30th Annual Automotive Insights Symposium

THOMAS CLEAR: All right. Thank you very much, Rick. As we're walking up to the stage-- one, two. Good morning, everybody. Thanks for coming in. It was a little harder than yesterday.

MARY LOVELY: You want Christine here?

THOMAS KLIER: No, that's OK. She can sit wherever.

CHRISTINE MCDANIEL: Well, because I gotta-- we're gonna share this.

RICK MATTOON: Oh, that's fine. All right.

CHRISTINE MCDANIEL: We have to share a tissue box.

[LAUGHTER]

THOMAS KLIER: OK, yep. Winter travel. There you have it. All right, Christine, then, there's that for when you need it. OK, sorry. Anyway, welcome back for day two. We have a theme of the conference, of course. It's the same as yesterday. It's about the transition towards electrification.

And this morning, Rick teed up our panel-- we're touching on a very, very big and important subject here-- with his China, China, China comment a minute ago. So we have an hour and 15 minutes. I'm going to do this. I'm going to introduce the three panelists. And then I'm just going to set the stage before we get into the conversation on the trade topic, which is everywhere, not just in autos but particularly in the auto sector. And it seems like it's getting bigger every day. So I'm really looking forward to this conversation.

So in no particular order, other than how we're seated, I guess, to my right and further right. First panelist is Christine McDaniel, who is a senior fellow at the Mercatus Institute. And then next to her is Mary Lovely, who's a senior fellow at the Peterson Institute. And then on the far right, we have Leila Afas, who is director of global policy at Toyota. So I'm humbled to be surrounded by three deeply expert colleagues in the field of international trade. And I hope I can keep up with you.

So let me set the tone for our conversation. We're going to be addressing the topic mostly in a conversational format, like for most of the panels yesterday. Christine is going to go through a few slides when she gets the first question.

But I did want to take a minute to tee up the topic because there are so many things that are attached to trade and the auto industry and the supply chains, which this panel is really all about, reshoring the electrified supply chain. So let's take a step back.

Trade has been an important subject matter for this industry for many years. It wasn't that long ago that NAFTA was reconfigured. And then many of us in the room still remember when NAFTA came about. And what's just the right thing, the wrong thing, what are the impacts, and how the-- oh, sorry, yes, please make sure your mics are on, that little green light is on, sorry-- and the impacts of NAFTA.

So the bottom line is supply chains have become more global and, within the major production regions, extremely tightly integrated. And so this is the environment we've been living with. So along comes this transformation towards electrification. And then the places where raw materials are and who controls what of the value chain and the supply chain are changing all of the sudden. And we have economic policies put on top of that whole discussion.

So let me name the three major policy angles that are directed at this discussion are relevant what we're talking today. Number one is the policy goal of reducing carbon. And so that impacts the transportation sector. That's what's behind the electrification.

The second goal is this China, China, China question. We talk about national security. And it seems we're in this world where we're disentangling. There's one half and the other half of the world. And the third goal that's relevant here for this discussion is the industrial policy goal. There are interests to keep the manufacturing sector viable, especially as it transitions to something that is new.

So these three goals are in the background of everything we're going to discuss in the next hour or so. But they're not necessarily all leading to the same answer, potentially leading to conflicts. So with that, let's get the conversation started.

And I want to reemphasize something that Rick mentioned already, of course, and that you all are well aware of. The way we get to submit questions is the same way as yesterday. Please go into the Pigeonhole app, submit your questions. That's even more important-- well, actually, it's not more important than yesterday. We just have a slightly less in-person audience, partly because of the snow.

So we can arbitrage now. We don't have to be in the room. We can watch this on a screen. We're going to get the same amount of questions. So keep those questions coming.

I'll pick up my iPad in a little while. We'll get the conversation started with questions that we thought of ourselves when we got together a few weeks ago to put our heads together to see what we want to talk about in this panel.

So after all that, I'm going to stop talking after I ask Christine the first question. So Christine, in this context of policy impacts on supply chains, the government involvement is rather extensive. So what is your take on this? What do you see of the risks of such deep intervention? And how should we think of this, going forward?

CHRISTINE MCDANIEL: Well, first of all, thank you, Thomas, for having us, and thank you everyone for coming out this morning and braving that weather. So exactly. As Thomas teed up, we have this-- it's kind of interesting-- the national security issues are emerging just at the same time that Washington wants to turn to clean energy.

There's a lot of tension there. Because it turns out that a lot of the things that we need to do this clean energy transition, we need help from countries that may not be in our direct circle of friends right now. And this has created a lot of tensions, a lot of costs. And we'll talk a little bit about that.

I did put a couple pictures together for you all on the cost of the IRA. I'm going to go deep down into the cost of a particular provision in the Inflation Reduction Act that is related to EV batteries. And I'm hoping that will tee up the conversation about cross-border supply chains driven by cost differentials with Mary and Leila. So let's get started on that.

So for those of you that are familiar with the IRA, you'll know that there is a provision in there under Section 13502 under the Advanced Clean Manufacturing Production Credit provision section that allows for monetization of production credits to battery makers-- batteries for EVs. And these credits are based on the amount of energy that the battery produces.

And they're also based on-- you guys know a lot more about this than I do, but I did make up this little picture, mostly for people who don't know about it. But it depends on if you make the cell or a module or a pack. But the main takeaway from here is that you can get up to $45 per kilowatt hour of battery capacity. So between $10 to $45 can be received per kilowatt hour of battery capacity.

And so the Congressional Budget Office, that's the government agency that costs out these bills for Congress. And they came up with a number for the initial cost estimate for the Inflation Reduction Act. And then they break it down by different sections and different provisions.

And I kept hearing a lot from people in the industry like, wow, this section 13502 is amazing. And then I started hearing from other people, wow, this is going to probably cost a lot more than we might think. So I started to get into it a bit. And I'm, sort of, a data-lover nerd. So I dug into that for a couple weeks.

And then, when I emerged from that rabbit hole, I came up with some numbers that were much bigger than CBO's numbers. And I should say CBO gets their numbers from Joint Committee on Taxation, So JCT's numbers.

And just using more recent data from Argonne National Labs and some other reasonable assumptions that I ran by industry people, I came up with a range. So while the JCT got $30.6 billion of a cost for these EV battery credits, I come up with a range from $43.7 to up to $196.5 billion.

And I started talking to a few people around the country who were looking at similar things. And I found two other independent groups who were also costing out this provision. And they actually had the same ballpark. So for an economist, that's just heaven. Because you don't really know this is going to work or not. And then, for somebody else, completely independent, to come up with the same ballpark as you, that was very helpful to know.

So anyway, so talked to the JCT and others about this. And to be fair, the JCT has a nearly impossible job. The IRA is hundreds and hundreds of pages. There are only so many people. But the point is that this is probably going to cost a lot more than Congress was told when they passed it.

And well, anyway, JCT went back, and they redid some of the numbers. And just on that section 13502, their estimate went from about $31 billion to about $133 billion. So they added $100 billion just on the EV battery production credits.

