Broadsheet

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, you know, and, and, and, you know, starting point, the starting point being, you know, your, your theory, right? We thought that one of the benefits of trade was, you know, agglomeration, right?

You know, huge efficiencies, huge economies of scale, that, you know, created these gains from trade and what we’ve seen now, I think, is that those agglomeration benefits are real, but in a world where we’re not friends with everyone and we don’t trust everything, they come with risk.

Where do you feel like economics has, has, has gone?

Paul K: Well yeah. I mean, it’s interesting. In some ways, the models were already there, and we understood that there are big advantages to agglomeration, although I think they’ve turned out to be bigger than we realized. And they, they really do... You know, I’ve been on my own little journey here about Europe versus the United States, and an astonishing amount is driven by, loosely speaking, the fact that Silicon Valley is on the US side of the Atlantic, right?

It’s just that there are some agglomerations that color all of the numbers. But in a world of open markets, agglomeration rules. Texas doesn’t obsess about the fact that California controls a lot of the IT sector. Why should Europe obsess about the fact that the United States controls a lot of it? But that was not the world that we’re living in now, where these things become very real. So the whole, Everything changes once you stop assuming that it doesn’t fundamtelly matter where stuff is produced. We’re talking a lot about high tech, but, if we talk about Chinese manufacturing ... It’s not just that China is good at a lot of stuff. China has a whole industrial ecosystem that gives them tremendous amounts of leverage in the world. I mean, China isn’t the only place that has rare earth deposits, but it’s the only place that has the industrial ecosystem that can process them at this point. And so that altogether, that creates a world where Section 232 and I think Article XXI of the GATT on national security -- I’m always testing my acronyms and numbers, uh, knowledge. But anyway, I thought if you’d asked me fifteen years ago, I would have said, “Well, all this national security stuff, that’s just an excuse. National security is the last refuge of the scoundrel.” But actually not now.

Soumaya: Yep

Paul K: So okay. Any other sort of revelations beyond the fact that, that it, it’s a scary world with nasty people in it?

Soumaya: So I have one which is, you know, you mentioned the, the China shock literature, right?

Paul K: Yeah

Soumaya: So this is this collection of papers showing the effects of, of, of imports from China.

Paul K: Right

Soumaya: And one paper that I thought was super interesting that came up as we were researching this book was, um, was about what happened in Canada, right?

When, when there was liberalization as part of, um,

Paul K: Oh Yeah,

Soumaya: Was it NAFTA or was it

Chad Bown: CUSFTA.

Soumaya: CUSFTA?

Soumaya: Yeah, so the predecessor, to, to NAFTA. Um, and actually, you know, this, this research found that, that the effects when, were really quite dissimilar from those China shock effects. People were able to adjust. There were export opportunities created by that trade deal.

People moved into those, those other industries. There’s also research looking at, um, you know, uh, liberalization and populism in, in Europe, right? And there seems to be this relationship between places that have stronger social safety nets, um, and the switch to right-wing parties. Um, and so, you know, I think one, one point that, that I would want to make is, you know, it’s important not to go to over-interpret what’s going on now and to kind of see it as this idea that, you know, all trade liberalization, you know, has losers and, and there’s just nothing we can do to, to address those, right?

There are cases where actually import liberalization, you know, we, we could cope okay with it, and economies adjusted and social safety nets worked. So I think it’s, you know, it’s important not to kind of over-correct after some of those instances where there was, you know, real pain in the past.

Paul K: I’m trying to remember how much in the book you really talk about the political economy of these-- the protectionist backlash. ‘Cause that is actually-- not as, you know, there was a simple story, “Oh, trade produces lots of losers, and now the public won’t have it.” And that’s not actually the story as far as I can make out. what did you say? I’m trying to remember the actual way you put it.

Soumaya: Chad do you remember, or shall I?

Chad Bown: No. Yeah. I mean, I-- Well, I mean, the, the story is that it’s complicated,right?

Paul K: Yeah

Chad Bown: And voters don’t, you know, kind of respond as cleanly as, you know, one might expect to what the economic implications are for them, right? And so one of the more recent China shock papers, in fact, has looked at the longer run impacts of the China shock and the reapplication of the tariffs in the first Trump administration, and has found that they didn’t really do the job of, you know, helping workers in those regions, right?

Didn’t improve employment or anything like that. But it did help President Trump’s party, in subsequent elections, right?

So there is maybe something to the idea that, well, okay, he may not be helping me, uh, you know, get a better job or, or my employment process, at least he’s fighting on my behalf, right?

And so what that means is it’s really messy to draw these links between all of this stuff in the political economy context.

Paul K: Okay, I didn’t know that. I somehow missed that. I know you did mention it, but it’s not so much if you look at kind of the vector of, of real wage changes or whatever, of employment changes, that that’s not, not really the story. It’s more about attitudes, sense of whether you’re led by somebody who’s standing up to foreigners.

I think in the end, the protectionism in the U.S. and I think in Europe is not really a, a mass public groundswell. There are parties who exploit it, but it’s not really this sort of simple deterministic, you know, losers fight back, and this is why we have a problem.

A lot of it more has to do with, again, the, the complexities of the political process.

