Congressman Kevin Brady (R-TX) discussed “Rethinking Trade and Reframing the Trade Debate” on September 27, 2016, at the Peterson Institute for International Economics. Brady is chair of the House Ways and Means Committee and has represented the 8th District of Texas in the US House of Representatives since 1997. He previously served as chair of the influential House Ways and Means Health Subcommittee and as chair and vice chair of the Joint Economic Committee. Until 2013, Brady was the leader of the House Ways and Means Trade Subcommittee and led the successful effort to pass new trade agreements with Panama, South Korea, and Colombia. Prior to his election to Congress, Brady worked as a chamber of commerce executive for 18 years and served six years in the Texas House of Representatives.
Adam Posen: Good afternoon ladies and gentlemen. Welcome back to the Peterson Institute for International Economics. I'm Adam Posen, I'm President of the Institute and it's my distinct privilege today to get to introduce and host Chairman Kevin Brady, Congressman of the 8th District of Texas in the US House of Representatives and of course Chairman of the House Ways and Means Committee.
Kevin Brady as many of you know is someone who we love to hear from because in a world where many politicians purport to speak their mind, many of them either don't or don't have much to say. Congressman Brady speaks his mind genuinely and always has something substantive to say. And, in that regard, we are delighted to have him here today addressing rethinking trade and reframing the trade debate. This is a time as we discussed at our launch of our presidential trade policies briefing last week when the bipartisan and arguably nonpartisan justified consensus for open markets and trade is under attack from both left and right in a way that is unprecedented at least in decades in the US. One of the few people to stand up and speak frankly, substantively, coherently and in my view, persuasively about trade and America's interest is Chairman Brady.
Before becoming Chairman of the House Ways and Means Committee, he served as the Chairman of the Influential Health Subcommittee and he is previously Chairman and Vice Chairman of Joint Economic Committee. I got to know him them when I had the pleasure to testify before his committee on issues of Federal Reserve accountability.
Until 2013, Kevin was the leader of the Ways and Means Trade Subcommittee and led the successful effort to pass new trade agreements with Panama, South Korea and Colombia. Prior to his election to Congress in 1997, Chairman Brady worked as a Chamber of Commerce Executive for 18 years and served six years in the Texas House of Representatives.
We obviously have a full house of people who know the significance of Chairman's role and Chairman's thinking, and so, I will now turn the podium over to him so we may be enlightened. Congressman Brady.
Kevin Brady: Thank you very much for not just the kind introduction, thank you for your leadership of the Institute. Thanks for hosting this event and this is one of the most respected organizations pushing, I think, the boundaries of academic thought in public discourse and policy formation. The work that you are doing now, the work that Fred has done for many years has really put you at the center of many of our key issues, not just trade but Federal Reserve, monetary policy, tax policy as well. So thank you for having me here today.
This is a perfect day to be talking about rethinking trade. History, it just so happens--I'm not much of a historian. It turns out this day in history is a bit unique on sort of game changing, thought changing actions.
On this day in 1825, the world's first public railroad that used steam locomotives was opened in Northeast England. It made America rethink its transportation network. On this day in 1905, Albert Einstein's famous paper introduced the equation E = mc2 was first published that made us rethink when solid energy explodes and there's hidden energy, solid matter explodes and hidden energy inside made us rethink everything. And on this day on 1954, school integration officially began in Washington, D.C. in Baltimore Public Schools making us rethink the concept of equality in America.
So, this is the perfect day for us to be rethinking and reexamining US trade policies. I'm convinced, done right and properly enforced free and fair trade allows individuals, families, communities and countries to raise themselves out of poverty and into prosperity. Free trade lies at the heart of our nation's post-World War II prosperity. In my view, the freedom to trade is perhaps our greatest economic freedom here in America. And as we look to the future, the importance of reexamining or rethinking our nation's trade policies can't be overstated.
Just in the past couple of decades, we have seen dramatic changes to nearly every facet of Global Commerce, these advancements have opened incredible opportunities for American businesses, workers, consumers, but they've also posed significant challenges for policymakers.
Our mission moving forward has to be to pursue trade policies that reflect the challenges and opportunities facing Americans. We're also promoting competition and growth. I'm convinced that as we rethink trade, part of the challenge going forward is we need at every opportunity to make free trade more free. Now, our trade agreements should be more aggressive, less protectionist, they should be bolder.
