Odd Lots Podcast: Ricardo Hausmann on What it Takes to Win a Trade War Bloomberg, Released June 12, 2025
In this insightful episode of Bloomberg's Odd Lots, hosts Joe Weisenthal and Tracy Alloway engage in a deep conversation with Professor Ricardo Hausmann of the Harvard Kennedy School. The discussion delves into the complexities of trade wars, economic complexity, and the intricate web of international trade that underpins modern economies.
1. Understanding Economic Complexity
Timestamp: 01:41 - 03:05
The conversation opens with Joe Weisenthal and Tracy Alloway revisiting a metaphor introduced by Hausmann in a previous episode. Hausmann likens a country's economic complexity to monkeys swinging from trees in a forest, where each tree represents a different industry or product. This metaphor illustrates how businesses evolve by leveraging existing knowledge to branch into adjacent industries, fostering economic growth and wealth.
Notable Quote:
"The more complex Economies, the bigger forests, the more monkeys swinging from trees are indicative of greater advancement and more wealth." — Tracy Alloway [02:10]
2. Impact of Trade Barriers on Economic Complexity
Timestamp: 03:45 - 08:19
Joe raises concerns about the implications of trade barriers, such as tariffs between the US and Canada, on the intricate supply chains that enable the production of complex goods. Hausmann explains that increasing trade barriers disrupts the "knowledge mobility" necessary for industries to function efficiently. He emphasizes that tariffs can inadvertently make it harder to assemble complex products by restricting access to essential components, ultimately harming both producers and consumers.
Notable Quote:
"Tariffs may not be the right instrument because they are essentially dumping the cost on the consumers of that industry." — Ricardo Hausmann [13:00]
3. Alternative Policy Instruments to Tariffs
Timestamp: 08:35 - 14:27
Tracy probes whether tariffs or other protectionist measures can be designed to preserve essential knowledge and component access for building complex industries. Hausmann argues that while industrial policies are sometimes necessary, tariffs are often suboptimal. Instead, he suggests alternative measures like subsidies, tax incentives, or government guarantees that can better support fledgling industries without imposing broad costs on consumers.
Notable Quote:
"The moment you intervene with tariffs, you're essentially dumping the cost on the consumers of that industry." — Ricardo Hausmann [13:00]
4. Case Study: Poland’s Economic Transformation and Internal Trade Dynamics
Timestamp: 16:05 - 26:59
Hausmann discusses Poland's surprising economic boom, where increased trade has significantly benefited urban areas while leaving smaller, less metropolitan regions behind. This disparity has fueled political backlash, reminiscent of the US Midwest's struggles post-industrialization. He highlights that the benefits of trade are unevenly distributed within countries, leading to internal economic and social tensions.
Notable Quote:
"Poland has seen rising market share across the board in all industries... But what has exploded in Poland has benefited these larger urban areas and has hurt the smaller, less metropolitan parts of the country." — Ricardo Hausmann [21:51]
5. The Role of Knowledge and Foreign Direct Investment (FDI) in Trade Statistics
Timestamp: 27:48 - 40:42
A significant portion of the discussion centers on how traditional trade statistics fail to capture the true value of a country's economic activities abroad. Hausmann explains that intangible assets like intellectual property and brand value are often omitted from standard accounting measures, leading to an underestimation of a nation's external economic position. He uses the US as an example, where substantial investments abroad generate returns that aren't accurately reflected in official trade deficits.
Notable Quote:
"Knowledge is intensive, then book value becomes less of a guide on what's actually happening in a lot of international trade statistics." — Ricardo Hausmann [40:42]
6. Urban Supply Dynamics and Upward Mobility
Timestamp: 41:01 - 43:14
The hosts explore the challenges faced by cities in providing upward mobility. Hausmann attributes the issue to regulated urban spaces with inelastic housing supplies, making cities unaffordable and limiting opportunities for newcomers. He contrasts this with smaller cities that can offer more affordable living but may lack the diverse talent pools necessary for complex industries.
Notable Quote:
"If cities had a more elastic supply of housing, this dynamic would help generate more opportunities in those cities and would help maybe raise the price of labor in the cities where people are leaving because now they've become scarcer." — Ricardo Hausmann [42:11]
7. Final Thoughts and Future Considerations
Timestamp: 43:22 - 46:23
In closing, Hausmann emphasizes the importance of recognizing the limitations of current trade statistics and the need to account for intangible assets in economic analysis. The hosts reflect on the implications of his insights, pondering the true state of the US external deficit and the broader consequences for global trade dynamics.
Notable Quote:
"What you're saying is that official trade statistics don't capture the fact that market value of this trade and which you could see in the stock market trading in the United States is much higher than what just sort of like what is captured in the activity." — Joe Weisenthal [43:41]
Conclusion
This episode sheds light on the intricate relationship between trade policies, economic complexity, and global supply chains. Professor Ricardo Hausmann provides a nuanced perspective on how traditional economic measures may overlook critical aspects of modern economies, urging policymakers and economists to adopt more comprehensive frameworks for understanding and fostering economic growth.
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