I am a bit confused. Don't want to disagree with the PK but...
If you look at the Consumer Price Index, seasonally adjusted, the CPI for all items increased about 1.9% between Dec. 2017 and Dec.2018.
Historically, 1.9% doesn't look all that bad -- a bit more than during most of the Obama years but less than most of the years since 2000.
Perhaps the tariff hit to the CPI hasn't kicked in yet???
Data here:
https://fred.stlouisfed.org/series/CPIAUCSL
And here
https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913
Do trade wars have any rationale? First of all, I have to admit that I somehow underestimated the multinational political support for. Discontent on free trade must have somehow become a political benchmark anywhere, while international bureaucracy was uninterruptedly praising the legally recorded virtues for such free trade. Along came trade war, suddenly. Brought by a no-prospect for things where to go. This should be the number one cost accounted, which already has crossed the point of no return, affecting primarily investors' expectations. There's a pessimism which reminds me of a movie shot in the 90s, "Event Horizon", because there's no physics to turn the mentioned cost back. Secondly, the rationale of free market is based on the utility principle,as far as I could observe for now trade war,has a functioning which can be described as arbitarry clash,like natural disasters.Third,I was predicting that trade wars wouldn't fix US current account deficit.Such turned out to be widening currently.Fourth,China currently,is one of the worlds biggest high technology producers in terms of patent rights expansion,if not the biggest.This would mean that a disconnect would also harm the US severely from such point.Technology is a cost. US technology is not the reason for US prosperity,that's a result of.Voters in any country lack awareness of such fact,I think.Techno-pride is one of the favorite practices of politicians all around the world.Well,such imposes irrational accounting.
Trump won because he responded to the population who had lost their work and had to take a job with much less pay and benefits. The rest of this stuff is just nonsense.Even now writers and politicians are not able to respond to this simple fact. Maybe manufacturing is not coming back but some response to people’s suffering must be made.
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@Art
Of course some response to people's suffering must be made.
Trying to sabotage Obamacare so that people loose their insurance and premiums go up, and starting trade wars that cost America billions and lots of jobs, all while doubling the deficit by passing huge tax cuts for millionaires, is not the RIGHT answer, it only makes things worse.
1
What war ??? The USA conducts the most dishonest commercial activity in Europe invading the market and paying zero taxes. Apple, Amazon, Facebook, Yahoo, Google, Starbucks, Netflix, Mc Donald, and others all fiscally registered in Europe, not in the USA, and cheating to pay zero taxes. The fiscal fraud onto the European workers by the USA amounts to several trillion dollars every year .
2
It is very strange that Americans have a denying capability for dishonesty. They can perfectly feign not to see it .
1
The really bad thing about this is that Trump really believes that the Country he’s slapping tariffs on is the Country that’s paying the tariff, no matter how much they try to explain it to him. That’s how dense he actually is. It’s extremely troubling.
3
This was clear in the first place. Tarifs are a tax. Either importers increase the cost of their merchandize to recover at least part of the tarifs or they are prized out of the market against the domestic competition. In this new market environment the local producers will increase prices as far as the tarifs allow it. The bill is payed by consumers either way, in the first scenario to increase state income in the second to increase profits of local companies. The central question will be to what extent this windfall will serve to improve employment and worker's incomes. Otherwise it is mainly the shareholder's who will benefit.
1
My soybeans have forever lost markets it took a generation to build.
8
Mr Krugman, While I appreciate your thoughts of tariffs leaving the US overall poorer, I have a major disagreement on the point around opportunity cost of producing a good domestically. If a $120 good was produced in the US and assuming US is near full employment, many elitists including you make the assumption that opportunity cost of producing the $120 good would be higher than $120.
Your assumptions are right in lot of places like NYC or Silicon Valley but are not true in smaller towns where people are doing work that has an opportunity cost of less than $120. Today in US, either you have a population segment whose opportunity cost is much higher than $120, or much lower than the $120. And precisely this is where, Mr Trump echoes with that segment of population. If people whose opportunity costs are much lower than the hypothetical $120 product come to this job, then you can recreate the middle class that is rapidly either going down or up (mostly down because going up has very few people).
This improvement in the quality of jobs at the middle would then enable increased consumption and higher overall prosperity for the US.
Will the slight uptick in prices change the behavior of people who “have to” shop at Wal Mart, and get them to support US industries? Or will it drive even more American consumers to the mega-retailers whose hunt for cheaper-everything has devastated American industries and jobs? While at the same time thanking Trump for his tax cuts?
1
I live in a country which doesn't threaten other countries with Tarifs, abides by its contracts and is willing to invest in other countries and even provide them with jobs and training. As a retired CFO, I travel a lot on government-sponsored trips to third world countries to help improve their economies and living conditions. The payoff here is amazing in both human and economic terms. Everywhere I go, people react favorably when I tell them where I come from. In the business world, we call this building goodwill and it is invaluable. Perhaps the man in the WH and his staff could try spreading some goodwill in this world, instead of playing the ugly American.
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Funny, but that term "ugly American" comes originally from a 1958(?) novel by that name, in which THE GOOD GUY is an American who happens to be ugly. literally an ugly American working on rural development projects in Southeast Asia. The book is said to have influenced John F. Kennedy in the formation of the Peace Corps.
Ugly or not, Trump is the polar opposite of the ugly American in The Ugly American.
This article is just one support of the theory that Trump doesn't know what he is doing. His overall strategy of pressuring the Chinese will fail because Xi is smarter than him, knows how to manipulate the master of "art of the deal" and because China is in a better economic position to outlast us. Trump touts the strong American economy yet fails to boost its position in the Asian markets by weakening our position in snuffing TPP. This move alone strengthens Chinas leadership in Asian trade and allows them to formulate a pact to protect import and exports lost in a trade war. Further America's economy is averaging around 3% growth the last few years and China's has been double digit for a while until currently 6.5%. True that the drop in growth may be unsettling to China, but because they are a single party government entity, the pressures are less than that of the American system to dig in. Which economy appears to be able to withstand the pressures? Certainly not Trump's America as he has envisioned bilateral trade agreements which weaken abilities to innovate with multiple partners. Lastly, Trump has mainly targeted the trade deficit in his goal to take China to school. The trade deficit is a non sequitur in the conditions we need to impose on China. The focus needs to be on AI and intellectual property. If there is a settlement, China will relent on deficits and hold the advantage on AI and possibly intellectual property.Whoever controls AI will control the world economy
1
"President Donald Trump pushed back against a wave of criticism against steel tariffs, with a tweet saying “trade wars are good and easy to win.” ....haha...maybe not so easy and maybe not so good.
The capital account surplus is greater than 3% of GDP. Meaning, foreign demand for dollar-based assets is stronger than the demand for more things to be produced by dollar-based assets.
Dr. Krugman's depiction is actually encouraging to me, as a progressive looking to protect our working class (and, thereby, promote social justice and environmental sustainability). If these tariffs result sharply in consumers choosing domestic and non-tariffed countries' products then it sounds like we need to extend them to these other countries! I may be a simpleton, but isn't this what Europe's VAT tax is all about?
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@carl bumba
All capitalist countries work with tariffs. There is no real "free trade" in this world.
The only question is: when to impose tariffs and when not, in other words, when do they benefit trade and local workers, and when not.
As Krugman shows here, Trump's tariff experiment is the perfect example of how NOT to work with tariffs - at least not if you want Americans to benefit from it.
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It's VAT period. Not VAT Tax as that would be redundant, like referring to the IRS Service. Now that we have that out of the way, a VAT is ultimately a tax paid by the final consumer. Thus, when businesses import goods and pay the import VAT, they are typically entitled to a full credit for the VAT paid. In many VAT countries the import VAT is waived, or deferred, such that there isn't even a cash-flow cost to the business. Whereas if private individuals are importing goods for personal use, they would paid the full cost of the import VAT.
1
The European VAT tax applies to all products and services, both domestic and imported. It is not European either because even in the EU individual countries fix VAT level (in my country Belgium a staggering 21%). This has nothing to do with protection of domestic industries. VAT can be even detrimental to local economy because in small countries or border regions individuals take their cars to shop at lower VAT neighbours like the Belgians do in Luxemburg.
1
The assertion that we are at full employment is basically wrong. Firstly, because the changes that have been made to how unemployment are measured have all worked to paint a much-rosier-than-reality picture of it. Secondly, because even if we were close to full employment, wages have not risen much at all in about 45 years, and so tightening the labor market might finally (finally!) help wages, which are so low.
Not that there's any confusion about who's clever here: Trump is a moron, and Krugman typically has great insights. In the case of trade with China, even Obama railed against it and called it unfair. It seems like something needed to be done. Whether tariffs were a good 'something' -- maybe, maybe not. It seems like they are having some positive effects. Even a blind pig finds some acorns.
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Donald Trump bears out the truth in the adage that no man is totally useless because he can always be used as a bad example. How can so many be so fooled by so little (that would be the 'base' and their hero)? And how especially can the pure right, bright red politicians who could find nothing of value in what Obama accomplished claim that God has chosen Trump to save America? It is an insult to the God they (and Donald for sure) do not know. I think I can hold my nose a little longer but here's to the many Democrat investigations! Let's see Donald & co. exposed as who they are, charlatans and grifters.
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One by one, wacky right wing ideas are getting shot down as attempts to actually implement them flame out in the light of day.
But this is not really the issue. The American worker is prepared to pay more for imported goods if it results in rebuilding American industry that uses American workers. In the past, this bitter pill has allowed American corporations and their defenders (like this paper and both political parties) to outsource their production. Our workers have figured this out and are willing to shoulder the heaviest burden, as a percentage of their incomes, in order to make the transition.
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@carl bumba
That's the theory - or rather, Trump's theory.
Two problems:
1. There are no serious studies backing it up.
2. It isn't happening, quite on the contrary, American workers are being hurt by the trade war.
Workers have always accepted to make sacrifices. But to do so just to see whether in a distant future an absolutely not fact-based Trump hypothesis might maybe achieve what it claims to want, contrary to what all solid studies predict, is simply a foolish thing to do ... .
And in the meanwhile, the only major piece of legislation that Trump passed is a huge tax cut for millionaires like himself, which doubled the deficit (after Obama managed to cut Bush's $1.4 trillion deficit by two thirds ...).
WHEN will people start to wonder why ordinary citizens should make "sacrifices" whereas millionaires don't ... ?
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And the AI/robotics/automation story we hear so much about sure did not prevent probably the largest demographic movement of our species in it's history, namely, the movement of rural Chinese into urban, industrialized areas. The tooling-up costs of worker-free production, when possible, is under-reported (at least in this paper, from my reading). And heaven forbid we undertake anything less efficient/more costly for the sake of long-term cultural or environmental consequences!
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@Ana Luisa
Thanks, Ana. But this is way wrong, IMO. This is not a theory (or even a hypothesis). It is not Trump's "theory". American workers have had held this position for decades. Progressives know this well. The history of the American progressive movement is a long and rich one. And though I don't know this for certain, your easy pronouncement that there are NO serious studies supporting this viewpoint is almost certainly wrong. But I do really appreciate your informed and incredibly prolific writing.
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Long term or worse, permanent behavior modification by companies, countries and consumers to buy raw materials and finished goods from another foreign entity in order to escape the onerous expense of tariffs, is not a winning consequence of trade wars Trump will be tweeting about anytime soon. Both US and foreign businesses of all sizes, along with their respective employees and investors can be harmed irrevocably when those companies in tariff-burdened industries are forced to downsize or worse, terminate their company altogether as trade tariffs drive their customers into long term agreements with foreign competition not affected by the trade tariffs. As the tariff wars escalate and endure, it becomes increasingly harder for either side to compromise for fear of being viewed as the weaker side.
Trump has created such an unnecessary mess here that could easily cast a pall over US businesses for a very long time when he is out of office.
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As usual, a superb, thoughtful and extremely germane opinion piece by Dr. Krugman. What I also really respect in this article is his laudatory comment, (“a beautiful piece of work”) of the just-published paper ‘The impact of the 2018 trade war on U.S. prices and welfare’ - this despite the fact that the authors of the discussion paper, Mary Amiti, Stephen J. Redding and David Weinstein, make note of its ‘provisional character’. Bravo to all, Dr. Krugman – for his positivity in our fractious world - and to the researchers for their very relevant research.
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Krugman ignores a bunch of basic points here.
Firstly, the long run impact is likely to be different from the short run impact. It takes time to set up new supply chains, so in the short run importers from China will decide to pay the tariff rather than qualify new suppliers. That will change in the long run.
Why does that matter? Because the price elasticity of demand is going to be very different in the long run from the short run. Why does the price elasticity of demand matter? Because, to quote a famous economist, "When the price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on producers." (Economics, Krugman+Wells) A tariff is a form of excise tax, so this statement also applies to tariffs.
Advocates for free trade are very keen to talk about the deadweight losses imposed by tariffs, and how that make us poorer. What those advocates don't say, is that such deadweight losses are an issue for ALL forms of taxation. The 70% income tax could also make the US poorer. The case against a 70% income tax is exactly the same as the case against the tariffs on China. The same logic holds for most forms of taxation. Isn't it interesting how Dr Krugman neglects to mention that when he advocates for a 70% income tax rate?
Governments have to raise revenue, and tariffs are no worse than other types of taxation.
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@Schrodinger
The problem with Trump's campaign promises is that no matter what he does, the effect today is always the exact opposite of what he promised, and then his supporters answer that "in the long run", in other words in some mystical, distant future, there will be a spectacular U-turn and all of a sudden, and without any serious study predicting it, all of his promises will become true.
As to a 70% MARGINAL income tax rate (nobody is proposing a 70% income tax rate, remember?): you seem to have forgotten that that money can be used to invest in the US economy, Americans' health, education, roads and bridges etc., which then increases GDP?
As to imposing tariffs on products imported from elsewhere: it only raises federal revenue IF Americans continue to buy those products. As this op-ed shows, they aren't.
So no, as any basic course in economics can explain, tariffs and taxes are two different things ...
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@Ana Luisa wrote... 'So no, as any basic course in economics can explain, tariffs and taxes are two different things ...'
Krugman wrote: 'A tariff is a form of excise tax, one that is levied only on sales of imported goods.' (Page 228, Economics, 3rd Ed., Krugman and Wells)
@Schrodinger
Yes of course, what I was referring to is that what you claim, namely that by definition a tariff increase should lead to federal revenue increases, is wrong, because contrary to income taxes, if you're new to this you risk to increase tariffs on imports in such a way that you end up with less federal revenue rather than more, as is the case today.
The point of tarriffs wasn't to help US citizens, it was to hurt Chinese citizens more than it hurt US citizens and thereby get the Chinese government to stop engaging in anti-competitive behaviors. By all appearances it seemed to be working, US consumers paid a relatively small price and it hit the Chines hard, especially given the broader deleveraging that is going on over there.
That just makes it all the more bewildering that Trump seems to be caving and giving the Chinese a sweetheart deal to end all of this.
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@Dave
And where's the evidence that China would be losing more money than the US, because of Trump's trade war ... ?
It's precisely BECAUSE it's hitting America hard that Trump is now forced to cave.
That's why a trade war will never force China to give up anything, whereas the TTP for instance would have done so, as contrary to Trump's one-man show, it meant the integration of most of China's neighbors into a much more unified, regional capitalist market. That would not only have hurt China's economy, it would also have forced to negotiate with that new market in order to become part of it, and THAT is where capitalist concessions would have been made.
A trade war launched nonchalantly by the stroke of a pen of ONE single man can never have the power of an entire regional capitalist market - not only because such trade wars severely hurt America and as such reduce Trump's leverage, but also because all that the Chinese need to do is to negotiate NOT with a whole bunch of governments, but with one single man, and in this case even a man known for his appetite for corruption ...
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May the Times print my ever-increasing appreciation and enjoyment and help when reading Paul's articles; dunno if he'd say it so I will: he is one of a too few who truly cares-for, loves humanity and continually invites us to clearly see "how things REALLY are" and so guide our responses and silently invite us to respond to humanity and the whole earth's needs in a highly intelligent, deeply feeling manner. Long may you live, Paul, and long may you write!
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I'm as hostile to Trump and his tariff policies as they come, but Krugman is failing to address the point of the tariff policy.
Of course tariffs make us poorer. Tariffs make everyone poorer! That has been basic macroeconomics for nearly 100 years, and the mechanism by which it makes everyone poorer is precisely what has been borne out by the present situation. What Krugman describes was expected by virtually every trained economist.
But the point of the tariff policies was to punish foreign governments and businesses. And that likely has happened, although the referenced study doesn't talk about it. The question is: how much has it hurt the intended targets?
Yes: tariffs are like cutting off your nose to spite your face. So we know that we are inflicting pain on ourselves by cutting off our nose. But we have, in fact, successfully spited our face in the process.
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@Sam I Am
That doesn't make any sense.
First of all, tariffs don't make "everyone poorer". If that would have been the case, the US and the entire West would have abolished all tariffs long ago already.
In real life, in a capitalist international trade system, tariffs protect local industries. When you own workers make product X, but in a more expensive way than neighbor A, then the industry making X at home would entirely collapse without a high tariff on imports of X.
So in certain cases, tariffs make us wealthier, not poorer.
The notion of "free trade" refers to a world without any tariffs.
The WTO, on the other hand, uses a certain number of internationally agreed upon rules to use and reduce or increase tariffs.
Sanctions aren't part of those rules. If you want to punish a country, you're supposed to use sanctions. That means making investing in that country illegal, for instance.
In Trump's case, the purpose of tariff increases on China was to force China to accept more free trade rules than it currently does.
As expected, however, China reacted by increasing its own tariffs, thereby hurting America too.
And that's precisely the weakness of artificial wars like these: the person who launches them, hurts its own country, which terribly weakens your negotiation position and leverage.
That's why the deal Trump is now about to sign, simply ends US tariff increases and China tariff increases, without including any of Trump's demands at all (just some cosmetics)
@Ana Luisa
All tariffs DO make both societies poorer. Yes, a particular protected industry may be a winner, but the loss to consumers more than offsets those wins. By definition, the increased prices paid by the consumers is MORE than the increased revenue earned by the protected industry.
The only real justification for tariffs is to protect an industry so that another country can't use your lack of that industry to threaten your sovereignty. In that case, the tariff makes you poorer but it's worth it.
In the present case, Trump is justifying his tariffs on arguments that no reputable economist has made for 100 years.
" . . . . . The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall. . . . . ."
Krugman, etc are trying to pin a committed conspiracy theorist into a logic box.
Trump's inevitable, dismissive, retort will be the same one he gave a reporter when asked about the false statistics he was using to defend his border wall declaration.
"I use many stats."
1
While there may be a few more people working to produce steel since steel prices have gone up sharply the number of people who work with the finished steel will go down.
The increase the finished steel goods produced in the United States cannot compete with finished steel goods produced in other countries (who have in addition to lower labor costs much cheaper raw material to work with). So a Mercedes car made in the United states with US steel now costs more than the similar Mercedes made in China with Chinese steel. If Mercedes has orders for cars to be delivered to Indonesia, they will no longer ship the car made in the US, now they will ship the cars made in China or Europe (since steel in Europe is cheaper than US steel. trump has no idea of the big picture and cannot be bothered with the consequences of his actions.
The rest of the world is moving things around to make America less important. Investment in the US is now much more risky since the investor has no idea what stupidity trump might inflict on the new investment tomorrow.
Without access to affordable education we are doomed to ride this sinking ship called "America" to the bottom. Without affordable healthcare the trip to the bottom will be painful and tortuous to all. We are a spoiled nation and we want cheap stuff but we don't want to pay for it. The trade war is a dangerous distraction and the longer it goes on the longer it will take to mitigate the damage it is doing. Garbage into the Oval Office garbage out of the Oval Office.
1
Mr. Trump's policies are based on fantasy.
China will pay the tariff and Mexico will pay
for the wall.It is hard to understand the reason
people elected him,peddling fantasies, to make America great.
When it comes to China buying its soy, corn, pork products, and God knows what else at this point from Russia instead of us these days, Trump's Trade War is doing just great when it comes to Russia's economy.
Ours? Not so much, really.
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A large proportion of Trump's supporters are former industrial workers who are sore about losing their jobs. The tariffs are a signal that he, Trump, is trying to help them. Whether or not they help the economy is beside the point.
And, the tariffs did get the attention of the Chinese.
The dollars and cents of tariffs is not what this trade war is about. It is over the issues of forced partnerships to access the China market, the "stealing" of intellectual property, and the fear that China's skills have reached a point where they are able to encroach on the dominance of more key U.S. and European businesses. Global capitalism has long accepted the first two. During an interview I noted the CEO of a major tech giant say they had not let China "steal" any IP they really cared about.
The logic on the cost of shifting to us manufacture seems weak
,iirc, most liberal economists are saying no we are not at full employment - i think brad delong's twitter and blog have a lot on this
true, for many items we simply can't replace foreign goods; even if we wanted to setup a factory, it would take months if not years to learn how to make them
1
According to a leak published by Politico (which may or may not be correct,) it seems like Trump's trade war is about to come to a predictable conclusion. It looks like China will make some symbolic concessions by promising to buy more soy, petroleum, and other raw goods they were already importing. They'll open more of the domestic market to American brands.
But fundamentally, things will remain at status quo ante. Currency manipulation will not be addressed. IP issues will not be addressed. Labor standards will not be addressed. Trump will declare victory, his cultists will cheer, and iPhones will still be made in China.
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Great piece again, Professor Krugman. I call it hard core evidence based economics based on the link " The Impact of the 2018 Trade War On US Prices and Welfare" published on March 2 2019. Table 2, titled Deadweight Welfare Loss and Tariff Revenue, showed an ever increasing positive numbers suggesting loss of tariff revenue by the government and consumers relatively more poor. Further, table 3 titled Impact of Foreign Tariffs on US Exporting showed negative numbers all over the table which suggest that Donald's trade war is not helping US exports and by extension the US economy. Numbers do not lie like Donald.
2
Dear Dr. Krugman,
I am not well-versed in economics, but I share your concern about Trump's management of our trade relations (in fact, his mangagement of every aspect of his presidency. One thing, I wonder is whether you could influence the NYT to write some articles regarding the large corporate entities that dominate our day-to-day economic life. The problems that I see relate to poor quality goods, poorly organized and kept up retail facilities, lack of any customer support, and just a general attitude from all businesses that they could care less about customers. I am not wealthy, but I do have purchasing needs and some money to spend. For the last decade, I have kept my wallet snapped shut due to the above problems. I also would like to say that I feel that this business attitude of lack of concern for customers is aggravating citizens and engendering anger that is taken out in many negative ways
4
If we weren’t producing x, we would be making y. Equally, if we weren’t buying x, we would spend the money on y. Opportunity cost cuts both ways.
I'm very weak in economics. It strikes me that Dr. Krigman's assumption, "what you would have expected to see is falling prices for tariffed goods..." is VERY important and NOT self-evident, to me at least. If it's not correct, then his claim that flat prices prove that importers did not absorb tariff costs and passed these on to us consumers is bogus. Can someone explain to me why this is a bulletproof assumption to make?
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@carl bumba
The idea here (Trump's idea, that is) is that IF imported goods get hit by higher tariffs, the companies/countries importing them decide to lower their prices, so that consumers don't see any change in price and at least continue to buy those products.
What happened instead, however, is that US consumer prices increased. So importers did not absorb the tariffs, and instead of flat prices we now have to pay more for the same product - exactly the amount by which Trump increased tariffs.
Conclusion: what is not correct is your idea that "flat prices prove that importers did not absorb tariff costs".
What Krugman writes is the opposite: "Under Trump's vision, in which foreigners would have paid the tariffs, what you would have expected to see is falling prices for tariffed goods, offsetting the tariff, so that consumer prices didn't change".
Then he adds: "What you actually see, however, is no visible effect of the tariffs on import prices. So foreigners don't seem to have absorbed any of the tariffs, which were fully passed on to consumers".
So instead of claiming that "flat prices prove that importers did not absorb tariff costs and passed these on to us consumers", Krugman writes that "tariff-inclusive prices have risen by the full amounts of the tariffs", you see?
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@Ana Luisa
Thank you! Yes, I see. It was unclear to me how and to whom tariff costs are shifted. So I guess Dr. Krugman makes a good case that the predictions of Trump's sales pitch were not met. But, in the process, he seems to actually substantiate that the main objectives of Trump's tariffs DID occur, namely, reducing foreign imports, #1, and #2, increasing domestic product consumption/production. "These price hikes led to substantial changes in behavior. Imports of the tariffed items fell sharply, partly because consumers turned to domestic products...". The absence of any numbers from THESE behavioral changes, that is, the consumers' (not the importers'), is weird... or should be, at least.
1
Hmmm? Trade War? Americans would lose their foreign holdings if a real political or military conflict unfolded. Wall Street needs to curtail foreign investment called "Global Investing" and American Corporations need to return our foreign manufacturing. I highly advise you follow my lead considering the fact that Trump is risking it all.
1
This is a very important essay, but it needs to be distilled further into terms the average (read: non-college educated) voter can understand. In order for Joe Six-Pack to understand that Trump is not winning his trade war, you need to avoid language about opportunity costs and control groups, and give them simple examples of how they're paying more because of the tariffs. Trump wins the media wars because he knows how to make his point in simple language which the two-thirds of American adult voters without college degrees can relate to. Sound wonkish and you lose them.
4
What is the effect of the tariffs on jobs and wages? Do they count? If we're near full employment, why are so many Americans doing so badly?
5
@David I believe that "full employment" does NOT mean "employed in a job which pays enough to live as a middle-class American." Employment should mean that this person can afford a decent place to live, enough food, health care and a chance for a retirement pension. Minimum wage jobs do not pay enough for all of that. Or even a small part of that.
2
Answer: Wages. While CEOs are raking in millions, the Middle and Working classes have not seen their wages rise. Our Middle Class is struggling to remain Middle Class. And the Working Class cannot rise to the next level. We can all thank the greedy Republican billionaire donors who got a huge tax cut at the expense of...the regular folks!
1
A net loss of 0.1% of GDP is worth it if we strike some parity with China regarding annual trade deficits presently on the order of half-a-trillion dollars. Of course, Dr. Krugman has insisted on several occasions that this is not something to worry about or even fret over. There is also the likelihood that China might come to some reasonable accommodation regarding IP theft and forced technology transfer if only the US would hold out.
