them and driving them down a path that discredits the Communist Party—not immediately—and more consistent with the principles we need to be putting out there. So that’s the shift I would think about overall.

SEIB: Caroline.

ATKINSON: That, I think, is very interesting, Adam’s point about arguing for freedom of choice in the U.S. as a political argument.

I wanted to make one—I agree that the sort of scaredness and fear about China in the U.S. is overstated. And we’ve seen the Chinese economy, yes, still growing faster than average, but being disappointing and disappointing to its people.

I also think that we can forget sometimes when we’re thinking about what—about leadership that in China, if they’re wanting to lead and work with the Indonesias or the Global South, they will think of using the state and state money. And they’ve found that they’ve lost a lot of money with the Belt and Road.

In the U.S.—and this used to frustrate me when I was in government, and probably Bob as well—we don’t have—you know, the U.S. doesn’t have a lot of money to hand out. We don’t have a lot of institutions and banks that are going to send money. What we have, though, turns out to be much more attractive and powerful, which is the private sector. And that’s what we need to be encouraging, not in a crazy way—it’s important to have regulation—but that is what’s attractive about the U.S. to much of the rest of the world. It’s about that soft power.

And then I just want to make one point about that soft—two points, quick points, about the soft power.

We have a really strong economy, Kristalina pointed out we’ve survived—the only country to be above the pre-pandemic trend growth rate. Unemployment’s still—we’ll find on Friday if it’s still below 4 percent. Inflation’s coming down, et cetera, et cetera. But we’ve been growing more and the rest of the world hasn’t. Why doesn’t that—well, first, you can’t tell people how to feel, but why doesn’t that translate into more natural international leadership? And I think the problem is our politics.

And if people look at the U.S., especially now with former President Trump very likely to become a nominee, but it’s not just that. It’s also, you know, somebody being expelled from Congress, somebody else who was a football coach stopping people from staffing the military for months and months, and I’m sure there are, you know, other problems within the Democratic Party about what’s happening in the Middle East. And then when people look at the U.S. election and U.S. politics, that doesn’t look so steady and stable.

And there’s also—my second bid on that is I remember that in the runup to a U.S. election there is a palpable reduction in soft power because everybody’s wondering, oh, is this person who’s trying to persuade me to do this policy going to be here after the November elections? I don’t know, maybe the polls aren’t—so maybe we’ll just push things off for a while.

SEIB: Well, you know, Bob made the point about the sour mood being as much about culture as economics, and I think that’s a point well taken.

I want to—I want to turn to a minute to questions from this audience and the online audience. But I wanted to, Bob, touch on one thing before we do that that you’ve written about and talked about, which is the likelihood or at least the desirability of a G-7 agreement to transfer frozen Russian reserves to an escrow account for Ukraine, which could be a critical source of aid as other flows are diminished. Is that going to happen? And does it set any troubling precedents that worry you?

ZOELLICK: Well, Kristalina was artful as a(n) international leader in sort of being neutral on this question, but I won’t be neutral.

SEIB: OK. (Laughter.)

ZOELLICK: To me—and I’ve done work with this with Larry Summers and with Phil Zelikow—I find it striking that the Congress is struggling to pass basic military aid, and good luck expecting they’re going to give economic aid. And you can see the problems in Europe with the debt brake and others. We’re in a war of attrition. And a war of attrition is partly will and it’s partly the economics of sustaining Ukraine.

So I have been surprised, actually, that people haven’t recognized—you have $300 billion of frozen Russian reserves. What more equitable justice to be able to use those Russian reserves to not only help Ukraine survive, but to send the signal to Putin: You will not outlast us.

OK, so what are the issues? OK, well, international law questions, OK?

SEIB: Right.

ZOELLICK: Well, Larry Tribe has done a very comprehensive memo from the U.S. perspective. Paul Reichler and others in London have done the international law. I won’t get into all the details of countermeasures, but there’s a very, very strong argument here. And in fact, when you talk about concern for international law, as someone on the center-right side who actually wants to try to make international law work—(laughs)—this, to me is an example of how you can use some of these evolving concepts to a constructive end.

