A Governor's View on Trade

Show Notes

The Lessons of Tragedy: Statecraft and World Order by Hal Brands and Charles Edelen

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Transcript

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the audio before quoting in print and write yeutterinstitute@unl.edu to report any errors. Transcripts will be posted within one week of the show.

Jill O'Donnell: Welcome to Trade Matters, a podcast of the Clayton Yeutter Institute of International Trade and Finance at the University of Nebraska Lincoln. I am Jill O'Donnell. Our guest today is Governor Pete Ricketts of Nebraska. Governor Ricketts, you're the first guest ever on the Trade Matters podcast, so thanks for being here today.

Governor Ricketts: My pleasure. I'm honored to be number one.

Jill O'Donnell: Thank you, sir. So, as you well know, Clayton Yeutter was a Nebraska native whose really tremendous accomplishments opened up a lot of new opportunities in trade for Nebraskans and all Americans, and I'd like to ask what you remember about him.

Governor Ricketts: Well, I first met Clayton when I was running for Senate back in 2006. I had been in Washington, DC, and we stopped by his office just so I could get introduced. Clayton was always very gracious, very willing to share his experience. He had a passion for Nebraska, really loved Nebraska and, of course, he was very interested in international relations and trade. So, obviously the Yeutter Institute is very aptly named after him, and then he and I actually got a chance to share a stage where we were talking about promoting trade with folks from Japan and just how important that is to Nebraska and our economy here just in general in the United States. So, I know that it was something that, really up until the end of his life, he was very much still interested in trade and how we can grow our state.

Jill O'Donnell: Speaking of growing our state, I know that's been a theme for you as you've been governor here, and trade has been a key point of emphasis when you talk about growing Nebraska. Could you expand on that a little bit? Why is that so important?

Governor Ricketts: Yeah, absolutely. So, 95% of the world's consumers lie outside our borders so, if we want to grow Nebraska, we have to go out and get those customers outside of our country. For example, we produce way more of the commodity crops in our state than we could possibly consume, not only within our state, but within our country so, if we want to be able to grow that, we have to go out there and sell more of that overseas, so that's why we want to go out there and open up markets for our producers here in the state and our companies here in the state. Also, not only do we want to sell more of our products overseas, but we want to seek more investment back in our state, so by developing relationships with companies overseas, we can get those investments here in Nebraska that help create jobs. I'll just use a quick one. Kawasaki has had over a 40-year relationship with the City of Lincoln here. They did a recent expansion of an aerostructure division that created 50 more jobs here in our state, and they're great paying jobs and give the opportunity for folks to be able to be able to help get a promotion, take care of their families, get that better job, send their kids to school, go on a vacation, all that sort of thing. It really is about making sure we have the opportunities for our Nebraskans here in the state, and we can do that by selling more of our products overseas and getting more investment back here in the state that creates jobs.

Jill O'Donnell: I'd like to explore your role as governor in trade policy. As you know, those priorities are determined in Washington. They certainly impact states. Generally speaking, how do you view your role as a governor in communicating with Washington about those priorities?

Governor Ricketts: Well, when it comes to that kind of the trade policy setting stuff, it's got two broad categories. First of all, as you point out, we don't set trade policy. That's done in Washington, DC, but one of the things that I really want to do is make sure that, when policymakers are setting those policies in DC that they've got the best information possible, so we weigh in to let them know about, "Hey, here's what's going on. Here's how that's going to impact us." That's one of the things, actually, the Trump administration has been great about is, they don't always tell us what we want to hear, but they've always been willing to listen. For example, when there was a rumor that the United States was going to pull out of the South Korean Trade Agreement, I picked up the phone on a Friday afternoon to call our U.S. Trade Representative, Ambassador Lighthizer, to tell him how bad that would be for Nebraska, and so I called his office on a Friday afternoon, he called me back on Sunday afternoon, so very responsive. Again, he doesn't always tell you what you want to hear, but certainly wanted to listen as I was talking about why South Korea was such an important trading partner.