It is too bad that none of the Democrats (of 2016, 2018 or vying for 2020) has anything useful to say in this area except to follow ivy league economists who tell us that "all is for the best in the best of all possible worlds."
As usual, Republican President will lead our nation into a massive recession! Dr. Krugman has been correct in the past and is again!
Making American Broke Again! Unbelievable that voters did not see Trump for what he is a grifter and con man running a criminal enterprise. Maybe his voters should get out into the World more and take a look around so the can recognize a con man when they see one.
4
That analysis is too complicated for Trump.
4
I am retired. I have a shop and I build things out of steel and wood. My local suppliers have raised my prices on steel by 40% beginning last Spring. I spoke to the Hardwood Supplier and he said that he cannot publish a price book as prices have climbed sequentially with each truckload received. I now buy less and do less. I am not happy!
4
Mexico pays for the wall, and China pays for the Tariffs.
Never, ever forget that.
3
The American Age is officially over. Postwar prosperity allowed lazy, fat Americans to drive their low-quality autos to the drive-thru, but in our hubris we stopped giving our schoolchildren the critical thinking skills, political-economic theory, or even basic math skills to be active participants in our democracy.
China isn't paying the tariffs, American consumers are. It's a new tax on the middle class.
My tax return went up by about $800. At the same time, my family's share of the national debt went up by $12,500. What did I get for my money? Not revised laws for health care, education, or infrastructure. Just tax cuts for the mega-wealthy.
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@Steve Acho
Don't forget that it's not just America that pays for the tariffs, China pays too. But it's because it knows that America pays too and that Trump is the cause of all of this, that it knows that all it has to do is to wait this out, and then Americans will urge Trump to sign another executive order and all tariffs will be gone again ...
As to his tax bill: this year alone, 11 million Americans lost more than $300 billion in deductions ... so you're not alone, unfortunately. As all studies predicted, this bill increases taxes for many of the 99% poorest Americans.
1
US Bureau of Labor Statistics shows steep increase in US wages over last year (https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx) , the expected outcome if increase in domestic production is causing a tightening of the labor market and helping out US workers. Sad that US liberals have trouble seeing the perspective of US laborers. It may cost us our democracy.
1
@John C
As your link shows:
1. Those numbers are about Atlanta, not the US.
2. The "steep increase in US wages" you're talking about, begun in 2010, in other words, is happening thanks to Obama.
3. The steep increased STOPPED and went down dramatically during Trump's first term, after six years of constant increase under Obama. It's only now that Trump managed to get back to the level where wages were when Obama left. So he produced no netto increase at all, you see?
Sad that Trump supporters are so bad in reading their own graphs. It may cost us our democracy.
6
Are these figures corrected for inflation?
Hmmm....maybe in Atlanta! Do some research! IF Trump’s trade war is so great...WHY did he have to bail out American farmers to the tune of....$7.7 BILLION in subsidies??!!! That’s a rip off to hard working Americans!
Another Trump fail!
1
The fact that Donald J. Trump has a degree from the Wharton School at the University of Pennsylvania is very bad for the reputation of an otherwise fine institution. Despite the reported threat from Trump of what damage he might do to the school if they released his transcripts, Wharton might do well to show show just how badly Trump performed while there. It is obvious from his former business dealings and his current economic decisions as POTUS that he didn't learn much about macro- or micro-economics. What kind of bribes did Wharton acquiesce to in order to admit Trump and then to grant him a degree? There most be some "Deep Throat" now at U Penn who has access to those records and is not afraid to release them.
1
Tariffs are taxes, and so it's no surprise American working stiffs got stuck paying them. We always do!
2
Trump has never understood that a U.S. trade deficit with other countries is not a bad thing, not in our wealthy service economy.
This gross incomprehension is akin to his thinking that the U.S. pays higher drug prices because Europe's are lower. He does not understand that the U.S. lacks any drug pricing mechanism, whereas Europe's is quite rigorous.
His blatant stupidity led to a disingenuous cry about national security threats, when none existed. He laid tariffs without Congressional approval, even though it's their job to vote on them.
He sowed the seeds of dislike and distrust among long-time trading partners--Canada, Europe, China, Mexico.
His rhetoric painted us as victims of global greed, when in fact,
his tariffs have only come home to bite Americans -- painfully.
Not only do Americans pay the tariffs on incoming foreign goods, exporters of American products, like heavy farm equipment, face retaliatory tariffs, which cost is passed on to their American buyers.
Farmers have been particularly hit by retaliation, for example, China's turning to Brazil, Sri Lanka and Laos for soybeans, plus replacing soy with sunflower grain in animal feed.
While Trump poses to his base as a strong man fighting greedy foreigners, he's hurt the U.S. economy all around, even that of his base.
Economically, he has learned very well the mechanisms of tax avoidance, but his "me, me, me" approach to finance does absolutely nothing for the U.S. or the world.
2
Every depression since the civil war happened under gop president.
It's happening right now.
3
So we're losing $17B/year as a result of Trump's misguided, failed trade policies. That's a shame. He could build his wall 3.5 times for that much money. Anybody who thought Trump knew what he was doing should lose the right to vote.
4
t believes that China pays the tariff, not the US.
Ask Janet Yellen, he really doesn't understand basic econ.
He think tariffs hurt the other side and that's why they work.
"What a maroon"
- B. Bunny
2
We have new evidence daily of how ignorant Trump's gut, his guiding light in all things, is. And Krugman's column and the paper he cites show that. And we might assume, because he is devoted to authoritarian regimes worldwide, that his tariff plan is designed to hurt Americans, a kind of punishment that only someone like Putin or like Kim or like Orban would applaud. Is this Trump's plan to achieve his goal of "president for life?" We know he uttered envy when that happened to the president China.
2
Like his tax cut, don’t you think his trade war was against consumers?
1
Consider these points:
1) Perhaps one reason global prices for goods bearing the tariffs do not fall, is because of barriers to entry internationally; which act to produce very large companies or oligopolies with great pricing power. Eduardo Porter of the Times has continuously cited economists arguing that the US economy itself is beset with such barriers.
2) An additional $120 spent in the US economy would be well received if relatively stagnant real wages and the need to generate US GDP growth, with recently reported 4th quarter GDP growth at a disappointing 2.6%; are accurate data indicators. Perhaps a 100% opportunity cost (full capacity) for $120 in added US spending is a bit too high.
3) As a result, the expected rise in the dollar, and its trade consequences, which are attributed to inflationary growth because of this $120 extra in US spending in tight labor and output markets may not be accurate.
The Times has recently provided extensive coverage of the importance of stock buybacks to the recent growth in equity prices. With record setting stock buybacks of almost $1 trillion in 2018, stock buybacks have become endogenous variables under managers' control that they can use to meet and better seemingly objective benchmarks used to evaluate their performances. What specific sectors of the US economy are currently experiencing excessive demand, with the exception of shortage plagued pharmaceuticals?
[3/4/19 M 1:45p Greenville NC]
1
I love hearing how walls and tariffs don't work when Trump is involved. Tariffs are super successful when being used against the US. The US tries to compete with countries that don't enforce child labor laws and ignore the environment. At least Trump let's us dream of competing, even if winning in this space is hard to do.
Trump has proven that with just a tweet in the morning he can depress the stock price of large corporations by several percent. Just think what a disruption tariffs do on the values of American companies. All one need do to get rich fast is to find a good fortune teller that can predict which aspect of "national security" will be addressed next.
1
I have no doubt that Krugman is correct here. It seems obvious to anyone who knows anything. It may not be that bad however. Trump's policies may help trigger an economic collapse, which might be a good thing. I don't see any way that we will get the required reaction to climate change that we need and thus world economic slowdown may be a benefit that buys us a few more years to act. Brexit may also be a trigger for collapse. Go UK, you can do it!
Sure, we could invest where we need to, we could go with the green revolution, we could take real steps to solve the problem, but the real likelihood is that we won't. The economic turmoil of rampant climate change will be far harsher than any great depression we could go through now. We don't have many years left before we cannot go back.
1
This effort by the President and his tariff crew was supposed to bring China to the table to resolve unfair trading practices on their part. Everybody seems to agree China is engaged in such activities. They chose to go it alone. Using the strength of our purchasing power against China's (and others) export markets. Unilateral deals would replace the multilateral agreements hated by President.
If I were China I would be following the increasingly steady loss of influence the President has at home and the shattered relationships he, on his own, has produced with our allies. China doesn't need to be in any rush. They probably are going to let the drama play out. Isolated and alone in the endeavor we slog along. Will the President get China to declare chicken first. Somebody put a weasel in the henhouse. TPP anyone?
2
Serious question for Dr. Krugman: Can we justify the domestic losses attributed tariffs if China agrees to end it practice of forced technology transfers? Any gains short of that outcome seems insufficient to justify the current trade war.
So this example is shifting the money from China to Vietnam. But the goal of the tariffs is to move supply to domestic sources, if I understand correctly.
So if a car, for example, would cost $10000 if sourced from China, it might cost $11000 if sourced domestically, so the consumer "loses". However, that $11000 stays in the domestic economy and supports all the suppliers of goods necessary to support the creation of the car.
So imagine a restaurant owner in Detroit. The extra $1000 might set the owner back a little, but their business might be thriving on account of auto industry jobs.
Most of what I read in the media seems to imply that tariffs are universally bad. I'm not so sure.
1
Of COURSE this was passed on to consumers. I'd rather we had strong environmental regulations and you pass on that cost to me. At lease I'd get something for it.
3
Consumers buying an imported product solely based on a cheaper price creates what is called a consumer surplus. That is, the consumers have money left over to purchase more of the imported item or other items. A tariff that pushes the import price over the domestic price obliterates the consumer surplus as the domestic product becomes cheaper.
Foreign suppliers and consumers lose more than the government and domestic producers gain. This, in economic parlance, is called the deadweight loss.
All this is before the foreign supplier retaliates in kind.
2
"The U.S. is near full employment, ...."
A little off topic but related to consumers well being. If the USA is near full employment why aren't wages going up. Does the old "supply and demand" economic model no longer apply to workers?
2
Wage growth has accelerated in the last year or so. The increases continue to be lower than many economists expect, potentially because many of the new jobs are relatively low-wage service sector jobs.
1
Isn’t “less than .01% of GDP“ a small price to pay for putting economic pressure on China, if that is the goal? Some say there are other, better means of applying pressure. Possibly, but does that mean that tariffs are useless, in that respect, especially if combined with those other means as well? I find Krugman’s argument disingenuous because it ignores the political part of the problem.
2
The Republicans keep getting socialism mixed up with communism. Communism is very similar to Republican policies, in practise, as Communism, in China, is an extreme form of right wing politics, not unlike the Republicans policies. China has more billionaires than the USA and there is no Welfare State in China. China just exports all it's liabilities to our nations under bringing out the elderly parent scheme. That's how they deal with so called socialism - they export their citizens to the western world to use our Welfare State.
2
It just doesn't matter.
Paul, you used too many big words and deep concepts. Fox News isn't reporting it, so it never happened. Trump claims the wall is being built, there are people in Congress who hate America, we made progress in North Korea, taxes went down and The New York Times is failing.
As the comedian Ron White said "You can't fix stupid."
11
Fortunately he has yet to quote Chickenhawk George; "I'm a War President!". Of course, Bush forgot to add, "…by sending Other Mother's Children off to die in wars of choice that I avoided by going AWOL."
3
And this is just the economic side, failing to mention the added tyrannies, reduced liberties, forced changes in business operations and staffing, and of course the government taking more of our cash in taxes.
2
I think the "success" that his followers feel just comes from the knowledge that the hated foreigners are being hurt by it, and damn the cost of that happy outcome.
I know Canadians linked his insults and rude behaviour when ruining all progress at our G7 to a desire to hurt us as "enemies", or "security risks" at least, and damn the cost, in money or in goodwill.
Our response was to bombard state levels of government with information on how they would be paying that cost, in money and jobs, which we believe lowered Trump's leverage to do us damage that would have bounced back.
The resulting trade agreement was more comical than harmful. Trump railed against our efforts to protect the notion of the family dairy farm in Quebec above all. Allowed American sales of dairy here under NAFTA: 3.2%. Under the new one: 3.6%.
And obviously, we kept quiet while he declared a mighty victory. There's an Art to Dealing with him.
7
Consumers always pay tariffs. The question is if the return is worth it. As in retaining well paying jobs.
By any sensible economic analysis, yes. Because well paid people can spend more, and the US economy is demand driven economy.
Several decades of economic reality, and the overwhelming majority of professional economists, would disagree with you.
1
@John As evinced in the associated column, the data show that the gain in domestic production is less than the loss in consumer purchasing power. It is called the deadweight loss from tariffs.
Take fine worsted wool suits here. They cost three times as much as the ones produced overseas.
Even Trump had his clothing line manufactured overseas.
If there is such a thing as medical malpractice in economics, Peter Navarro will be a defendant and sued to pay for the damages to the plaintiff: U.S. companies and consumers.
China's leaders will probably circulate Professor Krugman's excellent "Trade War & Tariff for dummies" to party members to calm the nerves and remind them that the Trump initiated trade war is China's short-term pain for long-term gain.
2
A little history. In the 1700s, British cotton mills stole (and improved) the Jacquard method from French silk weavers and cornered the market on inexpensive patterned fabrics. In the 1800s, an individual memorized the intricacies of the British weaving apparatus, emigrated to the US, and shared his knowledge, creating the New England cotton industry. Our hands are not clean when it comes to theft of intellectual property.
Farther back, the Chinese tried to keep the source of silk fabric unknown, to maintain their monopoly. The legend is that sometime in the 6th Century, monks from the Roman Empire (the part that survived, capitol at Constantinople) smuggled silkworm eggs to the west in hollow canes. Production was limited to the palace precincts to control access to silk, but by the 11th Century, silk was being produced in Italy. The knowledge from such industrial larceny spread more slowly in those days, but many merchants and producers of goods were always looking for a way to make a buck, legal or not.
4
I am doing my taxes and seeing that the 2017 gop tax bill doubled my 2018 taxes and hit me with a penalty. I have not had to pay a penalty in 35 to 40 years. I am a middle class earner, My 2018 salary did not change from the previous year. Any change was taxed at the source, the paycheck from my employer. My withholding dropped slightly and only because i enrolled in a hsa plan, which i should have done years ago. All the tax money i paid for inefficient health insurance was going to billionaire welfare programs run by trump, the gop and lobbyists to reward their donors. I moved my savings out of cds into tax free savings to avoid the gop tax carnage. In spite of all of it, the salt limit and removal of personal exemption of 4500 raised my taxes by 75 to 100 percent. I do the taxes for my 77 year old aunt a retired primary school teacher. She can barely pay her montly bills and her federal taxes have increased. The taxes are a total mess with five or six more schedules in addition to the previous forms. Trump and the gop are ripping off everybody, to make the 0.1 or 1 percent, who are 400 percent wealthier since 1980, even wealthier while everybody else stagnates or goes down
5
I don't get this "opportunity cost" the author uses to discourage domestic production. If we spend $120 for a made-in-the-USA product, then all that money stays home. $15 doesn't go to Vietnam, and $25 isn't purloined from the consumer into govt coffers in the Chinese transaction.
The whole $120 stays within the domestic supply-purchasing chain, to be spent by the business keeping its workers employed. Why would we want to spend $15 to keep Vietnamese workers employed or pay an extra $25 to the govt to buy Chinese?
2
Opportunity cost refers to the extra $20 paid for the product. If I can buy the Chinese product for $100 but need to spend an extra $20 for the US product, that is $20 that can’t be spent or invested elsewhere. Additionally, at pretty much full employment, the manufacturer’s increased demand for labor will most likely cause labor to switch jobs rather than creating a new job. That may bid up the price of labor which might lead to further price increases.
6
No not correct Ben. The opportunity cost flows out of the U.S. versus staying in the U.S. with supply chain adjustment. Additionally we are not yet that close to full employment, especially with men. In one of the few areas I'm agreeing with the Administration--at least with Lighhizer wing. Tariffs though blunt, provide the focus for this long-term struggle regarding forcing the hand of the 7 heart/11 face Chinese leadership.
If I get this right, Tariffs are a negative for the US, even without considering any retaliatory tariffs. It has to be a really bad deal, when even the supposed upside is a downside.
3
I’m not a big fan of ideologicalization of tariffs.
Anyone familiar with economic history (& if your not I HIGHLY encourage reading the highly accessible “Economic History: A Very Short Introduction” by Oxford Econ Historian, Robert Allen - only $7 in e-versions) knows that trariffs are fundamental to industrial policy.
The first method on how to successfully do this was articulated by Hamilton in his “Report on Manufactures” to congress, roughly speaking, in 1792. The policy was copied by most of the nations of Europe & belatedly even Japan after the turn of the 20th century. Every country that adopted this plan (+ universal education) successfully industrialized & joined the ranks of the 1st world.
After WWII a more sophisticated policy for industrialization developed (called “the Big Push”, but still uses tariffs) but was successfully used in Japan, Korea & to a lessor extent Spain.
Japan & Korea are experts at Industrial policy but they have massive bureaucracies behind them to refine these highly sophisticated policies into something that works.
We practice industrial policies in only 2 sectors: Agriculture & Defence. They’re also some of the biggest bureaucracies in our government. Agriculture policy seems to do the impossible, maximize output w/out impoverishing farmers while allowing an abundance of food to flow into markets at extremely cheap prices.
So I find it disturbing that Trumps head as the bureaucracy for industrial policy for the rest of the economy.
3
Donald's trade and immigration policies are undercut by hie own practices of hiring undocumented workers and importing Chinese steel for his buildings.
Either he changed his mind or he lacks the courage of his convictions.
3
@Occupy Government "Either he changed his mind or he lacks the courage of his convictions."
He doesn't have any "convictions." If something saves him money (undocumented workers or Chinese steel), it's good. If something brings applause lines at his rallies, it's good. He is completely unburdened by questions of whether he is being in any way inconsistent.
3
Did Krugman ever understand trade with low wage countries ?
From The NY Times, 0/17/1993
"Paul Krugman, a trade economist at the Massachusetts Institute of Technology, said that for the United States, the agreement is "economically trivial." Professor Krugman supports the treaty, saying he thinks it will help to keep free-market reformers in power in Mexico. He sums up the war of words this way: "The anti-Nafta people are telling malicious whoppers. The pro-Nafta side is telling little white lies."
The economical trivial consequences were, for Syracuse, NY, that GM Fishers plant, Carrier Air conditioning , New Process Gear Works all closed, moving the jobs to Mexico - sending Syracuse, once a prosperous City, into a down spiral of ever increasing poverty
Mr. Krugman became a highly paid opinion writer
2
Did you?
Because generally speaking, NAFTA has been a real plus for our economy, and a winner for Mexico as well, about as close to a win-win as it gets.
What Krugman seems to have missed—and he’s said this about 147 times—is that in some cases, there have indeed been bad effects on some pieces of the American economy. And then, he went on to argue—again, about 147 times—that we need to do a whale of a lot better in helping the folks who do indeed get things disrupted.
I have to add, it never fails to amaze me that the very first people to shout “socialism! Communism! Neoliberalism!!” at any attempt to ameliorate what Schumpeter called, “creative destruction,” are this completely clueless about what capitalism is, and what it does.
Capitalism.
Changes.
Things.
That is its nature, okay?
You guys seem to think that if we handle things properly, countries like Mexico will be our slaves, our puppets, our flunkies. Beyond the fact that this directly contradicts all the shouting about rising tides and lifting boats, do you have the slightest idea of what happens to big countries that try to make the world work that way?
3
So, Trump isn't so smart...who knew?
3
"I don't care, it's fake news. Trust me, folks! I'm a winner. I'm a winner. I'm a winner. I'm a winner... "
3
Perhaps in the next election cycle we’ll see little donald in front of roaring crowds, pontificating:
“We are losing SO biggly! We are going to lose SO BIGGLY you’re going to get TIRED of losing! I know, because I’m a loser! And guess who’s going to pay for it? YES! YOU are going to pay for all of this losing! We’re gonna make America third world again! Let’s have a shout out for me from you millions of supporters in the crowd!”
Isn’t Trump great? A sight to behold?
3
It is pathetic what Donald Trump and the Republicans are doing to us, the American people! Giving the wealthy the tax cut and Republicans hailing him as if we all got the break, when we didn't and then the tariffs that are biting us deep in our budgets. It is unconscionable, The merciless and callous Trump Party cannot think for one minute we Americans will allow Donald Trump to win another term of office!
2
Our President does very well counting to ten and for higher math he is only limited by his fingers.
4
@Ian MacFarlane Do those short things count as full digits?
Fake news from a Fake economist using Fake graphs from a Fake source to reach a Fake conclusion in a Fake newspaper and there is No Collusion!
1
OK Paul, you've laid out all the problems you see in Trump's decisions...what is your solution?
1
"I'm so tired of winning"
3
No one wins trade wars, especially when the world's two biggest economies are involved. And not when one of them is led by a moron who doesn't have a clue about the interwoven nature of global trade and still has not realized that American consumers and exporters are paying for his tariffs.
5
Before the "Trump Trade Wars" was the Carrier Air Conditioning plant which was intended to relocate to Mexico.
Trump flexed his flaccid deal-making muscles and "got the company to keep its facility here in the US.
Trump's persuasive perk to the company was "Millions"
of dollars of tax breaks to stay. The new found money was to be used "modernizing" the factory.
Carrier corporate leaders DID upgrade - The factory "modernized" by automating the facility with robots - thus losing about the same amount of US jobs as if the company did move to Mexico -
Nice Deal Trump !
The deep damages to our country, out trading partners, and our planet - may only be rebuilt after Trump and his minion of GOP lackeys are removed !
4
Mr. Krugman,
Your analysis is flawed. Trump is not trying to win a trade war or profit American farmers or help American consumers. These tariffs and alleged trade war are giant publicity stunts. This is Trump being Trump and sucking all the news/ publicity out of the very words “trade war.” The ploy is the same as his other publicity stunts with North Korea and the “wall.”
First comes a great announcement of a “war” — a war on Mexican immigrants, a war on the “rocket man” in Korea, or a war on NATO. Then, comes the “war” of words, bullying, intimidation, and blather. Lastly, comes the declaration of “victory.” It matters not whether tariffs go up, or consumers pay more, or farmers cannot sell soybeans. Trump treats and he is victorious. His name was front row for months, and he squeezed the publicity endlessly. The merits of the issue matter not. What is important is that I, Trump, got everbody’s attention and won (if only in my own “stable genius” mind).
Trump has told us over and over again: I do not read policy papers. I do not listen to my generals because I am smarter. But I sure know how to tweet. I know how to bully and lie, shamelessly perhaps, but to the nth degree. And it ain’t beneficent economics, or good public policy I am seeking. It is “I,” me myself and my “brand” I am seeking to serve and enhance.
4
Trump’s real main “economist” is Larry Kudlow, the “yes man”. Twelve months ago on CNBC Kudlow proclaimed that ..I’m paraphrasing... tariffs were the absolutely worst thing Trump could do. Now Kudlow’s tune has changed. Larry, I guess if you had told the truth to Trump you would have been immediately fired. You must just like the power and the glory of working for Don. Shame on you.
4
ignorant and belligerent is not a good look. the current occupant of the white house is so far underwater intellectually that he doesn't know what he doesn't know. the best he can do for the country is sit in the white house private dining room and eat his buckets of KFC and dial into the Fox talk shows and leave off even attempting to govern. the industry stooges he has installed will do harm, but that can be undone by the next administration. just eat another bucket of KFC and stay away from any meetings.
4
George H.W. Bush got it right all those years ago when speaking about Ronald Reagan's economic proposals when he coined the term "voodoo economics". It has applied to Republican economics ever since then. Not certain Trump's economic "policies"? even rise to that level. It's more spur of the moment what sounds tough to his supporter economics. Maybe "twitternomics"? Whatever it is, it certainly isn't sound economic policy based on input from experienced educated advisers. It is impulse economics with no thought to consequences. It is destructive.
3
I agree that a full frontal trade war with China is foolish.
The TPP was the smarter way to tackle China's unfair trade practices.
The EU is generally smarter about trade: they agree to open trade with everyone in principle, but protect their market from (cheap product) dumping.
They achieve this through a mandatory 2-year EU-wide warranty on all consumer products, a quite stringent product safety certification (CE label), bans on food with hormones, chlorine, etc. This also achieves a high product standard of own products, and as we know high quality and luxury products sell well to China's rising middle and upper class.
2
Excellent review. Do you think the CPA group will accept any of this? Do you think the Trump WH will acknowledge it? No, they are committed to a belief system and facts and numbers are not considered. The main thing would to get this into a quick, 30 sec. sound bite to educate the millions who have no idea whats going on.
2
A few days ago, a friend and I were discussing levels of corruption in places like the Union of South Africa, where corruption is reported to be growing, and Rhodesia, where it is far worse. Jonathan, who grew up in the U.S.A., observed that under the old Boer regime, corruption was little known - those racist fanatics were Dutch Reformed church members, and devoted to their civic ideals, however warped by the need to repress the black majority.
What about America, then, I asked. Why were WE less corrupt? Oh, he said, that's easy. Here, we just pass laws to make self-dealing and profiteering legal, so it's not against the law to rip off the public. Trump, for one, simply takes advantage of our legal system, and boasts openly of how clever he is to do so. But he's far from the worst - he's simply the loudest.
4
Call me stupid, but here's what I distinctly remember from my 40+ years in business, including owning 2 of my own: When costs went up, prices went up. I've racked my brain, but I cannot recall a single instance when management responded to increases in costs by saying "Leave prices the same... we'll just take the hit."
Tariffs are intended to make foreign goods more expensive and therefore less competitive with domestic goods. Implicit in this is that domestic goods are more expensive than foreign goods. Example: Foreign steel costs $10 a pound, domestic steel costs $15 a pound. A $6 per pound tariff is imposed on foreign steel. Buyers now have a choice between $15 a pound steel and $16 a pound steel. Has the price of steel gone up, or down?
Again, call me stupid, but to me it sure looks prices just went up for all the buyers who used to buy that $10 a pound foreign steel. In fact, it looks like they just got hit with a 50% increase in costs. What does management do, eat the extra cost and leave prices the same? Or, raise prices to offset the increased costs?
All businesses run basically the same way: Income needs to exceed outgo. Accounting gymnastics aside, any other approach is unsustainable. Business raises prices when costs go up. Tariffs raise costs. What am I missing?
