LAUSANNE, SWITZERLAND — While trade fosters prosperity and peace, trade barriers heighten the risk of economic weakness and major political and social upheaval, said David W. MacLennan, chief executive officer of Cargill.
Speaking March 28 at the Financial Times Global Commodities Summit, MacLennan advocated against “me-first” trade stances. The summit was held at the Beau Rivage Palace in Lausanne.
“Severe economic conditions — combined with other social and political factors — can also push governments to the edge and, in worst cases, spark civil unrest,” MacLennan warned. “Poverty and conflict all too often force people to leave countries they love in search of a better life for themselves and their children.”
Such a dire picture of the potential consequences of aggressively protectionist trade actions is anything but hypothetical, MacLennan said. He described a chain of events that resulted from a 2010 heat wave in Russia that reduced that country’s wheat production by a third. In response, Russia instituted a wheat ban that triggered a dramatic escalation in global wheat prices.
“A 2% change in global wheat supply drove nearly a 60% increase in prices around the world,” MacLennan said. “At the time, Russia supplied Egypt with the majority of its wheat. The rapid shift in supply led to price increases, and when combined with broader political tensions, was one of the contributing factors to the 2011 protests in Tahrir Square.”
He said similar scenarios played out in 60 different nations around the world over the last decade, contributing to varying levels of social and political instability.
Noting that many nations recently have been “leaning further toward economic nationalism,” MacLennan described a domino effect of economic actions and retaliatory moves that threaten to leave world trade “tied in knots.”
Advocating for support of the World Trade Organization, and a rules-based trading system, MacLennan offered a dystopian view of what could transpire if the “me first” approach to trade continues to build.
“Imagine critical commodities — oil, food, metals and manufactured goods — used as bargaining chips at every turn,” he said. “Imagine a world where technology and ideas cannot cross borders. It’s a world none of us wants to see, but is foreshadowed by recent meetings of the G20.”
While warning of the threats posed by a global tilt toward protectionism, MacLennan devoted most of his presentation to offering a vigorous defense of world trade, describing what Cargill is doing to advocate for free trade and encouraging his audience to defend free trade.
The scope of world trade, which provides nations access to commodities, services and capital, is colossal and growing, MacLennan said. He noted global trade jumped more than 150% between 2000 and 2014, rising to $12.2 trillion from $4.8 trillion. In the United States alone, where Cargill is based, one third of U.S. farmland is planted for exports.
Acknowledging that “trade is imperfect and that its benefits are not always evenly distributed,” MacLennan said trade often is scapegoated for other economic dislocations. For instance, he noted that 88% of U.S. manufacturing job losses over the past decade were caused by increased productivity associated with information technology, robotics and organization.
“That’s a harsh reality to face for workers and their families,” he said. Still, due to economic growth, manufacturing jobs in the United States are growing.
“It’s estimated that nearly three and a half million manufacturing jobs will be needed, and two million are expected to go unfilled due to a widening skills gap,” MacLennan said. “The challenge is that the jobs of today will not be the jobs of tomorrow. That has been consistent throughout history. We need to immediately address this skills gap.”
MacLennan said companies like Cargill should make investments in its future workforce, but public policy and education systems “need to keep pace,” too.
As an example, MacLennan described a plant converted by Cargill from a beef processing facility to a cooked meat plant. A $100 million initiative prompted by changing consumer demand, the project required Cargill to retrain plant employees for “jobs that will be vital over the long term,” he said.
“Retooling and retraining isn’t easy,” he continued. “But as our societies move into the Fourth Industrial Revolution, we need to address skills gaps to keep our businesses and economies strong.”
Returning to the idea that trade is scapegoated for hardships around the world, MacLennan said trade becomes a “convenient excuse,” in part because of distortions perpetuated both by defenders and detractors of trade.
“Pro-trade factions tend to overpromise the benefits of trade, while those who advocate trade restrictions often blame trade policies for a variety of unrelated societal impacts,” MacLennan said. “The true nature of trade’s impact lies somewhere in between.”
To combat these misperceptions, MacLennan said political leaders must understand that:
- “Trade is a net job creator.
- “Today, more than half of the U.S. manufacturing workforce depends on exports.
- “And that nearly half of all exports of U.S.-manufactured goods are sold to the 20 countries that have eliminated barriers through free trade agreements.”
