Monetary Matters with Jack Farley China and the Reordering of World Trade | Former Under Secretary of the Treasury for International Affairs Jay Shambaugh
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Dec 24, 2025 
Jay Shambaugh, an economist and former Under Secretary of the Treasury for International Affairs, shares his expertise on the shifting landscape of world trade. He highlights China's persistent trade surplus, driven by state-led investment and overcapacity. Shambaugh discusses the global implications of the 'second China shock', the need for economic restructuring in China, and the challenges of unilateral U.S. policies. He also emphasizes the importance of targeted tariffs and the impact of immigration on the labor market, providing valuable insights into the current economic climate.
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Jagged Tariffs Are More Damaging Than Uniform Ones
- Jagged, politicized tariffs create costly sourcing shifts and raise uncertainty more than a uniform modest tariff would.
- Over time these effects slow growth by eroding productivity of top exporters and import-dependent firms.
Ambiguity Lowers Investment And Trust
- Strategic ambiguity over tariff levels raised option value of waiting and reduced investment and hiring.
- Countries lost trust in U.S. leadership and began to chart independent policies.
Aid Cuts Erode U.S. Global Leadership
- Beyond tariffs, cuts to foreign-aid programs inflicted long-term moral and reputational damage to U.S. global leadership.
- Actions like abrupt USAID shutdowns reduce other countries' willingness to follow U.S. leadership.