127
@Jim Nicely explained...what are we missing?: a smart democratic president. Are businesses with us now? Or are you happy with trump's tax give-away to business entities and the rich?
6
@Jim Nothing, read the article, read the Princeton paper. This trade war is not winning. You aren't stupid at all, this is a complex issue with many facets.
5
@Jim Nothing. You are missing nothing!
3
Diverting production away from China to other locations whether USA, Mexico, Central America, Africa will be beneficial in the long run. Mr. Krugman, your analysis seems very shortsighted.
No surprise, but thanks for the documented evidence that Trump's improvisational tariff policy is failing.
With the 2020 election coming up, we can't work fast enough to do all possible to hold Trump accountable for his willful ignorance, cognitive slovenliness, intentional cruelty, and sheer genius at making really terrible and damaging decisions.
I am afraid our "problem" with Trump is not so much economic or social as it is psychological, and there is not a darn thing we can do about that when it is a 72-year old man with live-long bad habits and a record of dishonesty, corruption, and failures, who leaves a wake of chaos and destruction behind.
In fact, is there any example where Trump made a correct decision?
The tax cut for the rich we didn't need that only drove the deficit sky high. Insulting our allies but cozying up to our enemies and the world's dictators. Pulling out of nuclear deals. Separating children from parents and putting the children in strange institutions and cages. And so it goes with Trump.
But Trump is not the only one:
Reagan did the same thing: tax cuts while doubling the military budget; bogus free-market- pretend ideology such as trickle down, deregulation, government is the problem...
Then there was Bush-Cheney taking out Saddam Hussein, who was a lynchpin in the Middle East and then lying us into wars. Tax cuts while engaging in expensive, endless, un-winnable wars in the Middle East....
See the pattern
4
Trump appears to do everything by the seat of his pants. He says he has a good brain, so he doesn't have to listen to any experts. He has said, that he is own best advisor. Trump's an expert on everything including economics. At the end of all the negotiations with China, I'll bet we will be back to where we began when Trump decided to stir the pot with tariffs. NAFTA became NAFTA 2 with a new name along with some tweaks to the old NAFTA agreement that could have been made without Trump playing games with Mexico and Canada. Trump loves to play nonsense games that do effect the US economy, like shutting down the government. Remember, Trump did not win his own ZIP code, the people of NYC know what he's all about, he is a scary con man.
4
The other thing I like is that in the down-low, Trump’s also trying to get us back into the TPP he blew up in the first place. Cool part is, things moved on—and not only will we never get as good a deal from the signatories, we’ll never again get the chance to decide how things go fairly much on our own.
2
And the final conclusion of the Nobel laureate is:
Tarifs are raising prices to consumers. Wow! Who would have thunk it?
1
his voters are willing to suffer "a little pain" for the long term gain...... so the con continues.
2
My biggest fear is that Trump's actions will threaten the hegemony of the American dollar. That is the American dollar IS the world currency. The only producer of the dollar is the American Government. Because other nations need dollars produced only in and by America to not only trade with America but to trade with each other, America must run trade deficits so other nations have the dollars they need.
Mindful of the fact that you cannot eat a dollar bill, that is the American dollar has no real value, being able to export dollars in exchanged for anything of tangible value be gas, steel, televisions and even services is great for Americans.
That is because of the hegemony of the dollar, Americans have a higher standard of living as America trades lots of tangible worthless dollars for tangible items that increase Americans pleasure.
So my big fear is that Trump's actions will allow for another currency to take the hegemony from the American dollar. If that happens, America will not only be poorer, but much weaker in all ways including militarily. One other comment about the threat Trump is creating to the hegemony of the American dollar, it is exactly what our enemies to include Vladimir Putin want Trump to do.
4
Some of us remember when the unions and Dems would have supported tariffs. Trumps error has been to ignore the pain that tariffs will cause. It’s a trade war. Tell the people we need to moderate China’s behavior some how. Tariffs are the only, possibly effective tool.
Dr. Krugman is a very smart guy. He needs to get treatment for TDS and get back to Economics.
1
@Tim Dowd
1. There are fact- based tariffs, and social experiment tariffs. Trump tariffs are mere social experiments. That means: there are no studies to back up the hypothesis that THIS kind of tariffs will make China adopt a more capitalist economy, and no evidence today whatsoever that it is starting to do exactly that. Democrats only support science-based policies, INCLUDING walls and fences and tariffs when and where EXPERTS' reports show that it's the best solution.
2. Tariffs aren't the only possible tool at all to force China's government to start adopting a more capitalist economy. Obama's TTP is one of the most important available alternatives.
What it does is creating a much more capitalist, integrated regional economy around China, with its neighbors in the region together with the US.
Contrary to tariffs (= a one-man decision), that creates a STRUCTURAL problem for China's economy. To solve that problem, China has only one option: to start negotiations to enter the regional capitalist market too. And it will only be allowed to enter IF it compromises on some capitalist issues that today it refuses to compromise on.
Now compare that to Trump's one-man show: yes, tariffs hurt China. But they also hurt the US, so China KNOWS that Trump won't be able to do this for years, and will have to cave. Moreover, all they have to do to solve the problem is to make Trump sign an executive order. That's MUCH easier than integrating an existing regional capitalist market..
4
This analysis summarizes the real purpose of tariffs - protectionism. Protectionism seeks to preserve inefficient industries, shielding them from progress and consigning their employees to the backwaters of industrial progress. Bravo, Mr. Trump.
1
One interesting observation is that in the absence of Full employment, there could be little opportunity costs. The cost of the goods would be shifted to U.S. production leading to more goods and services produced at home at a more expensive rate than buying them abroad. This is what has happened during the bulk of U.S. history when high Tariffs and production lead to U.S. manufacturing gains at home.
I believe Mr. Krugman is missing the point entirely.
Yes, the tariffs create economic inefficiency that is borne by consumers. However, they are one of the least disruptive measures the U.S. government can take to punish China for its unfair trade practices.
As Mr. Krugman points out, the U.S. is near full employment
-- and inflation is under Federal Reserve targets. So the effect of the tarriffs is something the U.S. economy is very well positioned to absorb.
Shifting manufacturing to other foreign countries and/or the U.S. has the intended effect of hurting the Chinese economy. If the outcome is an end to unfair Chinese practices (especially when it comes to intellectual property,) U.S. companies and consumers will benefit for years to come.
1
@James
The problem with Trump's policies is the very STRUCTURE of the argument used to defend him (argument that you're repeating here too).
That structure is as follows:
1. Yes, Trump policy A is hurting America in way X.
2. Its intention, however, is to benefit America in way Y.
3. Once Y happens, A will overall have benefited rather than hurt America.
Conclusion: we should support A.
The counter-argument is always the same too:
1. For the moment, A is only hurting America, as study after study proves.
2. There is no evidence whatsoever supporting Trump's hypothesis that one day, there will be a U-turn and A will start benefiting America. No independent studies, no non partisan CBO scores, not even GOP think tank studies. Nothing.
Conclusion: policies that de facto, as predicted, hurt American workers and consumers, all while, as predicted, not delivering any tangible positive results and where any prediction of future positive results isn't science-based at all, are social experiments that should NOT be imposed on the American people.
Conversely, that means that IF you want to support Trump here, you have to explain why you'd support social experiments like that, concretely. Simply stating that IF one day Y happens, THEN his tariffs will have been a good idea, as you're doing here, entirely misses the point of the counter-argument, you see?
3
Who's paying the bill for the US venture into world trade? The answer lies in the shell and pea game. And the little man seldom wins.
The greedy multinational American corporations took American jobs overseas for bigger profits and did not pay a price. The middle class and their workers did. Their jobs/income were taken from them. The trickle-down effect was that whole towns were economically devastated from the loss of jobs and still suffer the effects today. When Apple decided to manufacture their products overseas and not in the US, then brought the finished products to America for sale, did Apple pay a duty or tariff to the US? I think not. That's why the global economy was so beneficial to companies like Apple and devastated American workers. That wrong has never been corrected and the middle class is still suffering.
3
Of course tariffs make us poorer. The question is whether the short term pain we experience is worth it because it brings China to the table to negotiate a fairer (or at least more pro-America) deal.
Trumpisms are indeed likely to far outlive Trump. They are just so astonishing in their bigotry, dishonesty, ignorance, or some combination thereof, that one can't help but remember them. We have had presidents who said some pretty weird and foolish things, but Trump is really in a league of his own. "Trade wars are good, and easy to win." What a classic. I doubt anybody could have expected something so bizarre to come out the mouth of the president of the United States before 2016...but there we have it.
9
The rubes bought the con.
boo hoo
tariffs are paid by American consumers, but Trump
does not understand that one bit.
6
Actually, the point is he’s not interested in any consequences that don’t involve Trump.
6
Dear MAGA and Republicans,
Is this the "winning" Trump promised? The con man proved once again he knows no Art of the Deal. He is the worst negotiator as was evidenced by his numerous bankrupt business ventures across the decades (e.g. Trump Airlines, Trump Casino, Trump University, etc.).
The name Trump stands for scam and failure. New Yorkers knew this before Donald considered entering the political area. Now America knows it first hand. Failure to get North Korea to give up its nuclear weapons program is just the latest proof that Trump is, as the Texas adage goes, "all hat, no cattle".
Trump is not winning a trade war he created. It is merely chaos and that is what Trump does since he's a terrible business leader. Evidence that he's a terrible business leader is that no lending institutions in the Western Hemisphere will lend Trump any money, so he's likely indebted to Russian oligarchs and Saudi princes. His tax returns will show he's not wealthy but is in fact in deep debt. Trump is a snake oil salesperson selling a worthless product then skipping out of town before the buyers know they were hoodwinked. The problem for Trump now is the Democrats in the House are not buying his confidence scams.
7
@Question Everything "The problem for Trump now is the Democrats in the House are not buying his confidence scams." That's not what this is about. It's about selling American brands to Chinese markets. We want to export goods and products.
@Tammy " It's about selling American brands to Chinese markets."
If it's "American brands" you are concerned about...don't worry. American brands are doing great in China. Chinese consumers LOVE American brands. American companies are making plenty of money in China.
I thought the issue was all those American brand products are made in China, which is an issue Trump's trade war has not solved.
1
How's the Trade War going ?
It spreading. Europe had enough of China's practices
NY Times , today
"Is There an Upside to Brexit?"
Yes, if it forces Europe to get serious about the challenges the West faces from China. "The new global conflict, put simply, is between free and unfree market economies."
https://www.nytimes.com/2019/03/04/opinion/brexit-europe-china.html
2
Oh, Europe’s getting serious about China, all right. As in between these idiocies and Brexit, they’re developing closer ties with China.
1
@John You're citing a speculative op-ed piece as evidence? And doing "something" does not necessarily mean a trade war. In fact, as economists, policy-makers, and diplomats have been saying, a trade war is possibly the worst way to go about it.
1
With Trump, it just can be otherwise. He has to act against, it is central to his sick emotional personality.
>But what if they turn to a domestic supplier – say, a U.S. company that will sell the product for $120. How does this change the story?
>Here the crucial thing is that producing a good domestically has an opportunity cost. The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff. Diverting them into producing what we used to import means a net loss of $20, with no revenue offset.
***In the real world, a seller would price the product so they could make a profit. So, if they sell the product for $120, most likely it costs them less than $120 to make. The difference is a profit. Or, if it costs them $120 to produce the product, they would sell it for more than $120, making a profit.
@Michael Radowitz - And this changes the effects of tariffs how?
2
I guess that "trade wars are easy" are truly the words of a simpleton. I will never cease to be amazed by our fellow citizens that proclaim that this guy is a "great businessman". Everything that he touches turns into a loser. How much worse can it get?
5
Dr. Krugman would be well advised to read the other column in todays NYT, Jochim Bittner, "Is there an Upside to Brexit?",,,
Maybe he'd develop a more accurate world view from it.
Lemme get this straight—you read (or more likely didn’t) an article that argued for setting aside the general disasters Brexit is causing, looking hard at China’s rapid rise in the wake of Trump’s trashing TPP and England’s nuttiness, and sardonically praising Europe’s growing sense that China’s gonna be a real problem, and you’re chewing out Paul Krugman.
For....?
1
@Robert Please accurately define the "disasters" that you claim Brexit is already causing. You sound as alarmist as Dr. Krugamn....basicly you're making stuff up!
Never any comments about all the major US corporations being fiscally registered- not in the USA- but in Europe- Ireland and cheating to pay zero taxes .The cash benefice goes back to the US via London banking and Carribean island fiduciary launderibg. Apple, Amazon, Yahoo, Google, Facebook, Starbucks, etc.. all in Ireland . Zero taxes while invading the market . MC Donald (second biggest clientele= France ) cheats to pay zero taxes. by declaring all its restsurants in franchise and having them to pay a fee to the HQ in Luxembourg, therefore after that making no profit does not pay any taxes in France .Annd so on...
2
An ignorant little man who does not care—or have the attention span—to learn basic economics or even the basic facts does something yet again to hurt our country. And he does it purely for appearances, because it looks and sounds appealing to his base—who neither care nor have the attention span to consider its true fallout and who would not believe anything negative anyway because they did not hear it on Fox TV. After all, anything a Nobel laureate might have to say is by definition “elitist” and must be dismissed out of hand.
Ignorance appealing to ignorance to the detriment of the country, all dressed up in a little red hat promising to make us great again. The leitmotif of the Trump administration.
3
A rise in a tariff can be offset, by a canny importer, by simply having the offshore vendor reduce the declared value of the goods by the same amount as the tariff increase.
1
I’ve been teaching introductory college economics for over 30 years… And any of my students who earned A’s or B’s could’ve predicted this. How can such a large chunk of our nation fall for this nonsense?
Yes, Trump is a failure; but this demonstrates a much larger failing in the United States.
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@Koyote
"How can such a large chunk of our nation fall for this nonsense?"
For the same reason that a person who failed miserably in his business ventures, and filed for numerous bankruptcies is considered a successful businessman.
Go figure!
15
@Independent Citizen In this era of Fake News, ie Fox news. This report will be skipped, by the Right, swept under the carpet, and reported on all the neutral, and left leaning agencies.
2
@Independent Citizen
You said it yourself -- you were teaching introductory college economics. The majority of American voters do not have college degrees. Many of those who do did not happen to take econ classes. So relatively few potential Trump voters have the education to see through the tariff stupidity (except the rich ones who were simply voting themselves a tax cut). Joe Six-pack simply does not understand even basic economics.
2
I do not fully agree with Krugman and I'm no fan of Trump either.
The main goal of Trump tariff is to hurting China and it seems to be doing that well, even if we take this article on its face value. If importers are shifting to Mexico or Vietnam, then China is losing business. In many cases, domestic producers do not have required production facility for many of these tariffed items, as it did not have the market due to Chinese competition. Now with rising cost to consumers, at least some of those would come back in near future if the tariff remains in place. It's just one year of the tariff and those importers are not sure if the tariff & higher price would continue. We need more data and also wait a bit longer to get a clearer picture on it.
2
I dunno whether I preferred the wacky logic behind celebrating hitting China’s feet and our feet with the same mallet, or the blithe thought that “Oh, well, some of the manufacturing’s bound to come back here in the next couple years.”
Here’s a thought to consider at bedtime, something Krugman didn’t mention: chaos. It’s not just the tariffs, but the herky-jerky, jumbled, on-again off-again way Trump’s handling them.
Chaos. Business hates it. Even arms manufacturers want a stable place to make the darn things.
2
@bonku "The main goal of Trump tariff is to hurting China..."
That's like saying the main goal of bombing Vietnam is to hurt Vietnam. The actual strategic goal has become lost.
Tariff losses are less than 0.1% of the GDP. "Now, the numbers aren't that big." No? It's only the equivalent of losing around 225,000 $75K/year jobs. It's only not "that big" if you're part of the 1%, which I expect Mr. Krugman is. While I frequently like what Mr. K. writes, this kind of myopia is why Joe Steelworker and his wife Betty don't give a damn about a single thing the libocracy pundits say. Even when it hurts them to not give a damn.
1
@Larry Bennett: Krugman compared the tariff losses to total GDP, and I have no doubt he'd agree with you that the loss of a job due to tariffs would feel monumental to the affected workers. Krugman also argues if Trump persists in his foolhardy tariff wars, the numbers could get much bigger indeed... And I have never understood people who'd deliberately vote for a president they know will hurt them over one who'd help them, or at least not make things worse for them, by taking away their health insurance, or cutting their social security, medicare and medicaid, or making public education more expensive.
2
Is there some place that I missed where Krugman the Libocrat cheered for Trump’s nutbar tariffs?
1
@Larry Bennett "which I expect Mr. Krugman is..."
This is what's known as an "ad hominem" attack. You pretend to be a blue collar hero and call Krugman "1%" (based on what evidence?) But what actual criticism do you have with his argument, exactly? Are his numbers wrong? Or his reasoning?
Duh. Who pays for everything? The consumer. Those of us with little disposable income are quite aware of this truism.
80
While not disagreeing with the thrust of the article, I'd like to suggest that increased short term demand for American made products would be more likely met by overtime work in America's factories, thereby increasing America's wage income.
I'm by no means a Trump apologist, but in Krugman's example imports shift from China to Vietnam, even though the price is higher, because there are no tariffs on imports from Vietnam. But isn't that a significant purpose of the purpose of the tariffs: to impose a cost on China for not complying with international trade norms with the hope that it will change its bad behavior? Krugman completely ignores this offsetting benefit of the tariffs in his column.
27
@Peter J. Miller
That's not his point. His point is that Trump is foolish in his belief in tariffs, in his statements regarding how trade wars work, and especially his belief that "trade wars are easy to win." Krugman has stated elsewhere and often that China's trade sins have been mending, and that other measures to remedy the remaining issues are more effective.
33
@Peter J. Miller
I agree that the matter is much more complex than a short opinion can cover. That complexity is precisely what a populist politician can hide by simple-minded slogans that satisfy the disfranchised and frustrated people, because it creates a 'foreign' entity to explain their condition.
So, what else is missing from Paul Krugman and your points? A lot, which I strongly suspect that PK can lecture me about, and then some. For example, the trade war will make new alliances. China will have more reasons to open new markets at the expense of the US exports, partly through both overt and unspoken agreements with the EU, which have realized that the US is no friend. China will not walk away from acquiring intellectual property where consistent with law or not. They have a plan to become a leading world power, and they will find ways to acquire technology via both their own investment and granting economic advantages to companies whose technology they wish to have.
I could go on. However, I think I have explained my point. I see the essence of PK's opinion as demonstrating the fallacy of simple-minded arguments, something that the simple-minded crook in the WH excels at.
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@Pete
Yes, but in THIS column Krugman only addresses one side of the equation and completely ignores the other. That seems less than objective to me.
And I've read very little if anything to date about China "mending" its trade practices.
4
You heard it here first: Trump is going to start telling his base that Mexico will pay for our tariffs.
67
Shocked! Since when do businesses pass on their cost of operations to consumers?
1
Hi Paul,
Could you dig into the link between economic activity and CO2. At the end of the day, is at decrease in economic activity directly linked to a decrease in emissions...and if so, aren’t these tarrifs: “helpful”?
Is there a link at both a micro and a macro level? Does a lower income = lower emissions?
@Heating up!
Just speculating here, but Trump's imposition of tariffs on solar panels (one of his first) is unlikely to have helped reduce emissions.
If your contention is that tariffs are good because they reduce factory activity and therefore CO2 belching power plant output, consider that tariffs do not change emissions on a macro level, since manufacturing still takes place; it just takes place in another part of the world whose atmosphere we all share.
3
Whatever good ideas the US may have and we do, the Trump administration is so offensive in its conduct just about everyone is evading us.
1
Krugman should have commented on the U.S. trade balance numbers. They're surprisingly difficult to google and analyze, but it appears the U.S. trade deficit has grown under Trump, who promised us a trade surplus under his "leadership."
As with his ludicrous promise to eliminate the national debt, Trump has failed to deliver on his foolish promise to eliminate the trade deficit. Trump's tariffs have not improved the trade balance, which ostensibly was their purpose.
3
For many of the Trump supporters, even if you could prove that Trump's tariffs took the shirt off their back, they wouldn't care. They would deny the facts. They would never read the facts to begin with. They would shift the blame to the deep state or some other target group.
And I agree with one of the other comments submitted. I told my wife months ago that Donald Trump plus a 400 pound man in a motel room with a computer and access to Trump's next public statement that will move the stock market equals untold ill gotten riches for Trump and his family.
The trade war is a distraction in itself and one more attempt for Trump to play the bully.
1
Globalism is dead and it’s not coming back. The populist democrats have all disavowed so-called free trade. Only the hard-core Miltonian conservatives still sing its praises.
1
It’d be my suggest that you go back and read Adam Smith and guys like Schumpeter a little, find out what capitalism is, how it works, what it does.
You’ll hate this, but ol’ Karl nailed two things at least: left to its own devices, capitalism simply expands overseas towards covering the planet, and expands inward to convert every aspect of our lives exonomic and personal.
@Greg Globalism is hardly dead, but perhaps you are seeing the end nearing for unrestrained capitalism as practiced in the USA. China never had unrestrained capitalism btw, and neither did Europe. In China, you had to, at the very least, transfer technology to them, and partner with Chinese firms to do business there. In Germany, workers sit on boards of directors so capitalism has a human face.
It is no wonder that Trump had Michael Cohen threaten his alma mater, the Wharton School about not releasing his transcript.
It would probably have shown "D's" or "F's" in all courses related to economics with similar grades on any courses on law and government.
I don't know what courses were offered on "Lies, fear, ignorance, and greed" but he may have needed good grades in them (along with his Daddy's generous donations to the University of Pennsylvania to graduate.
2
When someone so smart keeps reacting to baiting, one might assume that person is lazy or unable to win the big argument. Everyone knows consumers pay tariffs DIRECTLY. Some hoped that China might be in a weak position, and have to absorb the tariffs indirectly. Meanwhile the big issue is this author forgetting certain men and women. In the third to last paragraph he lumps them in with tin and aluminum and a lot of other materials by calling the forgotten men and women "resources." And notice the "probably" before "losses of . . . Jobs." Stop being lazy, and confirm or disconfirm the "probably." Until then you are just another voice of "we're going to put a lot of coal miners . . . Out of work."
Sadly this is something trump's base refuses to comprehend. If anyone wants to know why people don't vote for their interests then take a look at trumps voters. He's lied to them. He's hurt them economically. He's taken away their healthcare. He's used them to get tax cuts for the very rich. He's put people on the Supreme Court whose interests lie in helping the wealthy keep their wealth. He's destroying democracy. He's trying to subvert Social Security and Medicare and Medicare. He adores dictators. He insults war heroes, their families and their service to the country. He eats at Taco Bells. Yet his base blindly follows him because they belief his lies. Unfortunately everyone else is being hurt
2
@Mike
The truth is there is no easy fix for these uneducated, underemployed folks whose parents had a better lifestyle through manufacturing jobs which is no longer possible after globalization and then automation. Dems present them with policies to soften the blow, like state sponsored healthcare, better education, etc, but these people don't want to admit how bad their situation really is. Facing that truth is too painful, they'd rather live in happy denial and believe in simple, quick fix promises and blame scapegoats. I think they even like policies that benefit the rich, because in their fantasy it might be them benefitting next year.
@Mike Go talk to a true Trump believer and they will say that none of your issues matter, that Trump is like them, and just you wait and see. It's like talking to someone in a cult - their eyes glaze over.
Psychologists have a word for this. You make a decision, then you will accept no challenges to your decision. After all, how could you be wrong?
@E B Funny for people looking for the quick fix it ain't coming from trump who has made things even worse for everybody except the rich.
You might have to go back to the administration of Andrew Jackson -- Trump's big hero -- to find a president with a similarly abject ignorance of economics, which in Jackson's case led to disastrous consequences. When he wasn't forcibly expelling the Natives from east of the Mississippi, he decided to veto the renewal of the charter of the Second Bank of the United States. That contributed to the Panic of 1837, the first great depression in U.S. history, which stretched into the mid-1840s.
Given the size of the U.S. economy in those days, it was arguably worse than the depression of the 1930s -- and the government didn't try Keynesian techniques like increasing government spending to try to "prime the pump." One can only hope that the results of the stumbling around by the willfully ignorant president* that we have now won't lead to a similar calamity.
1
Don't understand the graph..... what are the "Waves"? Time on x-axis exceeds Trumps presidency, so these waves reflect policies/occurrences in addition to Trump's.
While this article is accurate, as usual for Mr. Krugman, I'm afraid that "accuracy" as well as "facts, data, and analysis" are only persuasive to those who believe in those things in the first place.
It's like trying to use science to explain the dangers of climate change to someone who thinks science is simply the condescending highbrow "opinion" of "coastal elites".
You know the use of science is pointless when, during you're explanation, someone interrupts and smugly says, "It was cold out yesterday wasn't it?" - Enough said.
Since mendacity and bloviatation are the only things that register with Trump supporters, no one's mind actually gets changed anymore by "facts, data, and analysis".
The only real "fact" that matters is Donald Trump needs to go - Period. His imbecilic mentality and pugnacious ego-driven inanity will continue to set this county back 4 years for every 1 he remains in office. In the end, instead of being another 4 years ahead, Trump's Administration will have put this country 16 years behind, if not more.
That's my mathematical take on all this.
While informative, articles like this only convince those who already don't need convincing.
However, increasing the number of indictments, convictions and incarcerations of those abetting the walking train wreck in the White House? Well, that's a different matter entirely! One that even the most obdurate, willfully ignorant members of the modern GOP will take note of.
We need less facts, more Stone's.
2
German philosophers -- Heidegger and Husserl among them -- postulated that we only know or grasp the essence of something when it breaks or is missing.
For example the truth of a hammer is revealed when we're hammering and it breaks. Or when we need a hammer and can't find one.
Even though Trump is synonymous with fake, lies, untruth and bad faith, he serves at least one useful and unintentional purpose: by breaking global trade, responsible government, democratic accountability, political legitimacy, personal and public morality, human rights, Christian ethos, civility and basic decency and more on a list that easily exceeds the comment word limit, Trump has proven the truth of our human prospect by breaking it into tiny shards.
We see the truth of global trade because he broke it. We see the truth of democracy because he's poisoned it. We see the essence of the United States of America because he has sundered it. We know truth because he only lies. We know leadership and integrity because he can muster neither.
We know what we're not because of what he is. We know what we are because of what he's not.
Trump is the broken hammer that reveals everything that needs fixing. Starting with the truth.
