>> rose: welcome to the program. we begin this evening with the stock market and the dramatic decline today. we talk to ba barry ritholtz, zh karabell and scarlet fu. >> sometimes people get lost in the day-to-day action and lose sight of the big picture. this has been a post crisis recovery. this time it's different. post-credit crisis recoveries tend to be weak and subject to a lot of fits and starts and, on top of that, we have a market that's recovered over 250% in the past seven years. so the easy money has been made. the huge move off the lows have been made, and now we're entering a phase where things are a little more mature.

>> rose: for an update on politics and primaries, we talk to dan balz o of "the washington post." >> people in the primaries and caucuses don't prize experience, resume or policy ideas. donald trump has tapped into something with a political form of communication that is different than we've seen in the past. he speaks in a language that's more understandable to the average person. and the others are still struggling to kind of figure out what's the right way for them to operate in that environment. >> rose: and we conclude this evening with a look at the significance of trade to the economy. with we talk to michael froman. he is the u.s. trade representative. >> we live in a very open economy here in the united states. our tariffs, which are the taxes on imports, are very low. we don't use regulations as a barrier to trade. but when we look abroad into the asia-pacific region which is where the some of the largest and fastest growing economies

are we face high tariffs and many barriers and t.p.p. eliminates or reduces barriers so we can keep production in the united states, grow production in the united states, export more and create more good-paying job in the united states. >> rose: stock markets, politics and the economy, when we continue. >> rose: funding for "charlie rose" has been provided by: >> and by bloomberg, a provider of multimedia news and information services worldwide. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: stocks tumbled around the world today. the drop is a part of a larger global slowdown. it come amidst concerns over

declining oil prices and economic uncertainty in china. the dow jones closed down nearly 400 points, a decrease of 2.4%. the price of crude oil dropped to a 12-year low. today marks the worst calendar year start for stocks in u.s. history. joining me is barry ritholtz, chief investment officer at .ritholtz wealth managemen zach karabell is the head of global strategy at envestnet. and scarlet fu is co-anchor of bloomberg markets on bloomberg news. i am pleased to have all of them here tonight observe this on the day on wall street. what is going on? >> this is a narrative that's been in place a couple of weeks. began with concern china's economic model which has been shifting in the past year will build to maybe a consumer economy in china, but means they're consuming a lot less oil and raw materials. those prices are cascading.

the financial system was geared toward energy and commodity prices at a certain price, and that then set in motion this kind of cascade effect around the world that all the assumptions that people have going into the year were then going to be incorrect and that we were potentially on the verge of a significant financial meltdown. that's the narrative in play now and it's affecting stocks in the united states, it's affecting stocks in china and europe. >> rose: do a significant number of people believe we're at the beginning of financial meltdown? >> from inside the trading financial world, my perspective is there is a huge amount of anxiety and that anxiety has been building over the past several years. this is not an animal spirits, we're going to really easy the opportunity. this is an extremely concerned world about the effect of interest rates going up, about the effect of a world of easy money since the financial crisis, and i think there is just a huge amount of anxiety verging on fear that pervades

the financial community. >community. let's put that into a little broader context because i think sometimes people get lost no the day-the to-day action and lose sight of the big picture. this has been a post credit crisis recovery, as reinhart and rogalt made it clear in their book, eight centuries of financial folly, this time it's different, post crisis recoveries tend to be weak and subject to fits and starts and, on top of that, we have a market that's recovered over 250% in the past seven years. so the easy money has been made. the huge move off the lows have been made. now we're entering a phase where things are a little more mature. rates are starting to pick up, but they're still incredibly low. when you have oil prices under $30 a barrel, well, it used to be 10% of the s&p 500 earnings were energy related and you're

cutting those by 70 or 80%, has a big impact on profits. in the meantime we're waiting for the benefit of cheaper oil to find its way through the economy and to consumers and retail spending. that's just starting to happen now and it's going to take a while for us to really benefit from really inexpensive energy. >> but when you look at the data out there for the u.s. economy, it's kind of a contradiction. the jobs market looks fairly strong. retail sales don't look as strong because everybody is waiting for the benefit of oil prices to stoke spending. we're changing the way we're spending. we're spending on services, on experiences. maybe the data doesn't capture that. same thing with china. china's transitioning to a different economic model. perhaps the data we've come to rely on for the narrative of china sin sufficient. it doesn't tell the story of what's happening. >> rose: or inaccurate. and we're relying on what the