Soumaya: Yeah, and so you can see this in, in, you know, both what’s going on in the US and, and also the EU. So if you think about what Trump did, right, he, he had to do this by using and arguably abusing, um, you know, arcane bits of US law, uh, because he didn’t have the support of Congress to, to apply these tariffs, right?

And so he kind of ran roughshod over the, the democratic process there. Um, uh, you know, in obviously in the case of IEEPA, that turned out to be overturned by the Supreme Court. and, you know, during the first Trump administration, companies were complaining quite a lot. I think during the second, those complaints were a little quieter. That’s probably some combination of, you know, worrying about retribution, but also maybe in some cases they adapted, right? And so I think one lesson of that episode could be that you may not have the constituents for protection at the beginning, um, but you could, you could develop those constituents if that protection is there for long enough. And then the contrast is with, is with what’s going on in Europe right now, right? There’s a huge discussion about whether the EU should essentially do more of what the US is doing and protect itself. And it’s just extraordinarily difficult, even though you’ve got these really acute problems, right?

German exporters being, you know, crushed in, in, in third markets. You know, the car industry really struggling to cope with that Chinese competition. and even then, right, even in the face of these really extreme Chinese export trends, even then it’s really, really difficult to get a consensus, right?

And so, it’s a question of, you know, can Europe ever act as decisively as the Trump administration? Maybe there’s a middle ground between kind of hopeless inaction and kind of maybe overaction? But yeah, that just speaks to that issue.

Paul K: Okay, we could go on. I actually just say quickly, the importance of institutional details, including the details of legislation that people wrote ago, uh, that were not intended for the purposes to which it’s being applied. It’s, it’s amazing. I mean, the fact that, that, uh, that Section 121 is written the way it, it is, and that IEEPA is written the way it is, suddenly turned out to be you know, the fate of the world is hinging on more or less accidental wording of decades-old legislation. It’s kind of amazing.

Soumaya: I was outraged when I, an economist, was the economics correspondent of The Economist magazine, started covering trade. I thought this was gonna be all about, you know, big intellectual battles of which model worked best, and actually, I essentially became a lawyer, um, working out, you know, what, what does the Section 301 statute mean?

What’s 232? How is this compatible with the World Trade Organization rules? You know, it’s, it, you, you get stuck in the legalese quite quickly, but as you say, these, these details really, really matter. Apologies for all of the lawyers. I’m not actually a lawyer.

Paul K: I knew somebody who taught a trade policy course long ago, but she would return term papers with, uh, just right at the top, a Y-H-T-M-A-A-I-Y-P, which was, “You have too many acronyms and abbreviations in your paper.” anyway, So, you know, so if we’re talking about Europe responding, taking the extreme constraints on European action, you know, how would you go to the Berlaymont in Brussels, and, and you’re gonna tell the European Commission, “Here’s, here’s what you should do in response to,” I think you said that America is a pirate and China is a warship, but anyway, they have these two quite different but also, but very seriously threatening, aggressive trade policy partners.

Two of the world’s three economic superpowers are not behaving the way they used to, and the most obvious case is, okay, you’re the, you’re sort of running the third power. What, what should you be doing?

Chad Bown: Well, um, engaging, right? And I think, uh, you know, as Soumaya indicated, Europe has been a little bit slow, uh, to engage in the, you know, are we willing to, “can we fight a trade war?” question. But they do seem to be there now. One of the really interesting lines for Europe at the moment is this issue of electric vehicles and the automotive sector.

Um, and what’s fascinating is, is, is the following: they’re essentially trying to see if they can learn from the Chinese model to encourage Chinese firms to build cars in Europe, right? So what was the Chinese model? The Chinese model was forced technology transfer. What made them successful at the time, or partly what made them successful was, you know, back in the early 2000s, there were a lot of Western automakers the United States, Japan, Korea, Europe, that all wanted access to China’s 1.4 billion potential drivers, right?

And China had high tariffs at the time, so exporting into China was really hard. China said, “We want you to build those cars here, and not only do we want you to build those cars here, but we want you to form joint ventures with local Chinese firms, and then teach them effectively, uh, how to make cars themselves,” right?

And partly, and they were successful. And part of the reason why they were successful, you know, we think, is there were lots and lots of these Western automakers competing against each other, all seeking to get access to that Chinese market. So you fast-forward today, and you say, well, okay, can Europe do the same thing, um, with respect to the Chinese technological leaders today in, in battery electric vehicles?

And while there may be, you know, at the moment, lots and lots and lots of EV manufacturers in China, um, BYD is the dominant one. Um, and behind that is the battery makers, which are BYD and CATL, right? And to, to sort of thwart that possibility, right, the idea that, well, maybe Europe could exploit, you know, divisions amongst Chinese firms and negotiate to get them to come into Europe, partner with German automakers, teach them how to make battery electric vehicles better, locate production here, create lots of jobs, the Chinese government has already set up a system of licensing for its technology and saying, “No, BYD, CATL, you know, these companies, you’re not allowed to just go out and negotiate with the Europeans.