2
Lawrence Kudlow, PhD, Chair of the Council of Economic Advisers, says in reponse to the study results?
Kudlow the former free trader says in response to the study results?
Well explained Paul Krugman, PhD.
1
I know it's hard to see beyond your FREE! Trade blinders when you've been wearing them your entire professional life, but this may be your worst column ever.
You say we as a nation lose the entire amount we pay in tariffs. NO! It is paid to our government. It stays here. (And since when are you against higher taxes?)
You say increased manufacturing here won't add any jobs because we'll have to quit making something else because we're at full employment. NO! Our participation rate is abysmally low, and productivity gains have been held back by factories operating below full speed.
"Putting it all together" tariffs (whether Drumpf's or anyone else's) aren't meant to "depress foreign earnings," they're meant to increase the price of foreign goods, thus lowering demand for them, and that's apparently exactly what they've done.
You always say nice things about working people, but you always push policies that stab them in the back.
1
Beyond finding it pretty weird to see Krugman described as a laissez-faire capitalist, you might try noticing that a) the numbers say AMERICAN consumers are getting stiffed with the check, and b) small-to-medium AMERICAN farmers and manufacturers are getting hurt a lot more than China is.
@Robert
We're not getting stiffed. We're being prodded to rebuild America's devastated industrial base.
And Dr. K's academic career was unquestionably built on his advocacy of FREE!!! trade.
I’d like to believe Krugman on this but the problem he is facing is when he hates Trump so much and effectively, makes a living off it, I cant trust anything he says. He has TDS to the extreme, which makes him highly unreliable as an economist or pundit. Perhaps commentator might best fit him.
2
Tell ya what TDS really is: a cognitive collapse that leaves sufferers completely incapable of reading what they’re yelling at, and yelling anything outside the same old dopey slogans they got from Hannity.
If the whirling dervish of dysfunction is to be removed by election, the Democrats are going to have to break down his ludicrous claims and counter them with very simple facts.
Above and beyond his psychological impairments, which can be handily summed up as fitting the profile of a malignant narcissist(at best), the bottom line has to be his rank incompetency. The latter includes his refusal to acknowledge or absorb the input of experts even in the face of abject failure.
Of all of modern presidents, "he alone" is definitely the most stubbornly ignorant, laughably grandiose and unerringly wrong on almost every subject. The fact that he is still held in high esteem by the Republican party has everything to do with its own refusal to accept reality or take responsibility for the consequences of its moribund ideology. To listen to their defenses of the policies he has championed is to witness an all encompassing exercise in extreme denial. To wit, they continue to champion the execrable tax cuts and deregulation, oblivious to the fact that the negative consequences are in the process of garnering energy like a tidal wave retreating before it rears up and crashes into shore. The Democratic candidate who can ride that to the ballot box is the one who can explain in simple terms why the reversal is inevitable if left unchecked.
1
The only problem here is that the data comes from the US government which is proven, by him, to be anti-Trump.
You know, I wish for the old days when you could trust something like the FBI (post J Edgar).
I was wondering when you lot would get around to fully embracing the quaint notion that the government economic data you like is completely simon-pure, and the government economic data you don’t like is the product of the evil machinations of the Satanic Deep State.
1
With Americans that who you can see honest trade at work. Trillions and trillions of fiscal fraud all over the world.
Now we see the effect of a quadrennial buffoon king in power: ignorant and looking to his own benefit; using his hotels to spend weekends, lining his wallet with our taxes.
And there are a 30 % of minions that love it. It seems that the 80/20 rule in business, becomes 70/30 in democratic republics like ours; where the 30 % are blind following with glow the "blind in chief."
1
The only way Trump would understand this column is if Dr. K hired
R.Crumb to do the graphic comic book.
Great article Paul... concise, simple plain English. easy to follow and comprehend, thanks! Too bad Donnie can't and won't read it and understand it. Worse, his followers won't believe it, but believe his falsities
2
Krugman is a globalist and it is his views that basically have hallowed out the middle class in America. He is an elitist who is only concerned about the people on the coasts and couldn’t find Fly Over America if it hit him in the face. Trump for all of his shortcomings and his big mouth is on the verge of a major breakthrough with China and the reduction of tariffs on American goods. Krugman and his cronies couldn’t stoop to taking trips to China and eating Chinese food during trade negotiations. Too messy. Instead he wants to spend his life writing columns critical of all the people trying to rebuild our economy so it benefits Americans not just Chinese. It is Krugman who should be investigated for “collusion”!
@Dan Locker You've put your finger on a salient point: that Trump followers truly believe that Trump is ALMOST there on any number of issues. 'Just you wait and see' they say.
For example, Trump is almost there with North Korea when he walked out of negotiations. His act will, ov course, draw them back to the table weaker. Humn..
Trouble is, nothing Trump has ever done has been a success.
@Dan Locker Yeah, like he was "on the verge" of getting Kim to give up his nuclear weapons. How did that turn out?
But don't the tariffs make the Trump addicts feel good?
2
Perhaps the leading economists in the US could together write an open letter to the NYT explaining this to the President and his economic advisors. While I doubt you can educate our incurious leader, perhaps a healthy dose of embarrassment would get his attention.
1
I've always been very suspicious of opportunity cost arguments. It seems that diverting to a US supplier increases their business. The product costs more but the workers probably get higher salaries, maybe some overtime. And why then are tariffs for things like steel that are meant to combat unfair trade practices, and allowed by the agreements, considered to be any kind of a remedy? I could use a little more explanation on this point, maybe a wonky follow up...
1
@James Smith
Good question... I'm at a loss.
This is like that Monty Python skit when Arthur cuts off all the limbs of the black knight. The limbless black knight said that we will call it a draw.
61
How many Americans are paying for technology pirated by China or forced to transfer in violation of WTO rules? How many American jobs were lost due to Chinese manipulation of currencies in pursuit of trade surpluses? How many American lives may be lost due to China's militarism in the Western Pacific made possible with the wealth accumulated at US expanse?
T-Rump knows little nor cares about these outcomes, but the issue isn't him. Face it, Dr. Krugman, Chinese Mercantilism enabled by Wall Street and multinational corporations, and their allies in the Clinton, Bush and Obama administrations, all to the benefit of the top 1%, is the real issue.
The marginal increase in retail prices, due to the imposition of tariffs, will pale before the costs that Americans will pay in terms of military spending to attempt to offset China's geopolitical domination of the fastest growing economic region in the world.
If Americans are going to respond with great agitation to your appraisal of the minor retail price effects of the "tariff," just imagine to how you would expect them to cavil at the prospect of major increases in the costs of energy arising from appropriate carbon pricing.
If one troubles to study American history - starting with Alexander Hamilton - it is clear that the growth and development of the US economy was due largely to the application of high tariffs until after WWII. Germany, thanks to Friedrich List, knew that as well.
How come it’s not socialism when conservatives support farmers with cash and price supports? But it is evil to provide healthcare and a lunch to a poor child? How did we ever get to this place?
2
Alas, there is no way on Gods green earth that Donald Trump could hope to understand this analysis.
My guess is that no one in the accompanying picture is actually capable of understanding the simple logic of the tariff report. None will turn to staff members and ask: Can this be true? Truly a 'confederacy of dunces' or worse.
I am struck by two specific examples in recent news stories. PayLess shoes have gone out of business. This was an essential stop for many American parents who need to get shoes for kids to wear to school (even if they don't also need dressier shoes for religious observances, or more casual shoes for the beach).
It's a real loss to a large demographic segment of America that struggles to make ends meet.
Concurrently, we have reports on the hard hit family farms. Trump's trade war has warped the demand & supply picture for US agriculture. No surprises: Trump's & Ross's corporate cronies will gain; more smaller, family-owned farms will sink.
How does this correlate with Trump's promises to his 'base'? With 2016 voting patterns?
Wise up, Americans. Trump serves his own agenda & the agendas of those who own him, including foreign interests.
Thank you for the link to the report, Mr. Krugman & NYT.
@Maria Ashot One can make your utilization of Payless with Airbus and Boeing. There are goods and services one is willing to pay less for and there are goods and services --think healthcare--we are not willing to pay less for. Sometimes cutting costs in the healthcare industry ends up costing too much.
Last spring, I took a course at my local university that involved building small unmanned aircraft. Almost all of the components were manufactured in China, and were unavailable from sources within the United States. In addition to tuition, that course had a "course fee" of $400, to cover the cost of those components. This spring, I am taking the second half of this course, with the course fee now raised to $500, wholly due to Trump's tariffs. Even with the $100 increase, I have had to purchase several hundred dollars worth of additional components personally, and bring them to class for my use. The United States thus has two problems: We do not manufacture components that are essential to the aviation sector of our economy, and the Fool on the Hill is punishing students of this technology, by making us pay more for the same goods.
1
True. But if the intent by Trump's people is to hurt China, and force them to agree to, say, intellectual property changes, that's an argument for Trump. Going further, hurting China beyond influencing them to make their policies more open and more fair, hurts California and the globalist states. Here, I doubt that Trump cares. In fact, little attention is spent on the black subtext: hurting California and the Blue States is a positive outcome for Trump. Unless it makes us even angrier, and drives more to understand and vote. Hope so.
Old, poor consumer here. I manage to get by, but have given up many things I once enjoyed. When you get right down to the real nitty gritty of life these days it’s not so hot for most folks. If the minimum wage is $10 an hour it sounds good, but the new homes they’re building in my town start at $400,000 for a condo or townhouse. A one time 10 cent loaf of bread (really) is now $4.00. Okay, that 10 cents was 70 years ago.... still...I don’t see how a young person, even with a good education, can hope to ever live the good life of home ownership, traveling vacations, at least 3 or 4 pair of shoes, routine dental visits and braces for your children’s teeth, and on and on. Trump seems to have convinced people that life was better in the 1930’s. I don’t remember those, but I do remember the forties and fifties and life wasn’t bad for me in Kansas but, in the deep South and most U.S. rural areas it was terrible...and NO ONE CARED! That’s where Trump wants to go....and his followers are just too dumb to realize he doesn’t care what happens to them. Ah, back to the days of huge mansions for the rich, and tar paper shacks for the rest. I won’ be around, but my grandchildren will.
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@Carole Love your story. I was born in '39 and remember being sent to the store to buy 12 cent loaf of bread and a quarter pound of butter for ten cents. I guess we couldn't extend our finances to buy the entire pound. Seriously, I cry for our grandchildren. We, you and I, and I guess, others of our generation have really mucked it for our great kids. I ask my self over and over where did we go wrong. I believe it was when we decided in 1945 we had to continue, as a nation, to support the world militarily and preserve and encourage the entire world to become democracies. We fell hard for the "domino theory". Our good attempts became invasions and interferences in other countries' businesses...
Making a last gasp, I'm voting democrat as always in hopes this time the rest of America will follow and really make America great again.
12
@G McNabb: LOL, We fell hard for the "domino theory." We were the dominos! Trump's supporters need to turn off Fox news and get out into the real world.
3
I see the President has asked Chinese President Xi Jinping to scrap his tariffs on American agricultural products. Did the US (Trump) just blink?
1
Your summary of the report is all well and good, but we need to know; How much is going into the national treasury as consumer tariff taxes intended to offset the tax cuts deficit? You make it appear as 17 Billion versus the annual 150 Billion dollar loss from the tax cuts every year. Your writing, although expert, didn't get to the bottom line I ask about.
Allow me a moment to make this simple: Mexico will pay for the wall and the tariffs will be paid for by others. Please tell me who in their right mind can abide with this sort of con job?
Donald Trump will provide good case studies for future MBS students. What not to do.
“Our policies have been emptying factories, and filling our prisons over the past 30 years” -Kanye West
I believe Mr. West is more qualified to write in this column. Reality v. Resistance
All I know is that the recycling company I have a small ownership stake in lost over $1 million in profit in 2018 from reduced access to the Chinese market. Thanks, Trump!
93
Trump believes that confronting China about its economic undermining of the open societies of the world is important.
Chinese policies on technology transfer that amount to theft, their currency manipulation, policies that restrict US companies from competing.
His imposition of tariffs and the damage they inflict on some of his own supporters shows that his administration is not just talking tough about a response to Chinese economic brigandage.
We may quarrel that tariffs are a blunt instrument, but they serve to send signals to the worldwide supply chain that the US will no longer acquiesce to the current situation of Sino-US trade relations.
Dr Krugman is correct to point out that Trumps discourse on Tariffs is less accurate than it should be; nevertheless that policy has brought China to the negotiating table where substantive change can be discussed.
It helps to remember where we were in the Fall of 2008. The real estate bubble had fully burst, banks were dangerously exposed to default on a massive scale, and it took an unprecedented intervention by the Federal Reserve to prevent a complete meltdown of the US economy. This was followed by eight years of steady leadership by President Obama. A substantial stimulus package to prevent even greater job losses than what actually occurred- to the howls of alarm by Republicans about the deficit, which was when the GOP actually said they CARED about the deficit, remember that? And followed by a slow, thoughtful management of the economy featuring relatively lower government spending. It took all of those eight years to accomplish, for which Obama has never gotten his due, but it put the national economy once again on a solid foundation. Enter the current occupant of the White House, naturally claiming credit for a robust economy, and for which he deserves no credit at all. It is, in fact, given his policies, like withdrawal from the TPP and his ridiculous tariffs to name just two of his follies, that he hasn't done more damage than is apparent at present, but stay tuned. The stock market is in a bubble. I'm a novice on this topic, and even I can see it. Whatever else we are in store for remains to be seen, but the difference between a smart man running the country and a fool is glaringly apparent for anyone who cares to truly look at what's going on.
5
None of this is surprising. And I'm not that smart. I'm also not surprised that our very stable genius wouldn't understand this either...
"...the Trump tariffs have raised consumer prices, rather than depressing foreign earnings." Yes, but they HAVE depressed the earnings of the foreign countries targeted. I'm no supporter of our grotesque President, but your phrasing here carefully avoids addressing the stated aim of the tariffs.
Who ever knew that trade and economics were so complicated? It's almost as complicated as healthcare!
Or diplomacy!
Or obeying the law!
Or redesigning the tax code (properly)!
Or building a wall, I mean, securing the border and humanely but necessarily managing immigration!
If only there were seasoned, educated and experienced experts in each of these fields, whose expertise could be used to make reasoned, well-thought-out decisions.
Sadly, such people don't exist. Instead, maybe even better, we have a masterful present, who is the very best at everything, maybe the only person who can do it, with the best words, and who makes use of a collection of fringe-nut "experts" from every field, experts who are taken seriously nowhere else but in the current White House.
Lucky us.
3
The biog issue here is the assumption that we are at full employment. Whilst we may be at full employment from an economists perspective, there is still some slack in the economy, and I would strongly argue that our industry is operating at full capacity. So there may indeed be a benefit to the economy that the USA is seeing in some areas of USA industry where companies can squeeze out a little extra production at very small marginal cost. However, I would be surprised if American industry has or will ramp up productive capacity in long lead time capital or labor intensive industries to make goods that are currently being made in cheap Chinese factories employing cheap Chinese labor, because businessmen are rational and do no invest in these businesses where their entire business would be wiped out the day the tariffs expire.
I agree with everything except perhaps this statement:
"Diverting [resources] into producing what we used to import means a net loss of $20, with no revenue offset."
Specifically, the "no revenue offset" part. There will be at least some revenue offset when the good is ultimately sold. Intermediary goods are ultimately sold as finished goods so the increased price will net tax revenue equivalent to the increase in prices by the tax rate. $100 at 10% yields $1 in tax revenue. $120 at 10% yields $1.20. Uncle Sam just earned 20 cents on the sale. We really only lost $19.80. Isn't that swell?
1
Every time I hear Trump say that foreign countries are paying his US tariffs, I want to scream. It is a five-star lie. This article expresses multiple levels of detail proving that lie. But the average voter doesn't understand those details and generally doesn't care about details anyway. They just want something they can understand in ten words or less. Here goes: importers pay tariffs and pass that cost on to consumers. Can we just get that message out?
7
@M.i. Estner. Everything that comes out of his mouth is a lie. 100%. The press should cover only what the Administration does; not what it says. Only then will the public focus on what is real. Of course, his Twitter universe is beyond redemption - no way to drive the insanity out of that
I enjoyed reading this article and understand the whole tariff thing better with your examples. If only more people would take the time to read and understand how tariffs work and how little Donald Trump understands. I also enjoyed all of the comments below. So many really smart people help those of us who aren't as smart understand. Thanks!
6
Every responsible person needs to figure out how to get rid of Trump, whether via voting him out, forcing your Representatives and Senators to assert their Constitutional oversight obligations (including overriding any future vetoes) or perhaps even impeachment.
15
I’ve been running a trade deficit with my grocery store for a very long time.
4
"And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall."
That is something, or part of many things, that a Democratic candidate can make clear—should be shouting from the rooftops— when she or he is running.
4
If I understand what Dr. Krugman is saying, tariffs on Chinese exports to the US and Chinese initiated tariffs on imports from the US are driving changes in Chinese manufacturing and business operations. These changes will not only have short term consequences for American business but decrease Chinese dependence on American products well into the future. Not unlike the decay of American trust by our allies, our economy will suffer long term damage from Trump policies that were approved by our the so called "conservative " wing of the Republican party.
7
Yes, but . . .
This cogent analysis will fall on deaf ears. The critical mass of American voters (other than farmers and importers) don’t understand tariffs or much think about them. They will surely accept Trump’s lies on the matter unless the Democrats can come up with messaging that demonstrates beyond any doubt that Trump’s Tariffs hurts American consumers.
Chances are, however, that they won’t since they’re too busying shooting at each other.
4
Inflation has declined to 1.5% from 2.0% since the tariffs took effect. Communist China’s GDP growth has declined from 7.0% to 6.0%. A deal is on verge of being signed.
1
@Walter You appear to be wrong on both counts. US inflation has ranged between 1.9 and 2.9 percent since the tariffs were introduced and China's GDP growth for 2018 was 6.6%. https://www.usinflationcalculator.com/inflation/current-inflation-rates/
https://www.statista.com/statistics/263616/gross-domestic-product-gdp-growth-rate-in-china/
19
@Walter Trump said Cohen's testimony killed the deal with Kim. Cohen is scheduled to testify again this week. Will that kill the deal you say is about to be signed?
Coupled with the rise in household debt in the US, I imagine we are paying these higher prices with debt, only adding to our future problems.
14
@Michael The data suggests this is a possibility.
https://www.federalreserve.gov/releases/g19/HIST/cc_hist_r_levels.html
Apparently this paper does not consider the effects of counter-tariffs on US producers and industry. For instance, Last fall we saw huge piles of soybeans on the ground, planted in anticipation of China purchases. US grain dealers had bought the soybeans at a huge discount (loss for the farmers!) and were subsequently able to sell some of their stock when China started buying again.
Meanwhile, the pork industry is still in chaos, with future prices uncertain. How can people in agriculture meaningfully plan a year’s crop in advance when no one can predict what prices will be at harvest time? Trump’s grandstanding has already caused a lot of farmers to go bankrupt, and I guess this uncertainty will destabilize ag markets for the foreseeable future, making America groan again.
14
Dr. Krugman did a good job to explain the trade war dilemma for US. It should never have started in the first place. On the other hand, China won't suffer that much although the numbers tell a different story. This is because China is using this opportunity to change from an exporting driven economy to a more domestic consumption society. It also provides an opportunity to develop its shortcoming in hi-tech chip industry. China imports more chips from US, costing more than those of the total oil importing costs annually. That is why China will not oblige to US demands and prepare for a long term negotiation.
4
I follow what Paul is saying, except for one thing - in the scenario where the "good" is bought from a domestic source for $120 instead of from China at $125, isn't that $120 supporting a number of jobs in the supply chain that produces it, from manufacturing the parts, and assembling it?
While the country loses that $20 because we're not importing that $120 good for $100 from China, don't those production costs accruing to U.S. businesses mitigate the loss, leaving the U.S. in a slightly stronger position?
2
@Clearheaded No. Because as Mr. Krugman also noted, we are essentially at full employment so the worker who makes these additional products no longer makes the original product he/she used to make. (His example of more steel jobs but fewer auto manufacturing jobs.)
Now higher tariffs might make sense if we had an unemployment rate of 10%, but we do not.
Another factor is that many US manufacturers cannot even make many of the products they import because retrofitting their operations would be too costly, thus they look to other countries instead.
Bottom line is: Trump has no idea what he's doing.
19
No you are incorrect. Actually we are NOT yet at full employment, because of the slack in labor participation, especially with men. Therefore not a net loss when supply chains are strategically brought back to our shores. This needs to be a long-term strategic battle, with long term strategic planning, and implementation. The blunt tariff instruments continues to help provide needed focus for the long term flouting of WTO, and hostility from China. I'm shocked to discover as a Democrat I agree with the Administration hardliners on this. I hope and pray the long term U.S. national interests prevails, during this pivotal time.
1
The real damage is being done to our comparative advantage. That's the opportunity cost. There was a reason many industries moved abroad - cheaper labor in still labor-intensive industries. The real mistake, and I do think it was simply a mistake rather than a conscious decision, at least until the damage became so painfully obvious, was in not planning for the dislocation suffered by millions of American workers in order to soothe the pain and aid the transition to better paying, more stable jobs. But the way to correct the mistake is not to compound it by destroying the nation's competitive advantage. Now China is ascendant, investing heavily in the technologies of clean energy. Meanwhile Trump intends to bring back coal. There is no back to the future - there is only back to the back, of the pack.
11
And a lot of us thought "Idiocracy" was only a satirical movie.
Turns out it was a prophecy.
17
What actually happened is exports from the US to China grew .7 percent over 2017. Imports from China grew by 11.3%. The tariffs weren't just paid by US consumers, in order to beat the 25% tariffs inventories were built on none tariffed and 10% tariffed goods while US importers looked for new supply chains. China on the other hand simply stopped buying US goods.
We actually built inventories. That means we were willing to pay not just the tariff, we were willing to finance goods that we didn't need because of potential future tariffs.
The real question is what is our goal? How does structural change in China's economy help the US? It's very possible that if China speeds up their structural changes the main benefactor is going to be China not the US.
US consumers, importers and manufacturers are paying a price in taxes and inventory. China is being forced to have a market economy. Looks like a pretty good deal for China.
7
@HL "What is the goal?" The consensus from Larry Summers and other economists is when it comes to monetary and fiscal policy we need to focus on the fiscal.
As usual, I’m confused. At full employment, the opportunity cost is $20 loss. So that.....set of bath towels, if made here would cost $120. But that ....golf caddie would then have a job making those bath towels, paying higher taxes, and a steady job year round. Or a college kid would have a higher paying summer job.
What’s the lost opportunity cost when we’ve watched this version of global trade build every economy but ours. We’ve raised a generation of service-economy workers. Assuming we ever do invest in infrastructure, it will be made elsewhere, but if that high speed rail developer falls and breaks a leg, we’re on it. Great.
2
Trump is incompetent to devise a correction for the affect of globalization on US wages - if he even had such an objective in mind. But Americans and even economists should keep in mind that anything that causes wages to increase, directly or indirectly, will cause prices to go up. If the minimum wage is increased, prices will go up; if the power of unions is restored, prices will go up. Some effects are indirect: if teachers are paid more, or if there are more healthcare or other benefits, prices will go up (in the absence of government control). Prices will also go up if the US dollar decreases in value, and will go down if the dollar appreciates.
American workers have been getting very little of the increases in GDP since the 60's and the change in international trade is certainly a partial cause. Workers are concerned with how their share of GDP can be increased, but this is not something that Krugman and other members of the economic and media establishment seem to care about. If the effect of tariffs on wages is mentioned in the research that Krugman mentions, he doesn't pass it on (wages are not mentioned in this post). The effect of tariffs on prices is immediate, the effect on wages is delayed.
@skeptonomist, you raise some important issues. However, I must disagree with your statement that "anything that causes wages to increase, directly or indirectly, will cause prices to go up". There are at least two ways this could be wrong. First, productivity could go up. Huge advances in productivity have happened over the past century and the technology that enables this is continuing to advance rapidly. Hopefully, ending the chronic high unemployment in the US will again make it worthwhile to make investments in worker productivity.
The second problem with your statement is that profits, and thereby the wealth of a tiny fraction of the population, have been soaring over the past few decades. Generally, wage-earners don't own substantial amounts of equities. So, increases in wages could be offset by lower profits. As long as that process was limited to a return to a more historical balance, some transfer of wealth from the wealthiest to the wage earners could be socially useful.
2
Today's NYT talks about the fact that Trump demands intelligence briefings that focuses on economics rather than hard intelligence that focuses on terrorism or other threats to the nation. But would Trump listen to a report that shows the cost and harm his fixation on tariffs causes? Would he listen to anything that does not suit his ego driven he can do no wrong attitude towards everything he thinks he knows about the world?
Professor Krugman presents a clear portrait of the damage tariffs do, but with Trump at the helm an iceberg directly ahead would be downgraded to ice cube if it does not fit into the ego that can only sees what he wants to see.
27
Consumers paying higher prices is one matter, but the uncertainty for businesses causes other costs. Rejigging your supply chain is no small matter, and then try and follow DT's tweets to figure what all this zig-zagging is heading to. Imagine a small business owner taking hits with rising costs who can't change suppliers easily, he/she could end up out of business. Trump thrives on chaos, disinformation and ignorance, all anathema to rational business planning.
17
Trump graduated from the Leona Helmsly School of Economics. Motto: Only the little people pay taxes.
19
The trade war with China has been going on since China entered the WTO, if not before, when average American citizens
were put in direct competition with semi-slave labor in China. No way American labor could compete with slaves.
3
Yet the GOP still favors the economic and social model of the Confederacy.
1
The problem with this analysis is that it doesn't consider the loss to China of the $100 unit. The US loses $15/unit. China loses $100/unit. When you are negotiating behavioral science teaches us about the principle of loss aversion. People will fight harder to keep what they have more than for additional winnings. When people lose the effects are magnified. This is why the Trump strategy could be an economic failure from the perspective of Dr. Krugman, yet be a success in creating incentive for the Chinese to conclude a more favorable trade deal with the USA.
4
@Pat That is why China retaliated with their tariffs on soybeans in areas that overwhelmingly voted for Trump. Trump ended up paying those soybean farmers 7 billion dollars in welfare payments. Now he capitulated.
Tit for tat is a dangerous game.
