Are Trump’s Tariffs Trying to Solve a Problem That Doesn’t Exist?

Summary

Podcast Summary: "Are Trump’s Tariffs Trying to Solve a Problem That Doesn’t Exist?"

Podcast Information

• Title: The Opinions
• Host/Author: The New York Times Opinion
• Description: You've heard the news, here's what to make of it.
• Episode: Are Trump’s Tariffs Trying to Solve a Problem That Doesn’t Exist?
• Release Date: May 12, 2025

Introduction In this compelling episode of The Opinions, hosted by David Leonhardt, director of the New York Times Editorial Board, the discussion centers on the efficacy and repercussions of former President Donald Trump's tariff policies. The episode delves deep into whether these tariffs address genuine economic issues or are symptomatic of broader political and social frustrations.

Understanding Modern Trade Dynamics David Leonhardt begins by setting the historical context of modern trade, tracing its evolution from post-World War II through the early 21st century. He highlights how tariffs have generally declined since the 1940s, propelled by global trade agreements and reductions in transportation costs, leading to a peak in global trade around 2008 and a plateau thereafter [00:44].

Guest Introduction: Jason Furman Leonhardt introduces his guest, Jason Furman, an esteemed economist and contributing writer for Times Opinion. Furman is recognized for his ability to demystify complex economic concepts for the general public and his advisory roles to Democratic politicians, including Barack Obama [01:48].

The Positive Impact of Trade Furman passionately argues that modern trade is indispensable to the American lifestyle. He illustrates this with everyday examples, such as toothbrushes made in Vietnam, phones designed in the U.S. with components from Taiwan and Korea, and mattresses from Germany. He emphasizes that these global supply chains are particularly beneficial for low and moderate-income households who rely on affordable goods [04:14]. Furman asserts:

“Trade frees us up to have better jobs. It is part of our living standard and it is especially important to the most hard-pressed Americans.” [04:14]

He contends that without such trade, American jobs would either be of lower quality or products would be significantly more expensive, thereby reducing overall living standards.

Addressing Economic Inequality Leonhardt raises a critical point regarding the stagnation of wages and increasing economic inequality despite the rise in trade. Furman responds by minimizing the role of trade in these issues, attributing economic struggles of lower and middle-income Americans more to domestic policies rather than international trade. He notes that only a small fraction of job losses can be directly linked to trade, arguing that the broader benefits of trade outweigh these localized costs [06:01]. Furman states:

“I think trade is a secondary or tertiary thing. I think it's more of a positive than a negative in terms of evaluating those trends.” [07:07]

The Costs of Trade: A Balanced Perspective When confronted with evidence suggesting that trade with China may have cost over 2 million American jobs in the 2000s, Furman contextualizes this figure by comparing it to the total job losses during the same period. He suggests that the net effect of trade on manufacturing jobs might be neutral, considering the simultaneous increase in exports and the broader economic benefits [09:58]. Furman emphasizes:

“I think it's completely plausible that the net effect of trade on manufacturing jobs was roughly neutral over the last 25 years.” [10:49]

Global Benefits of Trade Leonhardt shifts the focus to the global stage, highlighting the dramatic reduction in global poverty attributed to trade, especially in countries like China, India, and regions in Latin America. Furman wholeheartedly agrees, dismissing early criticisms of globalization as misguided and emphasizing that the period from 2000 to 2025 stands as one of the most prosperous in global economic history [12:36]. He remarks:

“The quarter century from 2000 to 2025 might be the best period in the history of the global economy.” [13:29]

Trade and Political Outcomes: A Nuanced Relationship Addressing the expectation that trade would promote democracy and reduce authoritarianism, Leonhardt notes the apparent failure of such theories. Furman acknowledges that while trade may reduce the likelihood of war between trading nations, its impact on democratization is ambiguous. He concedes that the hoped-for spread of freedom and democratic values through trade has not materialized as expected [14:19].

Reflecting on Past Trade Policies Leonhardt expresses a desire for more humility from trade advocates regarding the unintended negative consequences of trade policies, such as community devastation and political polarization. Furman agrees, advocating for a focus on domestic solutions like education, retraining, and wage insurance rather than linking assistance directly to the causes of job loss [16:13]. He asserts:

“If you turn down every opportunity to make 95% better and 5% worse, or even, by the way, every opportunity to make 2/3 better and 1/3 worse, you're going to end up collectively just much, much poorer.” [21:22]

The Future of Tariffs and Trade Policy Discussing the current political climate, Furman predicts that tariffs under Trump's administration will likely lead to higher inflation and unemployment in the short term. He anticipates that the U.S. will experience a decrease in its import and export shares due to retaliatory measures and shifting resources [18:58]. Regarding long-term implications, Furman speculates on whether these tariffs will become a lasting policy or remain a temporary aberration.