They also went back. They did a few other revisions. And now their updated number for the entire IRA went from about $400 billion to about $659 billion. In fact, even more recent estimates show it up to $790 billion.

So this is going to cost US taxpayers a lot of money. And the way the IRA is designed is going to cost us even more money. Because you can't even access the types of things that you need at the best cost, the best prices, because there are huge incentives, and even restrictions, against doing business with certain countries and suppliers, which I think Mary and Leila will get into.

So this is just a wake-up call that, on the fiscal side, it is not going to be easy, it's not going to be cheap, trying to untangle the US economy from China and other authoritarian regimes. And with that, I will leave it to the next panelist.

THOMAS KLIER: OK, well. Thank you, Christine, for putting this together. That's sobering, in a way, but, of course, also interesting. Because we're talking about real resources being put out there into this policy space. So I'd like to jump all the way to the far right now, just because I think Leila's perspective, representing a company in this space, is going to be what I'd like to hear about next.

And how does this impact your portfolio as director of global policy? How do companies respond to these significant policy incentives? What does the world look like for you in the context of thinking about reshoring the supply chain and responding to incentives like those?

LEILA ARIDI AFAS: Well, thank you, Thomas. And oh, wait. I know you're going to tell me to turn on my mic.

THOMAS KLIER: The green light will tell you. There you go.

LEILA ARIDI AFAS: [LAUGHS] I'd say the world is pretty complex. And it's a very different situation than when I joined Toyota in 2016, which, at that time, the greatest risk we faced was Brexit and the UK separating from the European Union and tension about whether there would be a trade deal. And for Toyota, that was relevant because we had two plants in the UK, and 80% of their products went to the continent. So if there was no way to get it over, then that was a huge challenge.

Now, it's like Brexit times 10 in markets all over the world. And I could spend the entire remaining hour talking about the hot spots around the world. I'm sure everyone here is more than familiar with them. But I'm going to focus on trade.

And we were joking that when Thomas and Kristin invited us to do this trade panel, they're like, oof, can't use that word. That is a four-letter word, especially in an election year. In fact, I think there's a book by that title by the former chair of the export-import bank.

And so we need to zoom out and look at the context upon which we're looking not only at the auto industry but these industrial policies that Christine mentioned. And it's no longer trade as a vertical, your mom and pop tariffs and countervailing duties and anti-dumping rules and things like that. It's now a horizontal issue. It is trade and climate. It is trade and national security. It is trade and human rights. It is trade and workers.

And so through that lens, you have to fundamentally rethink these decisions that you make in terms of sourcing and supply chains because you're no longer just trying to meet the RVC rules and a free trade agreement like the USMCA. You're now trying to meet all these other rules from the Uyghur Forced Labor Prevention Act, the UFLPA, which took the unprecedented step of banning imports into the United States of any products suspected of being made with forced labor in the Xinjiang Uyghur Autonomous Region of China.

That means if you have 1 ounce of lithium mined in XUAR, your battery or your CBU could be banned at the border from entering the US. That is one of those things where it may be a low probability of having a detention but a high-impact risk leading to plant shutdowns, so something that you have to take very, very seriously.

We also have national security considerations. And this has led to export controls. We're all familiar, I hope, with US export controls on semiconductors. They came out on October 7 last year and were amplified just a few months ago. In response, we saw China institute export controls on minerals-- germanium, gallium, and now graphite, which is absolutely critical for making the anode materials for batteries for electric vehicles.

What's interesting, though, is they not only put these controls on the export of these minerals. When it comes to graphite, in December, just last month, they put restrictions on the export of the machinery to process them. That's an even bigger impact. And that was because ASML in the Netherlands put a restriction on their equipment for making chips.

And so this is now like you have to think of these things not as isolated risks but as interrelated risks, and they amplify each other. And I didn't even get to the point of talking about the political risks or the reputational risks, again, as we careen in towards a election here in our own country in November.

But it's not only the US. Taiwan, of course, had an election last Saturday. But more than half of the world's GDP will be going to the polls this year for what will be consequential elections-- not just the United States, the European Union, India, and so Mexico.

And so these, as we've seen, it used to be from president to president or prime minister to prime minister, you saw slight tweaks in policy. But NAFTA survived how many presidential administrations until, of course, the former president. And so what we need to consider is these rules, these institutions, that we assume-- that are in place when we make these long-term investment decisions, speaking on behalf of a company.

And again, Toyota just announced $13.5 billion for its battery plant in North Carolina. You need to trust that those rules are going to remain in place throughout the life cycle of that investment. And if they change, and they change dramatically, to the point where, oh, no, now there's a 25% tariff on that input, oh, no, and now that product that you're making, you can only sell it in the US, you can't sell it anywhere else, oh, and you're going to have to go through a licensing regime, and, oh, that tech you're developing at your R&D center, I hope you weren't trying to commercialize or license it overseas because we're not going to let that happen-- it really fundamentally impacts.

And that's the world that we live in. And so trying to navigate all these big macro trends amidst all these actual material rules that are already having concrete impacts on how we run our business is going to be one of the most challenging things to do. And this is during such a consequential year as 2024.

THOMAS KLIER: Wow. So I mean--

LEILA ARIDI AFAS: So it's great times, Thomas.

THOMAS KLIER: Yeah, it's crazy.

LEILA ARIDI AFAS: Fun times.

THOMAS KLIER: Yeah, right, right. So complexity rules, not just in transitioning from thermal management from ICE engines to electric powertrains.

LEILA ARIDI AFAS: Yeah. And what does that mean for long-term contracts? What does that mean for employment? What does that mean for where you're planning to export? And it really-- because as the costs go up for domestic manufacturing, it impacts your ability to be price competitive in third-country markets.

And for Toyota, we sell our US-made products to 60 markets, over 60 markets last year. And a lot of them are very price-sensitive markets. And the dollar is not-- I'm not saying anything about the dollar in this building, but I'll let you connect the dots on that one.

[LAUGHTER]

THOMAS KLIER: What? You're breaking up. I can't hear you.

[LAUGHTER]

All right, awesome. So Christine showed us that the amount of money involved here in the IRA support is even larger than we thought. Leila just showed us how complicated this trade environment has become. And it's constantly changing from a within-company perspective.

Mary, I'd like to go next. You did an interesting piece for the Aspen Institute recently where you thought through these policy goals and how they relate to one another. I wonder if you can walk us through the highlights of your thinking there in terms of how the tools in this derisking, friendshoring, near-shoring-- how does it look like from your perspective?

MARY LOVELY: Great. Well, thank you. Thank you for the question. Thank you to Kristin for the invite to be here. Christine and Leila have really, I think, given us sobering messages. One is about the costs of the IRA to the taxpayers.

The other is, of course, the costs that companies have to bear in terms of the added uncertainty that policy variability adds into their daily decision-making, from just simple sourcing to long-term contracts, employment decisions, obviously, long-term investments, and whether you're going to be able to sell into particular markets or purchase inputs from particular sources.