Selling mediocre trade agreements is hard, selling bolder ones are more valuable. We ought to, at every opportunity, reject early harvests in any trade agreement that we're in and push trade negotiators to dig deeper on behalf of consumers. And make sure that those trade agreements have the strongest implementation plans to assure that they actually achieve what they're laying out to do.
Secondly, I would hope we can continue to focus on trade not necessarily adding more social issues to this. The May 10th agreement was a good solid balance that has allowed both parties to move forward in a positive way on trade. I think the more others try to load these agreements with nontrade issues from climate change to social rights, I think it is tougher to achieve the original goal just lifting families and countries out of poverty and into prosperity is powerful enough. And frankly, that's tough enough to achieve but doing that in my view.
When a family is going to bed hungry in a Third World country, shivering under a makeshift tin roof, they're not focused on environmental advancements and labor rights. But that prosperity, the opportunity to sell their wares around the world, stretch that meager budget farther with better priced goods, that's what helps lift them out of poverty. That alone is I think one of the greatest powers of what we're doing in trade.
And I would begin to link trade with tax reform in a major way. I think frankly, trade bears too much of the brunt for an uncompetitive US tax code. And, I think, decisions businesses often make to be competitive both here and abroad are as much or more linked to our tax reform or our tax problems in America. Our code rather than on trade itself, which is one of the reasons that the House Republicans, in our better way, tax reform are focused on making US competitive in eliminating -- it needs to have some tax code to move manufacturing research or headquarters overseas. We ought to be talking about the two if we're serious about getting the economy growing for America.
I think, too, moving forward. It's crucial especially right now watching this presidential campaign as it runs itself out to November. I think it's crucial for the American people to understand that freedom to trade isn't about China. It's not about Mexico, Europe or Asia. It's about protecting our individual freedom to trade as Americans, to buy, sell and compete anywhere in the world with as little government interference as possible. That's the heart of our free enterprise system. That's what the freedom to trade brings us.
So, for the entrepreneur, toiling deep into the night in the garage working on their new breakthrough product, this freedom ensures they have an opportunity to put that product on the market and make it available throughout the world. For American consumers, for families, for that single mom, the freedom to trade protects your ability to purchase whatever products you choose and keep prices for your goods as affordable as it needs to be for you and your family.
And, one of the reasons I love economic freedom and the freedom to trade, it really answers a key question. Who has the power? Who has the power to decide what products you can buy and at what price? Is it Washington that has the power? Is it special interest groups? Or is it you, the consumer? Free trade ensures that it is the consumer that ultimately has the power to decide what to buy and at what price.
I'm also convinced that while we live in an anti-establishment era both here and around the world, the freedom to trade is the most anti-establishment power Americans enjoy. It guarantees that when a new product is designed or a better service unveil or a new breakthrough technology is produced at special interest--so special interest can't hold you back from selling it, to buying it or even disrupting an entire industry if you discovered and delivered a product or service better than what exists today.
I'm convinced that this is what Thomas Jefferson meant when he wrote, "Commerce with other nations isn't only necessary and beneficial to all parties. It is right. It is a right and a duty." The freedom to trade is a right in America. And we ought to keep that in the forefront as we work through this debate. He also, Thomas Jefferson explained, "In order to function properly, free trade must be established on a reciprocal basis." This is another crucial part that shouldn't be left out of this debate. Free Trade Agreements tell our foreign competitors they cannot sell one way into the United States unless we can sell into their country, into their markets. And when we do that and level the playing field, America is incredibly successful from a sale standpoint, but also incredibly successful for that single mom looking for the best products at the most affordable price.
Reciprocity while it isn't a language you hear in most of our debates, it's sort of the golden rule on trade. Countries don't live up to their obligations. Our trade agreements, WTO rules provide us with the tools to challenge them and if necessary, retaliate. Enforcement, holding our trading partners accountable, that's part of the commitment we make to the American people and I'm proud to say that this year, Congress has acted to give this administration and future administrations the strongest enforcement tools that we've had in modern US history. So, when we open up new markets to American-made goods to trade agreements and strictly enforce those agreements, America wins.
So, today, where are we on the Trans-Pacific Partnership? I think this agreement represents a tremendous opportunity to open up more critical markets in two-way trade. It is a chance for the United States to write the rules of this 21st century Global Commerce and it provides unmistakable deal strategic benefits.