I determine the value of companies for a living. I can safely say that not a single CEO or President has expressed satisfaction with the Republican Party's tariffs. If anything, several have complained that it is negatively affecting their businesses. In a recent case, a company was dropping a marginally profitable product line that became unprofitable as a direct result of Trump's tariffs.
Bottom line: under Republican leadership, the wealthy are better off because of a reduced tax burden while the rest of the country ends up paying more in tariff taxes.
22
Last year we took a cruise with stops in Maine. My wife asked a local information kiosk attendant how the tariff was affecting Maine. "Absolutely no impact" was the reply.
"What about lobster sales?" was asked.
"Oh, not to worry. We will find some other international markets for lobster" was the reply.
Empirical evidence won't change any pro-Trumpers' minds. We are that polarized a nation. It's alarming.
9
@Zev It has been widely reported, locally, that lobster exports are indeed being impacted by the tariffs. Those that say otherwise are brainwashed or dim.
https://www.mitc.com/china-lobster-orders-dry-up-despite-lunar-new-year-celebrations/
This is a trade war that America cannot win. One need only look at Europe and around the world to understand that here we are becoming a banana republic. Our infrastructure is deteriorating, we have little in the way of good reliable train service, here in Vermont cell phone service is unavailable in many parts of the state. We don't have single payer health plans, and there is vast inequality everywhere.
25
Captions are useful; this one applies to Figure 1,
Notes: Proportional change in an import-share-weighted average of 12-month relative changes in U.S. import unit values inclusive of tariffs (import values divided by input quantities) for each tariff wave and for unaffected countries and products; proportional changes for each wave are normalized to equal zero in the month prior to the introduction of the tariff; tariff waves are defined in Section 2 of the paper.
Sadly, our bread and circuses public are bored by data--on a daily basis, whether it is climate change or trade or guns---the data is waving red flags at us---but, I guess, making America Great Again, is more pain than gain.
5
Trump is taking adavantage of a deeply rooted problem - disappearance of well-paying jobs after moving the manufacturing to low-cost countries. I agree that tariffs is not the solution; however, if Democrats do not come up with alternative solutions and create a national debate, Trump will win again since he offers a solution and his base does not have enough understanding of economics to know that Turmp solution is not a solution. So, what is the solution?
8
@Sem:"Trump is taking adavantage of a deeply rooted problem - disappearance of well-paying jobs after moving the manufacturing to low-cost countries."
This as well as automation and the rise of imports has been facing us for years. Prior to Krugman becoming the mouthpiece for the Hillary-wing of the Democratic Party the loss of manufacturing jobs in this country was attributed to heartless Republican businessman who would look for the lowest cost way to produce goods.
Now off-shoring and imports are the progressive way forward.
Go figure.
@Sem Why do the Democrats get blamed for not coming up with a solution to trump's bad one? Global economics is tough. Some nations have socialized their manufacturing (subsidies, etc.) to make US based companies less competitive. Should we 1) continue to provide corporate welfare to them 2) pay lower and lower salaries to our US workers? This is the republican dream, not mine.
8
But Mr Krugman is sidelining the point that the main idea is to make China bleed as much as USA and not get tax benefits in the name of direct gains in consumer prices to the citizens. A loss to the USA corp is a loss to its citizens in the longer term.
It is this loss that Trump is focused on, against the short term gains in consumer prices. His argument is that in terms of lesser tariffs for the consumers, the USA corp is losing out to China corp which is making hay with lesser tariffs.
Instead of tackling Trump's argument as it stands, Krugman is slipping back the argument of consumer prices, as costing USA consumers. He should take on Trump by showing if tariffs are really benefiting the citizens as shareholders of USA corp and if they ever will.
1
@Nirmal " ...the main idea is to make China bleed as much as USA...." So Trump policy is based on making sure that everyone bleeds the same amount? That explains a lot.
In fear of a new 45 Tax increase (Tariff) I bought an E-Bike last week.
Nobody will make one in USA ever.
As an old man I need it for mobility and exercise. It doesn’t move without pedaling.
The price had already gone up twice!
Tax the Rich!
14
Trump deals from his own set of facts which often bear no resemblance to reality and are always designed to have him come out as a winner. The same will apply here. Thanks for trying, Dr. Krugman.
7
"The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff."
Krugman's argument is that it's a BAD thing when new jobs are created in America, since the workers doing those new jobs could have been doing some other job.
My understanding is that the reason we have not seen inflation, even with unemployment so low, is that employers keep reaching into the long-term unemployed, people who had given up looking for work. So the US keeps producing jobs, and employers keep finding workers, especially in the low-skilled, manufacturing sector. If this is true, then those workers, who are producing something that the US didn't produce before, are not in fact jst moving from one sector to another, but moving out of unemployment to a newly created, low-skills job. Which is a good thing.
I'm not a Trump fan, but this part of the argument seems unconvincing. Maybe someone can explain why I'm wrong.
3
@Steven,
I happen to agree with you. Producing the part at the lowest cost is a benefit to the corporation buying it, but not to the broader society.
If the part previously imported from China for $100 were produced in the US for $120, that $120 would continue circulating in the domestic economy. The workers employed to make it would spend their paychecks locally, benefiting the local economy.
Economists can't see this because they continue to look at labor as a cost rather than a benefit. Krugman, unfortunately, is not an exception.
3
You both miss Krugman's point. At full employment, the $120 USA-made item was redundant until the tariffs. That $120 was already coming in from the manufacture of a different item. The fact is that the different item is no longer being made or sold and instead the replacement for the tariffed foreign item is making up that $120. Without the foreign item coming in, the US loses any tax it would have received on that item, ergo a net loss for everyone: no foreign tax, no additional $120 sale. Trump GOP policy = net US loss. Glad to help out conservatives, who still believe in monumentally discredited supply-side economics, understand Krugman's reality-based economics.
2
Originally it was thought that China would manufacture the low end household consumer goods allowing Americans to concentrate on those of higher value.
But, alas & alac, we are now at the point where our vaunted higher tech & intellectual properties are gravitating into China's hands. It is rather unclear exactly which are stolen & expropriated and which are simply sold by entrepreneurs & corporations.
Higher ticket items like cars, must get cheaper, however, otherwise big box employees & other service people will be unable to afford them. In the meantime these people will be trying to pay rents dropped on them by real estate tycoons who import product & people, for instance.
In regards to the opportunity cost I expect that this is only true in the case where there is no excess capacity in both manufacturing capacity and manpower. If there is excess capacity then the companies will higher individuals currently working if fast food restaurants/etc getting paid minimum wage and pay them minimum wage +$1/$2 bonus, plus maybe a slight improvement in benefits. Therefore there is a benefit to the workers. Maybe the country overall is poorer but isn't it possible that the minimum wage workers are slightly better off. One of the main arguments against globalization is that it puts low wage workers in the US in competition with low wage workers around the world. They can't win this battle. Therefore isn't it possible that although the tariffs lower the GNP of the US they help the lowest wage workers.
4
It is both sad and a bit scary that the POTUS actually thinks that imposing tariffs on China actually means that Chinese money is pouring into our treasury. That lesson on how tariffs work has to be no more than economics 101. That he keeps saying it shows that he is unwilling or even unable to learn the basics 0R that those around him are weary of straightening out his thinking even on something so basic.
9
More than the 0.1%, I'm worried about the consequences of tearing up international agreements - on trade and otherwise - and demanding new 'agreements.'
To other countries, we must seem like a bully. My reaction to bullies was always to try to avoid them. That didn't always work, but I certainly tried very hard. I also tried to make friends with the bully's enemies.
If I was another country right now, I would want to go to great lengths to avoid having anything to do with the US.
19
It is excruciatingly difficult to explain opportunity costs to folks who live in the binary world of winners and losers. Bravo Mr. Krugman! Please keep delving into this. It is perhaps the best path for explaining why global trade (appropriately regulated) makes us all better off.
7
We are trying to force China to become more free market and therefore more competitive.
This would make them a more formidable competitor to us.
Yay
4
When a commentary draws its contribution primarily from the work of others - in this case, Mary Amiti, Stephen J. Redding and David Weinstein - it would seem appropriate to name the authors in the body of the piece. A tiny footnote to "Amati et al" below the graph is hardly sufficient to give them the credit they are due.
It would also be appropriate to disclose whether this manuscript has been peer reviewed and accepted at the Journal of Economic Perspectives.
1
@Ray
You're unable to click on a link to a piece of research that Krugman describes as beautiful? LOL.
5
Another Trump policy/program that squeezes American workers.
I am indeed tired of all this winning.
16
Although I understand and fully appreciate Mr. Krugman's analysis, I think it leaves out some important intangibles. China's economic policies and political practices undermine the world trading regime in the long run, just as its political system threatens our liberties. Moreover, I would actually say it's a strategic gain if U.S. tariffs cause manufacturing to be moved out of China even though it means a relative loss to U.S. consumers. An economist could probably make a case for procuring U.S. naval vessels and weapons systems from China because it would save taxpayers some money, but such a policy would obviously be ludicrous. There is a limit to how much we can let economics be the driver of our policies when confronted with a challenge such as China. Arguably, economic imperatives are what have gotten us into a vulnerable position in the first place. I wish Trump were smarter about confronting China, but as long as he is the only president to have done so aggressively, I think it is upon critics to come up with a smarter but equally aggressive approach. China has had plenty of time since being admitted to the WTO to demonstrate meaningful commitment to reciprocal trading practices.
8
"Make them pay for it." This does not always mean that the other party is going to fork over the cash.
So as much as I despise Trump, we have been a little off is decrying his, "Mexico will pay for the wall." Or his "The tariffs will make China pay."
Mexico is suffering from DT's immigration efforts, his policies are costing Mexico money, and Mexico will suffer more if The Wall is built. In that sense, he is making, and will make, Mexico pay.
If our imports from China have declined (i.e., they've lost business) and our exports to China have declined (and they've had to go more expensive sources or do without, then isn't he making China pay?
"Making them pay" doesn't mean getting money from them, it means punishing them.
5
I’m not a Trump voter, but I don’t think you have to be one to observe that tariffs were in the short run designed to primarily hurt China trade, and therefore get their attention, rather than help US trade. We seem to be close to some trade deal with China. If we in fact get one, even if not a perfect one, tariffs would seem to have played a part.
2
@David Rapaport
While playing a part, I am still not convinced that we are “winning”. Suppose that we get a new trade deal with China, would it actually change China’s progress towards becoming the #1 economy in the world? China has violated (and still violates) previous trade pacts with the U.S., especially where it comes to intellectual property rights. What would make this new deal any different? I do not see much “winning” either way.
2
In the category of "Even a blind squirrel will occasionally find a nut", Trump is conceptually right on China. It joined the WTO but has taken advantage of the bureaucratic appeals processes in the system to avoid complying with the rules, or has simply ignored them because they knew it there were no real consequences for violating them. This needs to be addressed.
But this is not the only problem. We have also been our own worst enemy. Our tax laws encourage companies to borrow too much, leaving them over-levered, without capital to invest and unable to compete. Our securities and tax laws also make it easy for private equity and hedge funds to buy public companies, take them private and then sell them off in pieces, often closing factories and firing thousands to make short term gain.
Also, unlike China, we have no industrial policy. China decides which industries are crucial and supports and protects them. We probably don't care if China makes all world's party balloons, but we don't want them making all of the steel and munitions. Wall Street's financial influence on keeping global deal-making free and easy (because they make so much money from it), as well as Republicans' misguided notions of unfettered" capitalism" as some sort of religion (the "free market" will solve all ills!), have also been contributing factors.
So while tariffs are not the answer for many of the reasons stated in his article, Dr. Krugman doesn't seem to offer a better one, either.
16
Sadly this analysis is just way over the head of Trump and his supporters, the US education system at the primary level teachs nothing about macro economics or world trade.
Then again Trump has assembled an economics team around him that also does not seem to understand some of the basic facts of world trade.
Whether it is a feature or a bug of our eduction system I guess is open to debate but I hardly think the 1/10 percent of our economic system want highly educated voters deciding their tax rate.
14
The relevant question is whether Trump's supporters win (low-qualified workers in the rich country). In theory, they should.
1
@Heleen Mees
Explain your thinking. This is not at all obvious. First, because as Paul says companies can shift to, say, Vietnam, and second, because if workers are producing goods domestically that bear an opportunity cost, they are not being fully utilized (as a resource) and therefore will probably earn less money than they could in another job. Finally, if the cost of finished goods at Wal Mart goes up because of the tariff, they aren't better off.
There is only one way for the US to win and that is increasing investment in education, infrastructure, and a robust safety net, none of which Trump is doing. If you are worried about workers, level the playing field in the United States which is tilted in favor of the rich and corps in so many ways.
24
@Thomas
You are right, I shop at Walmart for groceries every week and I have noticed an increase in almost everything from toilet paper to baked beans. If they can't make money on imported products, they make it on U.S. produced products.
6
@Heleen Mees I find it rather ironic that conservatives pushed China to embrace capitalism and they did with a vengeance. The fact they did not embrace democracy also does not seem to bother Trump and conservatives one bit.
The last 40 years of world change spans my adult working life 1980-2019, world trade has lowered the prices Americans pay for many goods over the course of my life. We can argue whether on the macro level whether this is good or not but it has enabled American employers to pay lower wages to Americans without effecting their ability to own the latest TV.
5
Paul, any column you write on this subject should be prefaced with an admission of how utterly wrong you and other free-trade economists were and how much you underestimated the rise of China and decimation of our industrial base.
Because of this so-called “free trade” (which isn’t really free at all- since China imposes massive tariffs on many of our exports), America has lost manufacturing infrastructure and expertise vital not only to the social and economic health of America, but also to our national security.
I think even the most dense and tunnel-visioned economists can no longer avoid seeing that China, with its repressive totalitarian government, has become a real threat to its neighbors and the Western world- all as a result of failed policies which you advocated for.
Cajoling and negotiating have failed to budge Beijing in its nationalist policies thus far. What is left to try, except the blunt instrument of tariffs?
3
@Greg
The problem is not with "free trade." You could not have stopped globalization from happening, and if you tried the costs to the United States would have been tremendous and you wouldn't have ended up in your imaginary world where everything is better. To the contrary, we would be worse off.
The problem is that we embraced a DOMESTIC system in which all the gains were allowed to flow to the well off while all of the costs were borne by communities and individuals in the Midwest, mainly. And the Great Recession which was entirely preventable by sensible financial regulation. That's where the failure was, with domestic policy. I'm not saying there wouldn't have been some painful readustments -- there is no getting around that when you have so much economic change happening in the world -- but it didn't have to be so bad, and it didn't have to spawn Donald Trump.
23
@Thomas
Free trade doesn’t exist except in economics textbooks. The US has been engaging in loser trade with China. That’s the problem. They have tariffs and protectionism and we don’t Their economy grows at 8-10 percent per year. And we hobble along at 2-3 percent. Then they use their new power to threaten Taiwan and Japan. That’s the real world.
1
@Greg
The Trans Pacific Trade Partnership was designed to deal with China by collectively developing trade norms and practices. It would have worked, but Trump wanted a win, not a solution. He can only get his win by trashing any other solution first.
18
I think there is a critical piece missing from this analysis: What has the impact of tariffs been on Trump voters versus on non-Trump voters? I'm not sure whether these impacts can be measured on a State-by-State basis, but that might be a good proxy for Trump/non-Trump.
And, even if that analysis shows that non-Trump States are also losing, the analysis would have to assess what Trump voters perceive the impact of the tariffs to be - and they're not getting their information from Paul Krugman, but from Trump's tweets and Fox News.
So all of this doesn't matter:
M(T)AGA - Make (Trump's) America Great Again.
5
"He’s provided us with many iconic quotations, which will surely be repeated in histories and textbooks for decades if not generations to come. Unfortunately, they’ll be repeated because they are extremely clear examples of bad ideas.’"
So have you, not all good either, debate MMT, which is a much larger issue. Once and for all. All you are doing here is counting the number of angels dancing on the head of a pin. It’s pretty simplistic to say that $120 spent to produce a widget domestically means were out $20. No we are not. Exactly, what goes into those costs and how exactly is that money spent. C’mon.
1
Why is it that Republicans seem to be the ones who always start the wars (whether economic, military, or social); Democrats the ones who have to try and clean-up the mess from it; the working-class/small-business people the ones who suffer the most from it; and the young people the ones paying the ultimate price for it?
43
... and the trade deficit actually increased to more than 900 billion since the trade war started as opposed to less than 900 before March 2018 ...
13
Good to see your article concerning issues of why we count beans and guns or butter and leave moral issues to an informed conscience.
Conscience is not acknowledged as guiding students of economic history to assist a more noble state of our fellow folk.
Mr Keynes was not motivated by calculating a deeper Depression .
Happily the level of Economic debate is becoming closer to politics and the NYT front page more often.
The Trade War is a battle of a Gilded politician who thrumps around over economic realities who does not bother to read the best advice from Intelligence agencies including Australian and US Treasury.
Mr Trump is an American problem and it is good to see Americans such as Mr Krugman is in the business of sound analysis.
The national debt is a worry.
5
@Kilgariff No, this argument is based on a series of assumptions not in play. I like the guy but he’s wrong. Stop believing in arguments by authorities, they are a logical fallacy.
My consumer behavior is that a 25% price increase would tend to make me not buy the product, buy much less of it (if it was necessary), and/or switch to another retailer. So, the exporter loses my purchase.
The effect of the tariff does indeed harm the exporter because it contributes to lower sales in the import country. Much as I hate Trump, that seems to be what he has in mind when he spins it for the low-literate as the exporter paying the tariff. The exporter "pays" by getting lower sales.
1
@gary e. davis
But you didn't buy that product, so you are also less off by the same amount.
If you are in a business that depends on importing intermediate goods from China (as so many are) then you are in trouble -- and many US companies are, scrambling to find alternatives, if they even exist.
Plus, China has retaliated against our farmers, and Trump has had to give them handouts, which runs up the deficit while other suppliers (Brazil) have taken their place. They spent years building those markets.
9
@gary e. davis That would mean the the product would have to be available for less and optimally produced by a company in the US. That hasn't happened per the evidence. That's what Trump said would happen and indeed "has in mind," but what's in his mind is not reality.
13
“Tariffs are working big time. Every country on earth wants to take wealth out of the U.S.”
- Trump tweet. Aug 5, 2018
Trump's trade war is working out quite well. The smaller economies are getting quite a good percentage boon boost.
1
It’s been long publicized that US has a big trade deficit with Germany. See Hedrick Smith’s 2012 book ‘Who Lost the American Dream?’
And USA Today--- ‘Here's why Germany's trade surplus with the U.S. is so big’.
America buys Germany’s excellent manufacturing. Germany supports workers with unions and higher wages than US does its workers.
Plus a NYT article told how German companies and govt set up job training programs for students in high school along with their academic subjects. Thus they graduate prepared. US apprenticeships have decreased greatly.
Krugman, instead of bashing another tweet from Tsar Trump the Terrible, could devote some columns to why our congress of both parties allowed millions of American jobs to be sent out of the country to increase corporate profits.
And some of those profits then upped campaign donations that has upped political power for mega donors. They not only took US jobs, they took away average citizens’ influence on elected govt. What kind of democracy and economy is this?
Enter Trump. Great for columnists, and politicians to justly criticize the worst president in our history—and look great by contrast.
Of course the German manufacturers have opened plants in the US and created thousands of badly needed jobs for Americans.
Please discuss.
21
@Meredith
All the western economies have been in relative decline after 1974. A considerable portion of Production and investment were switched to Asia, mostly China, to boost the profit rate (including those of German corporations.) Even Germany may be experiencing a recession now. See their growth at the moment. China growth and the rest of the world is slowing down. Nothing to do with trump. You are right about it
Unions, pandering politicians and our mammoth entitlement mentality sent those jobs outside our borders. When a drive-thru clerk demands $15/hr, you know we’ve lost our work ethic.
1
@Meredith +100
1
My theory about Trump’s tariffs is more menial, and based on what he gets out of it. It is a way he can control the stock market. He makes a statement about a tariff, he knows that the market will go up or down depending on what he says, and he or his family have insider information about their purchases. I think that is all what it will come down to in the end.
38
Paul Krugman does an excellent job explaining economic theory to non economists. But, the message is not reaching the right people. For example, how many farmers actually read his articles? We blame the farmers for voting against their own interests. But, have we ever thought Krugman communicating to the chorus is not productive. May be either NYT or Krugman himself produce brief videos and place them on YouTube and advertise across farm land. We should do everything we can to protect our farmers, they are the ones who fed the world.
31
@Kodali
Cognitive bias! They won't listen to a liberal writer from the NYT!
"A cognitive bias refers to a systematic pattern of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion. Individuals create their own "subjective social reality" from their perception of the input." online definition
It's unlikely Trump applied his pencil, paper & eraser accounting techniques to the impact tariffs have on US consumers.
When was the last time he purchased an appliance, a laptop or any cosmetics...(uh, skip cosmetics) because, were Trump as savvy a shopper as he is an extraordinary dealmaker - he would know excessively tariffed stuff just costs more. The hidden tax is paid by the US consumer. But never mind, we could just adopt Wilbur Ross's suggestion and take out a bank loan to meet the rising costs. Easy peasy - problem solved.
15
I respectfully disagree, Professor. While the tariff does carry a cost for US consumers in the short run, there is one clear loser in your example - China. China is now selling none of your hypothetical $100 product,thereby losing $100 on every unit of that product sold in the US. If the US loses $15 per unit on a Vietnamese substitute, but China loses $100 per unit necessary to cover fixed plant and labor costs, then the tariff inflicts nearly 7 times as much cost on China than it does on the US.
I am as opposed to Trump as any NYTimes reader. But that does not mean he is always wrong. He is right that China is not playing on a level playing field in international trade. You are also right that a trade war hurts the US - but by your own numbers it hurts China nearly 7 times as much. In the world of politics, that makes it far more likely that China will make concessions and agree to level the playing field.
11
@CarGuy
Assuming China is not able to sell the product elsewhere, which I think they had managed too (same with Soya)
But maybe not for the $100 the US paid nor may be the total volume the US took so still loss but not the whole $100 maybe
4
@CarGuy -- My experience is that products "imported from Mexico" are actually made in China. What we see added is additional transaction costs incurred to evade the tariff.
5
What leads you to think that we’re China’s only possible market?
Now that PK recognizes that consumers, not corporations, pay tariffs, maybe he will recognize that consumers, not corporations, pay corporate taxes.
2
@jrs what's the point? it's what the taxes pay for, and what the corporations are selling. Gas guzzling suvs are harmful. Paying taxes for education, roads, and defense are considered social goods, though the mix and amounts are subject to change with circumstances. (the circumstance now being mostly which corporations can bribe congressmen, which is a political problem.)
7
Wait, you say the $120 spent on a domestically produced good means that the $120 used to produce the good represent a loss of $20 relative to the cost of the same imported good.
First, if the retail price is $120, doesn't that mean that the actual cost to produce the good is somewhere between a quarter and a half of $120?
Also, if the good is produced domestically, even at a higher price than the imported good, doesn't the fact that the whole $120 stays in the US mean that we are getting a nice multiplier effect, which at least mitigates the extra cost?
4
PK assumed full employment at his analysis, which means to produce the $120 product (let us call it product A), the US worker had to give up the opportunity to produce something else (let us call it product B). You need to take into account the lost benefits (to US workers) brought by making product B, which is the "opportunity cost" that PK is talking about. This opportunity cost would be exactly $20 in a free market.
The more problematic part of PK's analysis is his assumption that US reached full employment. Part of PK's narrative is correct, but he ignored the fact that in certain cases, there was no opportunity cost for US workers. When the product is made domestically, there may be net job gains and net benefits to US workers; that is to say, workers who were unemployed instead of workers who were making Product B before are now making Product A. To make his argument more sound, PK should demonstrate that such net gains are much less than the opportunity costs that he described.
3
@Jacob -- Yes, he assumed full employment. That is wrong. The US is not at full employment, because those figures have dropped out the long term unemployed and take as employed those in substandard or part time jobs.
There are political motives and regional bias involved in misunderstanding this employment issue.
However, there are people unemployed and underemployed and hurting, who vote and are very angry.
3
@MT
It's worth noting that Krugman is merely concurring with the first major study (by the Centre for Economic Policy Research in the UK, not by PK) to evaluate the real world effects of Trump's trade wars, which does vindicate what he's been warning about for over a year now.
2
Trump says Europe's 10% tariff on American-made cars in unfair, but he never talks about our 25% tariff on European-made pickup trucks. Seems like it is a fair arrangement the way it was....
5
Comparing gains and losses, country to country is shallow. We have to know who gains/loses within the USA: workers, corporations, local governments, et al.
The issues are complex. Numbers alone might not tell the story. Too, if increased tariffs are a bad idea, is decreased tariffs a good one?
Interesting, and informative editorial.
3
In response to Independent who cites Germany
You are right, but are you aware how wrong Krugman was about Germany ?
Read
Why Germany Kan't Kompete
http://web.mit.edu/krugman/www/kompete.html
Read
" Nobel Economist Krugman Slams German Austerity"
Nobel prize-winning economist Paul Krugman says that Germany has begun imposing austerity measures far too soon
http://www.spiegel.de/international/business/trans-atlantic-turbulence-nobel-economist-krugman-slams-german-austerity-a-701894.html
Krugman has no understanding of the German economy
1
@Lore
PK is correct in both cases. The first article was written in late 90s and early 2000s when it became very obvious how poorly planned and implemented the merger with east germany was.
The second article was more recent and things had changed. Germany had reduced wages and increased taxes dramatically (I was there) and the economy started picking up. Then germany decided that their economy was fine and wanted the european bank to raise rates and hammer the economies of ireland, greece, spain and portugal exactly when they needed an economic lifeline.
Both articles are correct when they were written!!!
PK warned about 2 speed europe and 1 central bank in the nineties. All he predicted has come to pass.
So sad the germans want to make the rest of europe like germany. Where would they go to escape the gray grimness...
1
When I am reincarnated, make sure I come back as an economist. Good stuff, this.