So I thought I'd step back a bit and think about overview of what the government, particularly the Biden administration, is trying to do but not too heavy on that, a little bit heavier on thinking, what are we, as a society, trying to achieve? We're going to have these costs. But the costs don't exist out there separate from the objectives that we're trying to achieve. And as anyone will tell you, anything worth having is worth doing well, or paying for-- another way of saying, you get what you pay for.

But we have a set of priorities that, I think, require us to think a little bit more deeply than we've thought about trade-offs. There's a lot of good things out there. I might want all three desserts, but I'm going to have to pick one. And so I'll talk about that.

So Thomas listed the three objectives that are driving the transition that we're witnessing. One is decarbonization. The second is reducing our dependence on China. And the third is-- and, I think, very important to this audience-- is preserving industrial production in the US auto sector.

These are important goals. I think they're very widely shared among the American population. I think the American public is willing to pay for achieving these goals. The problem is that, while they're not necessarily in conflict-- we see all three as working together-- there are important trade-offs that we face. And we need to be serious, sober, and think about how these trade-offs work and, I think, be a little bit more forthcoming in the challenges that they pose to companies like Toyota and all the Detroit 3.

So how we navigate these trade-offs are going to determine whether, A, we have a healthy, self-sustaining EV sector in the United States in 10 years or we have an industry that needs continuous subsidization and protection. It's going to determine whether we have maintained our commitment to supply chains based on relative costs or we are going to contribute to increasing global fragmentation and trade that ignores any kind of rules of the road.

And it's also going to determine whether we actually achieve decarbonization at any reasonable time frame, or we're going to be the laggard. Because other countries, including EU and China, are moving ahead.

So let me flesh out the trade-offs that I see and the choices that I see as pivotal in building a healthy sector and promoting a healthy global trading system. First, building a healthy American auto sector can be self-sustaining. The tools for this are reshoring, friendshoring, and derisking.

Now, reshoring is, essentially, subsidies to the US sector, whether user-side subsidies or supply-side subsidies. It's odd that we think about building an EV sector as reshoring, since the industry never existed before. So I don't know what we're reshoring. What we're really trying to do is both create demand for decarbonized transport and, at the same time, ensure that that demand is met by supply that's built in the United States.

Note that this process is inherently exclusionary. We are preferencing vehicles built in the North America and, even more specifically, assembled in the United States. That's something we're doing. I think we need to just say, this is what we're doing and also recognize the cost that that brings in terms of what it means for US leadership in the global economy. So reshoring, we're doing it. We're doing it through subsidies to the industry. We see it as important for the three objectives that we had above.

Friendshoring-- supply chains serving the auto industry today are global. And there are very good reasons for that. They keep costs down. And it allows automakers to embrace innovation and efficiency improvements wherever they happen.

So, too, will the EV supply chains extend beyond US borders. Politicians that I've talked to will say we want to reshore the whole thing. And there's certainly a strong nationalist element afoot about that. But doing so is impossible and even, I would say, foolish.

Why? It's impossible because we know already we don't have the critical minerals at hand to meet the goals that we have already set out. We have limited E-steel. And I'm sure if we dig a little deeper, we can see other reasons why it's not entirely possible to have a fully domestic supply chain.

I also think it's foolish because the US industry cannot be cost-competitive alone. We will be selling excessively expensive cars to trapped consumers. And while we want a healthy industry, we also have to recognize that the vast majority of Americans do not work in the industry. They need choice in the vehicles that they have, and they need affordable vehicles. This came out quite clearly yesterday. So costs and competition are very important.

So the answer here seems to be friendshoring. That is, we want to allow for some trade, but we want to do it among a set of countries that we find to share our values, to use the phrase of the week, but also are reliable suppliers. That's important. So the question there is, will there be enough to produce American EVs that can survive outside a protective market if we don't move faster in terms of finding out how we're going to define friends and make those investments that are necessary?

When we look at China, for example, something that is my area of research interests, we see the Chinese invest. They make a port. They make the facilities necessary to operate in that country. I'm not saying we should be doing that, but I'm saying that we've been very slow to think about how we can help the industry create pathways to staying competitive by bringing in so-called friends.

That leads to just a third element, which is derisking. Let's be honest. Most of this means keeping China out of the supply chains. And I think it's not really so much about risk. Derisking is a bit of a misnomer. It's partly about risk, for sure. We've seen export controls, subsidies that weaken our industrial base. But it's also about just basic fairness, what we see as what is fair for the American worker, what is fair for the American taxpayer, when they're facing supplies that we think are highly subsidized.

Now, it's a little bit of a slippery slope because we're now subsidizing our own industry, as are many other countries now, following the US influence. But we think that there has to be an element of fairness in this. So so far, the US government understands the problem but doesn't seem to have a clear strategy.

What I hear a lot on Capitol Hill is, no China. OK, but this is going to take time. And there's very little of it-- really, too little time-- in the IRA to move away from China completely in things like critical minerals. For other countries who aren't even thinking about it, China is very much a part of their auto supply chain or even, basically, one of the main suppliers of EVs, as we've seen, just last year alone, their EV exports increased by 58%.

No China? Well, what about our friends who host Chinese investment? This is a very important problem that we don't have a response to. So for example, Indonesian nickel. We're fighting with the Indonesians over the fact that their nickel refining is done by the Chinese. What about Mexican auto parts? We know, every day that goes by, we see more Chinese investment into Mexico.

Are we going to keep these parts out? At what cost? Other countries are not going to follow us on this. The US will become extremely cost-uncompetitiveness. And we also will continue to lag technologically.

Now, as Leila just said, Toyota is exporting to 60 other countries. Will the US, 10 years from now, be a viable export platform? That's more jobs for Americans, but we can't do it if we're in a protected market that allows for no inputs from other countries.

So I think that, just to sum up, trade-offs here are going to abound. We want to achieve three goals simultaneously. To keep China out entirely, we may simply fracture the US industry from the rest of the world. In fact, in the data that I studied, we're already seeing that in other ways. Part of that shows up as us going to higher-cost suppliers.

Other parts, it leads to longer, less transparent supply chains. Because China is still at the end. It's just harder to find them. For example, Vietnam-- often, in the press, you read touting how Vietnam has become the new supplier. Vietnam's, obviously, it's imports from China have gone way up. Because a lot of imports from Vietnam are containing a lot of Chinese content.

So we are going to fracture the US industry from the rest of the world, a world where, I might add, the fastest-growing consumer markets for vehicles will lie. So will a segmented US market engender enough domestic competition to keep the sector productive and innovative and able to satisfy the needs of consumers for choice and affordability? Or will US consumers pay more and get less?

I think, lastly, by preferencing the industry and derisking for China, we run the risk, also, of slowing down our move toward decarbonization. So we have to be very careful as we choose among the policies that will help us to achieve these three goals simultaneously. Thank you.

THOMAS KLIER: Yep. This is very sobering, isn't it? So we have--

MARY LOVELY: Sober panel.

