Under pressure from US tariffs and geopolitical conflicts, US imports of most good and services has been fairly flat, but with one big exception: imports related to artificial intelligence. Michael Waugh of the Minneapolis Fed provides evidence in his working paper “Trade in AI-Related Products”(Minneapolis Fed Staff Report 684, April 8, 2026). Jeff Horwich, also from the Minneapolis Fed, provides a shorter and readable overview of the findings in “Much more than microchips: Trade soars in AI-related goods, driving U.S. trade deficit” (May 4, 2026).
As background, it’s useful to know that that all US imports are classified by what is called the Harmonized System, and the most detailed level of classification is called HS10. Waugh uses a large-language model to determine how closely linked different inputs are to the broader notion of what is needed to build AI. He explains:
What are AI-related products? The classification identifies the obvious computer hardware inputs such as data processing units and storage devices. These products account for about half of all AI-related trade and imports of them have grown by triple digits since 2023. But the classification also identifies a broader set of products tied to electrical infrastructure, networking, cooling and HVAC, and specialty materials. These ancillary products account for the other half of AI-related trade and have also experienced strong import growth.Through 2025, AI-related products account for 23 percent of all U.S. imports, up from 15 percent in 2023. Leading into the start of 2024, AI-related products grew no differently than non-AI-related products. But since early 2024, import growth in AI-related products has accelerated sharply. As of January 2026, trade in AI-related products had grown by 73 percent relative to 2023, compared with only 3 percent for non-AI-related products.
Where are these products coming from? Two countries play an important role in the sourcing of AI-related products. Not surprisingly, Taiwan is an important source for computer hardware components (e.g. semiconductors) and Taiwan accounts for about a quarter of imports of AI-related products. The surprising source is Mexico. It accounts for another quarter of AI-related trade and its reach extends to computer hardware and other products related to electrical power, networking, and cooling HVAC. China is less important in AI-related trade and its overall share has diminished over the past two years.
Here’s a figure to illustrate the pattern. The blue line shows AI-related imports to the US. The black line shows all imports. The red line show imports not related to AI. To compare trends, the levels of all three are set equal to 100 for the monthly average in 2023. Looking back to 2022, you can see that the three lines move much the same. But starting in 2024, they separate quite a bit.
Waugh notes that many of the AI-relevant goods are wholly or partially exempt from Trump’s tariffs. He also offers a rough calculation that if AI imports had not risen as they have, the US trade deficit would have been about $200 billion less in 2025. If policies are judged by their outcomes, not their stated rationales, the Trump administration has decided that imports of AI-related items are important enough that the usual rationales for tariffs (cut the trade deficit, it should all be immediately built in the US, and so on) do not apply.
At a global level, it seems plausible that artificial intelligence technologies will cause an increase in world trade, no matter the tariff and geopolitical issues. The World Trade Report 2025 produced by the World Trade Organization (September 2025) is subtitled “Making trade and AI work together to the benefit of all.” The report notes:
WTO simulations suggest that AI could lead to significant increases in global trade and real income. These simulations are based on an extension of the standard WTO Global Trade Model with AI services and incorporate trade cost reductions, a shift in tasks from labour to AI and productivity gains related to this shift. They suggest that AI could lead to significant increases in trade and GDP by 2040, with global trade projected to rise by 34 to 37 per cent across different scenarios. The largest growth occurs in the trade of digitally deliverable services (42 per cent), including AI services. This trade increase reflects (i) reduced operational trade costs, (ii) the strong projected growth of AI services combined with the high tradability of AI services, related to its geographic concentration of production in a few regions, and (iii) the aboveaverage productivity growth in more tradable sectors, in particular digitally deliverable services. The development and deployment of AI are also projected to generate substantial global GDP increases, ranging from 12 to 13 per cent across scenarios.