We’re gonna be the one. The Chinese government is gonna be the one controlling access to that technology from foreigners, right?” So on one hand, you have the Europeans maybe seeking to learn from the Chinese model, and the other hand, you know, the, the Chinese already going a step beyond and saying, “Yeah, we’re not gonna let you learn from our model and, and get those jobs there in, in Europe.

Here’s how we’re gonna thwart those kinds of things.”

Paul K: Wow. And that’s really instructive because, you know, all of us spent years learning about why government intervention in trade is almost always a bad thing and how, um, uh, letting people buy wherever they want and not, not, certainly not blocking possible profitable opportunities is, is clearly going to hurt your country.

And now we’re sort of saying, “Oh, you know, this dirigiste, overall control.” And in this case, it’s not just geopolitical. It’s, well, you know, China can preserve effectively its technology advantage, even though it’s not fancy technology. And because, because they can close off the technology transfer.

So but you’re, you’re saying that basically, as I understand, that at least the EU, presumably Mark Carney’s middle powers need to be at least a little bit more like the Chinese.

Chad Bown: I think that’s right. I mean, I think, you know, one of the lessons that we took away from the book is we all need to learn a lot from each other, from the other players. But especially, you know, I think in the Western system we need to learn from China. That does not mean we need to adopt the Chinese model, right?

And so please don’t get me wrong But there are elements of what China does when it does industrial policy, when it does, in that earlier example, the transfer of technology, that if you wanna have those similar kind of outcomes be successful, you really do need to see what it was about the Chinese system that allowed them to be successful in those instances.

You may not be able to replicate it, right? So you need to, you need to learn those kinds of lessons as well. But yes, learn important lessons from China.

Paul K: So, I mean, EVs in Europe, I mean, the United States has decided that we’re going to have coal-burning cars or something. But, um, EVs in Europe, there is a question, should they even be trying? Shouldn’t they, say “Okay, if the Chinese are gonna sell you cheap vehicles, why not just drive cheap electric vehicles and, uh, work on your European, uh, comparative advantage, whatever that may be?”

Soumaya: I mean, this is actually a, a debate in the US, right? You’ve got some saying, you know, “Why won’t you let me buy a cheap EV? These, these things are…

Paul K: Right

Soumaya: …karaoke bars on wheels. I want a, I want a piece of that equipment.” Um, and you know, the arguments against are in-- you know, include one, this is actually an area where Chad and I had quite heated debate as we were writing the book, as Chad was much more in favor of banning things than, than I was. Um, and you know, that relates to some of the security risks around, you know, having Chinese software run some of these vehicles, the risks of surveillance, even being able to turn off the car remotely. Um, Chad was more gung ho about banning vehicles because of that concern than, than I was.

I wanted, you know… Surely it’s possible to come up with some kind of technical test, um, because, if we start banning cars on that basis, then, you know, what about smartphones, right? Last time I checked, there was quite a lot of electronic equipment that was made in China that could, in theory, carry the same risks.

So are we, are we really gonna be inconsistent? So there’s the security piece of that. There’s also just the political economy piece of that, right? Which is that, you know, the, the car industry is massively important in Europe. The political consequences of letting all of those smaller companies just shut down would be potentially devastating. And then third, there’s a kind of bigger argument about industrial capacity. When we don’t trust each other, is it really wise to be cutting manufacturing, or accepting the loss of manufacturing? Could there be some connection to innovation? The evidence on this isn’t as concrete as we’d like. But you know, is there something? Do the folks who worry about manufacturing having some kind of national security advantage, do they have a point, right? In some kind of heated conflict, do you actually need the capacity to scale up quickly? So actually having that industrial might is important.

Now, that doesn’t mean manufacturing jobs, but you know, I’m talking about overall manufacturing.

Paul K: You wrote the book obviously before the Iran war, and, but you do talk about supply chains and the threat of cutoffs, and that now seems immensely more real. I mean, how much does that change the way we think about, about trade wars?

Chad Bown: So I think, Iran and, and Strait of Hormuz, right? Obviously, from Iran’s perspective, the war, the physical war, the military aspects of it have to be absolutely devastating. But at the same time, they have been able to weaponize through their export restrictions, you know, imposed on not allowing things through the Strait of Hormuz, in a way that is, you know, orders of magnitude bigger than the size of their economy would otherwise suggest, right?

And so that’s part of the new world in which we live. Sometimes you have those kinds of supply chain disruptions, um, that can come up, um, by, you know, not recognizing just how serious those choke points are. I think there were a lot of folks that probably did recognize how serious those potential choke points were.

But as we have seen, through what’s happened since February, the world is now, you know, facing the consequences of, of those actions.

Soumaya: So just building on that, I think what we’ve seen so far with the Strait of Hormuz is that some of those disruptions haven’t hit yet, and that’s because companies have been doing, you know, one of the policies we, we discuss in the book, which is stockpiling, right? So we’ve had inventories, and they’ve been running them down. When the crisis first started, uh, you know, folks were asking how bad could this get? And the response was, “Well, as long as it doesn’t last for very long, it’ll be okay,” right? Because there are those buffers. And so, you know, the crisis, I think, highlights the importance of having those buffers, but also I think that, you know, there is a point about substitution. So, so, um, if you think about the drop in oil flowing out of the, the Strait of Hormuz, a third of that has been made up with oil flowing out through other ports, right? And so one of, one of the lessons here is that, you know, when thinking about your vulnerabilities, actually there’s always some slack in the system.