As the Institute's recent book makes clear, the Trans-Pacific Partnership represents a major opportunity to grow our economy, increase wages and purchasing power for American families and secure US national interest in Asia.
My view is that is exactly the same. In my town hall meetings on trade -- and I do a lot of them back in Texas -- I always talk about the Asia Pacific as being the area with the -- we'll have half of all the middleclass customers on the planet in that Asia Pacific region. So, just as when reporters asked Willie Sutton why he robbed banks and he said, "Well, that's where the money is at." Why do we want to be major specific? That's where the customers are. We want our workers, our farmers, our businesses competing on a level playing field in that lucrative market.
But as we pursue, this agreement has to be done right. There are still several significant concerns from members of Congress that the administration has to address to get the necessary votes. These aren't minor details to you. They are key issues for American businesses, for workers and consumers. As I have said repeatedly, the substance of the agreement will drive its timing. Ultimately, Congress controls the clock and we control where the agreement is approved. So we'll move only when the administration addresses these concerns, otherwise, we won't have the votes to pass it.
And, if you remember nothing else today, I think here is a key. We are running out of time, if the Whitehouse wants to get it done this year. As I hope we do. The Whitehouse's responsibility to address these longstanding concerns quick, we make sure it's getting support from both sides out, we are certainly working in the house to facilitate the meetings, the discussions, the ideas on how we resolve these outstanding issues so that we can be in a position to move this legislation hopefully again this year.
And so, let me sort of conclude, and I'll be glad to take questions. As I said at the outset, we have to carefully examine and reexamine our trade policies, make sure they're hitting the mark in the 21st century. We have to lead on trade with this Whitehouse and the next, with the rest of the world, more important with the American people and to do that successfully, we have to reframe the debate back to the power of economic freedom. We have to make clear this is about protecting our freedom to trade or freedom to buy and sell, and compete throughout the world with as little government interference as possible and given all that's at stake, we can't afford to disengage. We have to stand up and stand up aggressively for our freedom to trade.
So, Dr. Posen, I would be glad to stop and take some easy questions from the audience here today.
Adam Posen: Thank you so much, Chairman Brady. Short, sweet, to the point historical references and finally, bringing us to today.
Before I open it up to our distinguished audience, could I post just a couple easy questions for you?
Kevin Brady: I knew that wasn't going to happen. I was just kind of suggesting that.
Adam Posen: You can handle it. It's reciprocal. Obviously, as you said, we're all aware this is a time of much more pushback on trade, much more fear among Congress people, even, who recognize the worth of it to come up and stand up for it as they once did.
Whoever wins the presidential election on November 8th, we know two things. First, almost certainly, your party will retain the majority in the house and we assume you will retain chairmanship of Ways and Means. And secondly, whichever candidate wins and we've pointed out that one candidate's trade policies are a lot worse than the others.
But anyway, whichever candidate wins, neither of them want to pass TPP, neither of them want to pursue new trade openings it seems. How do you, in your role, expect to work with an administration who has that kind of attitude?
Kevin Brady: I'm sort of reading between the lines on our presidential nominees. And I think back eight years where even along the Democrat party, both Senators Clinton and Obama were fighting each other to decide who would rip up NAFTA quickest and who would join Charles Schumer and Lindsey Graham on a 27% tariff increase on China. But we saw governance much different than that.
Adam Posen: Right.
Kevin Brady: President Obama quickly determined trade is a major power force economically here at home and throughout the world as well. I'm not surprised trade is struggling in public opinion right now. This has been--financial crisis are tough. It's been a very slow recovery. Two out of three Americans still think we're in some type of recession and trade tends to suffer, you know what I mean? Take the blame for that especially in a world that's so global as it is today.
So, to be expected a bit, here's what's frustrating. I think both for our presidential candidate need to be making the case and they have a occasionally dipped their toe into -- Mr. Trump has made the case enforcement first. Isolation and trade isn't acceptable. He's correct in both of those. I mean, both candidates want to go enforcement first. That's terrific. But we've got to be aggressive in the outreach as well.