[LAUGHTER]

THOMAS KLIER: You overlaid this additional layer of complexity on an industry that's been global for many years. And you all know that the audience knows that. The three of you know that. And then we come in, trying to change things with things that aren't necessarily consistent with one another.

If I want to maximize the reduction of greenhouse gases, I should import as many EVs as I possibly could because the application would be the fastest timeline if that's what I really want. But of course, that's going to run into the face of the two other policy goals. So at the end of the day, it's going to come back to the public discourse and the discourse of experts like you to help guide the discussion, I think.

So two points before I go to my next question. I'm going to encourage you not to despair. This is complicated, and this is complex. We do have a trade focus this morning, but please send us your questions. And we'll be able to pick those up shortly.

One thing I did want to go to for all three of you, to something that's there today, so representing trade rules within North America, it's USMCA. So there are ways to think about what this would do to reshoring. So you could possibly have a Chinese carmaker producing BEVs in Mexico. And unless you want to blow up USMCA, that producer could take that product from there and ship it north for 2.5% tariff, I believe. That's the current rule.

So it gets complicated there in a hurry, as well, right? So I'm going to start with Leila on the corporate perspective on this. You shared with us already-- you're obviously from corporate planning horizons. You need some sort of certainty, at least for the intermediate term because you can't change your plans all the time. There's serious money that you're investing, and you need reliability.

So how do you-- is this a matter of contingency planning? And how do you think about the world in this very dynamic environment where so many things are up in the air? What lets you go to sleep at night in this context?

LEILA ARIDI AFAS: Well, I want to emphasize an important point that Mary made was that we call it reshoring, but we're not reshoring it because we didn't actually make EVs before or mine these minerals. And when it comes to these minerals, it's asymmetric on where they are. There are some countries that sit atop of most of the world's resources, like Congo with cobalt and lithium. And so they're spread out.

And let's be very clear. Not all minerals are made equally. Some are substitutable. So you can get to that alternative supply and build diversity into your sourcing because you can go to multiple markets. But some are not. There are no substitutes. And that is what the challenge is.

And what you're seeing, too, is that there are a lot of vast resources in less-developed countries, particularly in sub-Saharan Africa. And I think these governments are seeing a once in a generation opportunity to attract FDI, to create jobs, to generate capital, and to actually boost their economic growth, which is, as a development economist at heart-- that is my passion, helping poor countries grow-- this is an opportunity they cannot miss.

And so they are not going to want to simply extract the raw minerals and have everybody else do the value-added services and make the profit margins. They are going to want to have those facilities and those refining and processing in their own countries so that they can benefit from this. They're not going to go through mercantilism 2.0.

And so we, as other governments, as companies, have to recognize this and have to support this. Because as we transition towards an electrified mobility future, that's fewer jobs, as we heard yesterday. It's just a fact-- fewer parts, fewer jobs.

And so as you transition away from that, manufacturing was the one way that developing countries could get on the ladder towards economic growth. We saw that with China. We saw that with Mexico. We saw that with numerous countries.

But what do the economies do as that ladder is being pulled away before they can even grasp that last rung? Because we're moving towards not only electrification and mobility but, also, digitalization across all industries. We're reducing the number of opportunities they have to grow their economies. And so we have to find new ways of doing this. And so that will not be possible with reshoring.

And with friendshoring, let's face it, a lot of these countries that have these resources are not necessarily our friends. So I think we need to look at having a future friendshoring policy and how can we get people who aren't quite our friends but may be our partners, or we can work together, or could become our friends. Because we have to recognize there's been a lot of talk in Washington about working with like-minded allies, like-minded countries, like-minded governments.

Well, in today's world, these countries are one election away from being non-like-minded. And as I mentioned, again, more than 50% of the world's GDP, more than 3/4 of our global population is going to the polls this year. So are our friends going to stay our friends, are going to stay like-minded? Or are the ones who aren't like-minded, are they going to become more like-minded?

So this is going to be really challenging. So can we look a little more strategically and think, well, we have something to offer each other? And by working together, we're integrating. We're creating something. We're investing in each other. Does that reduce tension? Will that be a way that we can move forward? Because I think it's absolutely critical that we take a broader approach to how we do the sourcing.

And as Mary said, as much as we may wish to, we just, physically, can't do it all here and, quite frankly, wouldn't want to. Because that would greatly, on the risk universe, that would greatly ratchet up the risk. Because we're not immune to weather events, unfortunately, or instability or challenges or blackouts or things like that.

And so diversification is the key to risk management. And so how we look at that is part of this fundamental change. And I think it also will get to a lot of the national security issues, as well.

THOMAS KLIER: Right. Right. Thank you, Leila. Mary, if I can come back to you, just do you have any thoughts on how the reshoring and friendshoring, how this is going to play with the current rules of

USMCA? Is that setting up for a conflict? Or do you have any thoughts on that?

MARY LOVELY: Well, I think, right now, we're in a pretty good place because of the user side subsidies, which have requirements for assembly in the US. So that is important. Will we have to have those subsidies there forever-- that's a question-- or we be able to substitute it with different policies? Potentially, we could have different policies.

It does require us to take a sober look and say, well, what are the activities within this fragmented sector that we absolutely are willing to pay to have in the US? I think one of the messages from Christine's presentation was this is not a free lunch.

And again, most of the people in the United States don't work in the sector, but we're asking them to pay. In a sense, we're asking them to pay twice because they're going to pay through their taxes. And if we don't do it right, they're going to pay through having higher-priced vehicles.

I should say that all of this could go back to the fact that I had to learn how to drive on a Pinto. So it's very important. Looking back about five or six years ago, my son, he wanted a car to drive back and forth to college. And when we looked at the market for an entry-level young person, the US market was just incredibly healthy in the sense that you had just an enormous selection of vehicles with incredible technology at very reasonable prices.

And that is a situation that we want to have 10 years from now. We want to see a lot of choice of vehicles. We want to see them in all different price points. Grandma can have the luxury car, but the kid getting out of college needs to economize.

So I think that that's part of the message. That means we have to be serious about friendshoring. Right now, I think trade is a dirty word, as Leila said. But we have to acknowledge that trade's important and then decide how we want to do it.

So right now, China's easy. China does everything it can to make itself less attractive each day. So saying that you find certain things they do repulsive is a pretty easy statement. It's harder when you take a look. They are the world's largest manufacturer.

I had a recent piece for the Peterson Institute showing that all of our friends in the Indo-Pacific economic framework, except for Fiji and Japan, were actually deepening their integration with China. That's the world we're in. So instead of thinking about keeping China out, at least, as it were, through three countries, we might think about, what are those values that we think are important?

So if we think about that just very quickly, if we take Indonesian nickel, it's being refined by the Chinese. No Chinese. What about you say it has to meet certain environmental standards because that's what the American public wants. It has to meet certain labor standards, how labor is treated. Because the American worker doesn't want to feel that he or she is competing against a country that basically tramples on basic human rights and decent work. OK, fine.