There have been other times in history when the political winds were leaning against international trade, but underlying economic forces created large increases in trade anyway. As one example that I wrote about here a few months back, the wave of globalization that happened from about 1870 to 1914 happened in the face of tariff levels that were remarkably high by modern standards. However, this was also a time of dramatic improvements in transportatation, communication, and infrastructure, which combined to drive trade higher even in the face of high tariffs. Perhaps AI will become another example in which technological force that drive down the costs of trade and increase the benefits of trade will have bigger global effect than efforts and events that should seem to have a negative effect on trade.
I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided back in 2011–to my delight–that the journal would be freely available online, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Spring 2026 issue, which in the Taylor household is known as issue #156. Below that are abstracts and direct links for each of the papers. I plan to blog more specifically about some of the papers in the few weeks, as well.
This essay, commissioned to serve as an introduction to the JEP symposium on current competition in health care, provides a historical perspective on the role of both competition and regulation in the financing and delivery of health services since the implementation of Medicare and Medicaid in the mid-1960s. At the beginning of this period, few could perceive a role for competition in healthcare given the key role played by physicians in providing and ordering care and concerns that lower prices might signal lower quality. Initial attempts to slow rapidly rising costs involved various regulatory tools, but over time, regulation increasingly incorporated incentives for providers, to control costs. Competitive approaches began to develop in the late 1970s, in part reflecting broad changes in the nation’s political culture. Competitive approaches are now quite widespread, but regulation plays an important role in the structuring of competition and in addressing areas where competition is seen as having less potential.
The United States relies primarily on private health insurance markets, yet these markets are highly concentrated and becoming more so over time. We document concentration across commercial, Medicare Advantage, and Medicaid markets. We then examine how asymmetric information—particularly adverse selection—interacts with market power to shape premiums, plan design, and consumer welfare. Empirical evidence confirms that insurer consolidation raises premiums. We discuss how antitrust enforcement, risk adjustment, regulation, and informational interventions shape competition and consumer welfare in these markets.
Many high-income countries implement their policy of universal health insurance by individual health insurance in combination with regulated competition among insurers. Supported by public intervention, regulated competition can, in principle, address market failures in health insurance and smooth out some inequities in the financial consequences of ill health and in the ability to pay for health insurance. We compare the national systems in Germany, the Netherlands, and Switzerland to the US Marketplaces, all of which use versions of regulated competition. While they show many similarities (for example, open enrollment, community-rated premiums with subsidies, comprehensive benefit package, risk adjustment), we focus on three major differences and their implications for market functioning: (1) mandatory and universal versus voluntary and partial (applying to only one sector of health insurance); (2) greater or lesser profit orientation of insurers; and (3) reliance on markets or regulation to contain costs.
For people with private health insurance in the United States, contracts between insurers and providers are important to fostering health care competition and improving efficiency. However, insurer-provider contract provisions do not always advance competition and consumer welfare. This essay discusses the contracting strategies used by insurers to increase competition, and four anticompetitive contract terms: anti-tiering or anti-steering, all-or-nothing, most favored nation, and gag clauses, that may be used by dominant health systems to protect themselves from competition. I conclude with a discussion of policy responses that can be used to address provider use of anticompetitive clauses and that can reduce the negative impacts of provider market power. Understanding anticompetitive contract provisions and the potential policy responses to limit their impact is critical to health care competition.
Consolidation in the last few decades has reshaped the organization and structure of US health care markets, among both providers and insurers. Nearly all US hospital and insurer markets exceed established regulatory thresholds for competitive markets, and over half of physicians are now employed by a hospital or health system, which can increase spending for patients, payers, and taxpayers. Increased supply-side concentration can alter the balance of negotiations between providers and insurers. Prices for patients with commercial insurance are approximately 2.5 times the prices paid by those with public insurance. High and variable prices have minimal link with higher quality, and the United States leads peer nations in health care spending. These dynamics have created ongoing national debates over an “affordability crisis” and generates frustrations with the US health care system. This article discusses sources of rising health care spending and potential policy solutions.