So, I'm hopeful we can work with both to improve and pass TPP if it isn't done by the end of the year, which I hope it is, ready for and consider for a vote. I'm convinced again it pursues about growing the economy, it's not enough simply to fix the way we tax. We have to have those markets to sell and ship, trade is so critical to that. And I think the economy is going to be a national security, the two biggest issues for that new president, they've got to know we can't do it if we're building walls, protectionism, isolation in the trade area.
Adam Posen: There's so much there to your answer. One of the most interesting things you said in your opening speech and in your reply just now is this potential linkage between how American multinationals, American corporations who trade our tax and the trade policy. Again, an issue that keeps coming up whether it's Apple in Ireland or Pfizer or any of this is the issue of repatriation of profits. How do you see that agenda going forward from your seat obviously at Ways and Means?
Kevin Brady: Yeah. Well I'm hopeful, we have -- and speaker Ryan well he's given us a green light and found the biggest challenges facing America and certainly from Ways and Means perspective, welfare reform, healthcare, Medicare reform and then a new tax reform system. We laid out our blueprint. And this speaker in our committee, in our conferences made a commitment to bring this to a vote in 2017 regardless of the outcome of the election.
So, it's football season. So, the analogy would be for the first time in 30 years, we're going to put the ball on the court on the field. We're going to move it down that field. I'm hopeful we can achieve it. It goes hand-in-hand with trade because today, our companies struggle to compete around the world. When they compete and win, we're about the only country that has a wall that taxes them to bring those profits and then pulling them back here in research or manufacturing or growth. Our tax reform blueprint changes all that. We're not taxing worldwide. The tax rate to bring those profits back home would be zero. We're proposing a border adjustable tax approach that mirrors what occurs in China and Europe, and other competitors that way we lift taxes off our exports. There will be a tax on the import. What that does, it virtually eliminates any incentive to send jobs and manufacturing research overseas. Competition will occur on price in quality and service, which whether you're in trade or in tax policy, that's exactly where you want it to be.
And so, I am convinced tax and trade can move forward in the new year.
Adam Posen: That's very exciting. To just pick up on your football analogy for a second. One of the things about playing big-time football is there's always another game somewhere else at the same time. I mean, you mentioned the issue of national security in Asia Pacific. One of the things that we've studied here at the Institute is the idea that, obviously, China is proposing RCEP and a bunch of bilateral or smaller trade deals. There are other deals being done by the EU with various countries. Our colleague, Fred Bergsten has spoken for a long time about competitive liberalization.
I mean, do your colleagues in Congress think about this issue that if we don't move the ball down the field, we just defend -- meanwhile there's still another game being played at the next stadium?
Kevin Brady: Yeah. You know, yes, but I don't think the public does. My advice to both of these nominees is don't abandon the trade field in the Asia Pacific because that game is going on whether we're on the field or not. And those countries are competing aggressively in writing those trade rules, and has huge impact on us.
I think both inherently understand that. I think a lot of members of Congress do. It's not necessarily an easy sell at home because it just seems big. Trade, in my view, we sell these through our local examples, I mean, that business down the street that has 4 out of every 10 workers selling products, paper products in the South America or China. I think we win those trade debates through examples at home.
But I think for some of the public, they understand how globally competitive it is out there.
Adam Posen: Great. Thank you so much. So now, I'd like to turn it open to our audience. Chair Brady has graciously agreed to take questions on the record. We have a moving mic upfront with Jessica. There's a standing mic in the back. Please raise your hand if you'd like to be recognized and please identify yourself when you're giving the microphone. One other caveat, the more what you say sounds like a question instead of a speech, the more time you get. The more it sounds like a speech instead of a question, the less time you get. Reciprocity.
Kevin Brady: That's reciprocity. I like that one.
Adam Posen: So, right there, that gentleman, please, Jessica.
Rick Johnston: Thank you and thank you Mr. Chairman for joining us today. I'm Rick Johnston with Citibank.
Kevin Brady: Yeah.
Rick Johnston: Mr. Chairman, looking forward to next year and apropos to the topic of today, are you giving thought or is the committee giving thought to addressing the question of what has been called Trade Adjustment Assistance, maybe we ought to call it the Freedom to Trade Support Act. But something to counteract this growing fear of globalization and what appears to be also sort of a more deep-seated problem for our demographics. As our population tends to get older, I think people are more and more inspired to simply protect what they've got and they are very fearful of change.