Now we're opening up for these countries to say, you want to export into the US market or be part of our supply chains? You come up here. It gives them something to shoot for. Just saying, no, China, countries are turning their backs on us because they can't. You're asking them to do something that they cannot do. China has been a major investor, major job creator, in these countries, has political influence in these countries.

So we have to think about alternative ways. And that requires our negotiators, our politicians, to admit, tell, the American public, trade is important to keeping our economy healthy. And I think that that's the kind of leadership that we need.

Yes, we have values. We should insist on those values through our supply chains, not only for the American worker but also to be fair to companies based in America, that they're competing on an even playing field. Offsetting subsidies, also very important.

So there are things that we can do, I think, if we take a bit of a more honest approach to what we're trying to do here. We're not going to get rid of China. I have a new grandbaby. And you put your hand over Baby's eyes, they think whatever they're looking at has gone away. And then you take it off, and, oh, you're still there, right?

Well, that's not how we can play with China. We can't just go, well, we don't see you. You can't be-- because every other country in the world, and many of our most important sources for what we want to do with electrification, are deepening their relationships with China.

THOMAS KLIER: Right. No, I think that's a very important point you make. In a way, you have to start with the statement that you just made-- trade is important. We can't do without. But that also limits the intervention, the depth at which you can intervene to change things at the margin.

But it goes back to then being careful and being diligent about what the goals are. Trade's important, yes. I'm not going to get rid of trade. I'm not going to get rid of China. But what is it that I'm trying to achieve within that space that's left available to me? OK, great. Thank you.

Christine, I want to come back to you. So you showed us very clearly that this is a very resource-intensive, from the US policy perspective, the IRA, this is committing real resources. So the question is-- you gave us the numbers. I guess I'm asking you to editorialize a little bit on that.

What's the risk for such deep structural involvement in the trade and economy space for? What can possibly go wrong here? The deeper we get in, this is, maybe, more likely this gets reversed by the next administration or by a different administration? What are the risks that you see here?

CHRISTINE MCDANIEL: So the provisions in the IRA, at least on the advanced manufacturing, clean production credits, go to-- oh, sorry. So the IRA provisions that I was talking about earlier go out to 2033. So it's, what, 2024 now? So we'll see. We still have at least one, maybe two, more administrations to see how that plays out.

But as we've also seen, a new administration can come in and completely undo any trade agreement that we thought we had. So, kind of, all bets are off. In fact, a new administration could undo a lot of the IRA, really.

So I think one of the biggest risks, though, is actually coming from our own country. And that is this-- and, look, I grew up in Rockford, Illinois. My dad's a union electrician. But man, as an economist, you see the cost implications of these provisions the US is asking, just for Mexico, on wages, not to mention other countries.

It's one thing to demand decent labor laws. But it's another thing to demand particular wages. That is micromanaging. That is the US micromanaging other countries' domestic economic policies. And that is not going to get us anywhere good.

Because, remember, the benefits from doing business with different people, whether they're next door to you or across the ocean, is that they're different from you. They have different resources. They have different competitive advantages. They have different levels of development, which means that they may pay some of their workers much less than you, others much more. They have different talents.

And what we're starting to do is, by forcing-- just, for instance, look at USMCA, the rapid response mechanism. It's basically like, oh, if you're not doing union discussions like this, and you're not paying your people like this, you're not giving them this much time off, and da-da-da-da, then all bets are off on USMCA. Well, come on. That's not going to work. That's not going to work for Mexico, and it's not going to work for the US taxpayer or consumer.

And so, with all due respect to our unions, you've just got to remember, this country, this economy, is powered by the US consumer. And they can only take so much. By forcing all other countries to basically sign on to wages that even most of the US American labor force isn't even privy to-- yesterday, we saw all these amazing benefits that some union workers were getting. I mean, wow. It'd sure be nice if my parents had that when I was growing up. It just didn't happen. We made it OK.

So I just think we've got to be really careful about giving in to particular union demands. Because that is going to really limit our ability to benefit from doing business with other countries and other people, whether, again, they're within our country or across borders.

THOMAS KLIER: OK, thanks. Thanks, Christine. So that gets even more complicated then. So in the context of what's important to a political calculus. Because, at the end of the day, it comes down to getting votes.

So in terms of where we are at time, we are at 11 o'clock. We've got half an hour left for the panel. So I think it's time for me to use this handy-dandy device called the iPad. And I'm going to change my role.

And I'm now going to broadcast questions that have come to us from the people in the room and from the people anywhere on this globe, since it is about trade. I don't know. We might have audience in China, for all I know. I don't know. I don't know if anybody knows.

So the question with the most votes is this. Sorry. How can policymakers use trade tools like USMCA to complement the IRA and other initiatives to foster demand and supply of clean energy vehicles in the United States? So can we use trade tools to complement the IRA? Does anybody want to go first, or should we just go down the line? Mary, you want to go first?

MARY LOVELY: Well, yeah. I think I was trying to hint at that through my opening remarks. Friendshoring is definitely an option and a device that-- when I first heard about friendshoring, you're thinking, oh, no, what is this? But when you think about it, it's really the only way that we can-- or an important way that we can-- both try to say, we have certain values in our dealings with other countries that are necessary for the American worker to feel that they're on an even playing field, American companies, but still be competitive.

And you talk to people-- I talked to a representative from North Dakota when I had a short fellowship up on Capitol Hill. They said they wanted all of what we make in China to be made here. Obviously, that's impossible.

We don't have the workers. And we would have to give up doing things that we now think of as more important and pay more, frankly. So I would say this representative was from a very small area and just, I think, didn't understand the magnitude of what we're dealing with here.

So we have to think about, how can we use trade to keep the industry cost-competitive while, at the same time, maintaining parts of that industry that we feel are essential for the health of our own domestic economy? I think we have pretty much started to figure that out.

In the IRA, you see that assembly, final assembly, is important. We want to have batteries here for a number of reasons, including national security issues. But there's a lot of other things that we could import successfully.

So I think friendshoring, opening up to the types of trade agreements-- you could say that that's what we're doing through the Indo-Pacific economic framework. But I think most people who take a look at it realize that that is, basically, right now, very weak tea. We're not making binding agreements. We're not really putting any money on the table.

And it's really a non-starter for countries when you have China coming in, refurbishing ports, building. Right now, we've just been announced that, in Mexico, Chinese investors are coming in, and they're building a huge, basically, free-trade zone, which will have manufacturing services-- incredibly important part of manufacturing is services-- services and then logistics all in one area.

So what are the Mexicans going to say to that? They're going to say, yeah, come on in. You're going to redevelop an area where there is nothing, where there's poverty, and you're going to create a lot of jobs? How do we embrace that? Or if we can't embrace it fully, what are the restrictions that we place on that?

I think these are important discussions that we haven't had yet, which is why I think that we haven't really been as sober as we should be about how China should be part of our supply chains. No China just simply is not the answer.