Citing U.S.-China trade as an example, MacLennan noted that as per capita consumption of U.S. beef has declined, imports from China have risen, sustaining total demand. China also has been a growing importer of soy products.
“All of this makes sense through the lens of comparative economics,” he said. “But we tend to forget that it is not just about economics, it’s also about sustainability. Farmers in China don't have the same access to land and water that we have in the United States.”
Beyond making sure policy makers are better informed, MacLennan said the public at large needs to better understand the realities of trade.
“That means working to restore public confidence in what trade actually can accomplish — and clearly dispelling any unrealistic expectations that erode that confidence,” he said.
Such information efforts need to be accompanied by policies that effectively help workers and families adversely affected by trade.
“According to the International Institute of Economics, the United States has gained $1 trillion from globalization versus roughly $50 billion in adjustment losses,” MacLennan said. “We should be thinking of how this 20 to 1 benefit/cost ratio could be used to create a new workforce paradigm — one that takes into account the constant change and disruption that will come from technology, automation and innovation.”
For its part, Cargill will advocate for comprehensive trade agreements such as NAFTA, T.P.P. and others, MacLennan said. He noted 1 in every 10 acres on U.S. farms is planted to products exported to Canada and Mexico. He noted that the food and agriculture sector support 17 million full- and part-time jobs in the United States.
MacLennan concluded by advocating for “a new workforce paradigm.”
“The public and private sectors need to invest in educating this generation of workers and the next,” he said. “We need to invest in lifelong learning for all our workers in order to adapt to the constant pace of change. We need to start early and strengthen education in important disciplines such as Science, Technology, Engineering and Math — the STEM disciplines.”
He said Cargill was investing $13 million in STEM programs this year and also in programs for students in fields of agriculture and food.
“Let’s collectively stand up for trade,” he said. “Let’s stay globally connected and resist the currents of protectionism. Let’s address the gaps and take tangible steps to build a more profitable, peaceful and connected world.”
||| Next page: “Standing Up for Trade” |||
March 28, 2017
Financial Times Global Commodities Summit
Dave MacLennan: “Standing Up for Trade”
I wanted to be here today, because we are at a turning point in our global story. As leaders in the commodities industry, it’s time for us to make a strong stand for trade.
At Cargill, we believe responsible trade keeps our food system connected. Every day, 150,000 Cargill employees in 70 countries are working to nourish the world in a safe, responsible and sustainable way. For more than 150 years, we have partnered with small- and large-scale farmers to move food around the world to where it’s needed most. Our reach helps us drive the benefits of global trade down the supply chain—into rural communities around the world.
That wider world is critically important.
- Trade provides nations access to critical commodities, services and capital.
- World trade increased more than 150 percent between 2000 and 2014 – increasing from $4.8 trillion to $12.2 trillion USD.
- We are a U.S.-based company, but we know that one-third of U.S. farmland is planted for exports; exports that nourish people in other parts of the world.
We understand all of our economic and political fates are inextricably linked. The success of our companies, our employees and the wider world depends on us making a strong, collective stand for trade.
So today, I want to talk candidly about trade and the importance of staying globally connected in an increasingly nationalized world.
- First, I’ll talk about the gaps we need to address.
- Then, I’ll talk about how we can build trust in trade.
- And finally, I’ll outline a path forward to ensure that we stay globally connected.
I want to be clear. I am here today to talk about policy and not politics. Countless elected officials around the world want jobs and a better future for the people they represent. And we want that too.
Today, I’ll share our views on why trade helps countries and economies thrive.
So first, let’s talk about the gaps we need to address when it comes to global trade.
We know trade is imperfect and that its benefits are not always evenly distributed. Some people feel that trade is making their lives worse, not better, by contributing to job loss and social inequality. In the last decade, 88 percent of U.S. job losses in manufacturing were attributed to an increase in productivity driven by better information technology, robotics and organization. That’s a harsh reality to face for workers and their families.
But our economy is growing and over the next decade, it’s estimated that nearly three and a half million manufacturing jobs will be needed, and two million are expected to go unfilled due to a widening skills gap. The challenge is that the jobs of today will not be the jobs of tomorrow. That has been consistent throughout history. We need to immediately address this skills gap.
As companies, we can make sound investments in our future workforce, but public policy and the education system need to keep pace. We all have a role in filling the skills gap.