stock market is telling us. the chinese market and economy doesn't necessarily correlate. >> neither was the u.s. economy and stock market. this has been a mediocre recovery but the stock market went straight up. the one thing about retail sales is people are still buying certain things. automobiles, we're selling 18 million automobiles a year. that's a record. credit is available and financing is still inexpensive. people are buying cars. >> we have this converging and there are three narratives going on. is china collapsing or will sustain a transition. is the global commodity sector going to taskt the market and is the u.s. economy at the precipice of a downturn again? a lot of talk of recession. >> rose: looks like the strongest economy in the world. >> but the you judge from the campaign trail, there is a huge swath of americans who perceive their economy to be in recession and then there is the relationship of equity prices

which are in many ways a messy and terrible gauge for all these things, but every time markets go up and down, they are used as a gauge for these things, and that's the argument playing out. i happen to think that the fear and concern within the equity markets about these stories would say all those things are collapsing and i don't believe that to be true. i think we're in a disconnect between the real world which isn't great but i don't think it's on the verge of collapse. it is if you're in venezuela but not the u.s. but the equity markets are signaling something else. >> and part of that is we're in the midst of a profit recession where profits will decline for more than two quarters. you had companies buying back shares with money they often borrowed from the debt market because borrowing costs were so low to help boost earnings which is what stocks were trading on. and propelled stocks higher. now that credibility is tighter, companies are not able to dip into that well and get cheap financing to buy back their

shares. that option to boost their stock prices now disappearing. the question is does the profit recession lead tune economic recession to an industrial-led recession. >> rose: and how long will it take us to find out the answer to that? >> that's a good question. i mean, maybe we're so scarred by the great recession that we don't really know what a garden variety recession actually looks like. the recessions before the 2008 recession. theo 2008 recession made us think they're all equivalent to a big crisis. that's not the case. we had recession before that and got through it fairly quickly. >> a profit recession makes it seem rather different than what we're seeing now. intel reported earnings this week, the largest semiconductor company still by large in the world showing an increase in revenue. its revenue slightly down 2015, 2014 by 1%. $2 billion in revenue and $1 billion in profit. >> rose: apple suppliers say

there is less demand. >> and people will look at apple's results as a gauge of china. when people think recession, they think the companies are hurting. it's not like the companies are not making huge amounts of money. even with the buyback phenomenon with stocks, they may be making a little bit less profit. >> rose: the idea of volatility. "bloomberg view" said volatility matters to investor positioning, risk in form of expectations and the longer it lasts and especially if it is the volatility of recent weeks the more likely to be accompanied by durable decline in markets overall. stanley reed in the "new york times." whether the vol timent subsists will depend largely on the direction of the global economy and how it affects demand for oil. volatility is a factor. >> well, it's a factor but let's, again, put this into context. markets year to date are down 8%

from the peak of last year they're down all of 13%. this is not a huge pullback. i don't want to shrug it off, but markets go up and down. since 1950, on average, every other year you see at least one double-digit decline, so we're now down 8%. last year we saw a 13% decline and then the markets came roaring back. as long as profits more or less maintain where they are you're not going to see a huge decrease in either the global economy or stock markets. >> did we call this a correction? >> it is both a correction and in the nasdaq almost a bear market. a correction is 10% down. these are fret thety arbitrary markers and there are a lot of stocks and different parts of the world down in excess of 20%. apple stock is down 30% from its

mid 2015 high. that's a major shift. it's not like the phone sales went down 30%. even if there are suppliers, they're going to sell a lot more iphones and ipads, a lot less computers which is one of the concerns around intel. so there is a bit of a disconnect between potionlism of markets which has been very high and heated since 2008, 2009, and some of the real world, and i think some of this gets magnified in the u.s. in an election year which has the effect of fomenting a lot of passions. >> rose: i read today where an oil executive said that he thinks oil prices by the end of the year will be back to $50 or $60. >> no one knows where oil prices will go. that's part of the problem. a lot of people made their economic forecast, their business forecast for 2016 based on the idea that oil prices would stabilize fairly soon. in the second quarter last year, oil went back to $60 a barrel.

many people thought we would get the bump back up this year. that hasn't happened. everyone has to throw out the forecast and start from scratch over again. they don't know where its going when the price of oil can't catch a bid. >> rose: what does this mean for the average investor? >> it depends on the time line. assuming you're not retiring in the next three or four years, you should be thinking in terms of decades and not letting the day-to-day noise distract you. as a species, we have a real hard time conceptualizing 20, 30, 40 years in the future in. the year 2045, no one's going to be thinking back and saying, thank goodness i sold all my stocks in january 2016 because i missed the past 25 years. there is a real tendency to get derailed very easily. we're all guilty as pundits of waving or hands and yelling a bit. if you think about it, this is a