THOMAS KLIER: Right. And I guess if there's a-- thanks, Mary-- if there's a common theme that's running through our discussion, it's just not simple. There's no slogan that's going to address the complexity of the situation. Yes, please?

LEILA ARIDI AFAS: No, I was just going to say one great thing about the Inflation Reduction Act is that North American production is eligible for the credits. And as we saw, prior versions of new rules for electric vehicles did not recognize our Canadian and Mexican partners. So I think that is something that is great about the agreement.

In terms of the USMCA, it's not just the content rules that you need to be eligible to have duty-free access to the US market, or any of the markets. It's the formula that you need to calculate the content to achieve that status. And that's where I think there could be, maybe, some flexibility in order to meet all these various aims with our tried-and-true partners. We live in the best neighborhood in the world.

THOMAS KLIER: Yes, yes. I actually just-- based on how you answered this question, Leila, there's a question that goes specifically to you, so I'm going to just ask you that right now because it fits perfectly. Can you comment on the state of the EV and industry incentives in a country like Canada that's already heavily import-dependent?

LEILA ARIDI AFAS: Yeah, I will leave that to our friends from the Canadian consulate. Because Canada has new rules, which we're watching very closely, as well as incentives. But I will leave that to them, too.

THOMAS KLIER: Yes. I see Anson way over there, yeah. OK. Christine, did you want to say anything about trade tools to support the IRA?

CHRISTINE MCDANIEL: No. We just have to-- oh, sorry-- just to expand who our friends are. One thing I was thinking about, our values. People are saying this a lot. What are our values when it comes to doing business across borders? The last how many decades have we been doing business with Saudi Arabia, with other countries in the Middle East? I mean, do they share our values?

So what do we really mean by this, our values? That's a question to really think about. It sounds nice. But if it just means not getting too close with China because if we say something wrong, they might get mad and cut us off, OK, fine. Then that's a legitimate issue.

But then, the problem with using values and friends is then people can define it how they want. Oh, values means they have to pay these wages. It means they have to do this. It means they have to do that. And now we're in a whole different world. And that's just not viable, commercially viable.

So different countries are at different levels of development. They're going to have different cost structures. That doesn't make them not our friends. And again, our friends, it's just such a ridiculous term when it comes to cross-border transactions. Because who has the US been doing business with for the past 100 years? A whole bunch of different people.

And it's a dangerous world out there. Even Mexico, yeah, are they our friends? I don't know. They're sending their cartels up across the border. Is that what a friend does?

So we throw these phrases around very carelessly in Washington. But I don't know if we really know what we mean by them. It sounds good. It's the Washington Consensus. But have we really thought through what this means in terms of only doing business with our friends? And then who gets to define who our friends are?

THOMAS KLIER: Yes, yes. And there's no answers for this, obviously, from economic textbooks when it comes to international trade. Because I don't think there would even be-- friend wouldn't even be in the index.

LEILA ARIDI AFAS: But the geopolitical issue, that's the overarching trend here. Like, we talked about how China surpassed Japan as the number one exporter of vehicles and, of course, their enormous strength in exporting EVs. But most of our exports were traditional ICE vehicles. And a lot of those went to Russia because a lot of the other automakers-- the US and Japanese and Korean-- had to comply with sanctions and could no longer either manufacture or sell vehicles into Russia. So that opened up a market, which they went into.

And so thinking of that, again, that's why I want to get away from friendshoring to partnershore-- whatever term d'art you want to use. But we need to be strategic about it and not have this tactic, well, they're our friend because we really need their help in the Red Sea, or they're our friend because we really need this, versus a strategic, when it makes sense, we work together, and when we must, we'll confront each other, as Secretary Blinken has said a lot. We'll collaborate where we can, and we'll confront each other where we must, with the ultimate goal of avoiding conflict. And I think that's where we have to see this is having real impacts.

And so what is the goals of these geopolitical alliances? Because, as Mary said, a lot of the people we are friends with or want to be closer friends with, their economies, their national security, their livelihoods, depend on strong ties to countries that we may not want them to be.

But we can't ask them to choose-- that's not for us to choose-- just like we can't ask for who's the leader of another country. That's for their people to elect. And so is it us to work with whom has been elected, assuming we're talking about democracies? Of course, autocracies is a different story. But these are the big questions.

THOMAS KLIER: Yes. No, I like the way you emphasize the element of being strategic about this. So friend, not friend, that's hard to define and can change whatever. You can see that in our personal lives and certainly can see that on the political situation.

But say what you want about China, they certainly have been strategic about where they have gotten today. That does not happen-- it didn't come out of the blue. There were strategies behind there. So at the end of the day, that's probably, at the end of the day, that's probably what matters more than anything else. You can call it friendshoring or whatever, but it has to be strategic.

And yep, it may be easier for some country or some system to come up with an effective strategy than for another. And then it gets even more complicated. But no, I appreciate that point you just made, and I think that's important for all to consider in this space. So somebody is bringing in the WTO. So that's--

LEILA ARIDI AFAS: MC13.

THOMAS KLIER: [LAUGHS] What is the role of the WTO in governing rules based on trade these days? China is a member. That was supposed to bring them into the rules-based trading regime. So it's not just a question. Who wants to go first, or anybody?

MARY LOVELY: Well, the WTO still plays an important role because most trade is still operating behind the scenes using WTO rules, WTO assistance to developing countries, technical assistance. There are groups of countries, so-called plurilaterals, who are now meeting to do investment agreements, trade facilitation agreements.

So the WTO lives on. The problem is, of course, that the leader of the WTO, the country that invented it, the United States, has, to some extent, taken its marbles and gone home. As you all know, there is no dispute settlement procedure because the US refuses to appoint judges. Part of that is over how we think they've adjudicated our use of what we might call our trade defensive tools. Everyone acknowledges that there needs to be reforms. People blame China on this, that, in some sense, it just wasn't purpose-built. It was built for 1995, not 2025. So it needs to be reformed. It's still there. It's still an important role. It's still a place where we can talk about these things. The US doesn't want to engage.

I think part of that is due to the fact that trade has become a dirty word. And I think it really does a major disservice to the American public. Because I think Americans, when they walk into Walmart, they realize many of the things, or most of the things, they're going to purchase are imported that day. They're not fools. They understand this.

And I think we also know that everyone is not going to be able to achieve US standard of living-- that is, to earn US wages. So how do we navigate this role? I think, A, we know we want strong defensive tools. If we feel that another country is undercutting us unfairly, we need to be able to respond to that. We've been frustrated that we haven't been able to do that quickly enough. There can be changes to that made.

I think that there has to be some constraints. When there are no constraints, it all happens through executive order. It happens through section 301. I think we saw during the US-China trade war under President Trump that we got tariffs on 60% of the goods we import from China.

The tariffs are very high. On average, on the whole bundle, we have import taxes of 20%. Former President Trump is threatening to increase and put a tariff across on everything if he gets into office.

