The commerce secretary just flunked microbe economics.
by Paul Krugman, NYT
Wilbur Ross, the commerce secretary, appeared on Fox Business on Thursday morning to declare that he “didn’t want to talk about a victory lap,” but that the coronavirus “will help to accelerate the return of jobs to North America.” By saying this, he demonstrated...why Trump’s trade war has been such a failure.
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What Ross and his colleagues apparently still don’t understand — although some of them may be getting an inkling — is that modern manufacturing isn’t like manufacturing a couple of generations ago, when different countries’ industrial sectors were engaged in fairly straightforward head-to-head competition. These days we live in a world of global value chains, in which much of what any given nation imports consists not of consumer goods but of “intermediate” goods that it uses as part of its own production process.
In such a world, anything that disrupts imports — whether it’s tariffs or a virus — raises production costs, and as a result if anything hurts manufacturing. Indeed, a
recent study by the Federal Reserve found that Trump’s tariffs, which were concentrated on intermediate goods, have reduced, not increased, manufacturing output and employment. Sure enough, while overall economic growth in 2019 was decent (not great), manufacturing is in a
recession. (And the uncertainty created by the trade war may explain why business investment is down despite a huge cut in corporate taxes.)
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If Wilbur Ross’s boneheaded remarks on Thursday are any indication — and I fear they are — the Trump administration is even less prepared to deal with the economic fallout from a possible pandemic than it is to deal with the public health crisis. Be afraid.