OK. So then the second concern people raise is, well, what will it do to the dollar? Well, frankly, most of these assets are held in euro anyway in Brussels. But the real question, whether it’s the euro or the dollar or any other reserve currency, is, as compared to what? And so, frankly, what I’ve heard from the ECB recently, as long as the G-7 does this together then they’re sort of comfortable in sort of taking the action.

And then the one other aspect about it as you—as you go forward with it is that do you think countries hold dollar reserves so they can invade their neighbors, or do they do it for macroeconomic stability? From an international law or economics point of view, if countries realized they may lose those reserves if they invade a country, I don’t think that’s such a bad development.

OK. Then the last one is people who misapply World War I and reparations, and they say, oh, it’s a terrible example, reparations after World War I. My reading of history was that the Germans surrendered and that Weimar was a democracy. That doesn’t look too much like Putin’s Russia to me. If anything, I think Ukraine and Zelensky look like Weimar Germany. And I’ll leave out the scholarship part which Adam would know, which is most of the economic research suggests that the reparations weren’t so much the problem because the U.S. had—(laughs)—various loan program(s) that loaned money to Germany. There were some debt plans. The Germans gave it back to the British and French, and then the British and French didn’t pay us, and so—the Great Depression was kind of an intervening event.

The bottom line on this, and the reason I thank you for giving a chance to stress it—and there’s bills, by the way, in Congress which the president doesn’t need the authority, but it’s a nice endorsement, and I think in the House is passed forty to two; there’s a hearing today in one of the Helsinki Commissions about this—is that one of the issues that Larry Summers and I both laugh about was very rarely in our experience did you have good policy—which should be good politics of using the Russian money instead of our money—and a good ethically sound position. Rarely do you have those three lined up. And so, come on, let’s move on this, OK? (Laughter.)

And the bottom point comes back to your point about leadership. Look, the administration now, they tell me, supports this. You’ve got congressional support. But in my experience, you need a horse. Somebody needs to push this. There was a meeting in Spain yesterday where the Spanish screwed up the process. And so you need a major power to say: Given what’s going on, how do we make this happen?

So it’s a slight analog to what Kristalina was trying to say from the IMF or the World Bank. You can talk about concepts, and world order, and so on and so forth. At the end of the day it’s been somebody organize something to get something done.

SEIB: And your point is, you want the U.S. to be that horse?

ZOELLICK: I’m happy if anybody does it. (Laughter.) But in my experience, the U.S. used to do it.

SEIB: So let me open it up to questions, both in person and online. I’d like to remind people that this conversation, this meeting, is on the record. So we’ll start here and I’ll just move across the room this way.

Q: Andy Olson with the Senate Foreign Relations Committee. Thank you for the endorsement of our REPO Act. (Laughter.)

On the feels question, I mean, it could be just inflation and higher prices generally. But I leave it to you. I want to ask, international trade doesn’t occur in a policy vacuum. There wasn’t much mention of the distorting—and I want to be clear, I’m not making a judgment on this—but the distorting effects of U.S. sanctions, financial sanctions in particular, the growing use of export controls, now investment controls, and how this essentially affects the trade picture. Thanks.

SEIB: That’s a good question. I’ve thought about that as well. Adam, let me give you a chance to start. Sanctions.

POSEN: What we’ve seen—I mean, it’s a great question. What we’ve seen is, contrary to things that were claimed by Trump, Lighthizer, and others, tariffs have worked exactly the way economists and political scientists have said they would. Most of the cost has been passed on to the consumers. The losses are not just in terms of higher prices, but in terms of disrupted vulnerabilities, in terms of lower choice. in terms of less competition for our own companies, which means, frankly, less advancement over time, and corruption. Even if people go in with good intentions, because the government makes all kinds of arbitrary, high-stakes decisions, case by case, about who gets exemptions to what.

And so it’s run exactly the way we would expect. And, meanwhile, the effect on China has been lose-lose. Certainly, they’ve lost by not having the benefits of free trade with us. But they’ve, as many people including my colleague, Martin Chorzempa at Peterson have pointed out, they’ve made this into a boost to trying to disassociate themselves from the U.S.-dominated financial system, build their own semiconductor capacities. I mean, this is always the tradeoff of inside and outside the tent. If you—if the U.S. is seen as a completely unfair broker or totally self-interested and shortsighted, then, yeah, people will want to get out.