Kevin Brady: Yeah. And the answer would be, can we go a little bigger than that? In the sense, we have 33 separate job training programs or more. They're all segmented, rarely combined with each other. Until this year, Congress had never really--we just passed the legislation, to set up the measurement so we can really figure out which are working and which are not. And I think Trade Adjustment Assistance fits into that bigger issue because we have to figure out what's working and what's not, and rethink how we provide that job training.
My impression today is that TAA like the other job training programs isn't very effective, isn't worker driven, isn't flexible enough. And as a result, I don't think we give people the tools to be able to either get that new skill or relocate to where their skill is needed. And I think because we have such a mismatch between skills and jobs around the country, I think Americans have to have that flexibility.
The other thing, too, and it's sort of to take it even a step further besides making Trade Adjustment Assistance and job training smarter and more effective, I really do think a stronger economy tied to a better tax code hastens the relocation of jobs within a community to pick up the ones that are lost. And frankly, our goal in tax reform is not simply to stem the tide of businesses moving jobs overseas. Our goal in the whole design of this is to bring that investment back, in jobs, in research, in manufacturing so that when that next project comes up, they may choose that community that has an ample workforce already ready to go.
So, I think--sorry, that was a short answer, a long question but job training needs to be smart including jobs of TAA and I think tax reform can help us strengthen the opportunities in the community.
Adam Posen: Great. At the back microphone, please.
Shaun Donnelly: Shaun Donnelly from the US Council for International Business. Mr. Chairman, thank you for your leadership on trade and so many other issues. Could you talk a little bit about how you see investment fitting into trade agreement? Some of the opponents have demonized arbitration or investor state dispute settlement in the TPP and Europe seems to have a radical new idea about how to do investment in the TTIP. How important and where do you see that going? Thanks.
Kevin Brady: Well, first, the short answer is it's critically important. We need to continue to insist on that provision. I will tell you as you introduce yourself, so my youngest son's name is Shaun Donnelly Brady, just so you know. So the whole time, I was smiling as you asked the question.
Critically important--for all parties, for the assurance for US investors to make that investment where those private property rights and those investment rights are protected where there's an option to make sure they're protected critical for US investors one of the best parts I think of our trade agreement, but also critical for that country wanting that new foreign investment. And, you would think, "Okay, that makes sense in a developing country for example," where they're really looking for that long-term sustainable investment from US companies. But I also think it matters in a TTIP in Europe.
Boy, looking at those 28 countries, that patchwork of investment protections, laws and all that, I think you create more certainty, I think a better chance for investment two-way. And I think the TTIP agreement is sort of to take it a step farther really important. These are two major markets longstanding trade partners with longstanding disputes. I think one of the values of TTIP is not just to modernize those trade flows, but to resolve some of those longstanding disputes that we've been playing out at the WTO, playing it out by proxy in other trade agreements. I really think this is an opportunity for us to address those issues straight on as well.
So, short answer, critically important provision, we'll have to continue to fight to make us strong and aggressive and robust as possible because it makes those agreements more valuable.
Adam Posen: Thank you. First upfront and then back to the back mic.
Bill: Mr. Chairman, Bill Lang good to see you again. Maybe you could help with some clarification or explain something to me. There are seven billion people who live outside of the United States. We have trade agreements with 20 countries representing about 400 million of those seven billion people. Half of American exports go to those 400 million people.
By any objective measure, the 20 Free Trade Agreements had been phenomenally, phenomenally positive. The most positive, which was NAFTA, a third of our exports goes to two countries representing 150 million people. Why is it -- we go through a debate last night and people are targeting our biggest export markets. And my question is, when people contemplate a trade war, why would they target our two biggest export markets to start that trade war with? Obviously, someone is doing a lousy job explaining that you don't attack your closest customers. But secondly, we're not engaged in the debate, we being the business community. Please, give us some guidance.
Adam Posen: Before you [inaudible 00:31:23], so let me just piggyback a bit on Bill, so it's not quite such an easy slam-dunk.
Kevin Brady: Really did you have to say that?
Adam Posen: We did that. No. We--
Male Speaker: Volleyball.
