JOINING US TO TAKE A SWING AT THE RATIONALE AND RISK OF USING TARIFFS AS A PART OF U.S. POLICY ARE FORMER CHIEF AGRICULTURAL NEGOTIATOR FOR THE OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE (USTR), AMBASSADOR DARCI VETTER, AND FORMER GENERAL COUNSEL OF THE OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE (USTR), MR. WARREN MARUYAMA.

BRIEFLY YOU BOTH WORK FOR DIFFERENT ADMINISTRATIONS.

WHAT ADMINISTRATION DID YOU WORK FOR.

>> I WAS THE CHIEF AGRICULTURAL NEGOTIATOR IN THE OBAMA ADMINISTRATION.

>> BUSH 41 AND BUSH 43.

>> THANK YOU BOTH FOR COMING ON THE SHOW TODAY.

>> THANKS FOR HAVING ME.

>> WELL, LET'S GET RIGHT TO IT.

LET'S START WITH YOU, WHY IS TRUMP USING TARIFFS IN THE MANNER HE DID PARTICULARLY GIVEN THE WAY THAT HE NEGOTIATED THE USMCA WHAT HAS CHANGED IN THE LAST FOUR YEARS IF HIS MIND?

>> WELL, HE HAS ALWAYS BEEN CONVINCED TARIFFS ARE A GREAT TOOL AND HE IS USING THEM FOR JUST ABOUT EVERYTHING.

FENTANYL, ILLEGAL IMMIGRATION, RECIPROCITY.

BUT, YOU KNOW, HE IS VERY ENTHUSIASTIC ABOUT TARIFFS AND THIS GOES BACK DECADES.

>> I WANT TO KIND OF DIG DOWN ON THAT A LITTLE BIT MORE.

AMBASSADOR, TARIFFS GOOD OR BAD?

>> WELL, TARIFFS ARE ONE TOOL YOU CAN USE AND SO THEY AREN'T INHERENTLY GOOD OR BAD NECESSARILY BUT THE BROAD APPLICATION OF TARIFFS ACROSS THE ECONOMY REALLY WILL RAISE COSTS FOR U.S. CONSUMERS AND WILL CREATE A LOT OF, YOU KNOW, CHANGES IN SUPPLY CHAIN, CONTINGENCY PLANNING, LOTS OF RISING PRICES FOR CONSUMERS AND RISING COSTS FOR BUSINESSES GENERALLY.

SO TARIFFS ARE ATTEMPTING-- ARE A TEMPTING TOOL BECAUSE THEY'RE A REALLY STRONG MECHANISM.

THEY CHANGE PRICES IMMEDIATELY.

THEY'RE A BLUNT INSTRUMENT IN THAT THEY DAMAGE PEOPLE ON BOTH SIDES OF THE TRANSACTION.

BOTH THE SELLER OF THE GOOD WHO SUDDENLY HAS THE TARIFF ATTACHED TO THEIR GOOD BUT ALSO THE BUYER, TOO, WHO NOW HAS TO FIGURE OUT WHAT TO DO TO PAY THOSE TARIFFS.

DO THEY INCREASE PRICES TO CONSUMERS, LOWER THEIR PROFITS, DO THEY GO ELSEWHERE?

>> WITH RESPECT TO THE CURRENT ECONOMIC ENVIRONMENT, HIGH INTEREST RATES RIGHT NOW AND THE ECONOMY IS STILL TRYING TO FIGURE OUT WHERE IT'S GOING, WHAT IMPACT RIGHT NOW DO YOU THINK IT'S GOING TO HAVE ON THIS ECONOMY?

>> THERE ARE SOME UP SIDES AND DOWN SIDES.

AND THE DOWNSIDES ARE INFLATION BECAUSE A TARIFF IS BASICALLY A TAX.

IT'S JUST A SPECIALIZED TAX ON IMPORTS.

SO THAT'S GOING TO DRIVE UP INFLATION.

IT IS GOING TO DRIVE UP COSTS FOR U.S. MANUFACTURERS.

IT WILL MEAN AT LEAST OUR EXPORTS SINCE A LOT OF THEM CONTAIN IMPORTED INPUTS ARE NOT AS COMPETITIVE BUT THE OTHER BIG DOWNSIDE OF TARIFFS IS RETALIATION.

BECAUSE THE TRADE RULES ARE BASICALLY A VENEER OVER THE LAW OF THE JUNGLE.

IF WE RAISE OUR TARIFFS, FOREIGNERS WILL RAISE THEIR TARIFFS AND THEN WE HAVE BASICALLY A TRADE WAR AND THAT HAS COSTS FOR AMERICAN AGRICULTURE SINCE TOTALLY EXPORT DEPENDENT OUR THREE BIGGEST EXPORT MARKETS ARE CHINA, MEXICO AND CANADA.