There are always some, some opportunities for substitution. They may not be, you know, fast, it may not be easy, but actually one of the lessons from history in extreme situations is that we tend to be a bit more adaptable than we sometimes fear. That said, obviously if this disruption goes on, there’s pain being felt, right?

We shouldn’t then swing too far in the other direction and say, “Oh, well, there’s no point in applying export controls because we can always adapt away.” That’s not true. As we are seeing now in, in, you know, some of the, the poorer countries who are on the front end of this, and as we will be seeing later these weapons are pretty, are pretty impactful and pretty dangerous.

Paul K: What struck me though, I mean, the Strait of Hormuz is a, it’s a, it’s a physical choke point, which is helpful for illustrating the concept, but it turns out there are all of these de facto choke points like rare earths, like, well, semiconductors. I mean, it’s not that so much stuff passes through the Strait of Taiwan, it’s the fact that basically everything runs on chips made in this island. So yeah. And you do talk about this. I mean, right there, there is definitely a case for policies that even at some cost make sure that critical stuff is made in some quantity in places that are, are less subject to this kind of disruption.

Gosh, for many years I was co-author of the bestselling international economics textbook. I don’t think we mentioned supply chains, export controls, any of that. I probably haven’t yet. I’d probably have to get that in the next edition. But anyway,

Soumaya: No don’t worry, you don’t have to. You can just assign our book as the top-up, and then it’ll be fine.

Paul K: That’s right No, definitely. Y-H-S-T-M-A-A-I-Y-P. No, you’re actually very good. I’m not doing the acronyms and, and, and the numbers, but it is something. Actually, I’ll give a quick quiz. Uh, do you know the answer? You probably do, but the, um, you know, all these numbered trade things, what act are they numbers from?

Soumaya: 74? 1974?

Paul K: Well, the answer is they’re from several different acts.

Soumaya: Ok well that was a trick question!

Paul K: So it’s really horrible that we, we’ve got a 122 and a 232 and, and they’re not from the same law, so it’s totally obscure. But anyway.

Soumaya: Should we wrap up here?

Paul K: Let me just ask last question, then I’ll let you go. Do you have a view-- how does this pan out? You’ve given some, some good advice to people who are not Donald Trump, effectively. I mean, maybe Trump would benefit from, but he’s not going to read it. And probably not Xi Jinping, but how do you think this shakes out? It’s, you know, it’s possible that, that Mark Carney and his middle powers or Ursula von der Leyen and the EU leadership will in fact think about these issues and, and quite possibly read your book, as they should. Um, what does the world look like in five years?

Soumaya: Okay. well look, I’m gonna be real. Um, I don’t think there’s gonna be some grand bargain, um, in the next five years, right? Which goes back to my point earlier about the rules aren’t gonna save us. And that underpinned the stability that we had for so long, right? That’s really the only outcome that would reduce the chaos, right?

And so without that, we’re kind of in this messy world where everyone is gonna be following this rule book that we’ve laid out. Everyone’s gonna be trying to stockpile, to subsidize, to, to look to see what everyone else is doing, to see what lessons they can learn. that’s gonna be, you know, pretty chaotic, I think, the chances are that there’s gonna be misinterpretation of, of what’s happening.

So just, you know, take an example, stockpiling is one of the main tools that, that countries are now deploying to try to protect themselves against, you know, weaponized shortages. but you know, there was a hearing too long ago where, where one of the US committee was quizzing experts on, on whether stockpiling was a sign that a country was about to attack, right?

You’ve got China building up massive stockpiles. What if that breeds suspicion, um, that there’s some kind of military preparation? And what if Western stockpiling breeds that suspicion on the other side, right? So you have this real risk of these awful self-fulfilling dynamics. so, you know, do all the nice things, right?

Communicate, try to coordinate with your friends, engage, be as transparent as you can, um, put in the effort, spend the money, subsidize, stockpile, do all of the things that are hard. but you know, you’re gonna have to put in, put in the effort and be consistent about it, because the dynamics are such that in a trade war, your adversary is gonna be taking advantage of any moment of weakness to, to try to strengthen their position.

Chad Bown: And I would say for me,, the only things I would add to that is, you know, to build upon the, please work with your partners and allies, right? It doesn’t make a whole lot of sense to be fighting with them distracting them away from the really hard task at hand of fighting the real trade war that needs to be fought, which is dealing with these challenges with China.

And, every ounce of time that Europe or Canada or Japan or Korea has to deal with American tariffs, demands for, you know, invest here in my energy sector or something like that, instead of focusing on how do we most quickly, at lowest cost possible to deal with the affordability concerns, diversify some of these supply chains away from China while China is actively trying to prevent us from diversifying those supply chains away from us.

We need to do that kind of thing together. So focus on the trade wars that need to be fought, and let’s put the other trade wars to the side.