Adam Posen: Yeah, you set it up, I'll spike it, yeah, right. Just you do this incredible program of town halls and outreach in Texas not just in your district. We think of Houston. We think of Texas in general as benefiting enormously from NAFTA. This is just a parallel to what Bill is saying. What is it among your constituents, voters in Texas that they don't feel comfortable? Is it just the perception of a bad economy? Why does it take the form of being so anti-NAFTA where Texas would seem to have gained so much?
Kevin Brady: Yeah. And you do have that, even this remarkable exporting state. Two things, first, the downside of trade is visible and you can look at the plant down the street or a job that is lost and you know it, you can see it, the benefits of free trade, the jobs it created one or two at a time in that same community aren't visible.
So, through the public's mind, it's easy to say there is nothing but losses as result of free trade. It doesn't benefit me or my family. America loses. I mean, but the second most critical part is we've lost the messaging on NAFTA already, lessons learned, the question is will we lose the messaging on CAFTA, Korea, Colombia, Panama? Where we're going on TTIP and the Trans-Pacific Partnership as well? We've talked about this how we really focus for these trade agreements on trade messaging and for that brief period, I think business supporters are extremely effective but then it fades back away and we don't engage again. But those who oppose trade where they are writing on that blackboard, they are on those blogs, they are hammering everyday.
And so, the short answer is that if we want to get back the momentum on trade and keep it to make these arguments, we can't walk away. Again, to use a football analogy, we keep walking off the field. On the messaging, we've got to stay on there 24/7. What do you think?
Bill: I think people are always scared to misspeak or what have you or not create the most positive message possible. But what they forget is when you cede the playing field, you lose. And, I'm not saying everything is perfect everywhere but one thing I do know is those 20 countries have their remarkable success stories. We have a trade surplus with 15 or 16 of them.
A lot of times, life is repetition and amplification. And often in business, you'll get one speech on a topic and say, "Well, I've done my part." In reality, you have to repeat the thing over and over, and louder and louder. NAFTA has been a phenomenally positive agreement. The other 18 FTAs have been even more so and we have to keep at it.
Kevin Brady: One thing I want to--one example I think Americans always get, certainly Texans, look, you and I can go within a mile of here go to a local mall. We can buy a product from just about any country in the world. Then we tried--so our US products into those countries, oftentimes, we have this America need not apply signs stack up. We have barriers. So Free Trade Agreements tear down those signs, allow us to sell two-way in there, we're credibly good at it. When we can frame some of these issues into the day-to-day life of our constituents, I think we stand a better chance of winning.
Adam Posen: There again, I have to--in terms of amplification and repetition if the Congress will allow me remind everyone of the study by Hufbauer, Noland, Robinson and Moran we released last week. Going through the trade effects of the proposed trade policies the two presidential candidates and on our website is a simulation or shows you the results county by county in the US, industry by industry. So please tell your constituents, your friends back home, your relatives who are not part of the Washington chatterbox network to go look at this and it helps trace out. It's not quite the same as the management says about that plant in that town but it gets you there and it helps you trace it out, so please make use of that.
Kevin Brady: And thanks for doing the hard work, you know what I mean, of identifying that because I think we can win this debate on trade. I'm absolutely confident we can, but it takes the tools that you're developing here at Peterson to do this.
Adam Posen: I'm very proud of our team, which did great work and we're very grateful to you and everyone for helping us get the message out. In football, we're the equipment managers. You guys have to build that across the line.
Going to the back mic, next two questions, please.
Len Bracken: Yeah, Len Bracken, reporter with Bloomberg BNA. Earlier today, Speaker Ryan said that there weren't enough votes for TPP. Chairman Brady, would you give us your snapshot of where the votes stand with regard to the TPA vote last year, where you've lost votes, where you've gained perhaps and do you still have the majority, the majority supporting the TPP?
Kevin Brady: I'm not going to go through the count of where members are at because at this point, my experience sort of bears this out until you have a date for a vote, members for the most part will stay undecided. They'll raise their issues with you, talk about what concerns them and also whether it's going well, whether it's in beef or financial services or some other area.
What I know is that Republicans are, in my view, a strongly pro-trade and open markets as we've been before. I think we're going to max out the Republican votes. If these remaining issues are resolved on TPP, we've got 28 courageous Democrats in the House and we hope more who will step forward and support the president's trade agreement. But all of that is contingent upon solving these remaining issues. And again, the clock is ticking, Whitehouse needs to pick up the pace, we've got to have these issues resolved sooner rather than later if we hope to have a vote in the [inaudible 00:38:12].