Is this really strategic? No, it's not. It's not strategic. In fact, those tariffs are very scattershot. They're on things like the tablecloths you buy at Walmart, which, as far as I can tell, don't have a national security role to play. And probably, we don't make many of them, either, so they don't have a job effect.

So we really need to say, hey, OK, fine. We understand. China does bad things. We don't want to be part of this or that. But let's get real about what we're going to really target to give them the message.

Because right now, they're not getting a message. The only message they're getting is, hey, we have to live with these tariffs. Let's just shift production over here or shift it over here, put exports through this country, and not actually trying to resolve any of these issues.

We saw at the end of the Trump administration, we had phase one. They were going to buy a whole bunch of stuff. Then COVID hit. That stuff was never purchased. It didn't really get us anywhere in terms of market access.

Access into the Chinese market still remains important for American companies. It's something that we don't hear people talking about. I think there's a whole lot of people who just wish that American companies didn't do business with China. I think many people inside companies will tell you that's just not possible for them, in terms of maintaining healthy revenues that then can get plowed back into R&D and keeping us the most innovative country in the world.

So these are important issues about trade. And I don't think we're doing a service to the American public by pretending that it's just that easy, that trade is just a bad thing. I think they know better than that.

THOMAS KLIER: Yeah. Thank you, Mary. And what you just mentioned about market access, what is it 25, 30 years ago, there was a big deal with Japan, right?

MARY LOVELY: Mm-hmm.

THOMAS KLIER: And going back in time, there's a country that got where it was at the time because of strategic policy choices. We all remember MITI-- MITI-- where you have a policy consortium that worked with industry to get certain things going in order to move the country along in its development and its growth. But then, on the flip side, the token was making sure we get market access to the Japanese market.

MARY LOVELY: Well, we like to think we can do it better. We criticized them at the time on industrial policy. And we also know, from lots of studies--

LEILA ARIDI AFAS: It's low-tech.

MARY LOVELY: Yes. That a lot of it doesn't work. But there are some things that work. And we expect the government, in this time of just tremendous transition and the three goals that we've outlined, we expect the government to have a proactive role. But we also expect the government to act in a smart way based on what we already know about what works.

This is what people are calling modern industrial policy. But modern industrial policy actually needs to learn the lessons of the old industrial policy, which is that there are some things that government can do. For example, very important role in workforce development.

My son-in-law is a welder. And to become a welder, everybody said, you want to improve your situation, you want a job that has meaning for you? Get a trade. But if you're a young man and you're working and you're living on your own, how do you just stop working for six months to become a welder? The government has programs to help you do that.

These are really important, putting these into community colleges, et cetera, making it accessible. When we're talking about workplace development, that's really the kind of nuts and bolts on the ground that we need. That's an important role. You think, you know, if we could just give this guy a little hand up, he'd have a great career. And there are lots of employers out there who need these skills. So what are we waiting for?

So there's a lot of smart things we can do. And we're beginning to do many of them, I think. What we have to avoid is the excesses that will lead us to an industry that, frankly, will become a ward of the state if it only depends on protection, which raises the cost for all the rest of us, and continuous subsidization. So how do we have a healthy industry that can export to the rest of the world?

LEILA ARIDI AFAS: I think industrial policy is successful when it sets clear goals and clear targets but leaves industry to do what they do best, which is innovate. So we want to send a man on the moon by this date.

We're not going to tell you what kind of shuttle to build. We're not going to tell you what kind of fuel to put in that shuttle. We're not going to tell you who you have to hire, what you have to pay them. But just get somebody to plant a flag on that moon by this date.

And boom, off to the races. And they'll do what they do best, which is compete and innovate and not have to hire an army of compliance folks to try and understand the rules and regs, and does this comply with this, does this comply with this, and put the burden on their suppliers to say, hey, are you guys complying with this, are you guys complying with that, and instead go.

And I think when you place your bets on technologies-- like we learned yesterday, it is a revolution, not an evolution. These technologies are changing dramatically in the chemistries that are being used, which means those minerals, those resources. If you got locked into an offtake agreement with a mine to produce certain metal, like, oh, shucks, nope, we found something more efficient, and it gives us more range, and we no longer need that mineral. But now we're stuck buying it for 10 more years. What else can we put it in?

We need that. Set the goal. And then, of course, by nature, the companies are going to hire talent, and they're going to build the factories or infrastructure to build what they need to make. That will all come.

But to place the bet on technology or a certain solution that we just don't know-- are we there yet? This is changing so quickly. We need to take into account that, the pace of change. It's like Moore's law exponentially fast. And so how do we take that into account?

THOMAS KLIER: Yeah, in dynamic situations, rules, the traditional rules, legalistic approaches, which are static by definition-- law is static. And then trade rules are like law. They're static, too.

LEILA ARIDI AFAS: Well, not in-- [LAUGHS]

THOMAS KLIER: Well, until they change again.

LEILA ARIDI AFAS: Until they change.

THOMAS KLIER: Until they change again.

LEILA ARIDI AFAS: Until they're not.

THOMAS KLIER: If you talk about rules in a very dynamic environment, then that's a harder situation to get right. So chances are, you're not going to get it right half the time you try.

LEILA ARIDI AFAS: And there's a huge compliance burden. All the rules that we've mentioned, whether it's the USMCA, the certification of the content requirements, whether it's the UFLPA certification, whether, again, the IRA there's going to be certifications. And for Toyota here in the US, 75% of our spend is our supplier partners.

So that trickles to them. They're the ones that have to do all that. That's an enormous, enormous amount of work and effort for companies that are still quite financially vulnerable coming out of COVID and the supply chain crisis. And they're going through this, again, massive, massive change in sourcing and building and where it's fewer parts, it's fewer people.

We need to have-- part of having a strategic plan is also making sure the pace of change is sustainable. So we make sure that we're on a glide path where the companies, especially the entrepreneurs and the smaller companies, have an opportunity to transition, or to understand where they can fit in the future, but, also, consumers have a chance to adopt-- and the chart that Kristin sold yesterday, people were like, I'm not going to this is very mainstream-- that we take that into account.

THOMAS KLIER: Yes. Thank you. I have a question that's taking the discussion to Europe. You know where it's going to go. [CHUCKLES] So let me read it. China is growing its share of EVs in the EU, and the EU is now investigating potential dumping and unfair trading practices. Would anybody care to comment on that? What does that mean? Can we learn something from this for what we should or should not be doing in the US? Is this a harbinger of what's coming here? How does this play in the context of--

MARY LOVELY: I think the Europeans are looking at our tariffs on Chinese EVs a little bit with a little bit of green envy. The EU is going to be quite conflicted because they have been stalwart defenders of non-discrimination in trade. But they also have new defensive trade tools. And I think they will use them, in this case, on the argument that the Chinese industry has been unfairly subsidized.

But again, that's becoming less of a moral high ground as we subsidize, as well. So you could say excessively subsidized. With the move to decarbonization and the idea that there is some market failure, governments have to be involved. So what is fair in that world? This is exactly what we were talking about before in terms of reform of the WTO.