6
Econ 101: Trade and Tariffs
At Adam Smith’s time the British were better in growing wool and the French better in making hats. So the Brits would sell wool to the French and the French hats to the Brits, and everyone would win. And thus originated the theory of free trade as a win, win for all
It did not occur to Adam Smith, that there might be a country, Cathy, where both mediocre wool could be grown and hats been made , for 1/10 of the prize, as people were willing for working for 1/20th of those of French milliners and British shepherds
But assume, hat trade had occurred - assume that shipping costs as low cost as container shipping today
What would have happened ? Brits would have bought hats from Cathay, putting both British shepherds and French milliners out of business. Would the government care ? Yes, gold coins would flow from Britain to Cathy, depleting the governments treasury
Hence the government would soon put tariffs on Cathay hats stiff enough to get shepherds and milliners back to work
Forward to today’s global economy. China can not make anything better than the US can, but it can make it much cheaper . Alas no gold is flowing - China gets green paper for it. Of which the US can print of, as much as she desires. So nothing to worry
Alas there will come a point where the world gets tired of mountains of green paper - with catastrophic consequences for the US economy.
Tariffs are useful: The level the wage playing field
12
@Woof flawed understanding of free trade: we all do free trade with each other (because division of labor increases productivity) without imposing tariffs so why should countries impose tariff? It's just bureaucratic rent seeking ...
1
@Woof
In reality the British ruined the Indian textile industry with cheaper products while imposing protectionist policies as an ascendant power. It does not work for them now as a declining and second rate power vis a vis a more productive Germany. Brexit won’t happen as wished by nostalgic Tories. US workers can’t afford more expensive products as their real wages have not increased
Nostalgia does not change fact the US needs to import many of its means of subsistence
1
@Woof Sorry, as I am sure Professor Krugman will say: go to the back of the class, you'll need to retake Econ 101
"The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff. "
Krugman's focus macroeconomics causes him to lose sight of the microeconomic impact. His statement is non-sense.
It may may have been true 45 years ago but today when a manufacturing job is lost the odds are that laid off worker is not going to find another well paying manufacturing job nearby.
At one time the worker laid off from Dodge Main could go down the street and apply at Chevy Gear and Axle.
Dodge Main was torn down and in its place GM built the Detroit-Hamtramck Assembly (Poletown) plant. Now that plant will probably close in the next year or so. Chevy Gear and Axle was taken over by American Axle & Manufacturing which shipped all manufacturing to Mexico.
Of course Krugman could be referring to producing burgers. So there's that, I guess.
6
Trump can't do math...but we knew that based in the tax law and the higher deficit.
Anyhow, there is news that there may be an agreement with China soon on trade. (again) I can guarantee if some sort of pact is reached, it will not be what the Trump administration expects--despite his expected bluster. There is so much unstated when working in the far east...
Raising tariffs, and punishing companies that produce goods and services offshore isn't necessarily a bad idea, but it cannot be a policy unto itself, it must be part of comprehensive approach of punishments and incentives to return production of these items to the U.S., creating the jobs that go with them.
This isn't to say that we should close ourselves off from international trade, or eliminate all imports, but there has to be balance. Companies that are awash in cash because they've shifted operations and costs offshore without regard to the costs to Americans - not just displaced workers, but those who have seen their wages, benefits, and job security driven downward because of these policies - need to pay their fair share of this societal cost.
How about taxing profits on domestic companies and stock dividends at lower rate than foreign companies? Use the incentive of increased domestic ROI to encourage companies to produce here.
Over the past forty years we've created policies that incentivized offshoring as a means to drive up corporate earnings and profits under the "trickle down" theory. There is no "natural law" that mandates offshoring and favoring international production. So we need to undo these policies that have made a few people very rich, while impoverishing the majority.
Raising tariffs is simply one tool, but you can't build a sound structure with just one tool. Let's open the tool box and fix the structural problems with our economic system.
3
There is also the effect of the retaliatory tariffs on U.S. exports; you did not discuss this.
4
So it’s worse.
A solid analysis based on research into the actual facts, illustrated by several simple examples.
It will convince few if any Republicans. Most of them DESPISE facts.
13
@Marvant Duhon
Republicans understand that people want the ability to live in a country where there is the potential for upward mobility for every tariff.
1
Sigh.
Our “upward movility,” is far behind China’s, and pretty much the worst of any developed country.
From an economics perspective, the most efficient global trade system is one that promotes specialization. To Krugman's point, for example, why should the US manufacture a mobile phone when the Chinese can do so at a cheaper cost and higher quality. But we're long past the days when Economics played a role in policy development.
You would think that by now, someone has explained to Donald Trump that the $25 tariff collected on an imported good is actually a tax paid by Americans. But given the way Trump brags about the effectiveness of his tariff strategy, I still don't think he gets it.
Moreover, Trump has the loudest voice, so you're going to have a hard time convincing a lot of Americans that $120 used to purchase a good produced by a domestic supplier is a bad thing.
As another case in point, this time at the opposite end of the political spectrum, AOC, another loud voice on the current political scene, either misunderstood or misrepresented the $3b tax incentive offered to Amazon to move its HQ to New York City. Hence, Amazon pulls out, taking with it, 25,000 good paying jobs.
Politics wins, policy loses, and we will all pay the price.
3
"Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole."
Not everything is as neat and tidy as you want to portray. If the idea of imposing tariffs on Chinese exports is to cause harm to China's economy, then shifting consumption to goods manufactured in Vietnam or the US may not have an impact on US national income, but based on your analysis it does have an affect on China's national income. For some reason you have ignored that consequence of your reasoning.
3
@James Ricciardi That impact is complex. China could find an alternate buyer that in the end hurts us more (once it stops exporting to us). Or perhaps it hurts China if it can't do so. But that's a separate point and this is about economic winning and some of the claims made by Trump.
I agree that the issue isn't neat and tidy at all, but looking at other complex systems dynamics indicates that it's better to move towards a global free trade zone - no tariffs of any kind for anything.
@James Ricciardi
Well, till the companies which are producing in Vietnam are different from Chinese producers. Also not all trade works on cost plus. So Chinese companies sell to Vietnamese or Indian traders and ship from there as products of Indian companies or Vietnamese companies. You need to pay the Indian or Vietnamese traders but US people are paying $15 extra anyway for each product.
This is also only for companies whose main business is with US.
Chinese companies which trade with EU and other big economies are not affected anyway.
Now how is China affected?
FYI, economists and others generally simplify matters so that they may be understood the more clearly by lay people, or to—as with anewtin and ballistics—to illustrate a principle more plainly.
I’m imagining a time, a could have been the future time, where the Trans Pacific Partnership is in full effect and the collective heft of economic power between the countries in the partnership are pressuring China to be more open and fair all the while growing the power of American producers. But trump destroyed that.
21
@Mike
That's not the only result. The neoliberal globalization was bad news for labor and when problems had to be adjudicated by corporate lawyers instead of in court the results were bad for entire nations. The most outrageous example was the lawsuit against Uruguay for reducing Philip Morris' profit with an anti smoking campaign. Philip Morris won. China is a huge economy and if we run our economy badly we may no longer be the Big Winners globally.
5
@Saint999
Yes, and the TPP disallowed any upper limits on lawsuit judgments benefiting corporations. The TPP was a global corporate power grab disguised as a check on China.
But if the dollar is stronger, then won't Republican donors be able to buy bigger yachts from foreign builders, and drink more champagne when they're on foreign trips, for the same number of dollars then they used to have to spend?
Is that what they mean when they say "A rising tide lifts all boats"?
5
I wish Mr. Krugman had discussed the damage to our farmers soybean economy. Not so long ago I saw a huge pile of soybeans outside in North Dakota because they lacked storage at the warehouse. Soybeans don't do well if they get wet. So I don't believe the tariffs have helped us as China is no longer buying some 75 million tons, they're going to South American countries instead. So, now the markets our farmers and Ag industry have worked hard to develop have disappeared. Well, yes the public is helping the farmers by supporting the farmers with direct payments BUT this costs the nation money. Not me, but many think Trump is a businessman par excellence. HAH.
30
@mmusel
Look on the bright side.... All those direct payments to farmers (Agribusiness?) mean they have more money to make campaign contributions to you-know-who!
I think that the bottom line is this: people are fooling themselves if they think that Trump's tariff war(s) are going to help the economy. Furthermore, although it's not mentioned here, Trump and his band of incompetents are undermining the foundations on which America was founded and making America the laughingstock of the world. How do you know when Trump is lying? Just watch his lips move.
7
Brilliant synopsis! Any street person could tell us that consumers are paying the tariff. Puffing 'credentials' with a common know-it-all dictum is the professor's Narcissus handicap.
2
Actually, it’s more of a prob to sling language you can’t quite handle.
The USA have established again a triangular trade with meta slavery and the export of the products to another third continent .
They design products in the USA with a lot of foreign taught engineers ( lots of French software tech in the GAFA ) then they make the physical products in China by enslaved poor workers, and they sell in Europe by installing their corporations there and cheat to pay zero taxes while invading the market .And destroying the European economy so that they create unemployment, and the circle is buckled.
6
@JPH I forgot to say that they use the result of free good education in Europe to design their products and then they resell it in Europe without participating in the education funds which are public and paid by european workers who are then twice cheated. The fiscal fraud from the USA amounts to several trillion dollars each year or the equivalent of the European deficit. No big deal !
3
I'm not buying the opportunity cost for domestically produced goods argument.
On Mondays, Wednesdays, and Fridays we hear that manufacturing jobs are gone, replaced by robots. On Tuesdays and Thursdays we hear that the economy is at full employment, and that any incremental production displaces something else.
Which is it?
3
@Rufus Total manufacturing employment has been rising over the past several years. Take a look:
https://fred.stlouisfed.org/series/MANEMP
Uh, neither?
Okay - I'm tired of winning. Can we move on now, to sense, experience, planning, working with other nations, getting along?
48
@Nathaniel Brown
Yep. But we can't start until 12:01 PM on January 20, 2021.
Yes. Exactly that!
The USA may be losing, but China is losing too. Xi Jinping has been left without strategy and much worries in this trade war. Many reports surfaced on the state of Chinese economy, that is not as good as we thought, and probably cannot afford too much additional damage.
The question is: is a major headache for Xi Jinping worth 0.1 US GDP point ?
2
In my state, the W half is decidedly blue, while the E is just as red. The agricultural product export market (apples, stone fruit, wheat, barley, wine, spuds, etc.) make us the 3rd largest agricultural product exporting state.
The consistently-voting-against-their-own-interests E farmers supported Donnie from Queens with great anticipation and confidence that he was going to help. (Or something.)
After various tariffs and other destructive policies kicked in, nearly 100% of them are still saying "something strange is hurting me in the backside AND my wallet, but I'm not sure what it is" while they bravely continue to support said former resident of Queens.
No more patience from me.
197
@Archangelo Spumoni And the soybean industry in Wisconsin is dying - all those Trump-voting farmers must be a little confused right now.
40
@lee4713 ..Not to mention the $12BN of US taxpayers' money (is that a one-off social-subsidy payment, by the way, or does it repeat annually?) that's been promised to keep the soybean farmers afloat to offset the Trumpian-policy effect..
14
@Archangelo Spumoni--they, like Michael Cohen, fell under Trump's mysterious spell.
Trump's the guru/leader. His base is the cult. Most cult members become so because the leader says, "Something is broken in you, but if you do as I say, you will master your troubles and feel great again."
These leaders usually charge cult members huge fees, while the members get essentially little to no help with their problems. However, many experience a sort of religious conversion, trusting only in their leaders to the exclusion of rationality.
The words, "Trust me, I can help you." resonate deeply with the financially or psychologically troubled.
I do not know the lot, before Trump, of your Eastern farmers, but evidently, his promise to make their lives better was music to their ears. Now they are converts to Trump's cult.
Some are receiving government subsidies, which wouldn't have been necessary if their leader hadn't cried "trade war based on national security!"
The people of Trump's base are looking for something from Trump. He's a ragestorm, angry at our allies, embracing our enemies, racist, disloyal and looking only to protect and enrich himself.
And 35% of voters are attracted to and believe in these values.
10
While important information, trade negotiations that include tariffs are not that simple.
Trade agreements require time and foresight. Simple pricing and revenue changes are only part of the story and are not so flatly realized when other aspects are considered: China’s intellectual property theft, inhumane labor practices, technology transfer regulations, probable currency manipulation and humane rights issues just to name a few. These things matter and have influence, particularly if you are a “globalist” as is claimed.
Dr. Krugman is obviously a bright economist and an entertaining writer, but some of his opinion pieces are too narrowly written and as such are not always wholly accurate.
2
@Independent. Putting a tariff on Canada helps fight China's "intellectual theft, inhumane labor practices, technology transfer regulations, probable currency manipulation and humane (sic) rights" does it. How does that work?
16
@Independent
You're right. Dr Krugman chose only to focus on
Trump's declarations that "trade wars are good, and easy to win" and his claim that foreigners pay the tariffs. And that is what he stated at the beginning of his column. His column appears to be based on paper from economists from Columbia, Princeton, and the New York Federal Reserve , “The impact of the 2018 trade war on U.S. prices and welfare,”The facts would appear to support Dr Krugman's assessment.
At this stage of the trade war, the questions of "intellectual property theft, inhumane labor practices, technology transfer regulations, probable currency manipulation and humane rights issues" have not been resolved. Dr Krugman could have stated the obvious in this regard in his assessment of "How Goes the Trade War?". But this does not detract from the conclusions or value of his stated purpose for the column.
14
So how would you compare Krugman’s analysis with Trump’s? Do you think Trump has the big picture in mind? Or does he leave something out from time to time?
Mr. Krugman - I would like to hear how you would go about getting China to make policy changes w.r.t. intellectual property theft, forced technology transfer, and other unfair trade practices. I don't see any way to go about it besides tariffs. It would be better to get the EU and others to coordinate. I don't see why Trump wants tariffs on Canadian and European goods.
But it seems to me to that if we want China to start being a good citizen we need a stick.
4
There was another solution: TPP. The US along with the major economies of the Pacific could now be using their collective economic weight to pressure and pinch China. Perhaps it was not a perfect treaty but by having it we could be moving China to be more agreeable and continue to develop and build markets for US producers. Since for trump destroying is easier then working and creating, the baby is gone with the bath water.
9
The exporters often cannot reduce their prices to absorb the tariffs, because they would be at risk of selling products below normal value, which could result in antidumping duties. However, to impose antidumping duties, there would also need to be a showing of injury caused by the dumped imports, which might be difficult to prove at a time when the economy is growing.
The data speak that Tariff Man speaks simplistically and carries (shades of Stormy Daniels) a very "tiny" stick that hurts both the U.S. and China. That "lose-win" result is only hurting our consumer-driven economy to the point where may predict a recession. But then again, we also know that the infamous Tariff Man was previously known as Bankruptcy Man.
4
Thanks for the link and thanks for the work of the NYFed, Columbia and Princeton Universities. It is good to use evidence to back up well-documented economic history.
It is vexing to hear economists, who work for this administration, to speak with authority that tariffs are an effective tool for correcting "unfair" trade practices and to protect U.S. "national security" and support the wrongheaded statements of the Tariff Man. Where is the outrage?
No one likes to pay taxes but I like to think that the taxes we pay have been through a deliberative legislative process that has weighed the benefits of taxes and have the feeling that the taxes have been used to make our society better.
Clearly, tariffs avoid the legislative test of public debate but can selectively harm society. On principle, it violates the fundamental concept of our constitutional representative government.
There is also the corruption that can result from making up "lists" of exemptions from the tariff letters which can spawn influence money to support political campaigns. One can smell the gasses of economic decay in the swamp.
A heavy price has paid for the U.S. to emerge as the World's most powerful Nation. A Nation that has been perfecting a "...government of the people, by the people, for the people..." A. Lincoln, 11.19.1863.
This power should be used to make life better for all humanity and should not be squandered by one administration which has failed to address critical global issues.
16
The cost of construction labor and materials have gone through the roof in my little corner of the country. Whether tariff or not, construction bids are coming in 15% higher. The uncertainty of material costs adds to the rising pries, as does the tariffs on construction materials that trump wants us all to pay to suit his vanity.
4
In the 250 Billion dollars tariff on Chinese goods, Trump claimed proudly that the revenue to the US Government increased by 250 Billion Dollars, without saying who is paying for it. Of course, it is US consumers. Why does the government needs the extra money, because it needs to fill the newly created hole in the government revenue by the new tax laws that benefited the rich.
12
@Kodali
I just asked the question. Is your figure of 250 billion dollars in government revenue accurate?
To Ann Luisa who writes
Except that Krugman isn't SUPPORTING outsourcing US jobs to Mexico, he shows the opposite: Trump's tariffs are outsourcing jobs to Mexico. Which is one of the many reasons why he opposes them.
Wrong
Trunps agreement requires that to qualify for zero tariffs, cars and trucks must have at least 30 percent of manufacturing and assembly work done by employees making at least $16 an hour by 2020. That's about three times what a Mexican worker makes. This may add some American jobs but it's also likely to raise car prices because any vehicle not qualifying would be assessed a 2.5 percent tariff, the current rate.
https://www.cbsnews.com/news/trump-nafta-new-trade-deal-why-cars-could-cost-more/
De facto, Trump imposed a 2.5% tariff on Mexican made cars that will add American jobs
3
Dear Lore:
I checked with Data, and he tells me you need to look up what that dratted Obama had already negotiated.
Sincerely,
Dr. Noonian Sung
Trump doesn’t understand tariffs are a tax on consumers but he totally understands the idea of granting exemptions to his business and political cronies for power and personal profit.
23
I can tell you that my little business is suffering from the tariffs and Trump chaos in general. I buy electronic component parts for my products. If Trump levies a 25% tariff on these products as promised, the results will be devastating to my bottom line. I will have to raise prices which will reduce sales.
So you say, why don't you buy parts from domestic suppliers? There are no domestic suppliers. They all moved offshore decades ago. China supplies the entire world with electronic components. There are some other Asian suppliers, but where do you think they get their raw materials? China has their finger in everything electronic.
These tariffs on parts cannot create American jobs. There is no way we can make that stuff here at anywhere near the prices the Chinese can. This proposed LCD plant in Wisconsin that Trump brags about will never materialize. It will be an office building staffed with H1B visa engineers.
You don't need to be a meteorologist to know that it is raining. You don't need to be an economist to know that when input costs go up, prices rise and unit sales go down.
The Trump tariffs are damaging our economy and they will not restart the shuttered factories in Ohio. They are nothing but a propaganda ploy to get votes that actually hurt the people that voted for him. But that's OK with them. They have nothing else to lose which makes them happy if Trump can drag the rest of down too. That's Trump's path to equality.
526
@Bruce Rozenblit
All your competitors will be in the same boat as you assuming they all use Chinese electronics components - so your sales will drop only if the demand for the final product is extremely price-elastic (many more people want to buy the widget for $30 than for say $33). Rarely, though, the cost of Chinese components represents more than 20% of the retail price of anything assembled in the U.S. and sold here - so the "devastation to your bottom line" is quite overestimated...
4
@cobbler
I'm sorry, but you have no idea of what my pricing structure is, what I'm producing and who is buying it. Many of my competitors are based overseas and they can get the Chinese parts at pre-tariff prices, further increasing their price advantage. A 25% percent increase in input costs would be horrible for me.
119
@Bruce Rozenblit
Thanks for more of your invaluable factual posts, and for being polite to someone who knows nothing about it.
126
Clearly argued, but does miss one point. While the Chinese do not take a price hit, they suffer a fall in exports, which reduces their revenue. If the goal is to hurt the Chinese to bring them to the table in order to get to get a better trade deal, then the points raised do no militate against these benefits from the tariffs. Rather, they indicate that the U.S. pays a short-run price for this pressure on the Chinese (something, of course, obfuscated by Trump), and whether or not is turns out to be worth it remains to be seen.
4
@Skeptic
Re: ' While the Chinese do not take a price hit, they suffer a fall in exports"
The data show otherwise.
https://www.census.gov/foreign-trade/balance/c5700.html
1
Consumers, not corporations, always pay, whether it be tariffs, taxes or whatever. Corporations just figure out how much something costs to produce, labor and material, add overhead for administration, marketing, etc. and add profit which equals the price charged to consumers. Add anything else and the price just goes up.
2
The seller of the original goods is made less cost competitive as some of the purchase prices goes to the U. S. treasury.
In general I am for free trade. However I believe China is a communist adversary that may be stealing intellectual propriety. For those reasons I believe American consumers should not be supporting the PRC military and government. it is about national security and human rights.
4
National security and human rights.
Yeah, those are the Donald’s top priorities, all right.
The Trump tariffs are rooted in the Republicans' tax cut for the very wealthy, including Trump himself, along with Trump's general refusal to pay attention to expert advice. The tariffs are Trump's attempt to recoup the revenue losses from the tax cuts, by passing the tax burden from the wealthy investor class to the ordinary working people. Trump inherited a very healthy economy with historically low unemployment and very good international relations from Obama and busily set about undermining both. The worst thing is that at least 40% of the electorate think he's "Making America Great Again" and plan to re-elect him in 2020. That could change, though.
10
Some consumers - the 43% - would love to pay for Trump's tariffs. It's "so" Trump. Not sure if they know what a tariff is, though...
10
There's more than just the increased cost of imports to American consumers to consider. When one treats trade negotiations as war, and traditional trade partners as enemies, there are other consequences. Here in Canada, the scarcity (or absence) of many familiar American products and produce on grocery shelves is becoming increasing noticeable. Nothing "official" but it's become clear that after last year's NAFTA-2 "negotiations" and the misinformation, outright lies, tantrums and serial insults directed our way by the President and some of his officials, many Canadians are going out of their way to avoid buying American products. And as the American products don't sell -- or at least don't sell as well as they used to -- the stores stock less of them.
Fair or not to Americans in general, the damage has been done. Regardless of how much longer Trump actually remains in office, I suspect that it's going to be a very long time before American food, beverage and wine producers recapture the market share here that they've recently lost to Mexico, South African and Chile, amongst others.
64
Yep. A very nice way to say that other countries are not going to forget how America’s been behaving these last two years.
When you trade away whatever moral capital you have, when you mainly work by yelling and throwing your weight around, when you elect a guy who’s obviously a fool who can be rolled, well, the day will come when you need help.
And when you ask, well, you’re gonna get blank stares and smirks. Not to mention that even before that bad day, countries like Canada are going to start looking elsewhere for partners.
Which they’re already starting to do in Europe: we haven’t given them a choice.
3
@curious just remember that the majority of US voters did not vote for DJT. We knew what he was and wanted no part of it. Now we have to work double time to wrest our democracy from the corrupt practices of the last 30 years. This is not who we are and we owe the world a huge apology for letting this happen.
2
Does Krugman understand US China trade ?
The NY Times ,
Why a Trade War With China Isn’t ‘Easy to Win
P.K. 5/22/18
In response I posted
"Is a trade war with China easy to win?
Yes because the Chinese position is much weaker than realized. Real unemployment is larger than reported officially. Chinese cities are filled with millions of rural migrants from the country side, without a hokuo (a permit required to live in the city that allows access to schools and social services). Largely unskilled, they see there jobs disappearing.
Why ?
741 acres are covered in Hawassa (Lethia) by mostly Chinese factories. Salaries in the Chinese owned textile plant shown are 30 Euros ($ 35) per month , 1/20 of those of China as the Chinese owner explains. That is 1/20 !!
What the proud Chinese owner does NOT explain is that he laid off his textile workers in China when he moving the factory to Ethiopia.
It is a race to the bottom. Stagnant wages by outsourcing production to those willing to work for least, has reached China.
Economists such as Krugman who promoted globalization failed to see that political unrest follows.
It does, and that is becoming a headache for the Chinese leadership, who is well aware of it.
China can ill afford a trade war with the US, that would further accelerate that development"
To see who was right, read
https://www.nytimes.com/2019/02/25/world/asia/china-xi-warnings.html
12
So you’re basically arguing that Krugman’s right about what happens to manufacturing jobs in a globalized economy, and that a centralized government like China’s can’t do anything about it but ours can.
And apparently, our government can do something about it without becoming, you know, socialistic Big Gov. What—dome the whole country?
Oh, brother. Big Brother, even.
"Here the crucial thing is that producing a good domestically has an opportunity cost. The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff. Diverting them into producing what we used to import means a net loss of $20, with no revenue offset."
I am not an economist, and I admire PK for his social stances, but I would have to disagree on this.
This "full employment" is a fake. Employers are shafting workers, not giving them enough hours, treating them as permanent temps, and so on, And that is for the non burger-flipping jobs.
So if US workers are actually getting to do more work, then that gives them a little more power. Things are so bad, I'll even take that 0.1% there.
7
So you’re basically arguing that we’re getting more work spread out over more jobs for little or no extra pay, whoopee, I’ll take it?
Nice summary of the Fed's paper and the conclusion that domestic consumers rather than foreign countries pay the taxes. It actually is worse than detailed by Paul. Because businesses need to sell things at a profit, they need to mark up the cost of whatever they buy by 2X or 3X. But the tariff is actually applied to the fair market value of the good or the price. So if a company wants to keep gross margins constant, a 10% tariff is actually results in a 20% or 30% increase in price! Unless a company is able to change their supply chain to source from an un-tariffed country of origin, they'll pass this increase on to the consumer.
2
A rational, academic - Professor Krugman - well-considered opinion on the dynamics of our trade war. Remember when trade wars were an anathema, hold-overs from a previous ill-considered counterproductive age: Smoot-Hawley.
"Give me distractions." "Give me ratings." "Give me money." As long as it lasts: "I'm on my way to the Big House."
3
Much ado about nothing
Econ 101
1. Import tariffs are essentially a sales tax and raise costs to consumers.
2. Assume is that consumers will bear 100% of the cost of the increased tariffs, as an upper bound
2018 GDP of US was 20,500,600M. A 10% tariff on $200 billion worth of imported goods, would raise the average price level rise by 0.1% (10% x 20.5 Billion/20.5 Trillion)
3. In reality , the O.1% will be an overestimate, because corporations, currently enjoying record profits, will absorb some of the price increase
4. Most Americans would willingly pay 0.1% more to save their fellow Americans the fate of , e.g. fate of workers plant in Wayne, when Ford moved the entire Focus production to Chongqing - to be from there to be re imported to the US
5. Mr. Krugman however, likely would not. When laid off workers wrote to him, quote, "Well, if you lose your comfortable position as an American professor you can always find another job–as long as you are 12 years old and willing to work for 40 cents an hour.”
Mr. Krugman avoided the answer and responded with quote
"Such moral outrage is common among the opponents of globalization–of the transfer of technology and capital from high-wage to low-wage countries here and abroad. "
Mr. Krugman never had one iota of sympathy for the likes of Shannon Mulcahy who saw her job that liberated her move to Mexico.
