International trade has been the prevailing global policy of the U.S. for decades. But do President Trump’s tariffs signal the end of globalization?
Nobel Prize-winning economist Paul Krugman said that’s likely.
“We have the United States, which is still a key part of the world economy, turning towards high tariffs,” Krugman said. “This is the kind of thing that you would expect to lead to a big rollback in globalization. How much? We’ll find out, but it’s a big deal.”
In the 20th century, what was the economic case for being connected to the rest of the world?
“There’s a standard case in economics which says that trade is good. The main reason is that countries are different, and they can trade to take advantage of their differences. You don’t want to be growing coffee in Canada, but there’s a lot more beyond that. There’s also an advantage to just being able to produce things for a bigger market.
“It’s also worth pointing out that after World War II, the United States — which was very much the leader on this stuff — believed that closer economic ties between countries were good for peace, that more international trade would help the world’s democracies make common cause against the threat from Stalinism. So it was also about peace and security, not just about efficiency.”
Some people say that international trade creates a system of ‘winners’ and ‘losers.’ What do you make of that?
“I think that we actually really understated how many losers there were. When I was doing this stuff in the [1990s], we all understood that there would be winners and losers, that international trade had some dark aspects to it. But we tend to think in terms of broad categories, in terms of workers without a college degree were being hit, and workers with a college degree were benefiting.
“We didn’t think as much as we should have about the highly specific things. You get a bunch of furniture imports from China and they displace a few hundred thousand workers. The U.S. is a giant economy constantly changing. A million and a half people lose their jobs every month. So, what’s a few hundred thousand jobs?
“Well, if all of the jobs are in the Piedmont area of North Carolina, which they were, it’s actually pretty dislocating to the people. It does do a lot of damage to communities. So, there we did miss some of the downside and really were too careless about the impact.
“On the other hand, it’s possible to overstate how much backlash there really was. I mean, if you ask, ‘why are we in this moment,’ it’s not because there are mass demonstrations in the streets of people demanding tariffs. In fact, the tariffs look quite unpopular. We’re in this moment now because one guy who happens to be president of the United States has a thing about tariffs. This is not a deeply rooted policy change.”
Trump has long criticized U.S. trade deficits with countries including Japan and China. Do trade deficits with individual countries matter?
“No, just as simple as that. This is all junk economics.
“I have a trade deficit with my supermarket. I have a trade surplus with my employer. Bilateral trade deficits are all around us. It’s how we live.
“Trump goes on and on about our bilateral deficit with Canada. And aside from the fact that the number he always gives is three times as big as the actual one, it’s also true that that deficit is entirely accounted for by the fact that Canada has oil sands that are supplying crude oil to refineries in the Midwest. And to a certain extent, they have hydropower which they sell to New England and why wouldn’t you wanna do that?
“Yet we have this whole tariff scheme that was unveiled in the Rose Garden, which is based entirely on the view that, not just that we shouldn’t have an overall trade deficit, but that we shouldn’t have a trade deficit with any country. And that’s just nuts.”
The White House says tariffs will help bring factory jobs back to the U.S. Is that a reasonable way to think about this?
“ No. The U.S. does have a trade deficit in manufactured goods. And if we didn’t, if we could eliminate that, then yeah, we would have more jobs in manufacturing. But first of all, the tariffs are unlikely to actually eliminate that deficit. They’re gonna make imports more expensive, but they’re also gonna make domestic production a lot more costly. So, if you actually look at the net effect, it’s not even clear that it will add to manufacturing jobs.
“Some of us like to look at Germany, which happens to run huge surpluses of manufactured goods. Even in Germany, the share of manufacturing and total employment has declined drastically over the past few decades. Modern economies just don’t employ as many manufacturing workers as economies did in the 1950s.”
If this trade war persists, what will be the impact on American consumers?
“In the longer run, meaning a year or two from now, it just means increases in prices that will run well ahead of increases in wages. So, we’ll be talking about people having less purchasing power. It’s a pretty serious cost.
“Then there’s this extra cost right now, which is this wild uncertainty. If you’re a manufacturing company and you’re thinking about your next investment, well, should you invest in a components plant in Mexico or Canada where you would ordinarily do it? Not if there’s gonna be a 25% tariff. You might want to do it in the United States, but should you put it in the United States? Well, what if the tariff comes off? Then you’ve made the wrong investment.
“Basically, you’ve created a lose-lose situation where anything you do has a high probability of turning out to be a stranded investment where you’ve flushed your money down the toilet. So what’s gonna happen — we can already see it happening — is that businesses are putting their plans on hold. Who’s going to want to commit money to an investment project when the whole environment for investment depends upon the whims of Donald Trump? And so many of the private forecasters are now saying, ‘well, recession is more likely than not,’ and it’s coming entirely out of this wildly erratic, unpredictable policy.
“If this happens, and it looks quite likely that it will, it will actually be the first time in history that a president has actually caused a recession.”
Julia Corcoran produced and edited this interview for broadcast with Micaela Rodriguez. Grace Griffin adapted it for the web.
This segment aired on April 8, 2025.