And then that means we have less leverage over them and less insight into what they’re doing. So I apologize if I’m losing a piece of the question. I want to give time for Caroline and Bob. But just we have not seen anything in the last several years now of increased tariffs and various other economic controls that have suggested they’ve changed anything, let alone Chinese behavior in the foreign policy sphere.

SEIB: Well, I think the corollary in the question was one that I’ve been wondering about, which is: Is there any danger that the U.S. is overusing economic sanctions?

ATKINSON: Well, there’s economic sanctions and I think the reasons—as Adam was describing—the reasons against using those in general are that, as Kristalina mentioned, as well, they tend to reduce productivity, and growth, and so on. So you need to have a pretty good reason to use them. And you may have good reasons, but you should be clear about what’s an economic reason and effect. On the issue of financial sanctions, which people sometimes worry about, and worried about, actually, for a very long time. If we do this against Iran, or whatever, will this mean that the people stop using the dollar? And there I’m with Bob. Why do people use the dollar? Because the markets are deep and useful. You can—it’s practical. And I don’t believe that sanctioning—I mean, if you went crazy with financial sanctions, but I believe that financial sanctions sort of generally approved by, you know, more broadly than just the United States, have a certain deterrent effect. There’s certainly not a silver bullet, as we were saying, I don’t think that they threaten the role of the dollar in the U.S.—in the global financial system.

SEIB: Yeah, and then—

Q: Thank you all for such a great conversation. My name is Mark Vlasic. I split time between Georgetown and CBS Television Studios. But a proud former world banker, thanks to Bob. And so the question’s for Bob.

You wrote a great book regarding a U.S. diplomacy two weeks before Christmas. What would be your favorite vignettes, outside of the one you shared at the beginning of this session, that you wish policymakers would know and better understand? Thank you. (Laughter.)

ZOELLICK: It’s almost a, go out to Amazon and buy the book. (Laughter.) Well, as you know, Mark, the theme of the book is really kind of the pragmatism of American foreign policy. So it starts with Ben Franklin and runs up to the ’90s, with an afterward in a the more recent time. And in a way, it builds on this little exchange we’ve had. A lot of foreign policy is taught through international relations theories, which is kind of fun to debate and discuss. But in my experience, that’s not the way the real world works, around dealing with German unification, or Darfur, or other aspects. It’s the practical work of problem solving. And it’s always incomplete. You know, so in an imperfect world having—you know, having halfway solutions, that’s going to be still a useful device.

So the main point—without picking any individual one because they’re all sort of fascinating figures, particularly the ones people haven’t read about prior to sort of World War II—is kind of this, this notion about America’s traditional skill is—you know, Henry Kissinger just passed away, so we’ve had the realpolitik and sort of some of this series. But instead of combining these different ideas about openness, problem solving, sort of how we build alliances, as Caroline mentioned very importantly, kind of our trade, and transnationalism, and technology, and how do we open space for the private sector? Those are our strengths. So in this august audience, it pains me to see us give those up.

SEIB: OK. I think we have an online question. Then we’ll go here, and over this way.

OPERATOR: We’ll take the next question from Mahesh Kotecha.

Q: Thank you very much. Hi. I’m calling in from a place where I’m really enjoying the conversation. It’s really brilliant.

My question is related to the dichotomy or the dissonance between using trade and financial sanctions on the one hand, and how it diminishes the capacity of the U.S. to lead. When I was at the Federal Reserve in the ’70s, New York Fed, the dollar was close to 90 percent of the total international reserves—maybe 85 to 90 percent. Now it’s close to 60 (percent) or even slightly less, perhaps. I don’t have the exact numbers. At what point does the dollar become not what it is? And at what point do we lose the leverage, if we go so much into financial sanctions, not to mention trade sanctions, and not rely on the soft power?

SEIB: So, Caroline, let me let you start since that picks up on what you were saying a minute ago, and then, Adam, I’ll let you chime in as well.