At Cargill, we recently invested more than $100 million USD in converting a beef processing facility to supply cooked meat to respond to consumer demand. This was a win for our customers and a win for our workers. It meant taking things offline over the short-term but retraining our colleagues for jobs that will be vital over the long-term. Retooling and retraining isn’t easy. But as our societies move into the Fourth Industrial Revolution, we need to address skills gaps to keep our businesses and economies strong.
We also need to address a gap in the way we structure trade agreements. Today, we have entered a new era in which trade agreements are no longer just a set of trading rules. Agreements now serve as an easy scapegoat for a wide range of social challenges.
Trade is not the reason so many citizens face hardships around the world. But it has become a convenient excuse. Misperceptions are propagated by both the defenders and the detractors of trade alike. Pro-trade factions tend to overpromise the benefits of trade, while those who advocate trade restrictions often blame trade policies for a variety of unrelated societal impacts.
The true nature of trade’s impact lies somewhere in between. We need to do a better job of explaining trade’s benefits to the factory worker in the American Midwest as well as the European farmer.
We also need to help our policymakers demonstrate that trade creates jobs and boosts economic growth. We have to help these leaders speak to their base and build a better life for their constituents. In the United States, that means making sure our leaders know that:
- Trade is a net job creator.
- Today, more than half of the U.S. manufacturing workforce depends on exports.
- And that nearly half of all exports of U.S.-manufactured goods are sold to the 20 countries that have eliminated barriers through free trade agreements.
In general, trade does create economic opportunities. It means that families in Asia will pay less at the grocery store. And it increases income and delivers a higher standard of living for farmers in Latin America.
Furthermore, export markets are vital for farmers and agricultural producers. The U.S. beef sector is a case in point. The slack created by declines in domestic per capita consumption has been taken up by steady growth in exports. On the other side of the equation countries like China have overcome historical hesitation around food imports. They’ve become consistent importers of soy.
All of this makes sense through the lens of comparative economics. But we tend to forget that it is not just about economics, it’s also about sustainability. Farmers in China don't have the same access to land and water that we have in the United States. Addressing growing global demand for protein requires trade if we want the world to be more sustainable.
But trade—in and of itself—cannot be the only solution to all the world’s social and economic problems. It can’t bring back businesses or jobs that were lost due to lower cost labor abroad, or because of automation, more efficient technology, changing consumer preferences or demographic shifts.
The response to these difficult disruptions often comes in the form of restrictive trade policies and actions. As we know, the United States pulled out of the Trans-Pacific Partnership. Cargill hopes this is only a temporary pause in the U.S.-Asia Pacific trade relationship. Because when trade is restricted, economic engines weaken on both sides of the equation. Protections do more harm than good.
Protectionist trends are cyclical. We only need to go back to the most significant economic challenge of the last century—the Great Depression. As unemployment climbed in the wake of the 1929 stock market crash, the United States took a hard stance on international trade. This unleashed actions that pushed the costs of its own economic misfortune on other nations. The Smoot-Hawley Act raised tariffs on thousands of imported goods in the name of protecting domestic markets. America’s trading partners—very predictably—retaliated; contributing to a sharp reduction of trade that only caused the nation additional economic pain. U.S. exports declined and the jobs that created them gradually disappeared.
We cannot afford to repeat these past mistakes. But we can hasten the swing back of the historical pendulum toward economic strength through continued global integration.
So, let’s talk about how we might rebuild trust in trade. We need to lay a foundation for the future with three essential building blocks.
First, as noted, we have to be honest about what trade can and cannot do. That means working to restore public confidence in what trade actually can accomplish—and clearly dispelling any unrealistic expectations that erode that confidence.
Second, we need to design new policies—outside of trade agreements—that offer a path to resilience for those workers and families who are hurt by the impacts of trade. According to the International Institute of Economics, the United States has gained $1 trillion USD from globalization versus roughly $50 billion USD in adjustment losses. We should be thinking of how this 20 to 1 benefit/cost ratio could be used to create a new workforce paradigm—one that takes into account the constant change and disruption that will come from technology, automation and innovation.
And third, it’s our shared responsibility to stand up for trade because it’s good for people and communities. Trade facilitates prosperity and peace by helping us connect and share talent, ideas and markets.