How do we think about those issues, especially in a world where an economist might look and say, well, let's add up all the social benefits and the costs? Well, we can't really do that because we actually have a lot of uncertainty about how important is decarbonizing the transport sector to how much do we forestall the end of the Earth as we know it? These are really big unknown unknowns-- known unknowns.

So I think that what will happen is, of course, what we're doing, which is, sort of, groping forward, and that the EU will come out with some kind of restrictions. Mainly, they will be, probably, tariff- or quota-based. Obviously, I don't think that they will be keeping the Chinese EV makers out of their market entirely.

LEILA ARIDI AFAS: And to be clear, how the study is structured is it would hit Chinese-built EVs. So it would also be European brands that build in China and export to the EU market. So it wouldn't just hit Chinese OEMs.

And then the other thing is that the study is supposed to come out this summer, and how does that line up with the parliamentary elections? What is the impact of that?

MARY LOVELY: Yeah, that's a big problem. Because a lot of the EVs that are coming in are, actually, European badges, right?

LEILA ARIDI AFAS: And Tesla, as well.

THOMAS KLIER: Yeah, Tesla. Yeah, for sure.

MARY LOVELY: Yeah, and Tesla. So it's quite the problem.

LEILA ARIDI AFAS: So what is that-- and, again, it's meant to encourage reshoring, or new shoring, since they didn't make these before. But what are the consequences of that, the unintended consequences of that? And what would be the retaliation?

THOMAS KLIER: Well, there's that, too, of course, because it's a two-sided game.

LEILA ARIDI AFAS: There's always that.

THOMAS KLIER: It's a two-sided game, right?

LEILA ARIDI AFAS: There's always that. We don't operate in isolation. And I think part of that being strategic is, if I do this, what will be the intended consequence, the unintended consequence? And then what will be the counter move?

THOMAS KLIER: Yep. Christine, did you want to add anything? No? OK. So we got five minutes. What I would like to do is I've been trying to think about this for a few minutes. We've talked about a lot of things on this panel through the lade of trends-- through the lens of trade. I can't talk anymore.

And it turns out it's a particularly valuable lens, I would think. Of course, the four of us are all-- well, the three of you and I am biased on this. We like to think about the world in trade or economic analysis terms. But it also unlocks a level of complexity that you wouldn't necessarily see otherwise.

So I can't remember, Mary or Leila or Christine, trade is a dirty word. Well, trade becomes a tool in somebody's rhetoric. But trade is a lot more than that. You have to think about what's behind it. We wouldn't be anywhere without trade. That's just what countries do, and that's what people do.

And then it gets complicated because then you have to get the strategy involved and yada, yada, yada. So anyway, this was my way of trying to summarize what we've done in this panel. And I think we've unlocked another door, to use a paradigm, and look at the world.

And guess what? You walk away and figure out that it's actually quite complicated. There are no simple solutions, even though there are a lot of people running around trying to tell everybody that life is simple and, within a 5-second soundbite, you can find the answer. Sorry, not happening. This is way too complex.

So the question I want to ask each one of you in closing is, what is it that you want to point the audience to that makes you hopeful for us not getting caught up in these complexities and that, a year and a half or two years after today, we're going to be worse off because we're not going to get this part right?

We're going to operate in simplistic terms and forget the strategic part, and we forget the potential conflicts of the policies? What is it there that gives you hope, despite the complexities of the situation, that what we have to work with, we're going to move the franchise forward?

CHRISTINE MCDANIEL: I'll go first. I would just say the American consumer. The American consumer gives me hope. Consumption is what 60%, 70% of the EU'S economy. We have a big market, diverse. And look what's happening with the EV market now. They're kind of driving that. They're saying, these people are ready. These people aren't.

And so prices are how humans communicate. And that's capitalism. And the American consumer is telling companies and the government what they want. And it's our market-based structure that gives me hope, and the American consumer is right in the middle of that.

THOMAS KLIER: Thank you. Mary?

MARY LOVELY: I guess I would look at what happened after the oil price shocks-- I guess I'm the oldest one here, so I do remember, being a kid, as I said, I learned how to drive on a Pinto-- and how the industry rebounded. It's an industry which has its strong ups, strong downs. But the innovative base is there. The workforce is there. We have tools that we can do to shore up those basic strengths.

We have a large domestic market. I hope that we will be able to achieve that kind of competitive, innovative, affordable market that we had just a few years ago with the electrified fleet. So I think we've done it before. We can do it. It does force us to play the role of grown-ups.

Thomas, you mentioned the word complexity. And I think that can be overwhelming for people. I like to think of it in terms of trade-offs, which, in everyday word, is just compromise. We're not going to be able to get everything all at once. We have to look at it like adults and say, OK, we're not going to bring the entire supply chain here. What are the parts we really need?

And we haven't talked about regional economics. Of course, this is a regional conference, but that's important. We also have important parts of the country that we need to support here, indirectly, through this industrial policy. And so what are the compromises we're willing to make and not make? And I think that if the leadership isn't there, we have to demand that they look hard.

And as Christine said, consumers will keep us real because they have to go and look at the marketplace. And right now, even in my family, looking-- yeah, we'd like to be part of the Green Revolution. But again, you have young people that are looking at the prices. And they're saying, it's just really not there for me yet, unless I want a Prius or something. So I think the auto--

LEILA ARIDI AFAS: MotorTrend Car of the Year.

MARY LOVELY: --industry has done it before. We'll do it again.

THOMAS KLIER: OK, thank you, Mary. Leila, you have the last word.

LEILA ARIDI AFAS: I'm incredibly optimistic about the United States, especially with our North American partners and what we can achieve. The truth is we have the most sophisticated capital markets. We have the greatest innovation ecosystem. We have the most robust IP protections. And we attract the most talented people on the planet, many of them in this room right now.

So I think that we are poised to win, and that's why we should not be afraid of trade. We should not be afraid of opening our borders because we can win. And the inputs that we would get would make us continue to expand and to innovate and to do great things for society, honestly.

And so I think I'm very optimistic about that. And I think, again, if we can just have the big-picture strategy of what we aim to achieve, as Mary said, and understand that we can't get it all at once. We can't have all three desserts, either. So what is our plan?

And working together, I think that is so key. It's governments working with think tanks, working with local governments, working with industry, working with academia, working with workers, all these NGOs all working together. Because everybody has a different side and perspective. And how can we take that together and, again, recognizing we must all compromise?

THOMAS KLIER: Wonderful. Well, we've traveled a long ways in 75 minutes. And I hope that was informative for the audience. I enjoyed it tremendously. Thanks to the three of you for coming here today. This was awesome. Let's join me in giving round of applause.

[APPLAUSE]

And I believe-- is lunch next? OK, so we break. And then just the same procedure as yesterday-- a double-sided buffet out in the hallway. And you get to eat-- you don't have to bring your food back-- you get to eat in the tables in the foyer. Thank you very much, and we'll see you after lunch.