The President actually had a number of governors from ag states, as well as senators and congressmen come to the White House to talk about just agriculture in general. Of course, the first topic then goes to trade because it's so important to agriculture, so we had the opportunity to really share with the President how we see trade, how it's important for our state, that sort of thing so that, again, those policymakers are making those decisions, they can have the best information possible. That's kind of one category of how I think about it. The second really is just developing relationships at that sub-national level, so going out there and being good ambassadors for the State of Nebraska as we go to different countries to help open up those trade markets. Again, we're not going to set the policies but, for example, when I was in Japan, I was able to meet with a number of Japanese government officials and encouraged them to pick up bilateral trade talks with the United States once the Trump administration had decided they were going to pull out of TPP. So, I would just encourage them to, "Hey, pick up the phone. Start those talks. Let's get this rolling forward on a bilateral relationship as quickly as possible." So, that's another area where we can help express our opinions to other countries with regard to policies and encourage them to have that dialog, as well as develop those relationships. As well, they're so important when you're doing business anywhere. You want to have those good strong relationships, and that's one of the things we can do on trade missions, as well.

Jill O'Donnell: So, speaking of trade missions, you've led several as governor. How do you decide where to go? Are you watching where DC's priorities might lie? Are you looking more at where Nebraska commodities might be more competitive or both? How do you decide?

Governor Ricketts: So, one of the things we've done working together with the Department of Economic Development and the Department of Agriculture is, we created a five-year plan, really taking a look at some of the data about where are we selling things and who is investing in our state, kind of those two big priorities for us and, based upon that, setting priorities of where we're going to go. So, for example, Japan is one of our largest export markets, number one for our beef, Nebraska beef rather goes to Japan. Japan is also our largest foreign direct investor. Again, I mentioned Kawasaki, but there's a number of other Japanese companies that are investing in our state, creating those great-paying jobs. As we did the analysis of that, we looked at both those kind of categories of things, and that's one of the reasons why we decided to continue to go to Japan. In fact, I've been to Japan twice already. I'll be going back for a third time this fall. We want to strengthen that relationship.

Another thing that came out of that plan, however, was we were looking at all the companies that invest in our state. We saw, "Man, there's a lot of German companies that are investing," you know, Klaus, [inaudible 00:06:44], Bayer, so we really need to go to Germany and say thank you to these companies that are investing in our state. Of course, the European Union is a big destination for things like beef, as well, so we wanted to make sure that we continued to develop that market. I went to the European Union in 2015, and so we're actually going to be going back again in November to Germany to Agrictechnica, which is the largest European ag show. There's going to be like 2,800 exhibitors from 52 countries, great opportunity for us to show off our products. While we're there, we're going to go say thank you to companies like Klaus and say, "Hey, thanks for your investment in our state. We want to continue to develop that relationship." A lot of it gets back to trying to be more data-driven about where we're selling our products, who's investing in our state. Washington policy maybe plays a little bit into it, but it's really more about what's tailored for Nebraska.

Jill O'Donnell: I'd like to ask, also, about your role in the Federal Advisory Committee and trade policy negotiations, 23-member committee advising the USTR, U.S. Trade Representative on trade policy. You're the only sitting governor and only elected official on this committee. What opportunities do you see for Nebraska through your participation there?

Governor Ricketts: Well, I think first of all, it's been an honor to be named to that. Once I get through that security background check which, for some reason, is taking a while to get done, I'm really looking forward to giving a lot of input there. It is just another channel, basically, to be able to share the same ideas that we have the opportunity to do, either with the White House directly or through Ambassador Lighthizer, or Sonny Perdue is also a great person I talk to about these kind of issues. Actually, the National Governors Association has a winter meeting in Washington, DC every year and, as part of that, the White House always invites all the governors to come over to the White House and talk policy issues, so that's another great venue for that, so I see this as just another channel like we have with some of these others to be able to share the perspective from Nebraska about how important trade is, what it means to us, how it impacts us, that sort of thing, and really encourage them to take a look, for example, getting the bilateral agreement with Japan does as quickly as possible. That's an important relationship for us. When I was at the White House in February, that's one of the things I pressed Ambassador Lighthizer about is like, "Hey, what's your timetable? When can you get these things done?" because this is a big deal for us.

Jill O'Donnell: Certainly it is. I'd like to also ask, how much do you coordinate with other governors of other states, for example, U.S.-Mexico-Canada agreement, pending approval by Congress? You signed a letter in June, along with over two dozen governors of other states urging the House and Senate leadership to get that going, get it approved through Congress. Did you receive a response to that letter, and do you foresee more coordination like that with other governors?