History has shown us that negative economic factors—many driven fully or in part by trade barriers—can contribute to major political and social upheaval. It can cause economies to boom or bust. Severe economic conditions—combined with other social and political factors—can also push governments to the edge and, in worst cases, spark civil unrest. Poverty and conflict all too often force people to leave countries they love in search of a better life for themselves and their children. So, trade policies coupled with foreign aid and sound development policy is critical.
Today’s global proliferation of “me-first” trade postures threaten to destabilize decades of progress and negotiated agreements. Let me remind you of a real-world example of how we saw trade protectionism intersect with climate change, food insecurity and political instability.
In 2010, Russia experienced a heat wave that saw the highest temperatures in 130 years. The heat wave reduced Russia’s wheat crop by one-third. Russia instituted an export ban which dramatically impacted prices. A 2 percent change in global wheat supply drove nearly a 60 percent increase in prices around the world. At the time, Russia supplied Egypt with the majority of its wheat. The rapid shift in supply led to price increases, and when combined with broader political tensions, was one of the contributing factors to the 2011 protests in Tahrir Square.
Similar scenarios have played out in some 60 other countries in the last decade, leading to varying degrees of political and social instability.
Each new day seems to bring news of another country leaning further toward economic nationalism. Countries turn their gaze inward and attitudes toward trade become more guarded, more self-focused and more inflexible. Such a jaundiced viewpoint eventually leads to the rejection of mutually beneficial agreements in favor of one-sided pacts.
And then, the ripple effect happens—as country after country retaliates with similar measures. This damages economies as they attempt to rely on trade restrictions to support or revive industries that are struggling to remain competitive. The result? The world of trade is tied in knots.
That’s why the World Trade Organization (WTO) matters. Imagine a world without multilateral trade agreements—one which has devolved into a collection of ad hoc negotiations in which trade becomes a convenient political tool. Imagine critical commodities—oil, food, metals and manufactured goods—used as bargaining chips at every turn. Imagine a world where technology and ideas cannot cross borders. It’s a world none of us wants to see, but is foreshadowed by recent meetings of the G20.
We need to use the agreements and infrastructure provided by the WTO to demonstrate that open multilateral trade provides a net economic benefit. Yes, the processes can be improved, but let’s get our leaders back to Geneva to negotiate instead of retreating from the table.
So what is the path forward and how can we stay connected? This is not just another rhetorical question. The success of our companies—and the success of our customers, our workers and our communities—hinges on how we respond.
To realize the full benefits of the global economy, this is what Cargill is prepared to do:
- Going forward, we will not be on the sidelines.
- We will be at the table at every opportunity.
We will advocate for comprehensive trade agreements like NAFTA, TPP and others. Today, one in every 10 acres on American farms is planted to support exports to Canada and Mexico. We have seen U.S. agricultural exports to both countries grow from nearly $9 billion USD when NAFTA was signed in the 90s to nearly $39 billion USD in 2015. Food and agricultural production and exports also support more than 17 million full- and part-time jobs in the agricultural sector, employing workers from coast to coast.
We will continue to ardently support a rules-based trading system and the role of the WTO in managing trade disputes between its members. Supporting the WTO is not at odds with upholding national sovereignty. Nations can decide for themselves whether or not to comply with WTO decisions. The forum that is the WTO allows countries to advance their own interests and make deals in the context of a broader global trading framework.
I call on you all to put your weight behind the WTO in the spirit of reciprocity and mutual benefit laid down in the General Agreement on Tariffs and Trade. It is our job to protect the hard-won advances that have been gained over the last 30 years and that apply to high-income and low-income economies alike.
We will widen the dialogue with like-minded leaders and those on the other side of the issue. Listening, learning and collaborating will preserve what is working for trade and remove what is not. It will also help create agreements in which producers and consumers see and feel the benefits, both at home and abroad.
Finally, we need to build a new workforce paradigm. The public and private sectors need to invest in educating this generation of workers and the next.
We need to invest in lifelong learning for all our workers in order to adapt to the constant pace of change. We need to start early and strengthen education in important disciplines such as Science, Technology, Engineering and Math – the STEM disciplines.
That is why Cargill will invest $13 million USD in education programs just this year to improve access to STEM education and strengthen leadership programs for students in fields of agriculture and food.
Let’s collectively stand up for trade. Let’s stay globally connected and resist the currents of protectionism. Let’s address the gaps and take tangible steps to build a more profitable, peaceful and connected world.