Paul K: Okay. That’s actually interesting because we’re basically saying that the, if not full on conflict, that trade war with China is basically gonna happen, at least a cold trade war. And that if only the United States would stop doing what it’s doing, that we could actually form an effective or might be able to form an effective precautionary bloc against it, which is optimistic. I guess that means, particularly if we get some better management back on the home front, we might actually be able to resolve this not too badly. That’s, that’s what passes for wild optimism in the year 2026. We’re all optimists now. This is, this great, sunny, uplands await

Paul K: All right. Well, Soumaya, Chad, thanks so much, thanks for the book, which is tremendously enlightening, and thanks for the not totally dire analysis at the end. Let’s, let’s, uh, hope for the best, and the best way to make it work is for everybody to read the book

Chad Bown: Thanks, Paul

Soumaya: Great advice.

Today we will pour one out for the vaunted technical interview process, which is on its last leg. And we’ll talk a little about what’s replacing it.

This post has been almost 35 years in the making; that’s how long I have been conducting technical interviews. And for a few of those decades, I also worked to try to improve the process itself. I’ve had to care a lot about it, because it’s so broken.

It turns out interviewing was broken long before I learned the trade, and despite the many attempts to band-aid it, it’s still broken today. It has managed to survive in spite of that. But it is finally dying on its own. People are a bit unclear on what’s next, so we’ll talk about some of our options.

But it’s not an easy path I bring you, no silver bullet. Remember that, grasshopper, when you get to the end and come back to yell at me.

Two Big Dogs

Back at Amazon, we had this elite group, the Bar Raisers, which I hear is similar to a role at Microsoft they call As-Appropriate (AA). In both cases, a trusted interviewer (the BR/AA) is assigned to every interview loop, and has the power to veto any unqualified people the interviewers try to sneak through. I was a BR, and also part of “Bar Raisers Core”: a small group Bezos and Dalzell tasked with defining the BR role itself, choosing new bar raisers, training them, and reporting on the program’s efficacy.

The BR and AA roles are a tacit acknowledgement that you can’t trust your interview teams to make good hiring decisions. Which even more broadly, suggests that if every single interview loop needs a babysitter, then it is a flawed process. But we were doing our best.

Of course we don’t frame it as babysitting, naturally. We cheerlead and rah-rah about keeping a “high hiring bar.” And BR/AA aren’t the end of it. There are tons of other interview process band-aids, all variations on how you conduct four to six interviews in a single day. Everything revolves around fitting the assessment into a single round or two of interviews. That part never changes.

None of these band-aids really help — we still all hire tons of false positives (unqualified) and turn away false negatives (actually qualified), despite every attempt to make the process perfect, or even good.

The reality is that talent evaluation, a corner of our industry that hasn’t changed much in five-ish decades, is embarrassingly busted. It just doesn’t work that well in practice.

The people who know this best, and who feel it most day to day, and who ultimately have the least power to change it, are all in HR. The tech side of the tech industry doesn’t want to change it because of inertia: the process has worked just barely well enough all these years to resist an overhaul. So all HR can do is show us how bad it is, and then try to do damage control when it fails. I’ll share an amazing story about this in the next section.

After Amazon, I kept on trying to improve the interviewing process while I was at Google. I spent years on Google Kirkland’s “Hiring Committee”, where we processed thousands of Microsoft résumés, would-be escapees from over the hill in Redmond. I published a 30-page internal résumé screening guide. I even wrote a blog post, Get That Job At Google, which is still handed out by Google recruiters, seventeen years later. I took this stuff pretty seriously back then!

In short, there is very little that I don’t know about the tech-assessment business. And I’m about to pull a Kitchen Confidential on it.

This post comes with a diagnosis and a prescription. But the important part is the diagnosis. I want to convince you that we need a radical change in how we assess people, and that tech interviews are on their last leg.

Let’s see how well I do. As for the solution, we can figure that out once we agree that it’s a problem.

Remember That Time We All Fired Ourselves?

The outcomes from interviewing are statistically terrible. Google did wave upon wave of analysis over the years, and all the results were incredibly depressing.

To name just a few off the top of my head: interviewers barely agreed with each other. Put the same candidate in front of two of our sharpest people and you’d routinely get a confident “strong hire” from one and a flat “no” from the other. There’s no oracle interviewer, not even Jeff Dean.

And once people were actually on the job, their interview scores told you next to nothing about how they’d do — at least the way we ran the loops. Hell, some of our star performers failed their Google interviews four or five times, finally got in after 2+ years, and then outshone everyone else.

Interviewing, it turns out, is a big game of darts. A “do I like you” dating round.

All we could find at Google, from all the statistics, is that there are a bunch of horrible unconscious interviewer biases keeping us from hiring people who ought to be working there. Google never published the results internally and I just got to hear rumors from HR friends, but yeah it was pretty bad.

Gergely asked me about the tech-assessment situation in one of our podcasts, and I told him a story that I think is relevant so I’ll recount it here. You can hear the longer, funnier version over on his podcast.

At Google, rather than putting a little black desk on every interview loop, they just assumed all the interviewers had their heads up their arses (an evidence-based assumption), and they formed a committee at each site called Hiring Committee (HC). This committee acted as the final arbiter and gatekeeper on all hiring for the site. And I was on it for quite a few years.