multi-decade process of investing. you need a plan and a way to maintain your behavior. investors are historically their own worst enemies. >> there are themes powerful for more than a quarter of a year. the theme for early 2000 was china became a massive industrial economy and consumed huge amounts of the world's available supply of everything you could dig out of the earth and build something with, china was the dominant consumer. that story i think is changing dramatically. india may build a lot of stuff but, in general, that story changed and you have massive supply coming on thinking that story would go on longer and that the certainly true in the oil space. i'm not an expert at predicting oil prices and many experts who are have been incorrect about what those would be. but i think that is a powerful trend that is likely to be true a year or two from now which is there is a lot of supply of this stuff in between the efficiencies, whether environmental, technological, of

using less stuff to do more with it, using less oil, more renewables, that is a powerful trend. what markets are partly doing is resetting the price expected based on the earlier trend and the price that's likely to emerge based on the new one. >> but again, more context. china was an agrarian society, became an industrial society, moved into the digital age very rapidly. you're not going to have a billion-plus people in one of the largest land masses in the world that can grow consistently at 10, 11, 12%. they're becoming a mature society, just like apple has become so huge, they can't grow iphone sales at 30, 40, 50% a year. eventually you run out of people on the plan tote vea to sell ips to. >> rose: that's an interesting phenomenon because how many people have iphones in the world matched against the world's population? >> they still have a good bit of market share left.

also, how many people can afford a $600 phone -- >> rose: much more surprising in china not to suggest there is not competition from a different priced phone. >> absolutely. but there is lots and lots of different people that want cell phones and lots that want smartphones. this is still considered a premium luxury product. there is a reason why 90% of the profits in the cell phone space are captured by apple and everybody else is picking up the crumbs. >> rose: what in the geopolitical world is affecting the global economy? >> certainly iran. russia -- >> rose: to drive the price down? >> that should drive the price down because you have much more supply coming on to market in a world where we already have way too much oil swimming. we're up to our eyeballs in oil. >> iraq one of the supporters. people have written that off kind of but they have really increased their exports.

>> rose: what points to production. >> iran's got a million barrels a day in a world that is potentially in surplus by 500,000 to 2 million and they want to silt because they need the income. >> saudi arabia made clear it's not going to stop either? >> because it needs the revenue. all of these actions are challenging a lot of sufferings investors had -- lot of assumptions investors had last year and this year. a lot thought saudi arabia wouldn't move when it hit 30 and $40 a barrel. >> a lot of politics in what saudis are doing. low oil prices hurt iran, syria, russia, the people the saudis have had issues with over the past few years. >> and the other geopolitical is the cop lap collapse to have the commodity is putting pressure on governments that enjoyed boon years. brazil was doing well and

australia and canada shifted, south africa, indonesia, all of these are countries that road the commodity boon and, to be fair, used that surplus often more wisely than certainly in the '70s. yoyou could argue brazil used it terribly. that is a massive change in the world now. >> rose: let me close with this, over the next six months, what do people expect? in your judgment, what do the smart estpeople think. >> they're saying there is going to be a lot more volatility. get used to what we've seen this year because there is going to be more. not necessarily up. maybe much more down before we get to the up. >> it's fairly to say -- fair to say the easy money in the market in the past seven years has been made and you're looking at a bit of a challenge after we have been up 250% over six years. >> rose: what could be affecting the economy in the next six months that would affect markets? >> i'm watching three things

closely. i'm watching wages which have been very mediocre over the past few years. they're starting to pick up. >> rose: around the world? in the united states, primarily, because we tier cleanest dirty shirt in the hamper. so that's one thing. we always have to watch commodities price. the thing we haven't talked about yet which is so important is the strength of the dollar. if you have to to have an understanding of why all these commodity prices which are in pricing dollars have been in such a free fall, we have a dollar, twelve-year highs, that means the measuring stick has gotten bigger which means prices for all sorts of raw materials have fallen. ultimately that will be a net positive for the economy but short-term it tends to be painful. >> unless there's a real sign china is imploding rather than transitioning and the united states is massively weakening, jobs gains reversed, economic growth goes negative, then the financial market reaction is likely to overshoot on the down

side relative to the underlying fundamentals. when that happens, it is likely then to begin to correct to the upside. it requires the fuel of real world collapse before you can get a financial system that really implodes. >> rose: i'm not prying but what do you think the markets will do monday? >> asia they will likely sell off. they can go up 250 points or could continue. >> depends on what china reports for g.d.p. and sales. everyone will look at what the chinese authorities do with the u.n., where they fix the currency. >> rose: thank you scarlet, barry, zach. we'll be right back. stay with us. >> rose: to your knowledge the 2016 campaign for the white house, the iowa caucuses are just 17 days away, but the focus right now is on the fireworks in south carolina. the city of charleston is