ATKINSON: Yeah. I think that part of the diversification of reserves that you’re speaking about has come because of globalization and the diversification of economic power around—and economic strength around the world. I would repeat that I think the value for countries of holding, and for individuals, of holding U.S. dollar reserves comes from the strength of the financial markets, the rule of law, the openness of the economy. And those values will continue to make the dollar much more useful. I do remember—(laughs)—when the euro was established, there was a big discussion between then the chairman of the Fed, Alan Greenspan, and Bob Rubin, and some of us at Treasury, because we’ve had a mantra of the strong dollar is good for the U.S. economy.

And then there was a question of, well, what about the euro? We kind of want to be nice to the Europeans as well and let them have a strong euro. And so this debate, can we have two strong currencies, you know? (Laughs.) Is strong a relative concept as, you know, one would think of it in economics, or not? But so there was a bit of a fear, was the euro going to take over from the dollar in many of these international roles? And the answer is, well, to some extent, but basically not much. Because it doesn’t have the strength and depth and uniformity of the markets. And so I think that that—as long as we maintain a strong rule of law country with openness, the use of the dollar will be important.

On the question of leverage, the leverage through financial sanctions—and I’ve suffered through, you know, doing lots of work about how to sanction Russia in 2014 when we were trying to be very clever and just go after the people that were close to Putin. And I think that was the right—we didn’t want to be against Russia at that point. I think it’s very different—it is different now. That is never going to resolve a really big conflict. As long as—first of all, you know, there are ways that sanctions can be got around. But also, and I completely agree with Bob on this and the Second World War shows it, wars can be wars of attrition.

And that is a lot about will, but it’s also a lot about production. And in the end, the Soviet Union in the Second World War just out-produced, and they also out-produced in terms of the bodies that they were willing to sacrifice against Hitler. But I think that’s what gives Putin confidence. And the confidence has to be taken away by strength from the—from the side of the allies of Ukraine. But I don’t think it’s—and the sanctions can help, and the oil pact was clever. But they’re not going to be the deciding factor.

ZOELLICK: Can I have a word on this too?

SEIB: Yeah, go ahead, please, Bob.

ZOELLICK: Two points. One, first, the data. Actually, the U.S. percentage of global reserves in the ’90s was lower. It was in the 60s, I think. It moved up to 70 percent by 2000. It’s now down to 59 percent. But what’s quite striking is the group in between isn’t the euro. Because, frankly, it’s the euro-deutschemark. It’s basically Canada, Australia, Switzerland, others sort of developed countries. It certainly isn’t the renminbi, which is plugging along at 1 or 2 percent. I mean, if you want to hold your money in renminbi and trust to get it out, you go right ahead. OK?

But the second—but the second point is, and this is, I think, the one—the elephant in the room that we’re not discussing—which is, my concern for the dollar is we’ve got a debt problem here and a deficit problem that people do not talk about. Our debt as a percentage of GDP is about 98 percent. The high was 106 (percent) in 1946. And if you look at the CBO estimates, which are probably underestimates even though they do it, it’s going to keep going, OK? So this is something for both parties. If you’re worried about the dollar, focus on the budget and the debt.

SEIB: Yeah. Adam, anything to add?

POSEN: Yeah, I guess two things. Thanks. First, I think we needed to distinguish between the dollar winning a least-ugly contest repeatedly and the dollar actually—and the U.S. showing monetary leadership. These are two separate concepts. So the fact that there is no real alternative to the dollar in terms of depth and liquidity, rule of law, subject to not different shocks, as opposed to property rights being in question in the yuan zone or fragmentation issues in the euro area. That’s one thing. And on that basis, things can go badly in the U.S., but the U.S. will continue to win out. And then you have other countries, as Bob mentioned, that people diversify into that are essentially proxies for the dollar with a little bit of hedge.

But then there’s the question of monetary leadership, which is that you’re creating value that strengthens the world economy while strengthening your own economy. And that’s about the U.S. providing deep liquid treasury markets that everyone can base transactions out of. The U.S. providing a standard rule of law and regulation of financial transaction that is against money laundering, against criminal activity, against fraud. And on those fronts, the U.S. has not been doing as well as it should have been and it’s it could be doing in its own self-interest. These are not things that are costing people jobs in the heartland—which is a word I reject.