Our HC group at the time was roughly fifteen strong, and included many local powerhouse Googler colleagues, including co-inventors of huge technologies, authors of interviewing book series, and people who are now very senior leaders.

We felt like we knew our shit.

One day, the recruiters gave us a special round of packets to review. In these special packets, we were able to read the interviewer notes and candidate responses. All personal details were stripped out, and we were told it was a “calibration exercise.” We had to do our regular voting job with these special packets, and see how it went. I think we may have assumed they were from another site, since cross-site calibration was common.

Our group did our job, and voted not to hire about 2/3 of the packets. This was about par for the course.

But surprise surprise, this time, those were our own packets from when we had all interviewed at Google. The recruiters had tricked us into reviewing our own interview packets, and we had voted not to hire most of our own group.

For that brief moment, we all had a glimpse into how utterly broken our process was. The people-team had rubbed our noses in it.

But we never fixed it.

Change is Taboo

I once challenged the interview process at Google in a public mailing list, and an Important Eng Leader took me aside and told me I’d “farted in church.” People are not allowed to question whether the interview process is valid. Challenging it is akin to casting aspersions on the entire engineering staff. First of all, how dare you?

Moreover, many engineers and managers continue to defend the process, even knowing how broken it is, because it’s a gauntlet that they passed, so others must, too. Which sounds very silly when I say it like that, but you hear echoes of it whenever you suggest changing the process.

When you add it all up, and putter around with it for about 35 years, you ultimately find that interviewing, which aims to determine “can this person do this job,” is fundamentally unable to answer that question with any degree of reliability. It’s bordering on pseudoscience.

Bravo to Google for at least trying to measure it. They did find some actionable stuff. For instance, any more than four interviews and you’re just playin’ with your food. Stuff like that. But overall it was a bleak and mostly non-actionable picture.

Most companies never introspect at all on their own interviewing processes — at least, not in any real “we’re aiming to change this” sense. They might shuffle around which competencies get covered, or what the debrief meeting might look like.

The fundamental process — a short series of 1-hour interviews — hasn’t changed in fifty years. We have all been using the same stupid, broken interview process since before most of us were born. Dunno about you, but I’ve had enough of it.

So in today’s blog post, I’m going to show you everything that’s been tried, then point in the direction of a better way. And as an industry, we can start moving in that direction. As long as enough of us are doing approximately the same thing, it should gain traction.

I believe that within a few years we will mostly stop conducting technical interviews, and they will fade into a cute historical footnote like phrenology (which I would not be shocked to hear some interviewers still use). Interviewing will become just another somethin’ weird we used to do.

You ready? I am. Let’s goooo!

The Signal Problem

Talent assessment is a problem of signal. You need a lot of it. You want to try to paint an increasingly clear picture of the candidate, and that takes a lot of data.

The first signal source you get is a candidate’s résumé. “A résumé,” as Dave Barry tells us, “is much more than just a piece of paper. It is a piece of paper with lies written all over it.” Companies get thousands to millions of résumés per year, and the signal-to-noise ratio is awful. AI-assisted writing is exacerbating the problem, and résumés have become all but useless as a signal today.

What we used to do first was a technical phone screen. We don’t do them anymore. They’ve become just another somethin’ weird we used to do. They were super hard, for both sides. Everyone hated them. Imagine writing code for someone with only audio. Zoom made them obsolete. But even those awful phone screens were still a much better signal than a résumé, because you get to spend time with the person.

The next level of signal is “work completed”, which includes credentials and assessments like coding academies and challenges, as well as the person’s OSS work. They are both weak signal sources because you don’t get to work with the person while they’re doing it. But they can be a useful tie-breaker or foot-in-the-door signal that boosts you to the next evaluation stage.

The hiring signal doesn’t start to improve dramatically until you get to on-site interviews. But even in-person interviewing is infamously unlike real-world work. How does interviewing at a whiteboard compare to working with them in real life? I think we all know the answer to that.

So you get a few minutes with their résumé, a half hour video screen, and a handful of in-person interviews. Today’s standard hiring process only involves collecting a few hours of signal, in order to make a decision that could last years. It is no surprise that it yields such mediocre outcomes.

We can do better.

Provisional Employment to the Rescue

The gold standard talent-assessment signal, when available, is an internship. This situates the candidate as a quasi-employee for typically around 3 months. They are part of a team, they get “real” work — as real as the team can make it, which varies — and they are evaluated on how well they complete that work.

A 3-month internship is self-evidently a much stronger signal than a one-day interview loop. Chances are, unless you really drop the ball on managing the internship (it’s easier to mess up than you’d think), then you’re going to have a much clearer picture of their skills and capabilities, and how well they “mesh” in your team, than you did at the start of the internship. The signal is so much stronger than the interview loop that you often ignore the interview feedback when making the final decision. It was just what got the intern their foot in the door, and the internship itself turns into the assessment.

I’ve seen companies go even further than an internship, in their quest to find the Right People For The Job. The first company I worked for, Geoworks, had a strict requirement: every single candidate had to complete a six-month co-op, before they would make the hiring decision.

