Pitchfork Economics with Nick Hanauer

Episode: Trade Wars Are Class Wars (with Matthew C. Klein)

Original Release: October 7, 2025
Guest: Matthew C. Klein, co-author of Trade Wars Are Class Wars

Episode Overview

This episode explores the critical thesis from Matthew C. Klein’s book Trade Wars Are Class Wars. Rather than viewing global trade imbalances through the lens of competition between countries, Klein argues these conflicts are best understood as struggles between different classes—capital owners and workers—both within and across borders. The conversation traces how rising inequality drives global economic dysfunction and instability, and how the policy responses of nations like China and the US spill over to affect workers worldwide. Throughout, the hosts challenge traditional economic narratives, interrogate current US trade policies, and seek better frameworks for addressing inequality and international friction.

Key Discussion Points & Insights

1. Rethinking the Narrative of Trade Wars

• Traditional view challenged: Klein rebuts both the populist idea that foreign nations deliberately undermine American prosperity and the “Pollyanna-ish” view that the global economic order pre-2017 was functioning fine.
• Interconnected economies: “Everyone in the global economy and financial system are connected one way or another... Anything that happens anywhere in the world... is necessarily going to have some impact on everyone else.” (Matt Klein, [04:28])

2. Class Conflict at the Heart of Trade Imbalances

• Not just between countries: Trade imbalances originate in how income and power are distributed within nations, not just between them.

• Example – China: The Chinese government’s suppression of domestic consumption, enforcement of regressive policies (like the hukou system), and weak social safety nets limit workers’ purchasing power. This leads to excess savings and export-driven surpluses.

  • “Chinese elites took advantage of Chinese workers and American workers got hosed as a consequence.” (Matt Klein, [09:53])
  • The effect is not only American jobs lost to imports, but also Chinese workers not benefiting from their own labor.

• Example – US & Europe: Similar dynamics operate when Western trade treaties and policies favor capital over labor.

3. Mechanics of Inequality and Its Global Effects

• Rich households & corporations: Extremely wealthy individuals and corporations now save far more than they can spend, requiring ever-growing investments and forcing the rest of the economy (including governments and households) to take on increasing amounts of debt.
• Shifts since 1990s: Corporate reluctance to invest in real assets (preferring financial asset accumulation) and government austerity elsewhere has perpetuated stagnation, imbalances, and crisis vulnerability.

4. Trade Surpluses, Suppressed Consumption, and Economic Policy

• Self-insurance drive: Especially since the Asian Financial Crisis (1997-98), many countries run persistent surpluses to protect themselves from external shocks, building up reserves to avoid IMF interventions identified with “painful” structural adjustment.

  • “Every country that experienced [the crisis], every country that was nearby... said we don’t want this to happen to us.” (Matt Klein, [16:38])

• Cost of this policy: Global underconsumption, weakened global demand, and the burden shifted to nations (like the US) willing to run deficits.

5. Why Tariffs and Traditional Trade Policies Don’t Work

• Tariffs don’t solve root issues: Imposing tariffs to “correct” trade deficits raises costs for consumers without advancing domestic employment or fixing the causes of imbalances.
  • “Using tariffs to address trade deficits can not work or even have the opposite effect of what you want.” (Matt Klein, [25:13])
• Focus should be on macroeconomic, not just trade, policy: Most “trade” problems are symptoms of domestic inequality and macro policy, not failures of trade agreements per se.

6. Comparative Advantage: A Limited Lens

• Ricardian model is oversimplified: In a world with high capital mobility and policy-driven distortions, “comparative advantage” cannot fully explain persistent imbalances or surpluses.
  • “Comparative advantage doesn’t say that you have trade surpluses. It tells you what you make and what you trade.” (Matt Klein, [32:35])

7. Prescriptions and Policy Alternatives

• What should the US do?

  • Don’t rely on tariffs; instead, ensure domestic full employment and robust financial/fiscal policy as offsets.
  • Recognize the global problem of underconsumption, and use public spending/debt strategically to balance out excess savings abroad.
  • Address the international system (e.g., reform the IMF) to reduce the global race for reserves.

• The Biden Administration: Klein suggests some current policies are, unintentionally or not, moving in this direction.

• National security and industrial policy: Some degree of domestic manufacturing protection may be justified—for innovation, security, or to prevent sudden deindustrialization.

Notable Quotes & Memorable Moments

• “It’s not like, oh, Chinese workers took advantage of American workers. It’s that Chinese elites took advantage of Chinese workers and American workers got hosed as a consequence.”
  — Matt Klein [09:53]

• “The only way you’re able to generate a surplus like that is to suppress domestic consumption... That all makes sense to me, but it also feels like when you’re not having a trade war, there’s a class war. The trade treaties that the US negotiated over the past 40 years feel like class wars on the American worker.”
  — Co-host [21:12]

• “A lot of what we think of as trade policy should not be the starting point for thinking about trade imbalances. Trade is fundamentally a consequence of these bigger macro forces... China’s hukou system is not a trade policy. Right. But it’s clearly very important for the outcome.”
  — Matt Klein [24:48]

• “Using tariffs to address trade deficits can not work or even have sort of the opposite effect of what you want. It doesn’t address global imbalances.”
  — Matt Klein [25:13]

• “Comparative advantage doesn’t say that you have trade surpluses... The story of economic development is that comparative advantage can change.”
  — Matt Klein [32:35]

• “Why do you do this work, Matt?”
  “...It was fascinating. I realized this is really important stuff... and to the extent that I can provide a better understanding, that can be very helpful to people because maybe we can avoid having these kinds of catastrophes happen again. So that’s why I do what I do.”
  — Matt Klein [38:04]

Timestamps for Key Segments

• 00:42–03:33 | Setting up the topic, introduction to Matt Klein and his book’s thesis
• 03:47–09:53 | Klein details the “class war” framing of global trade imbalances using China as a case study
• 09:55–14:25 | Discussion of specific policies (hukou system, social safety nets) driving inequality in China
• 15:20–19:48 | The policy motivation behind trade surpluses and the drive for national “self-insurance”
• 22:05–25:13 | Critique of US trade treaties as class war; why fixing trade begins at home
• 25:13–26:13 | Why tariffs don’t resolve global imbalances
• 32:05–34:57 | Comparative advantage, capital mobility, and why traditional theory falls short
• 35:13–38:04 | Critique of present US trade policy: why current approaches remain inadequate
• 38:04–39:00 | Matt Klein’s motivations and why understanding global economics matters
• 41:02–47:02 | Post-interview: hosts reflect on China, Amazon analogy, historical precedents for suppression of labor
• 47:05–48:37 | Summing up: Modern mercantilism, the global “race” for dollars, and impacts on workers everywhere

Closing Thoughts

The episode reframes global trade disputes as the outward expressions of deep, class-driven inequalities. Suppressing workers' incomes, whether in China, the US, or elsewhere, generates both domestic and international distortions. Addressing these problems, Klein compellingly argues, requires a focus not on tariffs or blaming other nations, but on rebalancing income and power at home and managing the global system according to its real—rather than imagined—mechanics.