Chad Bown and Soumaya Keynes have a terrific new book with that title — a breezy survey of our chaotic new world of international economics, couched as advice for nations trying to get the upper hand. The book is here. I spoke with them last week about their book and the world in general. Fun stuff in a slightly grim way, and I hope we kept the acronym level tolerable. Transcript provided by the Financial Times, lightly edited to remove the ums and ahs. u TRANSCRIPT Paul K: Hi everybody. I’m Paul Krugman, professor at the City University of New York, and an independent newsletter writer on Substack. You might have noticed that I’m not Soumaya Keynes, host of The Economics Show podcast. I’m here with Soumaya, as well as her longtime collaborator, Chad Bown, who is a senior fellow at the Peterson Institute for International Economics, formerly chief economist at the US State Department. Together, these two have just written a book called ‘How to Win a Trade War’, and today we’re going to be asking just that. How do you win a trade war? Soumaya, Chad, hi. Chad Bown: Hi, Paul! Soumaya: Hi! Paul K: So maybe I can start by asking a slightly funny question, which is, who are you? I know you’re Chad and Soumaya, but when we talk about how to win a trade war, who is this? You know, who’s the audience? Presumably not actually Donald Trump. It’s probably not Xi Jinping. I mean, everybody should read it, but who do you think might, in some sense, read it or at least be briefed on people who’ve read it? Soumaya: Well look, if Donald Trump wants to read the book, then we are very willing to sign a copy. We’ll hand deliver it however he wants. The conceit of the book is that you, the reader, are really interested in fighting a trade war, right? And we are the two nerdy kind of reluctant guides saying, “Uh, if you really want to do it, then, you know, we’ll give you the evidence that you need. We’ll tell you everything there is to know,” You know, it’s not easy to fight and win a trade war. Um, and so, you know, at least arm yourself with the evidence of what’s happened in the past, what works, what doesn’t work. We kind of acknowledge that most readers may come to this not actually wanting to fight a trade war, right? Um, so the point is it’s for... You know, it’s to help people understand, how to navigate this world of economic conflict as I feel like, you know, many people have become unwilling participants in these massive, massive geopolitical conflicts. It can be a bit bewildering. So the book is really supposed to be for everyone, right? To understand how we got here and where we go next. Paul K: Okay. Because yeah, I found myself thinking that it was easier somehow to follow the line of argument is to think of myself yeah, still a little bit of delusions of grandeur, but imagine myself to be Mark Carney, Prime Minister of Canada, or to imagine myself as Ursula von der Leyen, uh, uh, making policy for the EU. But basically, you’ve got these two powers. We’ve got the United States, which is basically Donald Trump, and we’ve got China, which is a little bit more of an institutional thing. But they are certainly waging something that they consider trade wars. Let’s talk a little bit about, how did we get here? How did we get to this point? I think, if we were holding this conversation around ten years ago, it mostly would have been, “Well, we’re economists. We understand free trade is great.” Uh, maybe fifteen years ago, even more so. And, so you know, the answer is just, “Don’t do this, free trade.” So I think all three of us probably have had some visions on the road to Damascus about why that isn’t an adequate approach. Anybody want to start off on that? Chad Bown: Maybe I’ll take a stab first. Um, so I guess to answer the question, we have to talk about what trade war we could or should be fighting because there are, I think, arguably multiple trade wars happening right now. You’ve got President Trump doing a lot of things. Um, but beneath, behind that, there’s another really big trade war that’s happening, and that’s the one having to do with China. So let me start there. Um, I would say, and it’s not as if I noticed this at the time, but say in 2015, when China rolled out its Made in China 2025 strategy, industrial policy that said, you know, we’re gonna have these market share targets to dominate certain important sectors of the future, that was kind of a sign that China was thinking about things differently than I think other, other, traditional, the United States and others had been. And then you fast-forward a couple of years with, Xi Jinping and his “dual circulation” strategy more clearly articulating the idea that China did not want to be interdependent with the rest of the world. It wanted the rest of the world to be dependent on China for their supply chain, so the United States to be dependent on China for sourcing