Krugman on USMCA and Trade (with David Westin)

Introduces the segment on the auto industry and the integrated nature of North American trade.

David Westin

Paul Krugman

The auto industry is highly specialized across borders, which reduces costs and increases efficiency.

Goods go back and forth across the border, creating a tremendous amount of specialization beneficial to all parties.

Questions whether it is possible to cut off auto trade between the US, Canada, and Mexico given the integrated supply chain.

David Westin

Paul Krugman

Without NAFTA/USMCA, the North American car industry might not exist at its current scale. A US-only car would be more expensive and less innovative, making it hard to compete globally.

The economies of scale developed over North America are critical for competitiveness against Japan, South Korea, and Europe.

Asks Krugman about job losses in Michigan and Ohio due to trade, a concern often raised by President Trump.

David Westin

Paul Krugman

Job losses in manufacturing are not mostly due to NAFTA/USMCA. Turning away from global trade is unlikely to add jobs.

The idea that protectionism will bring back manufacturing jobs is probably wrong.

Introduces China as a specter in the USMCA negotiations.

David Westin

Paul Krugman

China is a major concern, using Mexico and Canada as a backdoor. Conditional tariffs on Chinese cars are likely necessary to prevent the hollowing out of allied auto industries.

Interdependence can be weaponized. Maintaining capacity in reliable allies for strategically important goods is now very real. A much more interventionist position is hard to avoid.

Asks Krugman how President Trump should win the negotiation with Canada and Mexico.

David Westin

Paul Krugman

The USMCA is an easy case; there is no trade conflict except in Trump's mind. The US should go beyond free trade to a customs union with free movement of goods. The problem with Mexico and Canada is a figment of the president's imagination.

Dependence on Canadian aluminum is not an issue due to proximity and cheap hydropower. Mexican auto production is part of an integrated system that makes the US more competitive.

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