Trade between the U.S. and China is expected to 'decline by 15%' by 2023: Boston Consulting Group CEO

Boston Consulting Group CEO Rich Lesser joins the On the Move panel to discuss how U.S./China relations will be impacted by TikTok's national security issues.

Video Transcript

ADAM SHAPIRO: We're going to have to keep watching that all day, but also want to bring into the discussion right now and broaden this out Rich Lesser, Boston Consulting Group CEO. He's joining us today. And I know we wanted to talk about several issues regarding the economy and what your clients are hearing. But I got to ask you, in a broader sense, this back and forth with the Chinese government and the US government over TikTok, do your clients have a concern about a contagion, perhaps, to the business climate between the two countries and the impact that could have going forward for them?

RICH LESSER: I think there is concern about what's happened on the way geopolitics and trade have come together and the longer-term implications that that brings. Just to put it in context, we've done a lot of analysis, we published on this, between 2019 and 2023, trade between the US and China is projected to decline about 15%. Decline when, historically, trade been a driver of GDP growth.

And between the US and Europe, it will continue to increase, but nowhere near the pace that it increased between '15 and '19. If you put those two things together, then you have an environment where trade and geopolitics are increasingly intertwined and where you have a more difficult environment that historically has been a key driver of growing the global economy overall. So I think that this particular element around TikTok is-- you know, seems quite specific. But when you broaden it to the broader questions it raises about where trade is going, yeah, I think there's genuine-- genuine concern.

JULIE HYMAN: And Rich, it's Julie here. It's good to see you. I mean, quite specific, but you also have the WeChat situation, where the US is attempting to ban use of that app in the United States. So beyond just trade of goods, of course, you have exchange of ideas.

You have the internet. And there's this idea of two internets, right, a US internet, a Chinese internet. So not just when it comes to trade, but when it comes to technology, when it comes to innovation, what kind of conversations are you having with your clients on that front?

RICH LESSER: We're suggesting to our clients that we are moving more and more in the direction of a much more complex world on the technology side that they need to navigate. The likelihood of two separate platforms that one needs to be prepared for is increasing. We're discussing with them that-- that you have to rethink trade. It's not necessarily the global trade or global connected-- globalization was going away. We don't believe globalization's going away.

What we do believe is these simplistic views of a two-speed world or it's all about the products that you're trading is going away, and that increasingly companies will be building global networks to share IP, to globalize services which used to have to be local, while they're localizing products which used to be made global, and that the whole model around global trade has to be rethought in a very fundamental way with much more focus on resiliency, risk management, complexity, technology underpinning it. Things that we often took for granted in a relatively benign way in years past will come to the fore as people design their systems looking ahead.

- Rich, I want to shift gears a bit and talk about stimulus, because we had Fed Chair Jerome Powell speaking about the need for fiscal stimulus. We have, of course, a stalemate right now in Congress in regards to fiscal stimulus, likely until after the elections. What do you think the shape of this would need to be to ensure a smoother economic recovery, since we are seeing that activity start to stagnate now?

RICH LESSER: So I think that it's a real concern right now. And in fact, one of the conversations I've had with many CEOs lately is the need to recognize our planning as we enter 2021 needs to be much more scenario-based. Because historically, most businesses assume a relatively benign macro environment as they plan for the years ahead. This year, the potential range of outcomes is so wide and things like a stimulus package become really quite-- quite important to keep momentum.

And I would just highlight part of it is pure economic stimulus. Part of it is we are not through this pandemic yet. And while in the medium to longer term we can be optimistic about medicines and vaccines-- I am optimistic in the medium to longer term-- the next 12 months are going to be tough.

And the degree to which we can help protect the vulnerable, put money in places that will reduce the edge off the pandemic and help keep it down, we strengthen economic activity. The two are very closely tied. So we need a stimulus around the economic damage, and we need investment to keep people healthy, because that's the best way to stimulate the economy.

ADAM SHAPIRO: Well, Rich, eventually we will get stimulus, no matter who wins the election, whether it's enough is a question. But you think some of this should be very heavily concentrated in green and climate change-oriented efforts. Do you think that's realistic if the Republicans win?

RICH LESSER: No, but you asked two questions, so let me answer your first question first. Yes, we need to use this opportunity-- $11 trillion of stimulus globally, massive numbers-- to try to put more green elements into that. There are good jobs to be created. We can accelerate the shift to a lower carbon-intense economy and do it in a way that creates the kind of jobs that the country and the world are going to require in the years ahead and builds competitive advantage, because these are going to be hotly contested industries. That's what we need.

Now, the second part of your question is, what will we get? I don't know. I mean, I think the political divides are so intense right now, and whether we can actually work in our country to get to something which we need for our grandchildren and we need for our jobs in the next couple years, I mean, it's going to be really tough. And I think a divided Washington, which is a real possibility and, frankly, rules that prevent even a majority if you had all three with the current filibuster rules, I think it's going to be a real challenge.

ADAM SHAPIRO: Rich Lesser is Boston Consulting Group CEO. Good to have you here On the Move.