setting for presidential debate for both parties this week. dan balz is there, chief correspondent for the "the washington post," covered the republican debate thursday night and will be watching the democrats sunday. pleased to have him on this program. dan, thank you for coming. >> thank you, charlie. >> rose: you're in one of my favorite cities. >> it's a nice place. >> rose: as i travel around the country reporting on different things, i mean, there seems to me to be a growing feeling, analysis, by political strategists and by political reporters that the question is donald trump is more likely to be the republican nominee than not. >> well, i don't know whether i would say he's more likely than not, but i think that certainly the question now is what will prevent him from becoming the nominee. you know, we've moved very quickly, i would say, in the

last 60 days on this question. up to that time derricks spite the fact he was strong in the polls, i think a lot of people in the republican party thought eventually he would fall, and there are still a lot of people who think that's possible, but the longer he has stayed up and the more the race has taken on an unconventional kind of contours, i think more people are beginning to think about the possibility if not the probability that he could be the republican nominee, and that's a huge change, charlie. >> rose: in what way? as you know, when he started out, a lot of people -- and i include myself in that group -- thought he would not be a long-distance runner, that he would cause himself problems or that he wouldn't be serious. all of that ha has fallen by the wayside. but i think what's changed now is the durability of his lead in the polls and the fact that the establishment wing of the party which now has four candidates fighting for supremacy has not

been a able to kind of exorcise the attractive -- exercise the attractiveness of those candidates they have in the past. >> rose: why is that? one of the reason is none of those candidates as yet is a standout or has been able to breakout. this race has been so dominated by donald trump and now by some extent by ted cruz because of what he is able to do in iowa and might be able to do in the southern string of primaries that comes after the first four early states, but the other candidates have struggled to gain much recognition, to gain an argument that has traction or be able to present credentials that seem to work. i mean, if you think about past campaigns, people who were governors were considered people of experience but not political insiders in washington. that's gone by the boards. people in these primaries and caucus states don't seem to prize experience or record or resume or even policy ideas. donald trump has tapped into

something with a political form of communication that is different than we've seen in the past. he speaks in a language that's more understandable to the average person. and the others are still struggling to kind of figure out what's the right way for them to operate in that environment. >> rose: yeah. he certainly seems to me to be having -- the way he approaches political rhetoric, it's almost a conversation between him and his audience. >> it is a conversation. i was at a rally of his in iowa last saturday and i had been to one a week earlier in new hampshire, and they're fascinating, charlie, because to have the way he does -- because of the way he does speak. this is a politician or a person who does not necessarily speak in logical patterns of political

talk. he veers in one direction, and he veers in another. he knows what he wants to communicate at any given moment. i mean, if he's got somebody he wants to go after, he knows how and when to do it in the context of that speech. but if you were to try to diagram a speech at a rally by donald trump, you would be hard pressed to be able to do it in any logical way. h he speaks about so many different things at once that only his most loyal followers probably can keep up with it. but it does have, as you say, the nature of a conversation, and most politicians of the old order don't speak that way. they speak kind of in traditional political rhetoric. i think that's one of the important things that sets him apart. that, and, obviously, some of the issues he's talking about. >> rose: it's almost like two people get together and they're saying, can you believe what happened today? it's something i've never seen in politics. it is like someone who really does understand that the dynamic, almost intimacy with an

audience even though there are huge audiences. >> that is a very good word, the ability to create intimacy, and the best politicians can do it. bill clinton has often been able to do that in his own way which is quite different than donald trumps. but i think you hit on an important point, the sense of immediacy, you've come to a trump rally. it's almost as if a conversation resumes where the last conversation left off but bringing you up to date on everything that has happened in between. >> rose: when you talk about the establishment, you're not talking about ted cruz, are you? >> no, not about ted cruz. if there's one republican candidate other than trump who kind of understood the dynamic of this year or the mood of the republican base, it's ted cruz. i mean, he came to washington and, you know, if you kind of scroll back to when he arrived, he has executed a strategy which has allowed him to be where he is today. i mean, he came in to challenge the washington establishment.

he came in not to make friends in washington but to endear himself to the grassroots that was fed up with the republican leaders as well as president obama, and h he has done that and he's done it very smartly. >> rose: he has a highly credentialed resume in terms of being a clerk and going to harvard law school and praised by some of his professors up there so, therefore, he is a student. it seems to me that, from what i hear, he almost read everything, talked to everybody and conceived of a strategy which he has executed to put himself where he is today almost perfectly. >> i think that's right. if you talk to cruz or if you talk to the people who are running the campaign day to day, they have a theory of the case. >> rose: exactly. and you could argue that there are other candidates who don't have a theory of the case. they have an idea of a message, but not a theory of who they're really after.

