This is Brad DeLong's Grasping Reality—my attempt to make myself, and all of you out there in SubStackLand, smarter by writing where I have Value Above Replacement and shutting up where I do not… Agglomeration locks in advantage; weaponized tariffs unlock dysfunction. Macro self‑sufficiency hides micro choke points—and China sits at the hub. The U.S. lost trust; China gained leverage; decoupling shrank to slogans…Big economies look nearly self‑sufficient—until a single input fails. China’s hub advantage, the U.S.’s trust deficit, and Brexit’s self‑inflicted friction show why weaponized trade weakens coalitions more than China. Global supply chains are an omelette—entangled, efficient, and hard to reverse. The macro story (large domestic shares) masks micro fragility: specialized intermediates, scaled clusters, and dense spillovers that make agglomeration self‑perpetuating. China’s role as dominant supplier of intermediates creates asymmetric leverage; the U.S., Japan, and Germany are more exposed to China than vice versa. Tariffs, deployed unpredictably, erode allied coordination and deepen reliance on precautionary stockpiles rather than capacity. Brexit exemplifies how added friction shreds regional resilience. If the race to be the furnace that forges the global future isn’t already decided, agglomeration economics—not punitive trade optics—will decide it soon. A very nice piece from Richard Baldwin:
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Factory Asia & Trustability Bankruptcy: A Table Suggesting the Race to Be "The Furnace Where the Future is Forged"…
Friday, 19 December 2025
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