Recommendations for Democratic Trade Policy Looking ahead, Furman outlines a strategic approach for the Democratic Party's trade policy, dubbed "Project 2029." He emphasizes differentiating between China and other trading partners, advocating for continued integration with the rest of the world while maintaining stringent controls over national security-related sectors with China. Furman praises the Biden administration's "small yard, high fence" approach, advocating for focused tariffs on critical industries like microchips while allowing free trade in less sensitive sectors [20:40]. Additionally, he urges Democrats to address domestic issues without scapegoating foreign nations, thereby avoiding distractions from solving internal problems [22:26].

Conclusion The episode concludes with Leonhardt expressing gratitude to Furman for his insightful analysis. The discussion underscores the complexity of trade policies, balancing economic benefits with societal costs, and the importance of nuanced policymaking that prioritizes both global prosperity and domestic well-being.

Notable Quotes:

• Furman on the indispensability of trade: “Trade frees us up to have better jobs. It is part of our living standard and it is especially important to the most hard-pressed Americans.” [04:14]
• Furman contextualizing job losses due to trade: “I think it's completely plausible that the net effect of trade on manufacturing jobs was roughly neutral over the last 25 years.” [10:49]
• Furman on global economic history: “The quarter century from 2000 to 2025 might be the best period in the history of the global economy.” [13:29]
• Furman on making trade-offs: “If you turn down every opportunity to make 95% better and 5% worse, or even, by the way, every opportunity to make 2/3 better and 1/3 worse, you're going to end up collectively just much, much poorer.” [21:22]

Final Thoughts This episode of The Opinions provides a thorough examination of the ramifications of Trump's tariff policies, advocating for informed and balanced trade strategies. Jason Furman's insights highlight the necessity of embracing trade for its broad economic benefits while acknowledging and addressing its localized impacts through supportive domestic policies.

Transcript

[Host]

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[Announcer]

This is the Opinions, a show that brings you a mix of voices from New York Times opinion. You've heard the news. Here's what to make of it.

[David Leonhardt]

I'm David Leonhart, the director of the New York Times Editorial Board. I've been reporting on trade in recent months to figure out how my colleagues and I should editorialize about President Trump's tariffs. It's quite clear to us that Trump's tariffs are a bad idea. It's less clear what an ideal trade policy would look like. For a long time, economists have argued that trade is good and that the country should want more and more of it. But the evidence isn't so clear. As trade has increased in recent decades, economic inequality has soared and a lot of once thriving communities have really struggled. President Trump and Vice President J.D. vance Congressman claim that their tariffs will turn those communities around. For 40 years, we've had an economy that rewards people who ship American jobs overseas and raises taxes on American workers.

[Host]

And we're flipping that on its head. We're going to cut taxes for American.

[David Leonhardt]

Workers and for American companies that build here.

[Host]

We're going to make it harder to ship American jobs overseas.

[David Leonhardt]

My guest today, Jason Furman, thinks that this is a terrible idea. Jason is an economist who's a contributing writer for Times Opinion, and Jason spends a lot of time thinking about how to explain complicated economic ideas to non economists. He teaches the huge intro econ course to Harvard undergraduates, and he's long been advising Democratic politicians, including Barack Obama. Jason is no Pollyanna, but he's pretty positive about trade, certainly more so than many American voters are. So I wanted him to come on the Opinions today and make a case that trade is good and explain how it really has benefited our country. And when I invited Jason to come on, I was honest with him. I said I'm going to ask skeptical questions and push him to give a more persuasive case in favor of trade than many of his fellow economists have managed to do. Jason, thank you for joining us.

[Host]

Thanks for having me.

[David Leonhardt]

So let's start by helping people understand how we got Here, how would you define the modern era of trade? Roughly when did it begin and what has it actually changed?

[Host]

So let's go back a while. Trade kept increasing up through World War I as transportation costs fell. Then it fell dramatically, fell even more when there was a set of tariffs called Smoot Hawley in the United States in 1930. And then from basically the end of World War II through 2017, tariffs kept going down and down and down. They went down through global trade agreements, they went down through individual free trade agreements. The cost of trade went down. And as all of that happened, trade went up and up and up. It reached a peak around 2008 and it's basically plateaued since then.

