My Roundtable with Larry Summers, Jason Furman, and Rebecca Patterson

And more from this week...

I was determined not to make this roundup solely about trade and tariffs but, reviewing all the articles from the past week that I’d clipped for potential discussion, well… they’re all about trade and tariffs. That’s pretty much all anybody has been talking and writing about this week. So we’re just going to steer into the skid here, and hopefully you’ll at least appreciate you’re getting this guide to the week from someone stuck in the middle of it all.

As such, your one thing to read this week is the rollicking economists’ roundtable from the New York Times: ‘I Hope I Am Wrong, but I Am Pretty Pessimistic’: Four Economists Dissect Trump’s Tariffs.

I had a great time participating in this along with Larry Summers (former Secretary of the Treasury), Jason Furman (former chair of the White House Council of Economic Advisers), and Rebecca Patterson (former chief investment strategist at Bridgewater Associates). The Times does not do these roundtables as transcripts of live conversations, but rather connects all the participants to a single live document and has us all type simultaneously in response to the editor’s questions and each other. It works surprisingly well, and generates a lengthy document that must then be cut back down to a readable length.

Thankfully, here at Understanding America, we have no word limits. And there are a few points from the discussion upon which I wished to expand. So go read the whole thing, it is after all your one thing to read, and then come back here.

First Point. Notice the extent to which anti-tariff economists are still resting their case on the empirically failed narrative that trade is good because it leads to better jobs in a more export-oriented manufacturing sector. As I quote Robert Solow, making the case for embracing China in 2000, “China will compete for some low-wage jobs with Americans. And its market will provide jobs for higher-wage, more skilled people. And that’s a bargain for us.”

This obviously did not happen. U.S. manufacturing employment first reached 17 million jobs in 1965 and then remained in a band roughly between 17 million and 19 million jobs for 35 years. In March 2001, that job total fell below 17 million, and by March 2004 it hit 14 million. In March 2010 it was 11 million.

During that period, from 2001–10, imports from China increased by more than $250 billion. Exports to China increased by $70 billion. Nor were we at least winning in high-value goods. For advanced technology products, imports from around the world grew from $195 billion to $354 billion, more than twice as fast as the growth in American exports to the world, from $199 billion to $273 billion. Even there, what had once been balanced trade became a gaping deficit.

The economy evolved toward a set of high-value service jobs occupied by an entirely different set of workers in entirely different places, while those workers who had previously held good manufacturing jobs found themselves shunted into much lower-quality service jobs. This is the key finding from the latest research by David Autor and his colleagues, which we discussed on the American Compass podcast a couple of weeks ago.

Yet economists continue to make their rosy, imaginary scenario the basis of their argument. Thus, in the roundtable, Furman argues that protectionism is unwise because “any attempt to curb imports also reduces exports. And exports are also good because they let Americans work in higher-paid, more productive jobs.” Summers tries to suggest that “the problem is that protectionism creates, for example, textile jobs at the expense of high-tech manufacturing jobs.”

(Also somewhat amusingly, Furman tries denying free trade’s impact on manufacturing altogether on the grounds that “Billy Joel sang ‘We’re living here in Allentown and they’re closing all the factories down’ in 1982, long before NAFTA or the rise of China,” which, I mean, great song and all, but I’d rather use Bureau of Labor Statistics data if that’s OK.)

If free trade really did boost exports alongside imports, helping Americans work in higher-paid, more productive jobs, that would be a really strong argument for it. If it really did replace textile jobs with high-tech manufacturing jobs, we wouldn’t have a $1 trillion trade deficit (nor a surging deficit even in advanced technology products). No one would be proposing tariffs now. The economists have an impeccable case on the blackboard, it just bears no relationship to reality.

Second Point. I just really loved the discussion of the macroeconomic models. It is the macro models, after all, that are supposed to prove the wisdom of free trade in promoting growth and efficiency and so on, and the futility of protectionism in ever delivering a better outcome than that which the unfettered market offers. But as Furman notes, those models produce quite modest estimates for the potential cost of the new Trump policies. Could that be?

Apparently not. Faced with estimates that do not support the narrative, both Furman and Summers dismiss the models out of hand. To be clear, I agree the models cannot possibly produce useful estimates for the costs of reordering the international economic system. They operate at an entirely theoretical, aggregate level. Many of the risks are at the micro level (for instance, the average increase in prices economy-wide is not large, but for particular firms or industries the increases could be catastrophic, and failures there could ripple outward). For many others, the main transmission mechanism is psychological.

But how peculiar to confidently dismiss out of hand the short-run cost estimates for a massive shift in trade policy as inapposite, while insisting that the models can predict well the long-run effects. The macro models do not acknowledge that “making things matters” or that a robust industrial base and investment spread more broadly across the country have critical benefits in the long run. Perhaps we should stop using the macro models as the foundation of our arguments about the economy’s structure, and about tradeoffs across sectors and job types, when it comes to both costs and benefits.

Point 3. I was fascinated by Summers’s lament that “What is especially troubling about this episode is that the boundaries of possible trade policy have been widened to include degrees of protectionism and policy variability that would have been unthinkable even during the first Trump administration.”