More at
https://www.nytimes.com/2017/10/14/us/union-jobs-mexico-rexnord.html
12
@Woof
Except that Krugman isn't SUPPORTING outsourcing US jobs to Mexico, he shows the opposite: Trump's tariffs are outsourcing jobs to Mexico. Which is one of the many reasons why he opposes them.
Just read this op-ed more carefully and you'll see.
14
@Woof
"could raise the average price level rise by 0.1% "..
Averages can be misleading, particularly if they are used to dilute the impact of an individual event or effect. If you are in, or associated with, that particular business, then the tariff is 10%. Thereafter, one must observe the chain of circumstance in the business path that directly follows.
That said, I am in favor of leveling the playing field (which may include tariffs), just not willing to write it off as "much ado about nothing". Trade wars are, indeed, something, just go back to the Great Depression. There is nothing wrong with clear heads and questioning attitudes as we approach this.
The hilarious part is that you’re making the very mistake you’re (generally, falsely) accusing Krugman of: ignoring the disproportionate effect on relatively-small pieces of the overall economy: smallish farmers and smallish businesses that use imported steel and parts to make stuff eight here at home.
And, as you’re wrongly accusing Krugman of doing, you’re shrugging them off as eggs you gotta break to make the omelet.
And if you think most Americans will cheerfully pay an extra grand for a car, well, maybe consider how many people who regularly shop at Walmart voted for that awful Mr. Trump because he’d bring back jobs.
"Imports of the tariffed items fell sharply, partly because consumers turned to domestic products," Is this outcome bad? If you apply a straightforward simple logic, won't it result in more domestic employment?
Full employment is a little tricky. There are areas where employment can be substantially increased, such as home nursing, in our aging population.
Need for preschool teachers is very high. Preschool education can be started at age 2, with individual teaching. Then we need far more school teachers at higher pay, with actually, more qualified teachers. If you look around you could find areas where many more jobs are needed.
Just because at the current equilibrium, there is full employment doesn't mean, a different equilibrium can't be created.
I would consider export of goods just for trade ought to be discouraged. If we can produce a product domestically, say cars, it's unnecessary to import them; if you import, the cost should be far higher, like that of a Lamborghini, for very rich people; for that the tariff can be up to 100%.
Now U.S. produces or can produce 2-3 times more or much higher amounts of milk & grains than we would consume. For that we need markets. They're great in potential famine-stricken, undernourished areas, which are actually high. There the govt. can step in & help the farmers to continue produce them. That's humanitarian exercise.
True transport by sea costs very little, but do we need to still raise transportation cost?
1
So you just skipped the parts that discussed why stuff like cars and cellphones tend to get built overseas.
2
http://www.princeton.edu/~reddings/papers/CEPR-DP13564.pdf
March 2, 2019
The Impact of the 2018 Trade War on U.S. Prices and Welfare
By Mary Amiti, Stephen J. Redding, and David Weinstein
Abstract
This paper explores the impacts of the Trump administration’s trade policy on prices and welfare. Over the course of 2018, the U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and complete passthrough of the tariffs into domestic prices of imported goods. Overall, using standard economic methods, we find that the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018. We also see similar patterns for foreign countries who have retaliated against the U.S., which indicates that the trade war also reduced real income for other countries.
[ Terrific paper. ]
8
All this pro and con about tariffs misses the point of what bothers many Americans like me. I recall a time when most items on store shelves that we used in daily life carried the label Made in USA. We were the wonder of the world for the variety and excellence of our Made In USA consumer items. Cities took great pride and were known for the remarkable consumer goods produced there. Yes, I actually am old enough to recall that with nostalgia.
Today that label is a rarity. Far, far more common is Made In China. Were they to place an embargo on those supplies our store shelves would be empty in a few weeks. We would be on our knees begging for mercy. Yes, that does worry me.
It seems that all that we make now are war weapons that end up strewn around Asian battle fields and that have accomplished nothing but generate hatred of Americans.
102
@Penseur. Made in China. Let’s put the blame squarely where it belongs, and that is not necessarily on the Chinese. The Chinese did not force American manufacturing companies to move their plants there. Americans need to look American corporate executives square in the eye to see who is culpable.
11
@Penseur
Making a plastic toy is honorable work but low in profitability. We can afford to pass that job to China or Vietnam or any other country that wants it. It may well raise their welfare while it would mean little to ours. What the US used to do was lead in technology and at one point that included plastic toys but the bar has risen. What has been lost is the level of educational achievement for the average citizen to equal the level of technology we create. Technology has moved from plastic toys in the '50s to AI, artificial intelligence, today. Only the 1% are educated to fill that job.
5
@Penseur
Jobs, weapons, and hate. Three of our biggest exports.
1
“ Elect “ a demented clown, get a third rate, falling down, Bankrupt Circus.
Period.
173
@Phyliss Dalmatian - Absolutely. One of the best summaries I've seen of Trump and his policies. Great observation Phyliss. We asked for it and we got it.
16
Ironic. Published same day as deal about to get done. Bad luck. Nuts.
1
@BMH
You mean this "deal"...
"But early details indicate it would do little to substantively change the way China has long done business and would not force Beijing to curtail cybertheft or the subsidies that the administration complains create an uneven playing field for American companies.
The language aimed at China’s discrimination against foreign companies, like its antimonopoly law or standard-setting processes, is probably too vague to be enforceable, while China’s promises on curtailing subsidies are also overly broad, a person familiar with the negotiation said. The pact also doesn’t alter China’s tight restrictions on data, the person said. In addition, many of the big purchases that Beijing is promising would occur over a number of years, which could give China further leverage during that period, critics say.
https://www.nytimes.com/2019/03/03/business/us-china-trade-deal-trump.html
I recently had a conversation with the 80something father of sons who continue the business of raising steers. I asked if all the grain they raised went to feeding the animals. He said all the corn grown is used to feed the animals, but the soybeans are grown to sell. But, he quickly informed me, right now all their soybeans are being stored. If they sold their crop now they would lose $30,000. And they don't want Trump's money or the governments. They just want to be able to do business as they have in the past. Consumers are paying for Trump's trade war and growers too!
58
The analysis is wrong. As a recent graduate of "Trump University", I can explain it properly. Tariffs on Chinese goods hurt China. They lose, so we are Winners.
2
"...consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged."
Hello everyone. Trump and the Republican Congress cut $1.5 trillion in taxes, heavily slanted toward the extremely wealthy (themselves.)
Then, Trump imposes tariffs that raise taxes on household and other common consumer goods, an additional tax burden on ordinary working people. This enabled by his compliant Republican rubber stampers.
Why aren't the Democrats pointing this out every day?
"Only the little people pay taxes."
Leona Helmsley and Donald Trump.
12
@Edward: Trump voters could not have cared less what the unreality TV flake paid in taxes.
1
I understand the article. Nonetheless, I am confused by one thing: why haven't the supplier who's products are covered by to the tariffs been subjected to strong enough sales loss forces to require them to lower there prices?
@bob: because that's not how business works. All businesses, including suppliers have to charge a high enough price to make a profit and stay in business. The price they charge is determined by the cost of what they're selling, including materials purchased as well as finished goods. A tariff raises that price. If a business can't make a profit on a particular product they stop selling it. Now it's in short supply in the US marketplace which raises the price even more. The result is higher prices, closed businesses, employee layoffs and job losses, lower pay and a higher cost of living combining to create a higher poverty level and increased poverty.
6
Celebritocracy vs meritocracy, show vs substance: in both, America lost bigly.
2
@Gerard Try this one: kakistocracy: government of a State by its worst citizens. .
Trump is the USA cutting off its own nose to spite its own face. How did it come to this?
11
Mr. Trump's business ventures specialize in running out of other people's money.
He's doing it again.
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@SKK
Of course. The hyena changeth not his spots.
11
@SKK
I meant "Of course" as "Aha: that's it!" You put it perfectly.
10
Always Lucent. Always cogent. My favorite columnist the NYT has by far. Thank you.
33
Trump believes the taxes (tariffs) being collected are paid by the Chinese, and repeatedly tells his audiences that. As this report and countless other explanations have proven, that is a lie.
American consumers are paying the tariffs imposed by Trump to the United States treasury; they are a Trump tax on consumers and producers.
Yet the Republican Party and every messaging organ of the right continue to cover for this lie. As they do with virtually all of the lies that are uttered by Trump.
The Republican/Trump supporters do not care about facts. They just don't, whether they be racists, fundie Christians, coal miners, Hedge Fund owners, media types, selected Republican office holders, or judges, etc, those that know Trump/Republicans are lying don't care. But worse, there are millions of Americans who, God knows why, actually trust that Trump and all of his supporter types are really telling the truth and they continue to be conned every single person involved in the full messaging machinery of the Republican Party and its funders.
21
@Mark: Evangelism teaches people to propagate fantastic delusions to other people in this life for the promise of a fabulous new life after death in an easier world provided for by God.
7
I almost never agree with with any idea proposed by conservatives. They are generally wrong about everything 99% of the time. Their primary preoccupations are controlling what people do in their bedrooms, and despoiling and wrecking the habitat so that they can be rich in their lifetimes. And, of course, they celebrate tribalism and deify the individual. For them, it's about keeping their clan members safe and pure, and walling off the OTHER, and killing THE OTHER when necessary. And, it's about the individual. Not about the commons. But, Krugman's column today was hardly nourishing. It just didn't satisfy. What we hunger for is to understand how can we balance the need for jobs in this country against the need for jobs in China or other similar poor countries? What should be done economically and morally? How can we all exist on this planet together and live reasonably good and modern lives? Is it a zero-sum game? If we continue to make socks, underwear and cheap pants in the U.S., Chinese people will remain impoverished? Or if China does that work, people here end up without employment? This is question that needs to be answered. No simple math formulas and facile conclusions are going to answer that question. What should the future of work look like, here and there? 20 hour work week? Shared jobs? Huge numbers of people building 1,000,000 windmills, a new electric grid, new trains, charging stations on every city block, etc. for a green future?
4
@HipOath
One correction to your underlying premise: China is no longer a poor country and "...socks, underwear and cheap pants" are no longer made in the U.S. All of that manufacturing was moved to China.
@HipOath
bingo ... jump started by gov spending/tax policy. Thats basically the green new deal.
Needless to say, none of this analysis, much less any attention paid to the report that Mr. Krugman cites, will have the slightest acknowledgment from the TrumpWorld group, whether the coterie around Mr. Trump or his political supporters, who are in fact members of a bizarre cult, as many assert. The absurdity of Donald Trump as USA president continues unabated on every front. Fortunately, the Democrats in the House are methodically forcing public disclosure of the sordid life and existence of Mr. Trump and family, a public good, no matter how much of the sordidness has long been published in any number of venues. Not least, this puts on display the astonishing behavior of the right-wing Republicans in the House. All horrid, although two of the worst, Messrs. Meadows and Jordan, succeeded in showing to a larger public what venal fools that they are. More to come. The emperor without clothes will eventually be pointed out by some equivalent of the child in the fairy tale.
35
Dr. Krugman, as usual, makes a strong case. It bears repeating, though, just how simple-minded Trump's views on trade are. Trump thinks tariffs are paid by exporters. He seems to think that a trade imbalance of x dollars means that x dollars net go from one country to another. He doesn't care that services can be exported and so his figures -- even when accurate -- only include goods. Since the U.S. exports a lot of services, that makes most trade deficits seem greater than they are.
Worst of all, Trump regards trade as a zero-sum game, when in fact it is usually a win-win. Trump has the economic understanding of a fifth grader and no desire to learn. His only real interest in trade is as a soap box for him to blather to his base, feeding his ego.
40
@Len Reed: Let's not forget Peter Navarro's discredited economics "proving" Trump's economic "policies."
2
Actually you are wrong Mr Krugman . And the notion of "tariff " is questionable because of its populist meaning.
"Tarif " is a French word from the 16th century ( as many leagal words ) derived from the Arabic verb Arraffa = to announce, inform . " Show us how much we have to pay ". At the border.
The problem is precisely that the USA have abolished borders.
All the major US corporations are based in Europe fiscally and not in the USA . Apple, Facebook, Amazon, Yahoo, Google, Starbucks, etc... and they cheat to pay zero taxes while invading the market .
In Ireland actually for the most part , Republic of Ireland which is now the source of a big debate in the Brexit negociations and future. We are not anymore in the medieval market where you would pay a fee to cross a river with 2 cows to sell.
2
@JPH In current parlance, a tariff is defined as a tax on imports. Words do change meanings.
3
@Mark Smith No it is still the same meaning. Etymology. ..Sometimes people attribute another worng meaning. But you did not get the sense of what I wrote . Which is that the corporations export themselves ( or import themselves in that case ) into another continent and therefore don't pay export taxes.
Don't forget the $12 billion which the government aiding farmers negatively impacted by the tariffs - which makes the total bill $29B. Chump change in terms of the overall economy but not to the individuals who are footing the bill.
5
If Trump were to, in some fit of temporary insanity, read your column, he would quit after the first sentence. Actually, for Trump is would be more like a fit of temporary sanity - I think delusion and fantasy is his normal state. Its no surprise that Trump's Tariff War has a bad impact on the United States... it seems that much of Trump's policy decisions in all areas have a negative impact on the well-being, economic health, or prestige and status of the United States. It is almost like that's one of the underlying goals of his presidency... like he is acting against the US at the behest of a foreign power. No, that couldn't be... could it? Look at who is mostly impacted with the added tax of a Trump Tariff. Who ends up paying - ordinary American consumers, or the few very wealthy 'consumers'? As with so many other Trump economic decisions, the impact falls more on the working and middle class, affecting them both in their consumer purchases and in the impact on their jobs and employment as Trump's Tariffs impact industries employing tens or hundreds of thousands of workers. Trump, for all his vocal "populism", sure seems to actually behave more like a tool of the plutocracy, a bought-and-paid-for protector of the very wealthy. How he continues to fool his "base" is beyond me. The Trump supporters are fully-hooked by his con job, and he'll drain them dry, lying to them all they way.
4
Wouldn't it be interesting if Airbus, Alsthom, Siemens, Renault, Mercedes, LVMH , etc.. were established fiscally in Rhodes island and invaded the US market without paying any taxes ?
Like Apple, Amazon, Yahoo, Google, Starbucks, Facebook ,Netflix, etc... do in Europe, by being fiscally established in Ireland. Not in the USA. And paying zero taxes.
3
Could someone point me to a product subject to Trump’s 25 percent tariff that I would have to pay 25 percent more for now than before the tariff.
Consider some historical quotes on the impact of protective tariffs on consumers.
Political scientist E. E. Schattschneider’s 1935 study “Politics, Pressure, and the Tariff” on the reason that on tariffs like Smoot-Hawley Congress heard primarily from business and not from consumers or the community. His conclusion:
“The benefits are concentrated while the costs are distributed.”
Economist Vilfredo Pareto
“A protectionist measure provides large benefits to a small number of people, and causes a very great number of consumers a slight loss. This circumstance makes it easier to put a protectionist measure into practice.”
President James Madison on why John C. Calhoun was wrong about the harm done to the South by protective tariffs.
“With respect to the existing tariff, however justly it may be complained of in several respects, I cannot but view the evils charged on it as exaggerated....I cannot but believe, whatever well-founded complaints may agst. the tariff, that, as a cause of general suffering of the country, it has been vastly overrated; that if wholly repealed, the limited relief would be a matter of surprise; and that if the portion only having not revenue, but manufacturers for its object, were struck off, the general relief would be little felt.
1
@James H. Murphy, you asked for an example of tariffs raising consumer prices. If Trump imposes a 20 percent tax on European auto imports, it would drive up the cost of cars in the U.S. and would be a drag on GDP. Some economists predict that these massive tariffs--which dwarf Trump's steel and aluminum tariffs--could tip us into a worldwide recession.
In its early days, our country had a policy of protectionism, which probably benefited our nascent industries. Northern states benefited at a cost to Southern agricultural states. However, tariffs can have a significant negative impact--see Smoot-Hawley. The consensus among economists is that Smoot-Hawley worsened the Great Depression.
From your discussion, I gather that tariffs would be beneficial to domestic industries (and their workers) if unemployment were high. Is that the case?
1
Mr. Krugman is right. We should just unilateral surrender and continue to pay tariffs, not in higher prices, but lost jobs, that Europe and China impose on US made products. We should also surrender our technological advantages and taxpayer subsidized research to China economic and military expansion.
Good call Mr. Krugman, total capitulation.
4
i stand to be corrected but believe the US has a 25% duty on trucks and has had for decades.
3
@Veritas Odit Moras, that's not at all what Dr. Krugman is suggesting. China needs to comply with international trade rules, but the way to achieve change is to join our allies in pressuring China.
If Trump were interested in safeguarding American research, he wouldn't have withdrawn from the TPP. If he were interested in discouraging outsourcing, he wouldn't have signed the 2017 tax bill--and he wouldn't produce his ties in China. Trump has no interest American workers.
2
@Veritas Odit Moras the USA on the contrary are cheating on Europe by installing fiscally all their biggest corporations ( Apple,Amaxon,Facebook, Yahoo, Google, Starbucks ,etc.. ) In Europe while invading the European market and paying zero taxes there .
These companies are not based fiscally in the USA .
Simply put; Trump and Congressional Republicans are trying to reduce the deficit created by their tax cuts, with Tariff Consumer Taxes.
3
Trump and the gop have hit our wallets hard since january 2017. Trump’s trade tariffs have increased what we pay for everything from houses and home repairs to cars and appliances. The 2017 gop tax bill has increased our taxes by limiting the Salt deduction and increasing withholding, which is causing people to pay a penalty for underpaying taxes! People with complex tax situations could have done nothing to avoid it. The penalty we are getting hit with is entirely out of our control. The GOP did it all to reward republican donors and billionaires. Nobody else got a raise from the tax bill
7
@Observer: Their tax bill funded corporate managements to privatize their own employers.
@Observer
By limiting the salt deduction and DECREASING withholding. And if you tried to get more efficient with your taxes, by enrolling in a HSA or saving in tax exempt instruments, they raised it by eliminating salt, the personal exemption, raising your tax rate and ensuring that you pay a penalty by underpaying taxes in 2018. A republican said to me in 2016 'our taxes will go up if hillary is elected'. Then trump and the republicans raised our taxes. So now we know who raises our taxes.
You're an absolute expert, I'm just a reader looking at the big picture; Trump and the Republicans gave a gift of 1.5 Trillion dollars in Tax Cuts over ten years to mostly wealthy individuals and Corporations, and then they instituted Tariffs, or Consumer taxes to offset the bigger deficit created by the tax cuts. Trump taxed Americans to benefit the rich. Trump robbed the masses to give to the few. That's the big picture to me. The idea started two years ago by Speaker Ryan, was met with public scorn that condemned Ryan's "Duties" as a tax and a year later, the name was changed to "Tariffs" to protect the guilty.
19
Perhaps the real story here is the utter impregnability of the Trump base and their leaders, and therefore the GOP, to empirical arguments like this. As a policy they don't hear evidence or statistics. They won't admit any negative effect on their communities or even on their own bottom lines here. Trumpism is the funhouse mirror wherein they see themselves stronger, taller, leaner, smarter, and richer because Trump told them they are. They'll subsist on that until the pain Trump is causing them breaks the trance, and that might never happen. They'll starve on pride instead of eating prosperity.
10
@Next Conservatism: Isn't it more obvious every day that they voted for Trump because they believed they had nothing to lose?
1
Let this column represent Exhibit A for why economics is an intellectual and morally bankrupt field of endeavor.
It has it all. A series of "suppose..." statements, a lot of "probably"s mixed in there, ridiculously simplistic assumptions that form the foundation of the argument, a one-dimensional analysis, a reference to "beautiful" pieces of "Economic Literature" that support the author's beliefs, etc.
And the question that went unasked was:
How went the trade war that China waged for the past 25 years of "Free Trade" while American economists sat and watched, spouting nonsense about Ricardo and comparative advantage the entire time while the American middle class went into a downward spiral?
Answer: American workers paid for it; PhD Economists didn't.
And that's the root cause of the ongoing implosion of the West, and of much violent unrest to come.
Yet economists stubbornly cling to their thoroughly repudiated economic theories, because it's all they know, and they have no interest in adapting their dogma to align with the realities of the 21st century.
Seriously, given their atrocious track record, who listens to economists any more?
2
@TB: Do you advise the world to abandon all economic theories and fly by the seat of its pants?
2
@Steve Bolger
Only the failed ones.
Which would be close to "all", come to think of it.
So to answer your question: Yes, pretty much.
And as the Digital Revolution, Artificial Intelligence, and a dozen or so of the most powerful general purpose technologies ever in history go exponential simultaneously over the course of the next decade, every citizen in every country working for every organization in every industry will be doing precisely that: flying by the seat of their pants, whether they like it or not.
Indeed, it's already happening.
1
@TB, did you read the study Krugman linked to? That's a pretty detailed analysis. It's unclear what economic theories you believe have been thoroughly repudiated, but you seem to believe that trade wars are a good thing. Why?
2
If we buy the goods from Mexico or Vietnam, do they produce the goods, or buy them from China and resell them to us? Does China gain, lose, or do the tariffs have no effect on them? What is their incentive to negotiate? Most commentators seemed to agree before this that China was 'playing', that is to say taking unfair advantage of, international trade arrangements. If this is true should we do nothing about it, and if we should, what? Shocking suggestion: If China can undercut everybody on production costs, is it possible that U.S. workers are overpaid? Don't say that around Democrats!
1
@Ronald B. Duke: It is more likely that US managements are overpaid.
5
@Ronald B. Duke The corollary to your comment is that Chinese workers are grossly underpaid. We don't see many American companies installing nets around their factories to prevent workers from committing suicide, now do we?
1
@Steve Bolger; Or, we could make resort to Modern Monetary Theory (MMT) and just give everybody more money, indeed, all they want! I have to wonder how long it will be before somebody blows the whistle on that idea. BTW, the true father of MMT was the architect, Ludwig Mies van der Rohe. In the 30s he exhibited designs for enormous, fabulously expensive townhouses; you know, marble walls and pavements, expanses of plate glass, chrome-plated columns, etc. Someone ventured to ask how workers could afford these? He calmly responded, "Give them more money".
Krugman, the Fake Economist strikes again. What he seemingly cannot understand--or perhaps he's being deliberately obtuse--is that the tariffs imposed, particularly on Chinese goods are meant to cause pain and change behavior. We need to somehow figure out how to keep China from imposing burdensome restrictions on American companies, stealing our intellectual property, and restricting access to their markets. In a word, what we are looking for here is fair and reciprocal terms. Too many past presidents have avoided the fight.
Trump is deliberately making Chinese goods more expensive--and therefore less competitive in the U.S. market. Is the strategy working? It might be too early to tell, but one thing is for certain--China is paying attention. They are starting to make conciliatory proposals. Already we hear of Chinese manufacturers relocating to countries where there are no tariffs, and U.S. manufacturers switching to other suppliers. This pressure will continue to mount--especially given the softening Chinese economy, and the threat of more tariffs to come.
How do we know Mr. Krugman is on the wrong track? How do we know that he is, as usual, completely wrong about everything he believes? Well...despite the tariffs, there is very little inflation--despite wages rising for the first time in years--despite annual growth at 3%, and despite unemployment near all-time lows.
Krugman should start acting more like an economist, and less like The Resistance.
4
@Jesse The Conservative
The money quote: “... tariffs imposed...are meant to cause pain and change behavior.” Indeed. Finally a conservative who is honest about their deliberate cruelty.
Farmers across the U.S. are suffering greatly at the hands of Mr. Trump’s tariffs, as are the business owners and their employees that have lost their businesses in the wake of the tariffs. Behavior is certainly changing, as they face defaulting on loans, losing family farms and businesses, and turning to food pantries to provide meals for their own children. And for too many American condumers, higher prices mean further belt tightening and going without.
Americans struggling to make ends meet don’t need more pain, and certainly don’t deserve to be dismissed as collateral damage in conservatives’ ideological warfare.
Enough!
21
@Jesse The Conservative: Businesspeople like predictability. The economic parasites who thrive at Trump's table like lots of flaky disruptions they can front-run for profit in financial markets.
3
@Jesse The Conservative "We need to somehow figure out how to keep China from stealing our intellectual property." Companies move production to China for the benefit of low wages. China is known for copying IP. By moving production to China this unwanted behavior is facilitated. Why not avoid China as production location?
2
Customs duties are paid by the consumers, but at the end, all taxes are eventually paid by the consumers... I do see meaningful increase in demand for my company's US-made product (that competes with very slightly inferior quality wise Chinese-made, we sell to businesses, not to the consumers) after the tariff had been introduced - so our average selling price in the U.S. went up a few %%. This in turn significantly helped the overall profit margin and - at least for now - ended the conversation about ending the stateside production and laying off several dozen employees.
As for the low unemployment - it is "kind of" there - but we have dozens of resumes within 2 days for every open production position that starts at $19 per hour...
7
@cobbler
From where I sit, "low unemployment" isn't even "kind of" there. Out here, unless the worker is in a high skill, high demand field (certain healthcare fields, for example), competition is tough except for disruptive gig jobs - jobs with no guarantees, uncertain hours, marginal hourly pay, and, of course, no benefits or protections. People are working two or three of these slippery sorts of jobs just to get by.
4
Apparently the authors forgot to add in the cost of ameliorating the political damage to farmers. Trump spent $12 billion to compensate soybean farmers who lost their Chinese customers.
25
Germany has a GDP of about $4 Trillion.
They have a modest trade surplus of around $14 Billion.
They have unemployment of about 3.4%.
And they have faced the same globalization we have.
They also don't have the poverty we have.
They have good schools for the working class.
They help with trade school or college.
They have universal health care.
We have parts of the US with infant mortality of a second world country - 12 to 14 / 100,000.
After 35 years of trickle-down Reaganomics, we got an opioid crisis.
762
@Independent: Opiation of the people in the post WW II period intensified with the act of Congress that inserted "under God" into the Pledge of Allegiance in 1953.
94
@Independent
Germany is in a stronger position than the U.S. in all the markers you mention for more than one reason. But one clear reason is that Germany doesn't have an outsized, bloated military/"defense" budget - always on the lookout for yet another war. We do.