[David Leonhardt]

I've told you before that I think a lot of economists have done a bad job making the case for trade. I think their arguments are often technocratic and they talk about trade deficits and economic models. And so I'd like you to be more tangible if you can be. Can you help people understand how is it that you think this era of high trade of recent decades has improved the lives of Americans?

[Host]

Right. It is just unimaginable that we could live anything resembling the lives we live without massive, massive amounts of trade. For example, you wake up and, and you pick up your toothbrush. It was made in Vietnam. You put some toothpaste on it. The ingredients came from Germany. You get a shirt. The cotton was grown in the United States, spun in Mexico, dyed in Indonesia and sewn in Bangladesh. You pick up your phone, it was designed in the United States. The chips came from Taiwan, the display from Korea, the gyroscope from Switzerland. You get your morning coffee that came from Ethiopia, eat it with a banana that came from Guatemala, and I'll skip the rest of the day just culminating in when you go to sleep in your Ikea bed with a German memory phone, mattress and sheets made in Egypt. Everything I just described is much more important to low and moderate income households than high income households. High income households are spending a bunch of money on travel, restaurants, getting massages and the like. These are, for the most part, services. It's lower income households that are disproportionately dependent on everything that I was talking about. The final thing I'd say is imagine an alternative world where all of those different things from your toothbrush through your memory foam mattress were made in the United States. Those would be much worse jobs than the jobs we have. They would pay much worse and those products would just be much, much more expensive for all of us. And so trade frees us up to have better jobs. It is part of our living standard and it is especially important to the most hard pressed Americans.

[David Leonhardt]

When I think about that, theoretically or logically, it makes some sense to me. But this is the big stumbling block I keep running into. By most measures, life for lower income and middle income people in this country has improved much more slowly in recent decades either than it did in the past or certainly than it has for upper income people. And so when I look at the overall trends over the last few decades, things haven't really been that good for lower income and working class Americans. That doesn't mean trade is the reason. But I'm kind of curious. Do you reject the story I just told and do you actually think, no, life is much better for most Americans than I just suggested? Or do you, do you fundamentally accept that story, but think actually trade is the exception that has really helped ordinary Americans? And without high trade, things would be even worse for lower income and working class Americans. Or maybe there's a third story.

[Host]

So first of all, I think we're always very quick to blame trade for things. If you look at mass layoffs, for example, back when we used to collect the data, we don't anymore, about 2 or 3% of them were due to trade and outsourcing. Every year there's 20 million American workers that lose their jobs and just a tiny fraction of them are due to trade. So I do think we create this greater importance. And I think some of that is just a deep seated philosophical nativism we have that we want to blame things on other countries and foreigners rather than taking responsibility for our own choices. So first of all, in thinking about the broad trends, I think trade is a secondary or tertiary thing. I think it's more of a positive than a negative in terms of evaluating those trends. If I roughly group the United States into blocks of a quarter century, the best quarter century was 1950 to 1975. Very rapid income growth, not much inequality. The second best was 2000 to 2025, where we had the second most rapid income growth and ambiguous inequality. And the worst by far was 1975 to 2000, which happens to be the period before the rise of China and most of the period before NAFTA as well. And that's when you saw a real explosion of inequality and a real stagnation of wages at the bottom.

[David Leonhardt]

And so maybe to try to wrap up this part of the conversation, I think I hear you saying, look, whatever big economic problems we have in this country for people of lower incomes and middle Incomes to trade isn't causing them. And in fact, trade on net for most Americans really has been positive. And we shouldn't blame trade for other problems that we have.

[Host]

Yes. So first of all, I think things are getting better economically. Incomes rising, different measures of inequality unclear. They're not getting better as fast as they were in the past. But we are making progress. And yes, trade is helping with that progress, not hurting with it.

[David Leonhardt]

Okay, so we've been talking about the benefits. Let's talk a little bit about the costs. Academic research has shown that trade with China alone appears to have cost more than 2 million million jobs in, in the 2000s. And when economists talk about that, they say, look, trade is always going to have winners and losers. How do you think about the real costs of trade? And how could we have done a better job helping people who in fact have borne the brunt of the costs of trade?

[Host]

Yeah, so that 2 million number came from a very influential paper. It was the terrific paper, but it was the beginning of a long literature. They only studied the gross job changes. And even there, let's put them in perspective. Two million out of. Over that same period, 250 million people were laid off or discharged from their jobs. So even over that period, you're talking about less than 1% of the job loss was due to trade. They didn't study the ways in which expanded trade with China increased our exports. And, and they certainly didn't incorporate the price effects and the consumer side. So take all of that together. I think it's completely plausible that the net effect of trade on manufacturing jobs was roughly neutral over the last 25 years.

