Kimberly Clausing, a UCLA professor and former Treasury official, and Michael Pettis, a Peking University expert on trade imbalances, share insights on Trump's tariffs. While Clausing critiques protectionism and proposes a progressive trade system, Pettis argues that the reckoning in global trade is long overdue. They discuss how tariffs impact the global economy, the role of the U.S. dollar, and the challenges of American manufacturing. Both highlight the need for a reevaluation of trade strategies that address systemic issues rather than temporary fixes.
Trump's tariffs, while aiming to address perceived trade unfairness, have generated significant market panic and uncertainty among global leaders.
Economists Clausing and Pettis propose contrasting visions for reforming global trade, reflecting deep-seated disagreements on protectionism and economic alternatives.
Rising tariffs may impose an unnoticed tax on American households, risking recession and exacerbating economic instability through delayed business investments.
Deep dives
The Job Market Impact of Trade Policies
Trade policies have both created and destroyed jobs, reflecting capitalism's inherent nature to transform the job market constantly. While some argue that these policies harm the economy, they overlook that automation and corporate consolidation also lead to job losses. The ongoing changes in economics should foster a more realistic understanding of these dynamics, as exemplified by Donald Trump's controversial tariffs, which aimed to adjust perceived global trade unfairness. However, the unpredictable nature of these tariffs has instigated fear among financial markets and uncertainty amongst global leaders.
Differing Perspectives on Economic Overhaul
The global economic system is widely acknowledged to require reform, but differing opinions exist on how this transformation should occur. Economists Kimberly Klossing and Michael Pettis represent two contrasting views; Klossing argues against protectionism and promotes a progressive trade framework, while Pettis highlights the historical context of trade imbalances. Both experts recognize the dissatisfaction felt by American workers and the need for alternatives beyond mere trade restrictions. However, they suggest solutions that diverge significantly, reflecting the complexity of global economic interactions.
Impact of Tariffs on the U.S. Economy
A broad tariff increase, such as a 10% across-the-board tariff, functions as a de facto tax on American households, raising the cost of goods and potentially leading to recessionary pressures. This tax increase is rarely acknowledged in the political discourse, despite its significant implications for consumers and small businesses reliant on imported goods. Many businesses are currently delaying investments due to the uncertainty surrounding these tariffs, exacerbating economic instability. The combination of high tariffs and retaliatory actions risks damaging not only the U.S. economy but the global economy as well.
The Erosion of U.S. Economic Influence
Countries are increasingly seeking to establish trade agreements independent of U.S. influence, prompting concerns about the United States' long-term economic position. This ongoing trend may lead to diminished soft power, as allies and trading partners reevaluate their relationships with the U.S. amid erratic trade policies. Historical patterns during the Trump administration illustrate how European countries began forging their trade agreements, indicating a shift in relationships motivated by perceived unpredictability. This ongoing pivot could ultimately weaken the U.S. standing in the global economic landscape.
Concerns Surrounding the Dollar's Dominance
The status of the U.S. dollar in the global economy faces significant scrutiny, with potential ramifications for American consumers if confidence wanes. The dollar's historical strength has allowed the U.S. to borrow at low-interest rates, promoting higher consumption levels, but current policies threaten to undermine this advantage. Increased borrowing costs may lead to higher mortgage rates and consumer debt, impacting average Americans' purchasing power. As international sentiment shifts regarding the U.S. financial system, the possibility of a less stable dollar raises alarms about the implications for American economic stability.
Donald Trump’s embrace of tariffs should come as no surprise. For decades, he has claimed that other countries are ripping Americans off—and promised to use tariffs to remake a global trade system that, in his view, has been deeply unfair to the United States. But almost no one anticipated a trade and tariff policy as extreme and erratic as the one the world has seen since Trump proclaimed “Liberation Day” at the beginning of April.
The sweeping tariffs on U.S. partners and rivals alike unleashed panic in the financial markets and in capitals across the world. Even a pause and negotiations on many of those tariffs has done little to assuage the concerns of foreign leaders, businesses, and consumers, who remain uncertain about the effects of the tariff regime, and the strategy behind it.
The economists Kimberly Clausing and Michael Pettis both agree that the global economic system was in need of an overhaul—but they disagree about what that overhaul would look like.
For a special two-part episode, Dan Kurtz-Phelan spoke with each of them about Trump’s signature economic policy. Clausing, a professor at UCLA, makes the case against Trump’s protectionism and sketches out a progressive blueprint for the global economy. And Pettis, a professor at Peking University in Beijing and a longtime skeptic of the free trade consensus, argues that this reckoning in global trade has been decades in the making—and considers what an alternative economic system could look like.
In these separate conversations, they discuss the state of the world economy, the logic behind Trump’s tariff gambit—and whether the U.S. president’s attempt to rewrite the rules will pay off.