But anyway, this is about—just the it’s like the swap lines the Fed had for foreign countries, foreign central banks that are win-win. They get more people relying on the dollar. They stabilize financial markets. But there were people in Congress who, after Ben Bernanke and the Fed used them during the global financial crisis, threatened to shut them down, even though it was monetary leadership that actually helped stabilize the system in the U.S.’ own interest.

So I’m not worried about the dollar, per se, because we’ll keep winning the least-ugly contest, unless—and this relates to something Bob Gates wrote about in Foreign Affairs recently—unless our dysfunctional budget system, particularly because of the House Republicans right now, doesn’t allow us to raise taxes when we need to raise taxes. And that’s an own-goal. And that’s the thing that’s a danger. But otherwise, is it’s a question of lack of monetary leadership versus the dollar being in trouble.

SEIB: Thank you. We’ll go here and then I’ll move back across and go to the back.

Q: Hi. Thanks so much. Nelson Cunningham, formerly with McLarty Associates, now very happily unemployed. (Laughter.)

I want to come back to China because this seems to be such an essential part of why we would move on from the Washington consensus. For forty years, Bob Zoellick described a fairly stable bipartisan consensus of having China become a responsible stakeholder in the world. And I often quote you, Bob, because I think it’s so apt. For forty years from the ’70s, to the teens, Caroline when you were in the Obama White House, that was our bipartisan policy, to bring them out and make them responsible. Then we flip flopped. And now we have a bipartisan consensus in Washington that’s completely against China. Is this—the question I have, and this is principally for Bob and for Caroline because you were in policymaking positions at the time, did we get China wrong in the ’90s, to 2000s, into the teens? Are there things that you wish we had done differently before the politics flipped on us?

ATKINSON: I’m sure there are always things that one’s done wrongly. I think that we talked a little bit about views of why people in the U.S. took war against China. I want to push back a little bit on this notion of there being a bipartisan consensus. Maybe there was an elite bipartisan consensus that was a little bit different from the popular view. It was popular for Obama when he was running for reelection to be down on China. It was popular for Mike Froman to—and others—to say: TPP as a way to make America safer and with a, you know, more or less explicit pushback against China. So, you know, having an enemy is—and I didn’t like those comments particularly, but I understood they were politically wise, in order—because they were popular.

But they weren’t—the way they were followed through was by trying to negotiate toughly with China and so on. I do think that in addition to the change in the U.S., there has been a very serious change in China, which wasn’t immediately obvious. I remember Liu He, for example, who was a key adviser on economics to President Xi, was constantly saying to us, and to me: We’re going to do reform. We want to, you know, open up for investment, and all the rest of it. And, you know, maybe he was genuine and maybe he wasn’t, but President Xi obviously had a different view.

I think, just looking forward and then with a note of optimism, as Kristalina mentioned, the meeting of—the summit between President Xi and Biden I think was really important, because—and around that, as you probably all know, the Chinese media has—and I’m talking now about what does China think about the U.S. And that became much more positive recently. And we need both—you, it takes two to tango. We need both sides to argue in favor, but clear-sightedly. I think China does have a—does have a stake in the order of the international system. But they have a stake in, you know, seeing the U.S. weakened. And we’ve played into that.

SEIB: Bob, let me refine Nelson’s question just a bit more. Was there a miscalculation of what accession to the WTO meant, in the case of China?

ZOELLICK: No, I don’t think so. And, actually, the best book on this by Yeling Tan, who is a Singapore woman at the University of Oregon—written for Foreign Affairs; she wrote an article too—emphasizes that when you look at sort of Chinese performance on the quantitative indicators, which were far more deep than, frankly, what was done for other developing countries, they’re pretty good. What happened—this is without getting into complexities of the book—is that there wasn’t—there wasn’t a follow up. In other words, these rules and the pressures from the outside pushed within the Chinese system at various levels to make the reforms. And let me bring it then back to 3.1 on responsible stakeholder. Keep in mind, the idea was we’d engaged China, brought it into the system, but now it had to have responsibilities in the system. I still wonder how can people complain about that, because you’re trying to get the Chinese to support, frankly, a U.S.-led system.