Doug Palmer: Hi. I'm Doug Palmer with Politico. I just wanted to ask about a paper that the Trump campaign put out over the weekend. And, one of the issues that it raised is an issue that--I know he's been out there, but he hasn't been talking a lot about it recently and it's other country's value added tax system. And the Trump campaign cited this as an example of provisions that are in trade agreements that show how US negotiators didn't do a very good job because they allowed other countries to keep these value added tax systems. And, the paper sort of suggest that if other countries don't agree to eliminate their value added tax systems, the US should walk away from the WTO.
I just wondered, how do you see that issue? Is that something that you think creates a big competitive disadvantage for the United States? Should that be a top priority of the next administration? And is this so important that if other countries don't agree to eliminate it, we should get out of the WTO?
Kevin Brady: I didn't see the paper, Doug. So, I won't comment on that. But I will go back to my earlier comments. If we want to grow the economy, free and open trade and these agreements, done right, strictly enforced. Exactly one of the key parts of growing our economy.
Tax reform also plays a role because the more competitive we are around the world, inherently, Democrats and Republicans agree it's not enough to just buy American. We got to sell America all throughout the world. Free Trade Agreements open those markets. Our tax code determines how competitive we are in those markets. And in the House Republican blueprint, we go all in for growth on jobs and wages, redesigning the way we tax on main street and around the world and two of the big changes we make are one to stop taxing worldwide making sure those profits can be reinvested where they make the most sense of in America.
And secondly, moving to a border adjustable tax system as our competitors, China, Europe and others use so that we're competing on a level playing field. So we're proposing to America to move from an income tax system based on where you produce to a cash flow consumption tax based on where it's consumed.
I am convinced that that is WTO compatible. I absolutely know it will level the playing field. And so, tax and trade again are key elements in this whole debate.
Doug Palmer: Just to clarify though, I mean, you would think that the US should fix its tax system rather than ask other countries to fix their tax systems?
Kevin Brady: Again, not having seen the report, but I know that our tax system is ours. If we want to be competitive, we've got to have the most pro-growth, job creating system on the planet. Our tax reform blueprint leapfrogs America from the dead last in our global competitors back into that lead pack. I think it's going to have a significant impact in a positive way on our competitiveness. So, they're related obviously in a key way.
Adam Posen: Just to clarify from the analytical side, we have Gary Hufbauer, Chad Bown and other fellows here working on this issue. Two of the claims made either implicitly or explicitly on that report. I'm not going to go through the whole report. But two of the claims made on this statement about taxes are just flat out wrong, sorry to fact check, that's what we do.
One of them is there is no good correlation between that tax wedge and where our bilateral trade deficits and surpluses are. It may be a factor, but it sure as hell isn't a major factor. If that's their focus, this is the wrong thing.
And, the second thing is just to note -- it also doesn't correlate well with which industries we're good at. If you look at US progress in manufacturing and pharmaceuticals and various services, the VAT should be very much punitive for certain kinds of goods and not others. And again, it doesn't line up with the facts.
So, the broad idea that the congressman raised is the question you raised that obviously taxes matter is true, but just as with many other claims being made on the analytical side by that campaign, it's not right what they say.
I have a last question. I'm afraid the congressman has to go. Please, at the back mic.
Caroline Freund: Hi, Caroline Freund, Peterson Institute. I wanted to ask you about the Exim Bank. You talk about level playing field and the Exim Bank is still constrained, can't make loans of $10 million or more because it doesn't have a quorum. And I know there was talk this week of getting or last week of getting language reducing that constraint on the quorum. I was wondering what's happening on that and if you see any hope for that to change. Thanks.
Kevin Brady: I have to confess, we've been so focused on the tax reform blueprint in TPP in the whole trade agenda. I haven't spent a whole lot of brain power over on Exim Bank. I'm aware of the circumstance. I don't know what the proposals are going forward. I like to see that bank operating effectively, but that's an area that other, frankly, committees are covering right now.
Adam Posen: Again, thank you very much. I'm sorry to cut this off. This has been a great discussion. The congressman had a hard stop and --
Kevin Brady: Yeah. Adam, thank you very much.
Adam Posen: Thank you so much. This was terrific.
Kevin Brady: I appreciate it.