i was struck really in those first debates when cruz was getting far less attention that cruz had an ability to speak directly through the camera to the people he wanted to reach and that he knew exactly what he wanted to say to them and, over time, it's been able to build and build into the kind of support he now has. and, so, you know, his strategy, his theory of the case, particularly if h he were to become the nominee, might turn out to be totally wrong, but you have to give him credit for thinking it through, adopting that strategy and then, as you say, executing it very, very smartly. >> rose: is it likely that the establishment will somehow because of the winnowing of whatever happens in iowa and new hampshire rally behind one candidate? i mean, what kind of person or what kind of organization will simply be able to say within the confines of the republican party, everybody's got to drop

out but one, let's figure out who the one is. >> as you know, that's so difficult, and it's something that the party coalesce. but these nomination battles are, as somebody said many years ago, they are an example of ambition unbound, and each of these candidates, at this point, who are in that group, you know -- marco rubio, jeb bush, john kasich, chris christie -- all believe they could and should be the one to emerge. so it will be left to the voters to sort it out and that will happen in iowa, new hampshire and certainly here in south carolina where i would expect a fierce battle at the end of february, and then we will see whether the party at large begins to do that, whether

donors go behind one particular candidate or urge the others who are not doing quite as well to get out. but we're a ways away from that at this point and i think one of the problems for the establishment right now is because those four candidates are not only worrying about trump and cruz but in many ways worrying more about themselves that they all run the risk of damaging themselves to the point that cruz and trump emerge even stronger. >> rose: timing is important in politics and you have to pick the right year as well, don't you. >> yes. >> rose: ask bill bradley, a lot of other people, ask the late mario cuomo. you know, you never know what the politics of the particular year will be and whether it's the only year that you can choose to run. i mean, barack obama in 2008 was not scared of the fact that hillary clinton seemed like, you know, almost anointed to be the democratic nominee. >> i remember a conversation that the late dave broder and i

had with then governor george w. bush in washington in 1988 when he was heading toward an easy reelection and thinking quite seriously about running for president and everything was building up around him and he said, you know, in some ways in terms of my family, this is not the ideal time for me to run for president. he had two daughters who were teenagers and probably didn't want to be in the spotlight. but then he had a great line, he said, i feel like a cork in a raging river, and he was being pulled along, and that happens to candidates. sometimes you get to pick your time but oftentimes you don't. >> rose: and sometimes what's happening in the nominating process is almost a response to the president that has been presiding for the previous four or eight years. i mean, jimmy carter coming after richard nixon, that kind of thing. >> david axlerod has a great formulation of this, which is people tend not to pick a replica of what they've had. they pick a replacement, and

that's part of what's been going on. but i think the other thing that has caught so many people unawares or by surprise this year, i think when trump started out, there were a lot of people in the other part of the party, the non-trump part or the establishment part of the party who kind of said, all right, there is an alternative world out there donald trump occupies and we can watch it with some fascination but we don't have to really get into the middle of it, and i think they found by the end of the year that they were all in the middle of that, whether they wanted to or not, and you've seen some of them adapt to it. the rhetoric of marco rubio that we're hearing, we heard it in the debate again last night, is much sharper, tougher and edgier than before and i think he is emblematic of the kind of changes these candidates have had to make. >> rose: let's look at the democrats. many people, even if they look at the fact that the race is very close in iowa and very close in new hampshire and it

could be a situation in which bernie sanders wins in both, could be, no one thinks he can get the nomination. >> it's a curious thing, charlie. it's almost as if hillary clinton is at once both vulnerable and inevitable. >> rose: exactly. and that is a very difficult place for her to be because there is no doubt that she is vulnerable in iowa and new hampshire and, yet, there are a lot of people in the party, and i would suppose a lot of people who are for bernie sanders who believe in the end that she will be the nominee. but the degree to which that kind of tension exists between vulnerability and inevitability, it in some ways allows people who like the idea of sanders to want to keep this fight going because they think, in the end, she'll be okay. but there are risks and consequences for her and the democrats if that becomes the case. i mean, the longer a battle

between bernie sanders and hillary clinton goes on, the more it will weaken her -- potentially weaken her for the fall, deplete the resources of her campaign at a time when the republicans will be gearing up to take her on if she's the nominee. >> rose: what's happening in the democratic party in terms of -- i mean, is it leaning to the left or is a stronger word necessary? >> well, it's certainly leaning to the left. i think one of the interesting things about the state of the democratic party is democrats clearly like president obama and think that he has done well, but if there is any disappointment in him it is on the left, it is that he didn't go far enough in the way he shaped h his healthcare plan, it is that he wasn't as ambitious as he ought to have been on other things, it's that he didn't push hard enough, early enough on immigration reform, a whole series of things, and he wasn't really tough enough on wall street and the banks and nobody went to jail as a result of what happened in 2008.