Second, and this goes to Caroline’s point, I got to know Xi Jinping relatively well from 2005 to 2012, when I left the World Bank. And I’ll share with you an anecdote that was very telling. We had just done this China 2030 report, which was a big project with the Chinese about the next stage of reform. So I’m sitting down with Xi Jinping. And I said, you know, so, you know, Mr. General Secretary, kind of what are your economic priorities? And he says, the 86.68 million members of the Communist Party, OK? (Laughter.) Now, I’ve dealt with a lot of world leaders, and not one if I’d ask them about their economics would have given me the party membership. That was kind of a clue as to where he was going, OK?

But the third point also comes back to Caroline and, for this audience in particular, might be of interest. Lots of people refer to a new Cold War. I think a Cold War analogy is very mistaken. Kristalina and I lived through the old Cold War. These were two very different economic systems in competition with one another. And we had to deal with issues on nuclear weapons and sort of various conflicts, but they were not an integrated system. China in the U.S. share a system. And there’s competition within it and there’s all sorts of issues. But go back to the first part of the discussion with Kristalina. How in goodness sakes are you ever going to deal with issues like climate, or pandemics, or international economic growth, or the next economic crisis, or developing country debt, unless you have some working relationship with China?

I’m not quite as optimistic as Caroline. I think this—about this most recent summit. I think they put a floor under the relationship, but I don’t think the substance is there yet. But so your question again really tees up the fact, politically, as you say, nobody wants to look like they’re soft on China. So Biden won’t look soft on China. But after the next election, if he’s reelected, somebody’s going to have to figure out where you’re going to take this relationship. And pretending it’s the Soviet Union is not going to work.

SEIB: So the good news is this a good conversation that could go on for hours. The bad news is we don’t have hours. We have a couple of minutes left. So let me just take two final questions, one in the back and then one up here, and we’ll deal with them in turn.

Q: Thanks. Usman Ahmed with PayPal.

Ambassador Zoellick, you mentioned the importance of international negotiations on areas like AI, which I agree with. But I wanted to pose the criticism perhaps, which is that we don’t yet have domestic kind of consensus around rulemaking on AI. We also don’t have international standards outside of government rulemaking. So historical analogies, like intellectual property or, you know, phytosanitary standards, where you had decades of work, we don’t have that in the AI space. So curious for your response on how—why we need to do this now, and if there are other historical analogies where you had policymaking in parallel. Thanks.

SEIB: Thanks. I was hoping we’d get back to AI, so thank you for that. And then, here, last question.

Q: Thank you. Great panel. Great discussion. I’m Tom Bollyky here at the Council on Foreign Relations, formerly at USTR.

In some ways your discussion has been fairly backward looking, whether Americans are angry with the way we’ve used trade policy in the past and whether they’re right to be angry with the way we’ve used trade policy in the past. I’d love to hear the panelists’ thoughts on the way we should be using trade policy in the future. Has that changed? Should we be focused on different objectives, deliver tangible benefits to Americans? Is that around reducing U.S. healthcare costs, or resilience, climate, environment, any of these other objectives? If we had the mandate to use trade policy more, what would we use it for?

SEIB: So I’m going to let Bob do AI and then Carolyn and Adam address the second question about forward-looking trade policy.

ZOELLICK: Well, I’ll integrate the two. So my comment actually focused most on the digital and data as opposed to AI. And, again, this is perhaps a wonky topic that Froman might know about but others might not. Shortly before the APEC summit, the United States pulled back its negotiating position in the WTO on an e-commerce agreement. And that was fundamental because then it also had to pull back in IPEF, the Indo-Pacific Economic Forum, on discussing a digital accord. And the ostensible justification was that they needed room for sort of domestic policy. Mike was part of this. We’ve had in the U.S. Mexican agreement and Japan agreement some basic principles about allowing cross-border data flows, allowing sort of choice of software and source code, nondiscrimination—basic principles that still allow privacy and security steps.

I think this is—trying to draw attention to it—a huge mistake, because if I were USTR today I’d be focusing on the digital area. It’s, I mean, every business—from agriculture to machinery to services—depend on digital and data. And so it’s a classic example of in the past the United States used to be on the cutting edge trying to shape the standards of this, and we have just pulled ourselves out of the game. And we will pay a price for it. So it goes back—if I were there, I’d focus on the digital and data.

