Brad Setser on How World Trade Changed In the Last Three Years

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, can you remember the last time we had Brad Setser on?

Joe Weisenthal (0:20)

It's been too long. I don't know the exact time. I think we had him on once since the pandemic, but obviously he did his stint at the administration, so he sort of like disappeared from public view for a while.

And it's just like, it's been too long without a Brad Setser episode.

Tracy Alloway (0:34)

Well, you are absolutely right that it has been too long. But the last time we had him on the show was, it was actually April 2020 So it's sort of firmly in the depths.

Yeah, right at the start of the pandemic economic experience.

Joe Weisenthal (0:50)

So that's over three years ago now.

Tracy Alloway (0:51)

I know, and a lot has happened since then.

As you mentioned, he did leave the Council on Foreign Relations CFR to join the Biden administration as a trade representative. He's since come back, which means we get to enjoy his blog posts again, his tweeting, but also setting aside Brad's personal experience over the past three years, there's just a lot that's happened with global trade, with the economy. And the weird thing is a lot's happened, but a lot has kind of stayed the same as well.

Joe Weisenthal (1:25)

Well, so it's really well put because I think that one of the expectations during probably the last time we talked in April 2020 or middle of 2020, is like everyone was like, oh, nearshoring or great separation.

And I don't think that really is the story. So on some level, I do think maybe at the margins, like we're still trading a lot with China, right? For all of the talk, we're still trading a lot with China.

But it does feel like on the other hand, big things are changing with the nature of Chinese exports, the auto industry. And then all of these things with like EVs and the Inflation Reduction Act and the CHIPS Act. So big things are happening on the global trade level, tensions between the US and the EU. Big things are happening on the global trade level, even if some of the immediate predictions didn't exactly like unfold yet, how people thought back then.

Tracy Alloway (2:18)

Yeah, I mean, the US is still running a current account deficit. China is still running a current account surplus, but things are sort of changing within those broad categories. So we need to check in with Brad. We need to get his take on stuff that has changed or hasn't changed over the past three years in the global economy and global trade, in the balance of payments.

And I'm very pleased to say that he's gonna join us now.

Brad Setser, Senior Fellow at the Council on Foreign Relations. It's so good to have you back on the show.

Brad Setser (2:49)

Thanks for bringing me back.

Tracy Alloway (2:51)

Setting aside some of the job change that you had, what's been your impression of the past three years? Like broad stroke, what has happened?

Brad Setser (3:01)

Where to begin? I mean, the world economy didn't completely come to a halt in the first few months of the pandemic, but it did sort of stall intentionally. Enormous stimulus packages were passed. There was a real effort to protect people's income during the pandemic-induced slowdown. And then I think a series of shocks have unfolded after that.

I don't think when the pandemic initially struck, people realized there was gonna be this enormous shift in the composition of demand towards goods and away from services, which really was quite enormous. And it gummed up global trade routes for a while. There was just more demand for goods than there was capacity, even in places where we thought there was tons of capacity.

And then you have all the shocks from Russia's invasion on oil markets, the closing of the pipelines to Europe. So there have been enormous shifts. But as you alluded to, some of the basic patterns of the global economy didn't immediately change, or in some cases, they reasserted themselves more strongly. So China's trade surplus is way bigger than it was before the pandemic. The US trade deficit is slightly bigger.

Some of the trajectories that were probably emerging even before the pandemic. China is no longer just a location of final assembly. China produces a lot of key intermediate goods. It now produces a lot of capital goods. It's now producing and exporting a ton of electric vehicles. I think some of those trends were quite clear before the pandemic. They're now more apparent. And it's also fair to say that while it hasn't changed global trade, there is a new concern about weaponizing supply chains that's leading to policy shifts that maybe or maybe won't have a big future impact.