>> I UNDERSTAND ALL THE COUNTRIES MAY RETALIATE AGAINST US BUT WHAT ABOUT THE OTHER COUNTRIES WHO RIGHT NOW HAVE TARIFFS ON SOME OF OUR GOODS SHIPPED TO THEM BUT WE DON'T HAVE TARIFFS ON SOME OF THE SAME GOODS OR SIMILAR GOODS SHIPPED TO US.

IS THAT FAIR?

>> WELL, THE WAY THAT IT WORKS IS RECIPROCITY IN A VERY BROAD SENSE WHERE WE MAKE A CALCULATION THAT THE FOREIGNERS ARE REDUCING TARIFFS ON THE STUFF THAT'S REALLY IMPORTANT TO US AND WE LOWER OUR TARIFFS ON STUFF THAT'S NOT IMPORTANT TO US , NOT THAT IMPORTANT TO US OR WE DON'T MAKE.

SO IN A GENERAL SENSE, THE SYSTEM IS RECIPROCAL.

BUT WE HAVE HIGH TARIFFS ON A LOT OF THINGS, TOO.

MILK, SUGAR, TEXTILES, SOME LIGHT TRUCKS.

SO IT ALL, IN THE END, THE CALCULATION IN THE PAST HAS BEEN THAT IT BALANCES IT OUT.

>> SO, AMBASSADOR, I BELIEVE YOU GREW UP ON A FARM, IS THAT RIGHT?

>> I DID, YES.

>> SO I WANT TO KIND OF DRILL INTO THE AGRICULTURAL ASPECT OF THIS.

AND THE IMPACT ON AGRICULTURE AND TARIFFS.

I THINK YOU MENTIONED IT.

WHAT IMPACT DO TARIFFS HAVE ON AGRICULTURE AND WHAT ABOUT IT WITH THIS CURRENT PRESIDENCY, HOW IT IS GOING TO IMPACT AGRICULTURE?

>> SO FAR THIS AMERICA FIRST TRADE POLICY THAT WE ARE SEEING IS REALLY FOCUSED ON INDUSTRIES THAT ARE DEPENDENT ON OR COMPETING WITH IMPORTS.

BUT AS WARREN ALREADY MENTIONED, AGRICULTURE IS REALLY DEPENDENT ON EXPORTS.

SO 20% OF U.S.

AGRICULTURAL PRODUCTION IS EXPORTED, ABOUT ONE IN THREE ACRES OF WHAT WE GROW.

AND AS WARREN ALSO NOTED, THAT MAKES US A TEMPTING TARGET FOR RETALIATION.

SO WHEN WE PLACE TARIFFS ON OTHER COUNTRIES PRODUCTS, THEY TEND TO RETALIATE WITH TARIFFS ON U.S. AGRICULTURE.

AND SO WHAT TARIFFS ARE DOING TO FARMERS IS SQUEEZING THEM IN THE MIDDLE.

THEY'RE SEEING INCREASED PRICES FROM STEEL AND ALUMINUM AND OTHER TARIFFS ON THEIR INPUTS, FERTILIZER, PARTS, IRRIGATION EQUIPMENT, ET CETERA.

AND THEN SEEING THAT THEIR EXPORTS CAN'T COMPETE BECAUSE THEY HAVE TARIFFS ATTACHED TO THEM WHEN THEY GO INTO FOREIGN MARKETS SO U.S. AGRICULTURE IS REALLY SORT OF STUCK IN THIS PLACE WHERE THEY'RE GETTING HIT FROM BOTH SIDES.

>> NOW Mr. MARUYAMA, A QUICK QUESTION FOR YOU.

WE HAVEN'T TALKED ABOUT THIS, BUT WHAT ABOUT THE FOREIGN POLICY COMPONENT OF TARIFFS, FOR EXAMPLE, MEXICO.

I WAS A FEDERAL ORGANIZED CRIME PROSECUTOR AND, YOU KNOW, THE AMOUNT OF DRUGS COMING ACROSS THE BORDER WAS INSANE AND THE HUMAN TRAFFICKING AS WELL.

AREN'T TARIFFS A VEILED USE TO STOP THAT FLOW OF DRUGS COMING ACROSS AND ILLEGAL ALIENS COMING ACROSS INTO AMERICA?

>> YEAH, THEY ARE PROBABLY UP TO A POINT.

BUT ONE THING ABOUT TARIFFS IS THEY'RE REALLY GOING AFTER SOME OF OUR BEST ALLIES AND TRADING PARTNERS.

AND ANOTHER THING IS EVEN WITH MEXICO, WHILE WE MAY BE VERY UNHAPPY ABOUT, YOU NOW, THE LEVEL OF ILLEGAL IMMIGRATION PARTICULARLY OVER THE LAST FOUR YEARS, WE DO NEED MEXICO'S COOPERATION IN STOPPING THE FLOW OF IMMIGRANTS FROM CENTRAL AMERICA UP TO OUR SOUTHERN BORDER.