The other point, however, it goes back to the politics, you can’t beat something with nothing, OK? You have to have something that you’re pushing for. One other item if the Biden administration is reelected is, let’s assume you—we’ve got David Cameron in town, so I have to be a little careful. But let’s assume the Labour Party gets elected, OK? Can American unions trust British unions? Why not pursue something either with the United States or North America of a trade accord with Britain, which would be strategically important and, I would think, could meet American labor standards.

But my point—and you’ll get support for something like that, for various reasons, on the Hill. So that the key—when you’re driving a trade agenda you can discuss comparative advantage, you can discuss this—you need to get people to be for something. This is what—coming back to Mike on TPP. After we get the digital accord, we’ll come back to his TPP. (Laughter.)

SEIB: All right, Adam, forward-looking trade agenda. And then I’ll give Caroline here the last word.

POSEN: Yeah. I think two things I would emphasize. The first is, let’s try to channel the sense of anger, and U.S. being cheated, into addressing the issues that were unaddressed. So as has been remarked a lot lately, in 2018 the U.S., Europe and Japan almost had a subsidies code to work on that was going to go to the WTO, which would then put pressure on China to behave. There are things like that on climate, on carbon. So let’s leave aside the issues that are dead, and let us work on the issues—and AI fits under this as, Bob raised—let’s work on the issues where U.S., Europe, Japan, and others can agree, and then basically do the deal with China where possible. That would be my first priority.

My second priority in the trade world is to notice—and this goes back to the discussion that was had with IMF MD Georgieva earlier. You know, what has happened to trade in light of U.S.-China conflict and tariffs is that it’s moved. It hasn’t gone away, for the most part. So it goes via Indonesia and Mexico, as my colleague Mary Lovely at Peterson has documented. So we’re reallocating the rents from trade. So let’s look at—let’s be realistic about this, that the resilience of trade is there. And that it’s like with migration, these human beings, these trade, these activities aren’t going to go away. And so the issue is, are you better off having conflicts or are you better off having some form of mutual behavioral standards? And so maybe this doesn’t sound that forward looking, Tom. You’ve been so forward-looking on the public health issues, I admire you. But I think getting back to that kind of energy is where we have to go.

SEIB: Caroline.

ATKINSON: Yeah, I want to pick up on that. Looking forward and figuring out where—and here I think there can be and should be, and I hope will be, U.S. leadership. Picking on some issues where people can see it’s in—it’s in the interest to have their economy and their country to have agreement, but they need some extra push. And I want to mention a country that we haven’t talked about but is going to be very important and not uncomplicated. And that’s India. And it’s important in many different ways—because it’s growing rapidly, because it’s likely to reelect a leader who has some tendencies that might not be wonderful, and although obviously many that have been popular there. The U.S. needs to use the institutions that are around, that include the multilateral institutions but also the G-20 which has been sort of dissed a lot. But that is a place where you can have, you know, face-to-face meetings, and diplomatic meetings, and work amongst the really important—the countries that represent—I shouldn’t say really important—the countries that represent so much of the world economy.

But you need to know what it is you’re trying to get out of that. Are you trying to get out of that a more ambitious climate agreement? Actually, the G-20 was very important in 2015, ahead of the Paris accord, in getting a good climate agreement, in trying to get a health agreement. Use those—the U.S. can use those kinds of institutions. And China is part of it. Russia is part of it. That makes it complicated. But maybe in some ways, especially with China, it makes it more important as a forum, and as the IMF, as a place where people can think about: We don’t want war and conflict. We want to figure out where are our common interests. I say that against a background of knowing that China, Iran, North Korea, and Russia are all together in some ways in the areas of conflict that are most bothering to the U.S. and Europe at the moment, and maybe like our weakness there. But, you know, let us not be weak. We’ve got this strong economy. We can use it to have strong political leadership.

SEIB: All right. On that note, it’s a good way to close. Caroline, Bob, Adam, thank you so much for a great conversation. Steve, thank you for making it possible. Thank you all for being here.

Please note the video and transcript of this session will be on the CFR website. And it turns out there is a free lunch—(laughter)—if you’re here. It is just outside. So thank you all. (Applause.)

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