Governor Ricketts: Yeah, so whenever we have accommodation like trade, I would say... Obviously, I don't know every governor in the United States, but I would say just about all the ones that I have met have an interest in trade because, for the same reason I just said at the beginning of the podcast which is, "This is how we're going to grow our states." You know, 95% of the world's consumers lie outside the borders of the United States. We got to go get them. I'll give you an example. I was actually in an RGA meeting a couple of years ago in Austin, and the Vice President came, and we had 30 Republican governors, or nearly so, and the Vice President was there just to talk. The first topic was trade, and that was the only topic we got to because that's how important it was to all those governors. Everybody had questions, how it impacts their state, the importance, for example, of that USMCA to supply chains, right? If you're in Michigan, that's important to those automotive supply chains. Here in Nebraska, it's important for our beef supply chains, so we want to make sure, again, that that's a deal that is going forward, so that's another example of how we can coordinate so, when we got all those governors to sign that letter, we sent it in. It's the kind of thing you don't actually expect a response back. You know, we're sending it to the Senate and the Congress, so it's really just weighing in to say, "Hey, this is a big deal," but then I reach out to other governors and say, "Hey, would you talk to your congressional delegation about trying to get this thing moving," as well, so we do kind of do more behind the scenes kind of things. As well, if I have a chance to talk to a governor who I know is favorable to trade and who has Democrat members of Congress like, "Hey, could you talk to your delegation and say, 'Hey, this is a big deal. What can you do to get it moving'?" So, it is just a kind of informal network that we've got as governors to be able to share and talk about a lot of these things and that's, again, just another way that we have an impact on the policy. It's really, if you want to think about maybe soft power, I guess you want to call it, again, we don't have the direct influence on Congress or setting policy, but we can certainly behind the scenes encourage them to take up these important issues and let them know how important it is for our states.

Jill O'Donnell: You mentioned the importance of relationships a few minutes ago and how you worked to shore up or develop new relationships on trade missions that you lead for the state. I know you're traveling to Vietnam and Japan in the fall on a trade mission. Both of those countries are members of the CPTPP, their revised version of the Trans-Pacific Partnership that's gone forward without the U.S., so some U.S. products face a tariff disadvantage there now because of the competitors in those two markets.

Governor Ricketts: Yes, that's why we want to get that bilateral agreement with Japan done.

Jill O'Donnell: Absolutely. Do you think that the strength of customer/supplier relationships and the quality of Nebraska products can undercut a tariff disadvantage and can you do anything about that on trade missions like the one you're planning to lead?

Governor Ricketts: Well, certainly, one of the things you do is, building those relationships is important because people do... At the end of the day, people only do business with people. They don't do it with computers or phones or anything like that, it's about the relationship, so just having a relationship's not necessarily going to be enough to get the business, but it's certainly one of the things you have to do to be able to get the business. Can high quality products and those relationships overcome those barriers? Absolutely. Does it help? It's not going to be something where it's ideal, but it can be done. For example, a couple of years ago, we hit a tripwire in Japan, so there's a limit on how much fresh beef that we can ship to Japan, frozen beef, too. At that point, we hit the tripwire. I think our exports to Japan grew in, I think it was, the first quarter, 17%. That hit the tripwire, which meant our tariff on beef, U.S. beef going into Japan, went from 38.5%, which is high, to 50%, which is really high. Again, we grew 17%. We were kind of a victim of our own success, which is why we hit that tripwire and why the tariff went up, and it went up that much for a year is my recollection. Even though the tariff went up, and it was at 50%, it put us at a big price disadvantage versus, say, Australian beef, it actually didn't stop the growth. It slowed the growth, so the growth continued. We continued to sell more beef there, but the growth slowed, but it was still, we were still able to grow, so grow our sales. So, I think it demonstrates that, again, if you have a high quality like we do with our beef, it's the best beef in the world, and you do have those relationships, and Japan is our number one buyer of our Nebraska beef, that you can continue to grow your business even with some of the disadvantages we have with those tariffs. Now, having said that, this is exactly why we want to get a bilateral agreement with Japan.

Along those lines, I actually had an opportunity to have a conversation with then candidate Trump before he was elected. He was in Nebraska for a rally. I had a chance to sit down with him for about 45 minutes and, actually, the first topic was trade because, at that time, he was already saying he was going to pull out of TPP if he got elected. I was, "Say, hey, you know trade's important to Nebraska, (and the whole line, it does for every state), and TPP would take our tariffs down from that 38.5% on beef it is today down to, over a period of years, get down to 9%." The President's response back was, "Well, wouldn't you want that to be zero?" I'm like, "Well, yeah, of course I'd like it to be zero." So, you can see how he's thinking about it. He's thinking about trying to get a better deal, and we kind of know what the bar is, right? We know where TPP would've gotten us, and I think now it's up to our trade representatives to work to get a bilateral agreement done that gets us something that we can measurably say, "Hey, this is at least as good, if not better, than what we would've gotten under TPP."

