Paul Krugman on the ‘Biggest Trade Shock in History’
About this episode
Krugman dissects the 'biggest trade shock in history': an average tariff around 23 percent, higher than after Smoot-Hawley, calculated by a bizarre formula dividing bilateral trade deficits by imports and halving the result — possibly suggested by an AI chatbot. He layers the 'wrongness': tariffs on intermediate goods like steel raise costs for downstream U.S. producers; wildly different country rates create rules-of-origin chaos; the integrated North American auto industry faces cascading costs; retaliation shrinks exporters' markets. Most damaging is not protectionism but its instability — no firm can plan investment around tariffs that may change next week. He argues the reserve-currency story for deindustrialization is mostly mysticism (capital inflows reflect U.S. attractiveness), manufacturing's employment decline is driven by automation, and the real driver is Trump's crude intuition plus courtiers who won't tell him no.