256
@Independent
Germany has the 5th largest economy in the world and has among the largest trade surplus of any country:
https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/weorept.aspx?sy=2007&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=36&pr1.y=8&c=924%2C134%2C532%2C534%2C158%2C111&s=BCA_NGDPD&grp=0&a=
October 15, 2018
Current Account Balance as percent of Gross Domestic Product for China, Germany, India, Japan and United States, 2007-2018
2018
China ( 0.7)
Germany ( 8.1)
India ( - 3.0)
Japan ( 3.6)
United States ( - 2.5)
23
Thank you to Professor Krugman for pointing this out. It's the consumers who lose.
6
I'm a liberal and a globalist, and know more than a little about economic policy and how business works, but even with that I have some discomfort about trade deals. The terms of these deals are negotiated in secrecy, with major involvement of corporate interests. Their purpose is to lower costs. That's all. There are a lot of ways to lower costs: farm out labor to lower cost locations, reduce regulation, (including, if not especially environmental protections), and compel nations to trade in ways that don't or can't consider the interests of their citizens first.*
The huge offshoring of jobs was made possible by deliberate US government policy that was never allowed to be reviewed by the public. Domestic policy never responded to cushion the effects. It's no wonder less-fortunate people are unhappy about this, and why they would respond to a message that seemed to consider them for a change.
I think trxmp's trade policies are ridiculous and damaging in a global economy. But the history of trade agreements doesn't give me - or a lot of other people - much faith that the current crop of people in power will change their stripes any time soon, no matter what the policy.
*Example: A few years ago, the NZ Army was prevented from specifying a domestic supplier for new uniforms because of this country's trade agreement with China.Tell me how that benefits NZ citizens, or how it makes sense in any way at all.
12
If it is having relatively little impact here then presumably the impact on China is also similarly relatively little. Even if sale shift to Vietnam and Mexico, it will likely mean China will become more aggressive in other markets they compete in.
All in all just another reminder the Trump presidency, like much of Trump's life, is built upon an emperor with no clothes; a lot of talk but no substance; and a lot of spin but no reality.
7
The *intention* of these tariffs is to raise the prices of goods in the US thereby making it easier of US producers to compete, so it's not surprising that they should have the effect of raising prices.
1
Darn, and I was so sure Trump knew what he was talking about when it came to a trade war (not). One other thing worth mentioning, tax payer money is being used to subsidize soy bean farmers who now have no customers (the size of China) to the tune of 7.2 billion a month. Yet these are the same people that decry accessible healthcare as “socialist” yet over look the minor fact, that by the government using tax payer dollars to essentially cover the farmers losses, that is in fact socialism.
These are people that want to pick and choose what socialism is or isn’t, it isn’t socialism when it benefits them directly, because when it comes to subsidizing soy beans well, that’s helping farmers so they won’t go broke, so they can feed their families. But in their minds, subsidizing soy beans, is a direct benefit to “them” not an illegal Mexican, or immigrant, unlike Medicare for all. In their minds, someone (Mexicans and immigrants) are getting something on “their dime”. Yet, subsiding soy bean farmers is in fact the same thing, I’m not benefitting from subsidizing soy beans, so why should my tax dollar pay for soy beans. If the republicans are about making sure that tax payers don’t subside healthcare for example, then following that logic, the government should end all subsidies to everyone corporations, farmers, etc.
220
@James
One issue highlighted by your comment is that the term "socialism" is now being bandied about in an erratic and inconsistent way. In Marxian terms, socialism precisely means worker ownership of the means of production. But clearly that is not a usage that we are encountering in our current discussions. Not even Bernie Sanders is espousing Marxian socialism in any meaningful sense.
On the other hand, if "socialism" merely refers to a government program that benefits the public or any segment of it, then everything that the government does is arguably socialism. That usage empties the term of any analytical meaning and is mostly indistinguishable from "welfare state". In like manner, simple redistribution of wealth from rich to poor is a reform designed to smooth out the excesses of capitalism; it leaves the underlying productive relationships undisturbed while softening the harsher societal impacts.
As the political rhetoric heats up, a clear and consistent definition of socialism will be required if we hope to see anything going forward other than mindless shouting matches and name-calling. As anyone who tuned into the recent CPAC spectacle will be aware, the imprecise usage of the term "socialism" has already invited right-wing agitators to suggest its equivalency to Soviet communism. That unfortunate absurdity is enabled by a discourse that lacks agreement as to basic definitions.
63
@woofer
Thanks for defending the meaning of "socialism". I was going to do it but you preceded and outdid me.
At the risk of offending the delicate sensibilities of some who don't understand the value of precise communication, I remind people that when we misuse words we lose them.
27
@James
I believe Romeny's term for such folks was "takers."
And given that the Republicans are double taxing all my SALT tax expenditures, taking out of my pocket to give to people who deserved what they got, given that they voted for it, where I did not because I voted against it, I am really getting sick and tired of their whining.
14
What exactly is our goal of this trade war with China?
To generate more income for the nation? To help consumers? - obviously not.
To counter the rise of a political rival who is threatening our sole world super power status - most likely.
Is it good? - do we have a choice?
easy to win? - there will be some suffering for sure.
Like it or not, it is a war. At least it is not fighting with conventional or nuclear weapon.
3
I notice several items I regularly buy are higher I don't like Trump but agree that the US should push back against China
4
One of the other conclusions from the Amiti et al paper is that domestic producers of products in competition with the tariffed imports raised their prices by as much. This means, for example, that a consumer in the market for a new washing machine would face higher prices for both imported and domestically produced models. There is no escaping the price increase. If you need a new washing machine you are going to pay more for it as a direct result of the Trump tariffs. If an imported model is purchased, the whole price increase will flow to the US government. But if you decide to buy a domestic washing machine, the same amount would flow to the bottom line of the domestic producer raising its profit margin (assuming its costs are unaffected by the other tariffs). There is even a chart (Figure 2) showing a long term decline in the Major Appliance CPI being reversed and climbing by 10% after the Trump tariffs went into effect.
Paying more for a washing machine is not problem if your income has gone up by the same amount. But if you are farmer who can no longer export your crop of soybeans profitably because of retaliatory tariffs, your income has fallen and perhaps you can't afford any new washing machine whether imported or domestic.
27
Wait a minute, soy bean farmers are being subsidized to the tune of 7.2 billion dollars, they aren’t being hurt, the tax payer is. By the way, if and when this trade war ends, prices won’t fall relative to the tariff, in other words, once the 25% tariff ends, prices won’t fall by 25%. Its the same with corporate taxes, if you cut their taxes 15%, then all things being equal, prices for their products should fall by the same amount, but that doesn’t happen, corporations keep their before tax break prices. Those tax breaks are meant to be passed onto the consumer.
44
Rubbish! Economists have a religious devotion to free trade, so it is not surprising that they have put out a paper trying to convince consumers that tariffs are bad. The New York Federal Reserve is a spokesman for the Wall Street Banks who profit from financing ever larger trade deficits. It is not surprising at all that the New York Fed is opposed to anything that might reduce business for their clients.
If consumers are paying the cost of the tariff, then why are corporate America and Wall Street so upset about the tariffs? Does Krugman really expect us to believe that they care about the welfare of American consumers? Judging by the fierce opposition of corporate America and Wall Street, I think it is likely that they are the ones paying the price of the tariff.
And why are tariffs a bad way to raise government revenue? Consumers have to pay sales taxes too, and yet you never hear anybody opposing those. Corporations have to pay corporate profits taxes, and they claimed during the tax cut debate that the excessive level of corporate taxes was hurting economic growth.
Krugman gives an example of buying a good from Vietnam or Mexico for $115 that could have been bought from China for $100. He claims the US is $15 worse off as a result. However, Krugman ignores the national security benefits of buying from Mexico. The US needs a stable and prosperous Mexico. A Mexican cell phone is less likely to contain Trojan horse software which could be exploited in wartime. (cont)
6
(continued) When we hear about convoys of 'refugees' from Guatemala, Honduras and El Salvador coming north, liberals like Krugman are quick to suggest that part of the solution is for the US to spend taxpayers money to improve the economy in the countries which the 'refugees' are fleeing. Wouldn't it be smart to buy products from places like Honduras instead of buying them from China? Even if the Honduran made goods cost a little more, we will have massive savings on all the food, housing and healthcare that liberals like Krugman demand should be provided to Honduran 'refugees' when they show up at our border.
I would also point that Mexicans are far more interested in buying American goods than the Chinese. About two thirds of every dollar Mexico earns is spent on buying US made products. Only about one fifth of a dollar spent in China is spent buying US made products.
Krugman admits that the tariffs on China might lead to consumers buying from US domestic suppliers instead. He then goes on to make the ludicrous claim that the US doesn't benefit because we are near 'full employment.' That is total bull manure.
Firstly, if the US was anywhere near full employment then wages would be rising a lot faster than they are. Secondly, there are lots of struggling manufacturing towns in the midwest and the south which would have no trouble making substitutes for Chinese products.
(continued)
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(continued) Those substitutes will not be made in places like Silicon Valley, which is arguably close to full employment. They will be made in dying manufacturing towns, where the opportunity cost is zero or negative.
Despite the Trump tariffs, the US goods trade deficit with China grew by 11% in the first 11 months of 2018 relative to the first 11 months of 2017. This shows that further tariffs on Chinese goods are necessary to stabilize the situation. I don't believe the Chinese will ever willingly give up their access to the US market, which has been vital to growing their economy. Tariffs on imports from China should slowly rise, while taking care to avoid a negative economic shock in either the US or China.
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@Schrodinger There is no such thing as free trade. Once there is a mechanism for adjudicating a deal, it stops being free. See, a pure free trading system is self policing.
In free trade,if someone cheats, everyone stops dealing with the cheater. This never happens.
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What is our trade balance, about a negative $600 billion? GDP is $20 trillion so, net foreign trade is only 3% of GDP. A swing to net balance would not add that much to total GDP. This is not meant to lessen the effect this transformation has had on some parts of the nation. It just seems like we are fighting over attempting to save the last vestiges of the industrial mid West. Surely our efforts could be better used elsewhere. Just saying.
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Considering the first eleven months of 2018, the goods and services deficit increased USD 51.9 billion, or 10.4 percent, from the same period in 2017. Exports rose USD 157.1 billion or 7.3 percent. Imports went up USD 208.9 billion or 7.9 percent.
so, say I make an item in China I've been selling to customers in the USA for $100. Trump slaps a 25% tariff on it, so now the cost to the customers I've cultivated is $125. How much are those customers worth to me, compared to the time and trouble of scaring up replacements elsewhere if they don't agree to the new, higher price? how long do I think those US tariffs will remain in force and effect? what if I sold the business that sells my $100 item to my cousin for a little powdered rhino horn, and he in turn sells the items to another cousin in VietNam, who then turns around and sells them to my list of customers in the US, returning the profit to me minus a small carrying charge more than made up by the exchange rate differential,out of which I also give a gift to my cousin for the use of his name? the question is, is the Trump government able to follow my workaround and what could they do about it anyway as long as they're sticking their own people with the cost? what is Trump's purpose in this,other than showing his base he's really sticking it to foreigners he told them to hate? jf Trump runs around in circles long enough, will he turn to butter?
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Look at it in terms of scale, your imports are tiny, compared to the billions of dollars that this article is talking about. Your “work around” is really, well fake.
Krugman is an expert on trade policy. His framework and analysis is correct.
Beyond the scope of his discussion today on the true cost of tariffs, there is this: Retaliatory moves against US-produced goods are hurting US producers. An article in today's Minneapolis Star Tribune says that midwestern farmers are realizing that part of the Chinese market for their soybeans may never come back. Some share will be lost to other sources, like Brazil. Some will be lost to substitutions of other feed sources, such as a byproduct of ethanol production. No one knows how great the loss will be. Farmers have been kept afloat by government programs, several of which go all the way back to the New Deal, and by one-off bailouts by the Trump administration. Still, farmers are stressed financially and emotionally. But I have not talked to a one who blames Trump or the Republicans.
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@Charles Tiege
" Some share will be lost to other sources, like Brazil. "
Unfortunately they will be grown on land that used to be grassland and/or rainforest. Those are good habitats for sequestering CO2. Soybean fields don't do that as well as the natural habitats. It won't just be a US loss, it will be global loss. We need our carbon sinks more than China needs Brazilian soybeans.
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China never will return, sure that will buy from us, but they have cultivated other trading partners for soy beans, they won’t trust the US again, and rightfully so.
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@James You're right. Trade is not a bungee cord. It does not snap back when the pressure is released.
The Trump tariffs will introduce a permanent and damaging distortion into our trading relationships. And that ain't fake news.
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"Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings."
In answering the question of how goes the trade war, you could have also added, Dr. K, that taxpayers got stuck with the bill for Trump's $12 billion dollar bailout of American farmers and that a total of 84 farms in the upper Midwest filed for bankruptcy between July 2017 and June 2018
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I am older enough to remember the tariff protocols on Japanese cars. That did not work either, but, it led to us making better cars.
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@Mark Smith
You imply causation without proving it. It is more likely that the US would have started making better cars even without tariffs.
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Probably not, car makers had no incentive to make better cars.
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@Mark Please do not take offense, but, I can tell that you are very young or willfully ignorant. The Japanese made inroads into our markets because their cars were deemed more reliable and more fuel efficient starting with the energy crisis of the late 1970s. Detroit had major quality problems as their boats as we called them polluted the environment and got 12 miles to the gallon.
Japan had a market share of about 7% when I was business student now it has over 30%. In real time, we broke our reticence on buying foreign cars during the energy crisis of the 1970s and 1980s. Our first major bailout was that of Chrysler in 1979 that made Lee Iacocca a national hero.
Japan actually agreed to the tariffs, continued sales here, and competed harder by opening plants here. Consumers paid more for cars and a new term was coined called sticker shock. That was when the price of new cars exceeded the affordability of new buyers. That is when the terms of cars loans expanded and people started leasing cars. The duration of car loans were about 3 years beforehand.
These issues were salient in 1980 when I studied the auto company as a credit analyst focused on the auto industry.
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"Here the crucial thing is that producing a good domestically has an opportunity cost. The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff. Diverting them into producing what we used to import means a net loss of $20, with no revenue offset."
This argument is absurd and I find the whole article is questionable. Of course ramping up domestic production of goods is good for the economy. Yes, the US is near full employment, but so is North Korea - that's not an argument because not all jobs are alike. Importantly, if something is produced here, the whole $120 goes to wallets in the US (admittedly probably most of it goes to the 1%), instead of a significant portion going to people abroad.
When you look at the world as a whole, tariffs make humanity poorer. But, they do and always have worked as tools to manipulate trade in favor of the country that imposes them.
Going back many decades, liberals and socialists have always favored tariffs since they strengthen workers -- it feels like the twilight zone to see Republicans suddenly in favor of them.
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@gus
I'm sorry, but your uses of the terms "liberals" and especially "socialists" -- as if the latter have ever had any sway over US trade policy -- kinda gives away your bias.
And if you cannot present credentials that match the economists who wrote the report Krugman cites (Princeton, Columbia and the NY Federal Reserve), your analysis starts to wither.
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Odd, it’s always been republicans that levied tariffs, the Hoot Smalley act, which was the precursor to the depression.
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I agree, people like him, like to think that someone accomplished as Krugman whether you believe his economic analysis or not, he’s still a highly educated man, and a Nobel Prize winning laureate, it’s my guess this guy who has no credentials isn’t a Nobel Laureate.
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The real problem with China is the impediments to US doing business in China.
Things like theft of intellectual property, having majority Chinese partners with GM who then went and started a Chines car company, market restrictions on Facebook and Google.
These are the real problems and no one has been able to fix them including Trump.
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"...Trump tariffs have raised consumer prices, rather than depressing foreign earnings." Hold on a second. I get the argument (beautifully laid out, by the way) that aggregate FOREIGN earnings may have held steady, but Trump is targeting CHINA in particular, not the whole world. And it does seem that China has been hurt at least a bit--that's why they're back at the negotiating table. And if this trade war causes China to relent on intellectual property theft, the small hit to the US economy may turn out to be well worth it.
I'm not saying that I agree with Trump's tactics, but let's not use sleight of hand to win the argument.
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They may have been, but the point is that we are not helped: in fact, we lose about $17 bil a year.
If Krugman’s wrong, say so and show how...but let’s skip this misreading and then accusation, huh?
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"How Goes the Trade War?"
Farm debt has exploded. That's how the trade war is going.
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@Robert
And farm bankruptcies have also exploded to 15%....
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@EJ,
My sympathy goes out to those struggling farm owners who voted for HIllary. For the Trump voters, bankruptcy is a self-inflicted wound.
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But all those folks who used to grow soybeans will have a big beautiful wall that will keep Mexican rapists from flooding into their farms. So there’s that.
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Assuming WSJ News Alert is correct and a trade deal is completed between US and China, I would love to see a follow-up article comparing the short-term costs of the sanctions to the US economy against the long-term benefits to the American consumer that are gained by the new deal.
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@BMH
I'd like to see a study of campaign contributions and tariffs.
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@BMH - More smoke and mirrors from VeryGoodBrain.
www.nytimes.com/2019/03/03/business/us-china-trade-deal-trump.html
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As one who works with exporting firms’ credit and export departments, I can say that, for too many, the frustration and worry are growing. Raw materials and parts prices from abroad are up sharply. How much of those hikes to pass on are a constant puzzlement. The downturns or flattenings In other countries economies are having their effects here in export sales. When I ask my clients how international business is, I’m hearing from a number of them in a number of sectors say the “s” word more than I’d like. And the word is “soft”. Thank you, Mr. Trump.
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The purpose of a tariff is to encourage domestic production, not to raise money from foreign sources. Example: if it costs $1,000 more to build a car in the US than it does to build one in Mexico and ship here, an $2,000/car tariff would motivate car companies to open factories in the US. (They'd still factor in the construction and start-up costs, etc.)
Note, however, that consumers would still be paying at least $1,000 more for a car that they would without tariffs.
Meanwhile, one's trading partners start imposing their own tariffs on things you'd like to export. This results in fewer jobs overall due to lower demand, but more jobs for the targeted industries.
Example: If country 1 has all the corn chip factories, and country 2 has all the salsa factories, everyone can get cheaper chips and dip snacks if they trade things they're good at making for things they are not good at making. If country 1 passes high tariffs on salsa in order to encourage domestic production, country 2 will pass high tariffs on chips.
Result:
1) higher prices to consumers, so lower demand for chips and salsa.
2) More jobs in country 1 for salsa factory workers, but fewer jobs for chip factory workers due to lower demand.
3) More jobs in country 2 for chip factory workers, but fewer jobs for salsa factory workers due to lower demand.
Econ 101...
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who invests in Trump properties and plays at Trump country clubs, the chip people or the salsa people?
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@John M, I like your concluding paragraphs, but your example of auto manufacturing in the first paragraph undercuts the idea that the purpose of tariffs is to encourage domestic production. That might have been true in the twentieth century, but manufacturing today is interconnected. No American auto maker makes their cars entirely in the U.S. Every foreign auto maker has production plants in the U.S. Thus, if Trump succeeds in imposing a 20 percent tariff on European autos, one likely result is that the Mercedes Benz assembly plant in South Carolina will close.
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@Pottree: Neither. It is the bosses in the conglomerates that own the units that produce the chips and/or the salsa.
The actual people may eat the salsa and the chips, but the bosses invest in Trump.
Dump the bosses off your back.
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The trade war isn't taking Trump where he thought it would, both on the personal and the national trade levels.
The impact has clearly been on consumers. Spending is down. Housing starts are down. Farmers are rightly worried about permanently losing customers they thought they'd always have. The rest of us are paying more for the same things we've been buying, while earning pennies more per day and with the uncertainty of what tax day will bring.
The Tax Scam bill is another thing voters are now learning what the bait and switch was. While corporations are now legally paying nothing, they are filling the void.
From Reuters on 3/1:
U.S. personal income falls; spending weakest since 2009
WASHINGTON (Reuters) – U.S. personal income fell for the first time in more than three years in January as dividends and interest payments dropped, pointing to moderate growth in consumer spending after it fell by the most since 2009 in December.
Reuters 2/26
U.S. housing starts fall to more than two-year low
WASHINGTON (Reuters) – U.S. homebuilding tumbled to a more than two-year low in December as construction of both single and multi-family housing declined, the latest indication that the economy lost momentum in the fourth quarter.
Politico 3/22
Trump’s Phony Trade War with China
Reeling from his failure to cut a deal with Kim Jong Un, will the president end his pointless dispute with Beijing?
https://www.rimaregas.com/2019/01/01/things-trump-did-while-you-werent-looking-2019/
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The way to address our persistent trade deficit is through the current account surplus. Reduce the federal budget deficit by taxing passive investment income (progressively). The Federal Reserve can do its part by allowing interest rates to drop below zero if trade deficits persist.
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*capital account surplus
The artificial republican trade ''war'' is a way for government to pick winners and losers (no decrying of ''Socialism'' for that anywhere from conservative corners) by shifting the costs and profits from certain sectors to others.
ON TOP of that, the government (again no decrying ''Socialism'' from conservative corners) then subsidizes (with taxpayer money) EVEN MORE certain sectors to prop them up. (such as farmers and the like)
Behind the scenes, the inside game is being played by a select few (even MORE Socialism) that are shorting those sectors that are affected, with the insider trading information.
Kind of makes you go hmm, doesn't it ?
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@FunkyIrishman
Good points. The fact that the "Trump Administration" (as if that were a real thing) has reimbursed those hit hardest by his idiotic trade wars with our money is not exactly "socialism," but it's completely anti-free market, which is -- or was -- anathema to actual conservatives. Who remain silent.
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@FunkyIrishman: "Kind of makes you go hmm, doesn't it?"
No, this is typical when government tries to control the free market. Take the Affordable Care Act, for example...or subsidies to any business because it is supported by government such as "green energy" projects under the Obama administration. The federal government shouldn't be picking winners and losers at all, regardless of which party is in power.
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@hm1342
Same old same old, again and again. Have you considered what happens when government doesn't control the so-called free market?
This tariff failure is certainly typical of when an incompetent, corrupt government in the pocket of the billionaire class tries to control the market. When a competent government with concern for the nation tries it, we get the New Deal and save the country.
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It is not so much that trump trade policy generates a net loss. Rather, I propose that what he cares about is the redistribution these policies can bring about. So long as his people get richer he is happy as a clam. This is a study I would love to see.
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@PJM Based on the analysis presented I don't see how "his people" could possibly have benefitted.
Since there was an overall loss to the nation for any part to gain others would have to lose bigger.
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@PJM
Happy as a clam at high tide!!! (Maine)
@Jack Toner - His Big Ag "people" benefitted from a $12 Billion vote-buying bribe so they can afford to continue to pay their Congress Critters for endless Pork.
I have great faith in Professor k, and almost no faith in Mr. Trump, so I conclude that the Trump tariff war is a dumb idea.
However, I am quite certain that, depending on the amount of the tariff, some tariff wars might be worth fighting. I don’t like the part of Professor K’s analysis that stresses consumer costs and not necessarily jobs. It’s not enough to weigh the consumer cost. If the consumer cost goes up a little bit, and it brings some jobs back to the US, I am fine with it. I simply don’t trust Trump or the Republicans to wage this war.
I think Americans have to come to grips with the fact that our problem is that our cost of labor is so much higher than the rest of the world’s. It is only natural that we will import a great deal more than anybody else. A truly smart plan would involve making sure that labor costs in other countries elevate. This will not only help the US job market, but it will make other countries better consumers.
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@K. Corbin
Raising labor costs in low-wage countries is indeed the best thing to do! However, this makes our trade war extra-ironic because the low-wage country that has increased its wages the fastest is China. Average manufacturing wages in China are now substantially higher than most other countries with a similar GDP per capita like Brazil or Mexico. This has created a larger middle class in China compared to other developing countries, with hundreds of billions in sales for US companies there. If we want developing countries to have higher wage growth and more consumer spending, we should be encouraging them to follow the Chinese model.
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@K. Corbin - You apparently missed the paragraphs where Krugman talked about manufacturing jobs in the U.S. and the mostly negative effect that tariffs have in the present circumstances.
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Regrettably, every American has been unwillingly enrolled in a Drumpf University Fraudulent Econ. 101 course - the price and promised results of which have been (per usual) lied about by the namesake owner, who bamboozles with the word 'tariff' vs. the common vernacular 'tax'.
We're always glad when Dr. K. asserts good hygiene on the dark corners of his profession, identifying voodoo, flim-flam and derpitude wherever they raise their (hoary) heads; it's more than a full time job in our post-truth age of downslide, when anyone who's an actual expert gets dismissed as a reprehensible 'elite'.
This administration is proving once again, why, in all the years since WWII - as shown by actual empirics - that Democrats have been better for the economy than Repubs:
https://www.salon.com/2015/12/28/these_5_charts_prove_that_the_economy_does_better_under_democratic_presidents/
and:
https://www.vox.com/2014/7/29/5945583/the-us-economy-grows-faster-under-democratic-presidents-is-that-just
It's not even a close contest, and is a prime reason that GOP'ers switched to 'the Big Lie' to voters starting with St. Ray-gun's budget by David Stockman in 1980; GOP'ers couldn't deliver economic results, so they started appealing to cultural issues, while finding charlatans-for-rent who would lie about workable economic policy.
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@R. Law - btw, the effect of the $2 Trillion$ tax cut (more Fake Snake Oil), which didn't result in more capital spending, more hiring, or lower consumer prices, has been what's propelling the stock market, through buybacks:
https://www.nytimes.com/2019/02/25/business/stock-market-buybacks.html?smtyp=cur&smid=tw-nytimes
which GOP'ers want to pay for by cutting food stamps for kids and the elderly, Social Security, and Medicare/Medicaid.
There are so many GOP'er zombie ideas constantly needing killing off, that it's not possible to keep an adequate stockpile of wooden stakes - and who can afford silver bullets ?
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the overall US economy may clearly perform better under Democratic administrations, but the stealing is much better under the Republicans.
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@R. Law:
And let's not forget that the national debt tripled during the Reagan years, the resulting inflation and recession coming back to haunt George H. W. Bush as a one-term president.
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It bears repeating: "U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.'
The study confirms what we all knew. But we also know it will be ignored. It will be dismissed as a conspiracy. It will be dismissed as fake news. Actually the news and the excuses point to the one who should be dismissed. He has broken again yet another system. And created another fault line for democracy and prosperity.
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@walterhett
Alt-truth is fully supported by Alt-numbers.
“We are right now taking in $billions in Tariffs.”
- Trump tweet. Dec 4, 2018
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