so you have that stirring at the grassroots of the party. and bernie sanders speaks to all of that. and he speaks to that. i mean, we talked about how donald trump communicates. bernie sanders communicates in a very direct way, and you come away with a feeling that this is watts both in his head and his heart, that there is not a bit of calculation involved in this. >> rose: well, the other day, vice president joe biden said to me he's making the same speech he's been making for 30 years, it's just now resonating in the democratic party. >> yes, that's exactly right. there is a consistenty to what bernie sanders has been saying and doing for many, many years and, as we were talking earlier, the environment happened to exist properly for him to be able to take advantage of that and no other democrat rose up to really offer that kind of message. i mean, elizabeth warren easily could have if she had decide to try to be the nominee to run for the presidency, but it would

have been different in that kind of case. >> rose: dan balz, thank you so much for joining me. just listening to you makes me realize how much i enjoy having you on this program and reading your columns as i try to understand and make some sense out of politics in 2016. >> charlie, i appreciate that. thank you very much. >> rose: we'll be right back. stay with us. >> rose: ambassador michael froman is here, the united s been the lead negotiate in the trans-pacific partnership also known as t.p.p., a trade agreement among nations that eliminates on 18,000 tariffs various nations put on american products. president obama urged congress to pass t.p.p. in the state of the union tuesday night. >> america will always act, alone if necessary, to protect our people and our allies. but on issues of global concern,

we will mobilize the world to work with us and make sure other countries pull their own weight. that's how we forged a trans-pacific partnership to open markets protect markets and advance american leadership in asia. it cuts 18,000 taxes on products made in america. which will then support more good jobs here in america. with t.p.p., china does not set the rules in that region, we do. you want to show our strength in this new century, give us this agreement and give us the tools to support it. >> rose: pleased to have michael froman at the table for the first time. you're the guy to lead the negotiations which you have. explain to us why it's important. >> well, first of all, we live in a very open economy here in the united states. our tariffs which are the taxes on imports are very low. we don't use regulations a as

barrier to trade. but when we look abroad into the asia-pacific region which is where some of the largest and fastest growing economies in the world, are we face much higher tariffs, many other barriers and what t.p.p. does is eliminate or greatly reduce the barriers so we can keep production here in the united states, grow production here in the united states, export more and create more good-paying jobs here in the united states. >> rose: so what do they get for eliminating those tariffs or reducing those tariffs. >> they get access to our market which is already quite open, but we have some remaining tariffs, and they get to be in a strategic partnership with us where together we're helping to set the rules of the road for the region, whether rules on intellectual property rights, putting disciplines on state-owned companies, maintain agree and open internet, and for a lot of the countries, joining something like t.p.p. is a good stamp of approval where it will help them attract economic activity as well. >> rose: give us an example of the types of tariffs we impose.

>> our average applied tariff is 1.4%. 80% of what comes in from t.p.p. countries is already duty-free. for example, we have tariffs on footwear or apparel that may be 20 or 25%. we have tariffs on autos that are 2.5%. >> rose: why all those products? do we want to make them more expensive so that -- >> for historical reasons, we've work closely with our area and domestic producers, like our domestic textile producers, to come up with an agreement they can be comfortable with as well as the people importing apparel from this region into the united states. >> rose: during the negotiation, what was the biggest gripe that you heard? >> well, there are multiple gripes. we have gripes domestically between different types of the u.s. economy that may have differences of view between themselves. between the other countries, they want to make sure that the u.s. is involved in the region and they want the u.s. to be embedded in the region and they

want to make sure t.p.p. succeeded in a way that assured u.s. was a close partners of theirs. >> rose: democrats, certainly democrats on the left, have a posed this and their argument has to do that they have not done enough to protect the environment, to protect wages, to protect workers in other countries. could you have done more ? >> well, this is agreement is the strongest ever negotiated when it comes to labor and environmental protections. for example, it takes issues like the right to associate, right to collective bargain, prohibitions on child labor or forced labor and makes those enforceable provisions in the trade agreement, so takes certain international principals and brings them into a trade sphere so we can enforce them in. environment, ground breaking laws on wildlife trafficking, illegal logging and fishing, preventing overfishing which depleted our oceans of fish. all those are new kinds can of