[David Leonhardt]

Wait, let me stop you there. So, so neutral. Because even if it cost the 2 million jobs, it added manufacturing jobs, how?

[Host]

Two ways. One is it's very hard to have a successful manufacturing industry if you don't have good machinery to make stuff with, you don't have raw materials, and all of those increased as a result of trade. And second of all, exports. And so I think it is perfectly plausible that we lost manufacturing jobs. I think it's also perfectly plausible that it was net neutral and just a gut check on the whole thing. The manufacturing job share has been declining basically continuously since the 1950s. And you don't notice any break at all around NAFTA or around China's entry to the wto. I mean, manufacturing job loss is a, is a very old story, and if anything, it's stabilized a little bit in recent years.

[David Leonhardt]

We've been talking about the United States. Let me ask a Little bit about the rest of the world here. It seems to me that for much of the rest of the world, trade has been enormously positive in recent decades, that we've basically seemed to have the. The most rapid decline in poverty in recorded history since 1990. And a huge portion of that is people in places like China and India and Latin America being able to have jobs that come from trade, that they now work in factories and they export things to the United States and Europe and other countries. And that has played a really important role in the decline of global poverty. And that even for people who are more alarmed about the effects of trade within the United States, it's important to recognize the huge benefits it's had globally. Is that a fair story, do you think?

[Host]

I think that's incredibly fair story. And when things turn out differently than you expect, you should update. In 1999, there was a real reaction against globalization. It was the battle in Seattle at the WTO ministerial in Seattle. And partly that was people concerned about what it would do to the United States. But a lot of it was this argument that trade is exploitation, it's going to hurt poor countries, it's going to enrich global corporations at the expense of the global poor. And that was just completely wrong. Completely, completely wrong. When we write the economic history of the world, the quarter century from 2000 to 2025 might be the best period in the history of the global economy. So you really want to update your views in that respect.

[David Leonhardt]

I like the idea that we should update our views in. In the face of new evidence. And so here's one that I think is less convenient for centrists, which is a lot of advocates of trade either suggested or promised that it would spread freedom and democracy in other countries. I mean, it was part of the. The bipartisan consensus that we heard from Bill Clinton, for whom you worked, and both George Bush's was a world that trades more will be a freer, more democr. That prediction just seems to have been wrong. And it seems to me important that centrists update their views and acknowledge that whatever the economic benefits of trade, it really doesn't seem to have had the political benefits that many of its advocates predicted. Do you think I'm being unfair there?

[Host]

I think you're right there. Let's distinguish between two things. One is, does trade promote international peace? There's an enormous amount of research in international relations, and it has pretty consistently found that when countries trade more, they're less likely to go to war. It's not foolproof, but it does help. And I think war with China is less likely today because of all the trade we have with them. Then your question though was about democratization and the like. Absolutely. That was the theory with China. You were encouraging the reformers, plus you were putting cell phones and Internet into hands of people in which would expose them to freedom and ideas from around the world. It hasn't worked out and I think it was worth a try and it was worth a shot and I'd do it again for only that reason. But it is the case that the relationship between trade and democratization is more ambiguous.

[David Leonhardt]

Let me ask you one more backward looking question before we look to the future. One frustration that I have sometimes is that I think that there are some trade advocates who say, well, maybe we should have done some things differently back in the past, but now we have the world that we have and we can't put the genie back in the bottle, to use the cliche. And that's true. But I do wish that from advocates of trade I sometimes heard some more humility and reflection. I do think both the ways in which it didn't increase democracy around the world and the devastation that it caused in some communities in the United States that appears to have contributed to frustration and anger and political polarization. Do you think there's are things we could have done differently in the 90s and early 2000s to have reduced some of the downsides from trade and increased some of the upsides?