The co-op resembled a summer internship, but we were highly paid full-time employees (with benefits for anyone who didn’t have them from school), doing hardcore real work for twice as long, all of us desperately wondering if we were going to get hired at the end of it.

There is a material difference between the signal from an internship (~7 weeks of usable work time after ramp-up) vs a co-op (5 months actually working). That year, 1992, Geoworks hired 3 out of 8 of us. Crazy high bar, it felt like they were making new Witchers. Sad for the ones who didn’t make it. But their approach produced a company of nearly all stars and superstars.

As evidence of the co-op’s effectiveness, Amazon acqui-hired the Geoworks Seattle office in 1999, a few months after I joined, bringing in nearly 30 engineers (I kicked off the process myself, and it was surreal to see my old coworkers wandering the halls a few months later.) Amazon leaders have said many times, and I’ve even heard it from an old-timer VP as recently as two weeks ago, that the Geoworks group was by far the strongest group of people they ever brought in. Many Geoworkers went on to do incredible things at Amazon and/or Google.

So the Geoworks 6-month co-op is platinum-level signal. Can you go further? How far are you willing to go? On the supply side, the University of Waterloo famously sends their Computer Science students through a total of six internships, giving them roughly 2 years of real-world work experience before they graduate. This boosts the signal out of Waterloo, and companies compete fiercely for Waterloo interns and grads above all other schools.

What we’re talking about here is provisional employment. It’s lazy evaluation before binding the “hire” variable. It doesn’t matter if it’s an internship, a co-op, or a contract-to-hire, it’s a temporary position, not a part-time one: Provisional employment is a different axis from fractional employment. Provisional employment is currently the best solution the industry has found for the problem of knowing reliably who to hire, before you hire them.

But wait, if provisional roles are so effective, why bother with making them provisional? Why not just hire people, put them to work, and fire them if they don’t work out?

If only it were so easy. Actually, it is, except for, you know, The Law. Most provisional employment schemes are workarounds for U.S. employment law, which, believe it or not, affords employees some protections, even if those protections are weak compared to other parts of the world.

In the U.S. you generally can’t just up and fire someone, even if they are underperforming, even if it’s at-will employment, without risking a lawsuit and some sort of cash outlay. This is what makes hiring decisions so high-stakes.

But if the employee is provisionally employed, well, that’s a different matter. Their internship or contract is just “over.” Thanks for playing.

So in situations where the company can get away with it, they can and absolutely do use provisional roles to defer making permanent role decisions for as long as possible.

You call this a rescue?

OK, then! If provisional employment is the answer (it’s not, but let’s pretend it is for the moment, since it’s best-of-class for now), then why aren’t more companies requiring internships before making their hiring decisions?

The reason is, hiring engineers has historically been so competitive that you couldn’t convince a senior engineer to do an internship. College kids might have all the freedom in the world, but adults have families and mortgages and need steady employment. They did not want to sign up for a job they might not get to continue after 3 to 6 months. A job where they’re actually being constantly evaluated for the go/no-go decision. It’s a no-brainer that they’ll go elsewhere.

So the industry converged on not requiring it.

That was the old equilibrium, and it only held because good engineers always had somewhere better to be. That assumption is starting to wobble. I won’t belabor what I think you all can already feel coming, but if a sizable slice of the skilled-labor pool ends up “between gigs” at the same time, there may be no elsewhere for them to go.

At that point, if there are enough people on the market, try-before-you-buy is no longer an insult that you’d never dare float to a senior engineer. It’s a foot in the door that they’ll be glad to have.

Today’s hiring process is heavily optimized, and it’s going to be hard to change. I suspect this is why we are seeing so many tweets from founders firing their HR teams. HR is designed to keep things compliant with laws that are struggling to keep up with the pace of change, so they’re admittedly in a tough spot. Just be aware that if you want to make radical changes to your hiring process, there will be strong pushback from all corners of your org.

In spite of that pushback, I see some forces appearing on the horizon which are converging to squeeze the system, after a half a century, to its breaking point.

We’re seeing the first breakdowns at the fringes — offline assessments poisoned by AI cheating, online interviews turning out to be fronts for sanctioned North Korean IT workers, résumé floods that cannot be dealt with in any reasonable way. The system is undergoing tremendous strain that it was never designed for.

There’s an even more fundamental breakdown happening, which is the rate of change of the shape of knowledge-work roles. Hiring used to be something that changed very slowly. Every ten years there would be a revolution: internet, mobile, cloud, and people would have to learn some new stuff, and update job descriptions. But for the most part, the fundamentals of computer science, software engineering, project management etc. have remained stable for decades.

This meant that it was pretty easy to do long-term planning for what kinds of questions you want to ask people, what sorts of things to evaluate candidates on, and how much faith you can put in the results. But that has changed almost overnight, and it continues to change pretty rapidly. We no longer know what job roles to post, what questions to ask, nor how to evaluate candidates properly using any of our existing processes.

So. It ain’t working. And yet we’re still not talking about what it will take to change it. Because it’s unthinkable. It’s farting in church.

Let’s talk about what a real rescue would look like.

