Should-Read: Paul Krugman: Trade Wars, Stranded Assets, and the Stock Market: “Even a trade war that drastically rolled back globalization wouldn’t impose costs on the economy comparable to the kinds of movement we’ve seen in stock prices…

…But the costs to the economy as a whole might not be a good indicator of the costs to existing corporate assets. Since about 1990 corporate America has bet heavily on hyperglobalization…. Apple could produce… entirely in North America, and probably would in the face of 30 percent tariffs. But the factories it would take to do that don’t (yet) exist. Meanwhile, the factories that do exist were built to serve globalized production–and many of them would be marginalized, maybe even made worthless, by tariffs that broke up those global value chains. That is, they would become stranded assets. Call it the anti-China shock…. My original question was why stocks are dropping so much more than the likely costs of trade war to the economy. And one answer, I’d suggest, is disruption–which business leaders love to celebrate in their rhetoric, but hate when it happens to them.

April 4, 2018


Brad DeLong
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