[Host]

I agree with you that if your view is it is okay to trade as long as you do all these other things and then you don't do the other things, then you should be against that trade liberalization. And so my view really is that if you do the trade part without doing the other parts, you're a lot better off. You're even more better off if you do the other parts. Just to put again some numbers on that, if you take that auto Dorn and Hansen work, they found that using one of the leading estimates of the price declines due to what's happened with China, that 6% of the population in the United States lives in areas that got hurt from that trade and 94% lived in areas that benefit from that trade. In some sense, if you look at the history of the global economy or the US economy over the last centuries, it's because we're constantly confronted with new things that benefit 95% of people and harm 5% of people. That could be a new invention, a new way of organizing work, a new system of education, a new way of Reducing discrimination against one group or trade. And if you turn down every opportunity to make 95% better and 5% worse, or even, by the way, every opportunity to make 2/3 better and 1/3 worse, you're going to end up collectively just much, much poorer. In terms of what I would do, I don't think I'd do anything specific related to trade. As I said, most job loss is not related to trade. So more things to prepare people educationally for jobs, to better connect them to jobs through things like apprenticeship programs to help them find jobs and retrain. And there's evidence that some of that really does work to wage insurance for older workers. So if you lose your job and only find a new one at lower pay, you get some of that compensated. I would do all of that, but I wouldn't have any of that linked to the reason that you lost your job. You don't really care if you lost your job due to trade, technology or just, you know, idiocy on the part of your boss.

[David Leonhardt]

Well, to state the obvious, President Trump does not share your analysis of the benefits of trade in recent decades. And so he has pursued a very different policy from what you would advise. Now that we are here, what do you expect over the next year or so? And I think I mean that in two different ways. How much do you think Trump will actually reverse himself and withdraw his tariffs? And either way, how much effect do you think his tariffs are going to have on the US Economy?

[Host]

In the short run, the tariffs will mean higher inflation and higher unemployment. The exact magnitudes of both of those is quite uncertain. I'm betting a bit more on inflation than unemployment, but we'll see over the longer run. We were talking about the long sweep of globalization. It seems almost certain that we're going to end this term with much higher tariffs than the United States has had at any point since the 1940s. So what will that mean? It'll mean the US import share is lower for the obvious reason, tariffs. You buy less imports. It also will mean that the US Export share is lower because resources are devoted and shifted from making stuff that you used to export to stuff that you used to import because the exchange rate will change and because of the retaliation from other countries. So we'll be, you know, a bit less globalized coming out of all of this. And then the big question in all of that is, does this outlast his term and become a new normal, or is it just a three year aberration?

[David Leonhardt]

Okay, let's end here with asking you what should be the Democratic Party's position on tariffs going forward. You've played a central, central role in helping craft Democratic agendas in the past, including for Barack Obama. So let's imagine we'll call it Project 2029. Let's imagine you're helping devise the agenda for the next Democratic president and she or he says to you, what should be my trade policy? I already know you're going to say promise to repeal the Trump tariffs on day one. What else is on the agenda?

[Host]

So I would really distinguish between China and the rest of the world. For the rest of the world, the greater the integration, the better. That's true economically. I think that's true politically. And if we just went back to where we were on January 20, 2021, that was pretty good. That would be fine with me. If we could do better than that with trade agreements with different countries around the world, that would be even better with China. I actually think the Biden administration got the rhetoric right, which was small yard, high fence. We're going to focus on things related to our national security and that are central to our national security, and we're going to be really strict about them, like microchips and the like. And then things outside that umbrella, like toys and furniture, we're going to not be strict on those and make sure that we're continuing to get the benefits economically. And then there's a whole gray zone in between, like electric vehicles, solar panels and the like, where I'm not totally sure how I personally would weigh the national security and economic side. But finally, I think Democrats or anyone should not continue to distract people by pretending that our problems were made overseas and instead focus on all the ways in which we have made problems here in the United States and need to fix them. And that is what autocrats, dictators and even Democratic demagogues around the world do. They always blame their problems on foreigners, and that is always a distraction from solving those problems. That's always a way of keeping the status quo, and I hope Democrats don't fall into that trap.

[David Leonhardt]

Jason, thank you for coming on. You've given me a lot to think about and I suspect you've also done done so for many of our listeners.

[Host]

Thank you.

[Announcer]

If you like this show, follow it on Spotify, Apple or wherever you get your podcasts. The Opinions is produced by Derek Arthur, Sofia Alvarez Boyd, Vishaka Darba, Christina Samulewski and Gillian Weinberger. It's edited by Kari Pitkin, Allison Bruzek and Annie Rose Strasser. Engineering, Mixing and original music by Isaac Jones, sonia Herrero, Pat McCusker, Carol Sabaro and Afim Shapiro. Additional music by Amin Sohota. The Fact Check team is Kate Sinclair, Mary, Marge Locker and Michelle Harris. Audience strategy by Shannon Busta and Christina Samulusa. The executive producer of Times Opinion Audio is Annie Rose Strasser.