Let’s Stop Simulating Work

Every step of the interview process is an elaborate attempt to simulate actually working with someone. Reading their résumé, you close your eyes and imagine what it would have been like to get all those Ph.D.s. They must be insufferable. Moving on! Then there’s the phone screen, where you try not to imagine them wearing a gorilla suit, and usually fail. Then the interview, where you learn how they actually smell.

Whiteboards, made-up design questions–it’s all just theater, trying to act like it’s real work.

We’ve already established that the gold standard of assessment is working directly with someone on real work, in a real environment, for as long as needed to make the call.

So the short answer is, stop simulating. Post real pieces of work, let the candidate do it, look at what they actually produced, and decide from that work.

We never did this before for all sorts of reasons. It’s a lot of work to carve out work. Hard to get people the credentials they need, etc. Carving up work might be easier with AI now in some cases, but still pretty hard if you’re a locked down enterprise.

Another reason is that on the supply side, nobody wants to sign up to do a bunch of free work just to be rejected. If you just put up work, the candidates incur all the risk, meaning they walk away with nothing if you don’t hire them. You can pay them, which helps soften it, but they’re still looking for full-time work that you might not offer them in the end.

So until very recently, the idea of using real work as an assessment tool has encountered too much resistance on both sides of the interview table.

Campfire Is The New Interview

If you spend any time doomscrolling on X, the new meta in SF is “come work with us for a few days.” Paid, real codebase, real ticket, real team. From what I’ve heard, it generates the best signal people have ever seen, by a mile. I don’t think it beats a six-month co-op, but it’s a hell of a lot better than a standard interview loop.

So there’s already a movement away from traditional interviewing, which is why I feel comfortable making the claim that it’s already starting to die out on its own. It’s being replaced by bringing people in for longer stints. I’ve been calling this working model the campfire: pull up a log, build something together, see how it feels. Bringing in outside contributors is pretty easy, as they’ll have agents and should be able to come up to speed very quickly. If they can’t, there’s your signal.

But even though people are experimenting with it, the way it’s done today is a mess. Every shop is reinventing a bespoke solution. And it’s unportable: candidates do brilliant work in a trial, they don’t get the offer for reasons, and the signal evaporates. The next company they campfire-interview at starts them at zero.

Count Work Twice

Big companies all have mountains of work. Heck, everyone has mountains of work. And most companies are engulfed in a forest fire of résumés. If you can carve real pieces off your work mountain, and connect them to that fire, you can make a campfire model that scales.

Great for you, you get outside help with your work mountain. But how can it be made fair for the candidates contributing work? Easy: You make the work count twice. Once for you: you get strong assessment signal, and some real output from candidates that you will often get to keep, or at least use as a starting point.

And then, importantly, each work item also counts once for the candidate: they walk away with a permanent, portable record of what they did and how well they did it, signed by you, whether or not you make an offer.

When candidates get to walk away with something of lasting value that they can keep forever, something that may even compound over time, it no longer feels like “six hours of free work to get rejected.” It feels like a six hour investment in a permanent small reputation bump. That’s infinitely better than a flat rejection.

Make Interviewing A Profit Center

Interviewing has always been a cost center. It costs engineer-hours to produce a yes or a no, which is why people have resisted increasing interviewing time to improve the signal. It’s already considered a lot. But if you run things campfire-style, it potentially flips into a profit center. And it can pay for itself twice: once in real work shipped, and once again in something else you could probably use more of, which is gravity.

Every stamp that you hand out, pass or fail, leaves a candidate richer than they showed up. This attracts strong candidates to you, because even your rejections are worth something to them. Stamp honestly and generously enough and you stop rooting around through a trickle of identical AI-polished résumés, and start standing up a reserve: people who’ve done real work with you, can prove it, and will pick up when you call.

But they can also walk away, and take their record with them.

This system is basically worth exactly what your honesty is worth. If you hand out gold stars to everyone, you’re just reinventing LinkedIn endorsements, which are worthless. Companies whose stamps mean anything will be the ones known for only handing them out for quality work. Being a hard, fair judge is an advantage for everyone.

Where Do the Stamps Originate?

Every rideshare platform already mints the kind of record we’re talking about here: star ratings, badges for this and that, rides completed, Grab and Uber have all of it. The one thing wrong with it is that it’s trapped on each platform and disappears if the driver leaves. The whole trick to reinventing talent assessment is letting the workers carry the assessments out the door.

I’m aware of some solutions evolving in this space, both commercial and open-source, and I’m excited to share more when I can. Candidly, I wanted to hand you a coherent solution today, and through a combination of running out of space, and Opus 4.8 being way too goddamn critical of everything all the time (jfc), I decided I’d hold it for now. We’ll all just have to start experimenting.

But now you have the shape of it. Please, treat any prescription I’ve made here as a sketch. Mostly I just want you to come around on the diagnosis, and agree that we need to fix it properly for the first time in 50 years. Maybe you conclude that everyone has to require six-month co-ops. I don’t care. As long as it’s not more of the same. I just wanted to move the Overton window a bit.

Personally, I think campfire is the most intellectually satisfying solution I’ve heard as a viable replacement for our aging interview infrastructure. Hope to see you at a campfire soon!