It's a different strategy they have. You can either say, "I want to do multilateral agreements" or, "I want to do one-offs bilateral agreements." There's pros and cons to both sides but, at the end of the day, what we have to do is, we have to get them done, and that's really what we encourage the administration to do is try and get these things, you know, when I was in DC in February, get these things wrapped up as quickly as possible because we are at a competitive disadvantage, and we don't want to let the Australians back in. My understanding right now is, there's a drought in Australia right now, so we've got a little bit of breathing room but, when it comes to beef, that's one of our biggest competitors, we don't want to let them in the marketplace. After the whole mad cow disease thing, it took a long time to rebuild those relationships. We want to not lose those in the first place, so we want to have that ability to be able to be on as level a playing field as possible.

Jill O'Donnell: Speaking of beef, as you know, on August 2nd, there was a new trade deal announced between the U.S. and the European Union that will allow for more duty-free shipments of U.S. hormone-free beef to the European Union that arose out of a dispute with the EU over the use of hormones in cattle production. The WTO found in favor of the U.S. in that dispute. The first trade mission you ever led as governor was to the European Union in 2015, and you talked at that time about that being an opportunity to dispel myths about American agriculture and highlight Nebraska products. Was beef part of that discussion?

Governor Ricketts: Yeah, it absolutely was, so we got to meet with the Ag Commissioner, Hogan, for the EU and talk about some of these non-tariff trade barriers that we've got going on. In that case, we were specifically talking about the quota that they had on U.S. beef coming into the European Union and how they were letting other countries use our quota, so we had a dispute with that. Again, we're not going to set the policy, but we can certainly help educate the policymakers in other countries, like Commissioner Hogan, with regard to what was going on with us and how we saw it, so kind of do a little bit of education there and get their feedback with regard to what they thought about some of the non-tariff trade barriers and some of the quotas and so forth. So, a great opportunity to be able to sit down and talk with folks who are the policymakers and to really express our opinion with that so, again, part of why developing those relationships is so important and why you want to talk about these sort of things when you have those opportunities to be able to meet with folks. That trade mission to the EU was important to be able to help exchange ideas and, frankly, Commissioner Hogan was very blunt about some of the stuff that he was talking about, so it was really great to kind of hear his perspective on kind of the politics they've got going on in the European Union with regard to what he called NGOs, these kind of outside groups that were advocating for the types of policies that you were seeing play out. It was a great opportunity to kind of exchange those views and get to know things. That's one of the benefits of a trade mission and developing those relationships and exchange those ideas. While we certainly can't claim credit for being able to have greater access. That's really the Trump administration who's really pushing this and helping open that up. I think it does help the framework when we go there and we say, "Here's how we see it."

Jill O'Donnell: So, in addition to the upcoming trade missions you have to Vietnam and Japan and, then later, Germany. Where else around the globe do you see some potential for Nebraska exports?

Governor Ricketts: Again, we kind of look at and see where we think there might be opportunities. You always want to go back and make sure you're saying thank you to your best customers, so I'll probably continue to go to Japan every other year or so because that's, again, one of our greatest nations for our beef products, for example, and they're a great investor here, so we're taking a look at that. Then, we're also looking at new markets like Israel or Sub-Saharan Africa because of the geographic location, you might be able to kind of combine something there. There's other opportunities in Southeast Asia. One of the countries, and we haven't got anything formalized around this, but Indonesia is like the fourth largest country in the world from a population standpoint. Congressman Don Bacon just had a delegation from Indonesia in our state earlier this spring and signed a memorandum of understanding about buying some of our soybeans, and they're interested in buying beef. It has to be halal beef because it's Muslim country, but we can do that here. We can supply that need. They also talked about maybe corn, so there's opportunities for us to be able to open up some of those opportunities there and, again, a huge country. That kind of gets, again, along the lines of why we're going to Vietnam. You know, that's a country of 96 million people. Our beef exports, albeit off a small base, but they were up 127% year over year. Obviously, there's demand. Again, we think there's a growing middle class there.

