Making sense of Trump's tariffs. With Dani Rodrik

Episode Summary

Executive Summary: Danny Roderick argues Trump’s tariffs are economically senseless and politically destabilizing, while defending selective trade barriers and industrial policy when used to support broader domestic goals like green transition or job creation. He says retaliation is usually self-defeating, expects some regional fragmentation rather than collapse of globalization, and urges Europe and the US to focus less on manufacturing fetishism and more on services, productivity, and resilient domestic job creation.

Main Topics: Trump’s tariffs and the attack on global trade (Priority: 5/5): Roderick says Trump’s tariffs on Canada, Mexico, and China are not a coherent strategy but a disruptive spectacle that damages trust in the US and fails to advance any serious economic objective. When tariffs can be justified (Priority: 5/5): He distinguishes Trump’s tariffs from selective trade measures used to make broader policies viable, such as carbon border adjustments in the EU or local-content rules in green industrial policy. Retaliation, diversification, and trade conflict (Priority: 4/5): Roderick argues countries should not automatically retaliate against US tariffs; instead they should diversify trade relationships and avoid magnifying the damage through tit-for-tat escalation. Fragmentation and regional blocs in the world economy (Priority: 4/5): He expects some regionalization of trade and investment into blocs, but thinks the economic costs may be manageable if supply chains become more resilient and fragmented systems coexist. Industrial policy: from hidden practice to explicit strategy (Priority: 5/5): Roderick says industrial policy has always existed, from DARPA to East Asian development and China’s clean-energy push, and should be used openly to shape economies. The limits of manufacturing-centered policy (Priority: 5/5): He criticizes both Biden and Europe for overemphasizing manufacturing, arguing that middle-class job creation now depends far more on services and that industrial policy must adapt. Europe’s strategy and the primacy of productivity (Priority: 4/5): He urges Europe to focus on good jobs, productivity, and domestic opportunity rather than competitiveness rhetoric or copying outdated manufacturing strategies.

Key Arguments: Trump’s tariffs are ‘senseless’ because they are expected to accomplish too many incompatible goals at once: reducing deficits, creating jobs, reindustrializing, preserving US tech dominance, and sustaining the dollar. Tariffs can be economically defensible only as part of a broader domestic strategy, such as supporting green policy or nurturing infant industries alongside investment, regulation, and workforce development. Retaliatory tariffs generally hurt the retaliating country more than the United States; the better response is to absorb the blow, diversify trade partners, and refuse to reinforce Trump’s narrative. The global economy may not collapse into chaos; instead, trade may regionalize into blocs with moderate efficiency losses but improved supply-chain resilience. Industrial policy has long been practiced even when economists denied it, including through defense procurement, DARPA, local development efforts, and China’s renewable-energy subsidies. Biden’s manufacturing-heavy industrial policy may have been economically active but politically insufficient because modern working-class jobs are mostly in services, not factories. Europe should not obsess over competitiveness against other nations; it should focus on productivity and creating good jobs, especially in services, to avoid political backlash. The biggest risk from Trump is not only trade disruption but political damage to US institutions and democratic stability. DeepSeek suggests that AI and other advanced sectors may be less scale-dependent than previously thought, weakening the argument that global fragmentation must be disastrous.

Data Points: US tariffs on Canada and Mexico: 25% - Trump imposed tariffs that were then suspended for 30 days. Additional tariffs on China: 10% - Trump also raised tariffs on Chinese imports. Publication year of Has Globalization Gone Too Far?: 1997 - Roderick recalls his early critique of hyper-globalization. Manufacturing share of US non-farm employment at start of Biden term: 8.3% - Used to show how small manufacturing employment already was. Manufacturing share of US non-farm employment at end of Biden term: 8.1% - Used to argue manufacturing policy did not restore jobs. Time horizon for climate and industrial transition references: last decade / 2030 targets / five years - Referenced in discussion of renewables cost declines and upcoming climate goals. Potential tariff suspension period: 30 days - Trump’s Canada/Mexico tariffs were paused temporarily.

Pivotal Quotes: "The threatened tariffs are really senseless." — Danny Roderick: His core judgment on Trump’s trade policy. "They are the main act, and they’re supposed to achieve on their own, reduce the trade deficit, create jobs, reindustrialize, maintain U.S. technological hegemony, maintain the role of the dollar as a key reserve currency." — Danny Roderick: Explaining why Trump’s tariffs are incoherent as industrial policy. "I think we need new kinds of industrial policies that will be much more focused on services because that’s where the jobs are." — Danny Roderick: His main prescription for future domestic policy in the US and Europe.

Implications: Listeners should expect more regionalized trade and stronger domestic-policy competition. The key lesson is that resilient job creation, especially in services, and smart industrial policy matter more than tariff theatrics or competitiveness slogans.