Martin Wolf talks to Richard Baldwin: What’s the future of global trade?

Episode Summary

Executive Summary: Martin Wolf interviews Richard Baldwin on Trump’s tariff agenda, globalization’s slowdown, and the shift from goods to services trade. Baldwin argues peak goods globalization was a false peak driven by China and supply-chain unbundling, not the financial crisis, and that tariffs are outdated in a world of complex global value chains. He sees trade’s future increasingly in services, remote work, and AI-shaped “office crossing borders.”

Main Topics: Why globalization slowed after its rapid 1990s surge (Priority: 5/5): Baldwin says the post-2008 slowdown reflects a phase transition, not a simple crisis break: the major offshoring/outsourcing wave had already matured and China’s export growth slowed relative to its GDP growth. The “second unbundling” and factory relocation (Priority: 5/5): He frames modern trade as factories crossing borders, enabled by ICT that made cross-border production coordination feasible and led to global value chains in parts and components. China’s role in manufacturing dominance (Priority: 5/5): China is presented as the central manufacturing superpower, benefiting from labor-cost arbitrage, organizational spillovers, and policy choices including exchange-rate management. Trump tariffs and the limits of import substitution (Priority: 5/5): Baldwin argues Trump’s tariffs misunderstand supply chains: taxing intermediate goods raises costs for U.S. firms and cannot recreate fully domestic production in a globally integrated economy. How other countries should respond to Trump (Priority: 4/5): He recommends retaliation, but calibrated and face-saving, while recognizing Trump’s need to claim victory and his political constraints. The rise of invisible trade and services value chains (Priority: 5/5): The discussion shifts to rapid growth in trade in services, especially B2B and digital/offshored professional work, which is harder to measure and nearly impossible to tariff in traditional ways. AI, automation, and the future of jobs and trade (Priority: 5/5): Baldwin argues AI may both substitute for and complement offshore work; more broadly, automation will reduce manufacturing labor needs while pushing trade conflicts into high-skill services.

Key Arguments: Globalization has not simply collapsed since the financial crisis; instead, the earlier manufacturing offshoring wave matured, creating a misleading 'false peak.' ICT enabled firms to split production across countries, allowing G7 manufacturing technology to combine with low-cost labor abroad and creating global supply chains. China’s manufacturing rise was not just theft; much of the technology transfer was tacit know-how, managerial learning, and organizational spillovers from foreign firms operating in China. Trump’s tariffs on Chinese inputs raise costs for U.S. producers because many imports are intermediate goods used in American manufacturing. The U.S. lacks the labor force and comparative scale to recreate all industrial chains domestically; even large economies must source globally to stay competitive. The U.S. share of world imports is too small for unilateral tariff threats to have the leverage Trump assumes. The real growth frontier is services trade—especially B2B, remote professional work, and digital services—rather than goods trade. Services trade is difficult to measure and tax because many transactions never pass through customs or are poorly captured in statistics. AI does not simply destroy offshore work; in some cases it increases the substitutability of foreign workers by improving their productivity and cultural fit. Political backlash will increasingly move from manufacturing toward professional and middle-class services jobs as automation and globalization hit white-collar work.

Data Points: U.S. share of world imports: about 11% - Baldwin says this limits U.S. leverage in trade disputes. U.S. share of world economy: about 25% - Used to argue the U.S. no longer dominates global trade the way it once did. China’s share of gross world manufacturing production: 35% - Illustrates China’s manufacturing dominance. China vs next nine countries in manufacturing: larger than the next nine countries put together - Baldwin emphasizes the scale of China’s output. China’s exports to GDP ratio: falling - Despite continued growth, China’s GDP is growing faster than its exports. Tariff on Chinese inputs: 10% - Trump’s tariff example used to show higher costs for U.S. producers. Share of China’s exports to the U.S. that are intermediate goods: about 40% - Shows why tariffs on Chinese imports hit U.S. supply chains. U.S. market compared with China in electric vehicles: China market is more than twice the size of the U.S. market - Used to challenge U.S.-centric import-substitution thinking. Wage differences in skilled services: over 1000% - Explains why offshore services arbitrage is large.

Pivotal Quotes: "if you don't have an industrial policy, then you're following China's industrial policy." — Richard Baldwin: On how China’s planned approach contrasts with the lack of strategy in the U.S. and other G7 economies. "offices crossing borders, not just factories and goods." — Martin Wolf: Summarizing Baldwin’s framework for the new phase of services trade and remote work. "Trump has found himself in a presidential promise pickle with tariffs." — Richard Baldwin: On the contradiction between tariffs, higher consumer prices, and claims to revive U.S. manufacturing.

Implications: Trade conflict is moving beyond factories into services, AI, and white-collar labor. Tariffs are blunt and increasingly ineffective, while supply-chain politics will likely shift toward retaliation, localization, and new rules for digital and professional work.