AND SO, YOU KNOW, YOU MAY USE IT AS AN ATTENTION GETTER WITH MEXICO BUT IF YOU TAKE IT TOO FAR AND LOSE THAT MEXICAN COOPERATION AND THEN PROBABLY IMMIGRATION GETS WORSE.

>> AMBASSADOR, ANOTHER QUESTION FOR YOU.

AND THAT IS JOBS, MANUFACTURING JOBS LEFT THE UNITED STATES FOR A SIMPLE REASON.

THEY WERE CHEAPER TO DO IT OVERSEAS.

SO IF YOU BRING IT BACK TO THE UNITED STATES AND WE KEEP HEARING THE ARGUMENT THAT SHORT-TERM PAIN, LONG-TERM GAIN.

BUT IF AMERICAN LABOR IS CHEAPER-- IS MORE EXPENSIVE AND AMERICAN MANUFACTURING IS MORE EXPENSIVE, DOESN'T THAT MEAN THAT LONG-TERM WE ARE GOING TO INDUSTRIES THAT WE BRING BACK HOME?

>> WELL, I THINK IT RAISES THE TECHNOLOGIES, DESPITE THE CHANGES IN THE POLICY OF THE ADMINISTRATION, I THINK WE WILL CONTINUE TO SEE Mr. USE OF SOLAR AND WIND AND OTHER TYPES OF ENERGY AND WE DON'T WANT TO BE FULLY DEPENDENT ON OTHER COUNTRIES FOR THOSE.

BUT WHAT POINT IN THAT MANUFACTURING PROCESS WILL THE UNITED STATES SPECIALIZE?

TO WHAT EXTENT DO WE BRING BACK THAT MANUFACTURING?

DO WE NEED TO BE SELF SUFFICIENT?

DO WE JUST NEED TO HAVE A FIRM GROUNDING SO THAT WE ARE NOT TOTALLY DEPENDENT ON OTHER COUNTRIES.

BUT YES, IT MAY RAISE PRICES AND , YOU KNOW, I THINK THE QUESTION, TOO, WE ARE FOCUSED ON THE BORDER PART OF THE POLICY NOW BUT ARE WE FOCUSED ON THE WORKER PART OF THAT POLICY NOW?

WE KNEAD GOOD DOMESTIC POLICY TO GO WITH BORDER POLICY TO MAKE SURE WE HAVE WORKERS WHO ARE PREPARED TO PARTICIPATE IN THOSE INDUSTRIES AS WELL IN ORDER TO MAKE THAT REASSURING GOAL A SUCCESS.

>> LET'S STICK WITH YOU, AMBASSADOR, SWITCHING GEARS A LITTLE BIT.

WHEN YOU BRING THE JOBS BACK HOME, LET'S SAY THE TARIFFS WORK AND YOU BRING THE JOBS BACK HOME CAN YOU REALLY PRODUCE IN THESE UNITED STATES AT A LEVEL THAT KEEPS THOSE COSTS DOWN OR ARE THEY GOING TO BE INHERENTLY MORE EXPENSIVE?

>> WELL, LABOR COSTS CERTAINLY ARE HIGHER IN THE UNITED STATES AND THAT'S SOMETHING THAT WE NEED TO CONSIDER.

WE ALSO NEED TO BUILD OUR DOMESTIC WORKFORCE AND MAKE SURE THEY'RE READY TO ACCEPT THOSE MANUFACTURING JOBS.

BUT I THINK PART WHAT HAVE WE ARE SEEING IN THE CURRENT TRADE ASSOCIATION IS THAT WE ARE TREATING TRADE LIKE A SERIES OF BILATERAL RELATIONSHIPS BUT WE KNOW OUR SUPPLY CHAINS ARE VERY COMPLEX AND THE PARTS FOR ONE CAR, WE HEARD WITH THE CANADA AND MEXICO TARIFFS, MIGHT CROSS MULTIPLE BORDERS BEFORE THIS THE CAR IS FINISHED, RIGHT IF WE SEE THE SAME THING WITH A LOT OF THESE OTHER TECHNOLOGIES.

AND SO WHILE I AGREE THAT WE DON'T WANT TO BE TOTALLY DEPENDENT ON FOREIGN COUNTRIES FOR THE MANUFACTURE OF IMPORTANT AND STRATEGIC GOODS, BE THAT STEEL AND ALUMINUM OR ADVANCED CHIPS FOR A.I., FOR EXAMPLE, THERE ARE VERY COMPLEX GLOBAL SUPPLY CHAINS THAT SIMPLY PUTTING TARIFFS ON AND SUGGESTING WE MIGHT BE SELF SUFFICIENT BECAUSE OF THAT IS, I THINK, A BIT TOO SIMPLISTIC OF AN ANSWER.

>>THANK YOU AMBASSADOR VETTER AND MR. MARUYAMA!

FOR A GREAT CONVERSATION.