Again, one of the things that we've seen around the world is, when people get more wealth, they want what we have. They want our high-quality beef. They want our safe food. Those are important things. Actually, one of the things that we've got a great reputation for in the United States is the quality and safety of our food. We take it for granted here, but it's really high value. It's something that means something to people in other countries, especially those developing nations that are getting a larger middle class. That's a big deal for them, so we want to take a look at markets like that where we may have an opportunity to be able to do that and then, of course, I've been to Mexico twice and Canada. We always want to continue to have good relationships there, and that's why we continue to push USMCA to get that ratified so that we can really... It would help open up, for example, either Canadian dairy market. Those are things that we want to continue to focus on, as well.

Jill O'Donnell: Last question, Governor, and I'll be asking every guest on the podcast this question, so you're the first to weigh in on this one. That is simply, what is the most striking thing you've read recently, book, article, on trade?

Governor Ricketts: So, I just got done reading a book called The Lessons of Tragedy, and it's not specifically about trade, but it's about how the system we have today was set up after World War 2, and the authors use some examples from previous big wars. Kind of the theory was, you have the 30 years war in Europe in the 1600s, and it's terrible, so they have the Treaty of Westphalia to try and solidify the borders and make sure that doesn't happen again. Then, that lasts for about 140 years, and then you have the Napoleonic Wars. Again, you have the Treaty of Vienna and the Concert of Europe all comes together to try to do the same sort of thing, and that lasts for about a hundred years. Then, you have World War 1 and World War 2, and in their wars, you have a kind of paralysis and nobody gets anything done. Then, you have World War 2 and, again, just terrible, huge loss of life, and the United States primarily leaves the effort to create a system where you have freedom of the seas, guaranteed by the U.S. Navy where you have a system of trade where the United States, and I'm kind of bringing in other books I've read, but creates this kind of the market of last resort, but people remember why we're doing it, so the United States is footing the bill for a lot of this stuff. That's because we remember how horrible the cost of war is. While it's expensive for us, it's less expensive than going to war. The generations that set that up remembered World War 2. Well, what has happened in the intervening 75, 76 years is that we've forgotten those lessons, right? The World War 2 veterans, the people who set this system up, they've all passed on. I mean, we're losing World War 2 veterans every day, so today's politicians around the world have kind of forgotten why we set this up in the first place, and that's where they were talking about the lessons of tragedy. You set these systems up after a terrible event but, as people forget the event, it's harder to maintain the systems, so I thought that was really an interesting observation. It's talking about what's going on in China and Russia and how that plays into kind of the global competition. You've seen politicians in both parties questioning why is trade important and kind of forgetting that, "Well, this is one of the ways that we kept peace around the world." "Why is a strong military important? "Well, it's one of the ways we kept peace around the world." So, of course, with China becoming a bigger and bigger part of the global economy, that's changing, too, so that changes, as well. I thought it was a pretty interesting book. It's not a long read. It's like 165 pages if you don't read the end notes--

Jill O'Donnell: Did you?

Governor Ricketts: I don't read the end notes- I might flip back there and refer to it if I thought I saw something interesting but, by and large, I don't read end notes. So, it was a fairly quick read. I know one of the authors was Edel, E-D-E-L. It's The Lessons of Tragedy, and it's about state craft in the modern world, or something like that.

Jill O'Donnell: With that big picture perspective and historical perspective on this system that we've had in place for the last 70-plus years is important to remember and one we hope to continue talking about at the Yeutter Institute. Thanks for bringing that into the discussion today.

Governor Ricketts: Yeah, I think it's a great way you can kind of talk about some of these important issues because, like I said, there's a reason why we did what we did 75 years ago, and it's perfectly legitimate to kind of ask yourself, "Well, do those things still hold sway?" We're footing a lot of the defense bill for the world. Should NATO pick up more of it? That's a perfectly legitimate question to ask. I don't think we should necessarily be trying to tear apart NATO down and restart it, but I think those kind of questions are important, and people in other countries have to be asking, at least our allied nations, have to be asking those same type of questions.

Jill O'Donnell: Governor, thank you so much for being a guest on Trade Matters today.

Governor Ricketts: Oh, it's my pleasure, so thanks for having me on.

Jill O'Donnell: Pleasure to talk with you. That's it for this episode of Trade Matters. A big thank you to Bryce Doeschot, Haley Apel, and Brianne Wolf for helping produce this podcast. Join us next time for a conversation with Edward Alden Ross, distinguished visiting professor at the University of Western Washington and Senior Fellow at the Council on Foreign Relations.

Please subscribe to Trade Matters on iTunes and Stitcher. If you have ideas or topics you would like to hear about on Trade Matters, we'd love to hear from you. Send us an email at YeutterInstitute@unl.edu, or follow us on Twitter at @YeutterUNL [corrected.]