As a description of the dynamic, this is entirely accurate. But it brings to mind Harvard economist Dani Rodrik’s experience writing his 1997 book, Has Globalization Gone Too Far. Rodrik relates that a prominent economist (hint: Paul Krugman) “told me he had no quarrel with my economics, but that I should not be ‘providing ammunition to the barbarians’—that is, I should not give comfort to all those protectionists who stand ready to hijack any argument that seems to provide intellectual respectability to their positions.” Krugman himself famously advised that in making the case for free trade, “What does work, sometimes, is ridicule. If you can make someone who imagines himself to be a deep sophisticate look silly, sometimes it gives him—or at least someone else who might be tempted to follow the same route—pause.”

This sort of ideological enforcement has been the modus operandi of the free-trade absolutists for decades, and now it is breaking down. As I told the Washington Post’s Shadi Hamid this week in what I thought was my best Q&A:

The broader conflict is fascinating because it speaks to this moment of crisis the economics profession is in. They really did stake an enormous share of their credibility on their claim that they alone understood the wisdom of free trade and everybody else needed to fall in line.

Economics on this issue has become closer to a religious orthodoxy than an academic discipline. And what’s happening now is the sort of thing you see when a religious orthodoxy breaks down. You have the fundamentalists who are doubling down. And you have a lot of people trying hard to discover the truth. Then you have most people, who are just confused. That makes for a very interesting and exciting time, but also a somewhat chaotic one.

Summers has always been a strong proponent of the “all economists agree” appeal to authority. In 2000, making the case before Congress on embracing China, he testified, “It has sometimes been remarked that asking five economists a question will generate ten different answers. On this issue there has been only one answer: that welcoming China into the global economic system is right for the American economy and for the global economy.” As recently as this January he was attempting to organize “an extraordinary act of unity,” in the form of an open letter from the economics profession condemning tariffs. Interestingly, as far as I can tell, that effort never bore fruit.

So yes, I do believe that Summers finds especially troubling the expanding set of plausible trade policies that might be weighed and debated in the public square. Still, it’s not the sort of thing one usually says out loud.

WHAT ELSE SHOULD YOU BE READING?

Trade Deals in the Time of Tariffs | Oren Cass, Commonplace

If I may recommend something of my own—I wrote this on Thursday, after President Trump announced the 90-day suspension of most reciprocal tariffs. I explain in more detail the advantages of phasing in tariffs more slowly, why I think this shift actually increases U.S. leverage, and what I see as the most likely paths forward from here.

China Gains Dexterous Upper Hand in Humanoid Robot Tussle with US | Financial Times

This is such an evocative illustration of why making things matters and why the things you make today determine what you will be able to make tomorrow. Sure, let the low-end stitching and metal-bending and assembly go overseas, WE will excel in the technologies of the future like humanoid robotics. Nope! “China’s deep electronics and EV supply chain has given the country a head start, according to researchers, with many of the components for humanoid robots already made in the country and included in electric vehicles.”

Bonus link: Hey, remember where China got that lead in EV supply chains from? It started when they used *whispers* tariffs *ok, done whispering* and other protectionist measures to force Tesla to move its manufacturing hub to Shanghai. I tell the story in “The Electric Slide.”

Bonus bonus link: At least we still lead in producing viral videos of dancing robots rockin’ out to Motown classics. Maybe those are the “jobs for higher-wage, more skilled people” that the economists keep promising?

The US Would Be Better Off Without the Global Dollar | Michael Pettis, Financial Times

The strength of the dollar was another topic we covered in depth in the roundtable. Most economists consider the dollar’s status as the world’s reserve currency to be an “exorbitant privilege,” allowing the U.S. to borrow cheaply, consume more than it produces, and wield financial power in global affairs. I disagree and have been much influenced in that view by Pettis, who presents his argument well here.

Coalition of the Compelled | Michael McNair

McNair shares my general assessment of what the Trump administration is trying to achieve, in forcing allies both to move toward balanced trade and to join the U.S. in confronting China. His fantastic contribution here is an in-depth list of policies that countries can use to increase or reduce their trade surpluses, and a range of examples from history when countries pursued coalition-based trade strategies. Hugely helpful in moving beyond the abstract “grand strategy” discussions to a concrete grasp of what might actually be done.

AND AT COMMONPLACE

Sorry, yet more tariffs. But Commonplace has really demonstrated one of its indispensable roles over the past week, providing a forum for a robust discussion of this tectonic shift in global economic policy from leading experts and a wide range of perspectives. You can find the full symposium consolidated here.

In particular, check out:

Trump's Reagan Reset Moment | Henry Olsen. History provides a roadmap for a popular tariff future.

The Global Trade Realignment is Coming | Nick Phillips. After a week of volatility, a grand bargain is materializing.

A Trust Broken on Tariffs | Brian Dijkema. The wreckage of Liberation Day, to the U.S.’s relationship with Canada, and beyond.

And did you know that a bill to impose a 10% global tariff was already active in Congress, introduced by a conservative Democrat from Maine? Rep. Jared Golden joined me on the American Compass Podcast to discuss the importance of action on tariffs in Congress, where the rubber meets the road on trade for his constituents in rural Maine, and whether tariffs can become a bipartisan issue again.

As always, check out commonplace.org, follow us on X @commonplc, and subscribe for regular articles directly in your inbox.

Enjoy the weekend!