Let me ask a specific question about the tech arena. China allows electronics components to be imported duty-free as long as they are eventually exported, a policy that allows US-made computer chips to be brought in, processed and exported back to the US as more finished products like computers. Doesn't a tariff or import surcharge risk triggering Chinese retaliation in the form of import duties that could hurt US tech manufacturing operations and US consumers?
Bergsten: Sure. That is the trade war risk. But as I say, if they maintain an undervalued currency, that's assuring that we are going to put on barriers -- as we have been doing -- which at some point they may retaliate against also. So it's pick your poison.
How would your proposal handle the complexity of some tech manufacturing operations today? For example, microprocessors might be made almost entirely in the U.S. except for a few final steps, which are done in China. Would such chips be subject to the tariff or surcharge you are talking about?
Bergsten: Well, trade policy is kind of crude. In virtually all cases, we apply the tariff on the full value of the product coming in here regardless of how much value is added abroad. To economists like myself, the logic is that you would apply the tariff only to the value that is added in the exporting country and back out the cost of imported components at least for our own country, but maybe from (third-party) countries as well. But it normally doesn't work that way. There is just no way to figure out objectively how you dissect the product--say how much of it was really value-added in China. And so we apply the tariff to the whole thing. And, yes, in a strange way it's applying a tariff to our own goods which went over there and then came back.
A (BA) is no longer adequate to fill the jobs that are going to be maintained in the US, unless wage levels are cut very substantially. That is another potential downside.
Bergsten: Oh yeah. That is why you want free trade. You want to eliminate all that kind of distortion. But in a real world where a lot of this stuff is of necessity applied crudely, you do get anomalies like that.
On the face of it, your proposal seems to go against the advice of your colleague Catherine Mann, who argues that global free trade in software and tech services will generate greater demand for workers with IT skills and proficiency in the US
Bergsten: No, no. I totally agree with her. The problem is there is an overriding, hopefully, shorter-term issue. Which is this imbalance in the currencies...Here at the institute, Cathy, I, all of us, everyday are working to move toward global free trade. But the prospects for that get badly distorted and sidetracked when you have these big currency imbalances.
What is your long-term prognosis for how the U.S. tech industry will fare in the face of global competition?
Bergsten: I am basically bullish. But it also really depends on how good a job we do in constantly upgrading our own skill level, our technology, our educational level and training of our workers to be at the cutting edge. What Cathy's work shows is that there is increasing and will be increasing intra-industry trade in high-tech goods, services and software. We will spin off the lower-tech ends of those specialties through the outsourcing that is so famous now. The way we stay ahead of the game is by adding jobs and potential at the high-skill, high-tech end of the spectrum.
But we can only do that if we both produce the technology and produce the people to implement the technology. So far I think we've been pretty good on the technology, but not nearly as good in producing the people necessary to keep it going and to implement it. So that, I think, is the big challenge and the big question as to whether the U.S. can stay ahead of the game.
How do you respond to the devil's advocate position that by sending off the lower-level programming jobs that sends a really bad message to the students thinking about programming as a career because they see these jobs going. Wages haven't been soaring in the tech field in recent years. It seems like there aren't very many economic incentives for people to go into the tech arena. What's your take on that?
Bergsten: Well, I think that is a matter of educating those being educated that there (is), in the same process that spins off the lower-level jobs, a creation of higher-skill, more-challenging, more-interesting, higher-paying technology jobs. But it does require higher skill levels to be able to fill them and employ people creatively in them.
Should those kinds of skills be gained in the education arena first? You come out of college at that high-skill level, is that what you mean?
Bergsten: One thing it means is almost certainly you have to do advanced training. I mean you have to do postgraduate training. You have to do Ph.Ds. You have to do specialised training in various technology fields to be able to move up the skill ladder. I think as a simple generalisation, a (bachelors of arts degree) is no longer adequate to fill the jobs that are going to be maintained here in the US, unless we cut our wage levels very substantially.