obligations and fully enforceable as well. >> rose: why are democrats supporting it? >> trade is always difficult. trade is acally difficult issue. traditionally trade agreements and trade bills have worked their way through congress largely with republican votes and a critical mass. >> rose: pro business? it is, certainly that business can benefit from it but so can workers who work with the businesses or the farmers and ranches facing barriers to tex ports and seen that coming down as well. recently you've seen the commerce, but also the american farm bureau, the tech net, technology community all come out in favor and endorse the agreement. >> rose: can we with trade legislation influence things like the rule of law in countries? >> i think we can and look in various areas whether it's creating greater traps parentsy to regulations and how they regulate. more participation in the regulatory process of other countries. we have anti-corruption measures

in the trade agreement for the first time so that countries have to adopt laws and practices to deal with corruption and in areas like labor and environment making sure they are enforcing laws that implement international labor and environmental obligations. >> american companies especially in silicon valley, think google and microsoft, have had difficulties entering the european market. is that trade tariff kinds of things or something else or is it they believe they have an unfair advantage? >> it's not tariffs per se, but this whole area of the digital economy is one that t.p.p. takes on for the first time. so for example obligations to allow the free flow of data and information across borders or preventing countries from saying you have to move your company to our market and build your infrastructure here in order to serve that market. those are the kinds of obligations we have been able to get in t.p.p. and right now we're negotiating with the european union another trade agreement called the

transatlantic trade investment partnership where those will be major conversation considerations as well. >> rose: how long will it take you to do the translank. >> we have been at it two and a half years and hope to make significant progress this year. >> rose: you said international diplomacy is not elegant. >> trade is a very difficult set of issues to negotiate. you've got domestic constituencies one against the other,. >> rose: labor unions and others. >> or even one business and another, one with import interests and one with export interests. you have eleven countries, that range from some to have the most developed countries like japan, canada, australia, to some to have the least like peru or vietnam, and finding common standards that can apply to each has been very complicated and is one reason it's taking so long. >> rose: what happened at the dohar round in 2001?

>> i think the dohar round that was launched in 2001 at the world trade organization was focused on trying to bring development issues into the context of the global trading system. what's happened since then is that the global economy has changed a great deal, and what the dohar round said was that countries like china, india, brazil don't have to take on obligations. >> rose: emerging markets. emerging markets don't have to take on obligations while industrialized countries do. china is a globally competitive market and has concerns about unfair trade practicings. in nairobi it became clear there is no consensus to continue the dohar round and we ought to explore new ways of strengthening the multi-lateral trade. >> rose: that sounds like what happened in the global environmental meetings in which

emerging markets looked at the industrialized world and said you have had a chance to develop and we need our chance to develop an industrial base. >> there are certain similarities between the two. there was an agreement which basically said developing countries have no responsibilities only industrialized countries do, not unlick the dohar agreement in 2001. but we saw in paris recognition of all economies need to play a role and that's true of nairobi as well. >> rose: the president talked of taxes. how does this apply. >> this agreement eliminates 18,000 tariffs effectively taxes on u.s. exports, everything from 70% tariffs on our auto exports to vietnam, 38.5% exports on beef exports to japan, this will greatly eliminate taxes on our exports making us more competitive in the region. it's not just that things will

go from 70 to zero, china already has agreements with these other countries and face much lower tariffs. so if we want to compete against china or the european union in the region, we need a economy, partly due to reductions in global demand including demand in china. for decades, trade grew father than the global economy itself and trade really led global growth. now trade is growing at the same pace or slower and puts a premium on eliminating whatever barriers we can eliminate so we can get trade going again, spur it on and it can help lead to stronger global growth. >> rose: the united states has seen and i'm fro from north cara

where our economic base was tobacco and text tiles and they're gone. could that have been stopped by trade agreements? or is the economic cycle looking for cheaper labor? >> i think certainly the technology and globalization has affected the kinds of jobs, the kinds of industries that have succeeded or not succeeded in the u.s. over time. but it's a mistake to equate globalization and trade agreements. globalization is a force and lots of factors go into it. trade agreements is how we shape globalization. >> rose: what does globalization mean other than the world is smaller and everyone has to think in terms of a global dimension? >> what it's meant is in effect because the cost of doing business around the world has come down so much, the containerrization of shipping and the spread of broadband, the emergence of economies like china and eastern europe from

being closed economies to being part of the international economy, it's made it much easier for people to move production to other countries. now what we need to do with trade agreements is first of all level the playing field by reducing the barriers to those markets so we can continue to produce here and export there and secondly raise standards in those countries. right now we compete against low-wage labor all over the world. through this trade agreement and trade agreements like this we can help raise labor standards, raise environmental standards -- >> rose: this seems to be a big deal to the president. >> well, it is. >> rose: it seems to be one of the things he feels is part of his legacy. >> he thinks it's extremely important to the u.s. economy, with 95% of the world's consumers living outside of the u.s. >> rose: 95% of the dman comes from outside the country? >> of the world's consumers. there will be more than 3 approximately middle class consumers in the asia-pacific region alone it's estimated by 2030 and we need to be part of that economy if we're globally