We describe competition in the physician market, focusing on how entry barriers and substitution possibilities have changed in recent decades. Regulatory caps on medical school seats and residency slots—especially for high-paying specialties—continue to ration entry, generate high returns for those who gain these slots, and direct the most academically accomplished trainees toward lucrative fields. But trained physicians increasingly compete with nurse practitioners, physician assistants, and other mid-level practitioners in the market for patients. Training of these substitutes has expanded far more rapidly than physician supply. We present key facts about the physician pipeline, a conceptual framework linking specialty earnings to entry barriers, and describe the rise of mid-level providers. These facts mean that effective competition policy in physician markets must look beyond conventional concentration measures and focus on the institutions and laws that govern who can provide medical care.
We assess the evolving role of competition in Medicare Advantage and its implications for beneficiary welfare. We describe how competition from the public option, traditional Medicare, and other private insurers within Medicare Advantage act as substitutes in incentivizing plans to deliver value. We show that while historically the choice between traditional Medicare and Medicare Advantage provided a vital competitive dynamic, traditional Medicare’s strength as a competitor has declined significantly, driven by generous payments favoring private plans. Consequently, the burden of ensuring value for enrollees has shifted to competition within the Medicare Advantage market. While county-level competition among private insurers has increased, this growth is primarily driven by the expansion of large national carriers rather than new entrants. Insurers still wield substantial market power due to significant barriers to entry, raising concerns about the ability of the program to incentivize private insurers to use public dollars to maximize value for beneficiaries.
Medicaid is one of the largest public programs in the United States—providing health insurance to over 75 million low-income Americans—and over three quarters of its enrollees receive care via private “managed care” insurers. In this article, we make three central points about the economics of contracting out Medicaid to private insurers. First, the empirical evidence on Medicaid privatization is mixed: contracting out has not meaningfully reduced public costs or improved quality of care. Second, we propose a framework, which we call “procured competition,” to describe the unique structure of Medicaid managed care as a hybrid of public procurement and regulated competition. Third, we discuss the key policy levers across procurement, competition, and consumer choice in this model. Throughout, we highlight open research questions, arguing that the enormous variation in how states design these programs—combined with limited evidence on what works—represents a promising area for high-impact scholarship.
The AKM model introduced by Abowd, Kramarz, and Margolis (1999) has become a workhorse to study worker and firm heterogeneity, and to understand the sources of wage dispersion in the labor market using linked employer-employee data. In this article, we introduce the model and estimator, discuss some best practices for estimation, and review some empirical findings on the role of worker and firm heterogeneity in wage dispersion. While the AKM methodology has proven useful to analyze a host of questions in a variety of settings within labor economics and beyond, we also point to the need for methodological developments.
This article examines the economics of paid sick leave from both theoretical and empirical perspectives. Research on paid sick leave has evolved dynamically over the last decade, primarily driven by the spread of US sick pay mandates, which have increased paid sick leave access from 63 percent to 77 percent in all US jobs. We begin by discussing the economic rationales for government regulation of paid sick leave, particularly the negative externalities associated with contagious diseases when individuals work while sick. After that, we discuss the key trade-offs in the general design of paid sick leave schemes, along with the trade-offs when setting specific policy parameters. Finally, we review economic modeling approaches to study optimal paid sick leave policies.
The dollar shortage debate—Paul Samuelson called it “the big open question of our time”—dominated international macroeconomics in the 15 years following the end of World War II. There were two main views regarding its cause: financial frictions that limited capital flows to Western Europe (Kindleberger); and overvalued fixed exchange rates versus the US dollar (Friedman). According to Kindleberger the dollar shortage was attenuated by two real factors that contributed to current account deficits: a large technological gap between the United States and Europe; and European impatience to improve living standards. Kindleberger believed that the current account deficit would prove chronic because of the persistence of the productivity gap, a view that was challenged by Bloomfield who argued that it would dissipate through income growth in Europe. We argue that Kindelberger’s analytical framework is closely connected to the modern intertemporal approach to current account determination; and, also, that the international reserve function of the US dollar—the Triffin dilemma—did not play a role in the dollar shortage.