stuff, but China to not have dependencies on the rest of the world. When you start to think about a functioning trading system, as we’ve lived in for the post-war period since the, the late 1940s, it requires rules, all those things, but it also fundamentally requires a willingness to be interdependent, right? And to trust that I’m gonna export to you, you’re gonna import to me, and, and yeah, there’ll be sometimes some frictions, but by and large, that will be okay. And China was saying, “No, we wanna have an asymmetric relationship, we wanna do what we wanna do, but we’re not all that interested in what you wanna do.” So for me, it was kind of seeing those things that really made me think that, ah, the world has changed. We’re in some sort of trade war, and really China is the part that’s driving this. Soumaya: So my journey, I think, um, you know, there was an important moment for me in the first Trump administration, right? And so, you know, Trump, ran onto the scene, during his first term and started throwing tariffs at China predominantly. And you know, Chad and I had this podcast about trade, and we were the loudest voices saying, you know, “What are you doing? You gotta play by the rules, why not try to use the rule book to solve these underlying structural problems that we have with China?” Um, and you know, I was covering trade full-time at that time, and, you know, something that was happening behind the scenes, um, was that there were efforts to try and get some kind of coordinated plan to save the rules-based system, to try and solve some of the structural problems between China and the US by writing new rules. So you had these trilateral discussions between the US, Japan, and the EU, and the idea was, okay, well why don’t we just write out the way in which we want China to behave, limits on subsidies, um, you know, new, new ways of protecting ourself against China’s subsidies. And the idea was, you know, they would agree on that common plan, then they might go to China and say, “Hey, look, we’ve got some new rules. You sign up to these, and look, President Trump will drop his tariffs.” That was the hope of some involved in that process. It certainly wasn’t Donald Trump’s plan. And I think, you know, a very fundamental way in which I have moved on from that is I just don’t believe that the solution to these problems lies in a new set of common rules that everyone is going to sign up to, right? In fact, the Trump administration did go to the Chinese government with a list of requirements or requests in terms of, you know, China’s subsidy behavior, and the Chinese, you know, shredded it, right? They weren’t gonna change their system. and that’s really the backdrop to where we are today, which is, you know, the Trump administration, I think, pretty much most everyone else, has given up on the idea that the rules are gonna save us. And that is kind of scary. It’s a bit, you know... It means that we can’t rely on the rule book to predict what’s going to happen next. It’s a much more chaotic power-based world, and we’re kind of feeling our way through. Paul K: Yeah. Yeah, for what it’s worth, I, I’ve had sort of two moments of revelation about trade. One of them, which seemed terribly relevant but maybe a little less so now, was the work early 2010s on the China shock, where we started to realize that, hey, you know, the problems of adjustment and dislocation that come from rapid globalization are a lot bigger than… you know, economists have always understood that there were distributional issues, but they’re a lot bigger. And that, that was, that was revelatory and a bit of a shock. Um, but I think it’s actually not the core of the story now. And, and for me, the, the revelation was, um... It’s a little odd, but I’m gonna give you this, uh, really offbeat point at which I realized that we’re not getting this back, which was actually when Russia invaded Ukraine, when we realized, hey, this rules-based order, not just about trade, but everything. We, sort of had taken it for granted that, all of the old stuff, all of the old demons had been banished. That we weren’t gonna have outright war in Europe. We weren’t gonna have countries just plain exploiting their power over trade for geopolitical gain. And, we now realize, I think I realized that, hey, all of that, all the things that we thought were fundamentals about the twenty-first century economy were actually basically dependent upon a benevolent hegemon. Not totally benevolent, not totally hegemonic, but still a lot of it depended upon basically the United States, which enforced the rules and obeyed its own rules for the most part. And, well, we’re not in that world anymore, not in Kansas anymore, among other places. So it’s-- now it’s a much tougher world out there Soumaya: Can I just add that I think economists have been on a sort of journey as well, right? Um,
