Chad Bown Interview Interview The Trade Talks Paul Krugman For various topics related to trade and industrial policy (March 16, 2025, “Paul Krugman is trading, industrial policy and Trump”). Here are some opinions that caught my eyes.
If you are worried about the dependence of the US economy for a foreign supply chain for certain products, the appropriate answer can be industrial policy but not tariffs.
Max Corden’s 1974 Book Trade policy and economic welfare It is related. And if Corden and others think that they should be produced, they encouraged production. The answer is industrial policy. The answer is to pay or promote subsidies. In general, tariffs may not need side effects. If you are worried that too many world semiconductors are being produced within a prominent range of China, we would like to pay subsidies for high -end semiconductor production in the United States. But this is not a good reason to increase the cost of semiconductor in the American stream industry. Therefore, there is a very powerful case of industrial policy. That is a general principle.
Now it’s tricky to actually implement. The point of this aggregation economy is that once it is well established, it is difficult to break. … So it will be expensive and difficult if you want to develop a competitive aggregation for existing aggregates that you think you are in the wrong place. This does not mean that you shouldn’t do that, but you must realize that you don’t throw a few dollars about the problem.
European competitiveness problem:
I think that if the Europeans are not compared to the United States, they will feel relatively good about their economic performance. The old euro sclerosis of continuous high unemployment has disappeared. In general, major age workers are more likely to work in Europe in more ways than the United States, and the quality of life is fine. Their life expectancy is longer than us. As a result, Europe is clearly behind in some advanced technologies, and it looks quite good except that a significant productivity gap has opened. …
The important part of the productivity gap between the United States and Europe is actually very localized. It is a reasonable speculation that about half of the differences in the US-European productivity differences reflect the very high value per worker of Silicon Valley and Seattle. Seattle is operated in one side of the continent in the same way, and others operate in a larger New York. It is actually the difference between the aggregation of the technology industry in the Silicon Valley and the aggregation of the financial industry on the east coast.
About why tariffs are not answers to US trade deficits:
Customs may not make much effort to reduce trade deficits. There is a little subtle, but the basic point of the textbook economy says that the trade deficit is actually determined by a capital account. The fact that foreigners want to invest in the United States -there is a net influx of capital. As an accounting issue, we mean that there must be a trade deficit on the other side.
“What happens if you have tariffs?” The answer is that the dollar rises, even if other countries don’t retaliate. And we have low imports, but exports are low because the dollar is stronger. Of course, if other countries retaliate, we do not need $ 1 strongly. But in any way, exports almost offset the impact on imports. …
Within the scope we talk, tariffs will not affect the trade deficit. At the same time, they will increase the cost. What actually stands out… It was this unbalanced tariff on intermediate products rather than consumer goods, which meant that even manufacturing did not benefit. You probably had been actually reducing the manufacturing industry. And we are doing it again. When we are talking, the tariffs that have already been fermented are in steel and aluminum. It is good for steel and aluminum manufacturers, and clearly, lawn furniture has been dealt with for any reason. But it’s pretty bad for others who are down streams. They do not even seem to achieve even their own scalable goals.