competitive. we have tremendous strengths in terms of rule of law, entrepreneurial culture, abundant sources of affordable energy, and if we can gain access to the rest of the world economy from here through t.p.p. and the free trade agreement we'll have two-thirds to have world economy and makes it the platform of choice. >> rose: are there industries and sectors of the economy that have almost died because of trade restrictions and tariffs because they could not find and could not participate in markets around the world? >> well, there's been a lot of restructuring in our economy over the last several years from manufacturing to service, and some of that is related to technology and some of it is relatedo the competition with economies that have low-wage labor and some of it has been these par years. i mentioned vietnam. 70% tariffs on autos. we're a major auto exporter. our auto sector is doing well.

if you want to be part of that market, 90 million people that are growing fast, emerging middle class, you've either got to build your cars in vietnam or tear down the barrier so we can continue to build cars here and send them to vietnam. that's what t.p.p. is about. >> rose: is it wrong to want a manufacturing company to see its base build up and encourage people to have a tariff unless you want to build a company here? >> there are many ways of doing it and putting up barriers to imports is not necessarily the best way of doing it. you want to make yourself an attractive place for companies to invest and for people to build things, and that means having a good rule of law, good stable labor and environmental -- >> rose: property rights. property rights. >> rose: what's interesting to me about all of this in trade is the notion that you will often see emerging economies are

dependent or created by an emerging middle class. the singular park of an emerging economy is a developing middle class because that developing middle class not only provides demand for products. >> that's exactly right. >> rose: and the demand for the rising middle class and the demand for products domestically creates the opportunity to build a manufacturing base. >> that's right and that's why it's in our interest that the economies do grow and the emerging middle class develops. when the middle class develops, the first thing it wants is more protein, better nutrition, safer food. then it wants the kinds of products america makes, whether equipment or cars. made in america products is a brand that is well respected and well loved all over the world by the emerging middle class, and when we looked at the

asia-pacific and see the 3 billion middle class on ciewmers emerging, we'll want to be part of that. >> rose: biggest exports. number one is airplanes. i think between the auto sector comes in probably second. agriculture has grown a lot. we're globally competitive in agriculture. >> rose: what do we have to overcome to be that? >> we're very efficient in our agriculture production. other countries have high tariffs and then these other barriers where they oftentimes put up non-scientific barriers to our exports and one thing t.p.p. does is require countries to use science as a basis for its regulations. >> rose: do you think the congress will pass? >> i do. i think has congress understands what's in the agreement, the benefits of the agreement, how it affects their constituents and we're in the process of that education effort now, spending a lot of time with members of congress, i think we'll get the necessary you want support.

>> rose: people like roger altman who has a boutique investment company and richard haas, president of foreign relations who said trade is central to our foreign policy, without the deal the so-called pivot to asia will be hollow. the pivoto asia was a central part of the american foreign policy. >> this is absolutely essential to our rebalancing to asia strategy, it's one of the most concrete manifestations -- >> rose: call it rebalancing rather than pivot. >> we're calling it rebalancing. (laughter) but it's very much a concrete manifestation of that, and our partners in the region very much want us to be involved with them economically as well as politically and strategically and they see t.p.p., the prime minister lee of singapore recognized t.p.p. is critical to the united states in the region and global.

>> rose: when barack obama became president inoing a, you had known him for a long time. >> mm-hmm. >> rose: law school. that's right. >> rose: the law review. yes. >> rose: what kind of student was he? >> he was an excellent student. he was by far smarter an all the rest of us. >> rose: was he really? oh, yes, you could tell then he had a very special intellect and a very special set of leadership styles. >> rose: are you saying to me people in law school at that time were saying this young man might be president? >> i think people thought he would do something very significant in politics and even in his election as head of the law review where he was trying to bring together different -- >> rose: he won because he brought the factions together. >> that's right. >> rose: what were the factions? >> it's hard to go back to those times, but at the -- >> rose: who would be fighting whom? >> there was quite a bit of a political split on the campus. >> rose: ideology about law?

exactly, that was the time when the ferallist society was growing on cam pulses and the critical legal thought school and different camps and professors of different camps. >> rose: which camp were you? ight in the middle. (laughter) >> rose: were you really? eally. > >> rose: thank you for coming. pleasure to have you. >> thank you for having me. >> rose: join us next time. for more about this program and earlier episodes,. visit us online at pbs.org and charlierose.com.. captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org

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