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Monday, June 02, 2025

Why Paul Krugman Thinks Trump’s Trade War is “Stupid and Self-Destructive”

 

Paul Krugman, a Nobel Prize-winning economist, has been vocal in his criticism of Donald Trump’s tariff policies, describing them as “stupid and self-destructive” for several reasons rooted in economic theory and evidence. Below, we will break down why Krugman holds this view, assess whether it reflects a broader consensus among U.S. economists, and explain the underlying reasoning.

Why Paul Krugman Thinks Trump’s Trade War is “Stupid and Self-Destructive”
  1. Economic Disruption from High Tariffs:
    • Krugman argues that Trump’s tariffs, which include proposals for 25% tariffs on imports from Canada and Mexico and up to 145% (later reduced to 30%) on Chinese goods, represent a massive shock to the global economy. These tariffs are significantly higher than historical precedents like the Smoot-Hawley Tariff of 1930, especially given that international trade is now three times more important to the global economy than it was then.
    • High tariffs raise the cost of imported goods, which increases prices for consumers and businesses. This can lead to inflation, reduced purchasing power, and higher production costs, particularly in industries reliant on global supply chains, such as North American auto manufacturing, where components cross borders multiple times.
  2. Misguided Focus on Trade Deficits:
    • Krugman dismisses Trump’s fixation on bilateral trade deficits (e.g., with Canada or China) as “junk economics.” He argues that trade deficits with individual countries are not inherently harmful and are a natural part of global trade. For example, the U.S. trade deficit with Canada is largely due to oil and hydropower imports, which benefit both economies. Tariffs aimed at reducing these deficits disrupt efficient trade patterns without addressing the root causes, which are tied to macroeconomic factors like capital flows and domestic savings rates, not trade policy alone.
  3. Lack of Strategic Coherence:
    • Krugman sees no consistent strategy in Trump’s tariff policies. He notes contradictions in the justifications provided, such as re-industrializing America versus using tariffs as a negotiating tool for reciprocity or fentanyl enforcement. For instance, re-industrialization would require stable, long-term tariffs, but Trump’s policies are erratic, with rates and targets shifting unpredictably (e.g., a pause on Canada/Mexico tariffs or a reduction in China tariffs from 145% to 30%). This unpredictability creates uncertainty, deterring business investment and risking recession.
    • He also questions the legal basis for tariffs, suggesting they may violate trade agreements like the USMCA (NAFTA’s successor) and could face court challenges, further undermining their effectiveness.
  4. Fentanyl as a Pretext:
    • Krugman argues that Trump’s claim of imposing tariffs to address the fentanyl crisis is a pretext, not a genuine strategy. He notes that fentanyl smuggling primarily occurs through individual border crossings, not large-scale trade shipments affected by tariffs. For example, Canada is not a major source of fentanyl, and tariffs on goods like cars or electronics do not target smuggling routes. This disconnect suggests the fentanyl rationale is a politically convenient excuse for protectionist policies driven by other motives, like asserting dominance or appealing to a mercantilist worldview.
  5. Risk of Retaliation and Global Trade Damage:
    • Krugman warns that Trump’s tariffs invite retaliation from trading partners, potentially sparking a global trade war. Other countries, facing economic harm, are likely to impose counter-tariffs, as seen in Trump’s first term but on a larger scale now. This could disrupt global supply chains and reduce international trade by as much as 50%, with U.S. trade with China potentially dropping by 65% even after the tariff reduction to 30%. Such a collapse would harm both the U.S. and global economies.
    • The tariffs also undermine U.S. credibility in international agreements. By ignoring commitments like the USMCA, Trump signals that U.S. trade deals are unreliable, which could deter future cooperation and investment.
  6. Economic Costs Outweigh Benefits:
    • Krugman argues that tariffs will not achieve Trump’s stated goals, such as boosting U.S. manufacturing or reducing trade deficits. Instead, they raise costs for U.S. businesses and consumers, potentially causing stagflation (high inflation combined with economic stagnation). For example, the Peterson Institute estimates that Trump’s tariffs could disproportionately burden the bottom 80% of Americans through higher prices.
    • The U.S. economy, near full employment (4.1% unemployment), lacks the labor capacity to rapidly expand manufacturing, especially if combined with Trump’s proposed mass deportations, which would shrink the workforce.
  7. Policy Process as “Malignant Stupidity”:
    • Krugman criticizes the chaotic and uninformed process behind Trump’s tariff decisions, describing it as “malignant stupidity.” He points to Trump’s false claims about trading partners’ tariff rates and the lack of consultation with economists or business leaders. The erratic nature of announcements (e.g., sudden tariff pauses or exemptions) reflects a lack of rigorous analysis, increasing market volatility and economic uncertainty.
Is This a General Consensus Among U.S. Economists?
While Krugman’s views are strongly worded, they align with a significant portion of the U.S. economics community, though nuances exist. Here’s an assessment of the consensus:
  1. Broad Agreement on Economic Harm:
    • Many prominent economists share Krugman’s concerns about the economic fallout of Trump’s tariffs. For example:
      • Larry Summers, former Treasury Secretary, called the tariffs “inexplicable and dangerous,” warning of inflation and job losses.
      • Mark Zandi (Moody’s Analytics) predicted a potential recession with GDP falling 2% and unemployment rising to 7.5% if tariffs persist and provoke retaliation.
      • Greg Daco (Ernst & Young) estimated a 1-1.5% drag on U.S. economic growth and a similar increase in inflation, risking stagflation.
      • Douglas Irwin, a trade historian, noted that Trump’s tariffs “blow an enormous hole” in post-World War II U.S. trade policy, undermining global trade norms.
    • A Wall Street Journal survey of 44 economists in October 2024 found that most believed Trump’s tariffs would not boost domestic manufacturing employment, reflecting skepticism about their effectiveness.
    • A Financial Times and University of Chicago survey showed 70% of economists believed Trump’s economic plan, including tariffs, would be more inflationary than alternatives, indicating a broad concern about price increases.
  2. Skepticism About Fentanyl Rationale:
    • Economists generally agree that tariffs are an ineffective tool for addressing the fentanyl crisis. Joseph Politano, cited by Krugman, notes that fentanyl smuggling occurs through individual crossings, not trade shipments, rendering tariffs irrelevant to the issue.
    • Joseph Stiglitz, another Nobel laureate, emphasized that tariffs provoke retaliation, which could complicate international cooperation on issues like drug trafficking, further undermining the fentanyl rationale.
  3. Dissenting Views and Nuances:
    • While the majority of economists criticize Trump’s tariffs, some acknowledge that targeted tariffs or industrial policies could have strategic value in specific contexts (e.g., protecting nascent industries or countering unfair trade practices). For instance, Krugman himself has supported limited deviations from free trade, such as Biden’s manufacturing subsidies, but he views Trump’s approach as indiscriminate and poorly designed.
    • Economists like David Autor have noted that earlier globalization policies, which Krugman once supported, underestimated the harm to U.S. workers, suggesting that some protectionist measures might resonate with those affected by trade shocks. However, Autor still views Trump’s tariffs as overly blunt and damaging.
    • A minority of economists, particularly those aligned with populist or nationalist views, might support tariffs to promote domestic industries, but this is not the mainstream academic consensus.
  4. Consensus on Trade Deficit Misconceptions:
    • Most economists agree with Krugman that trade deficits are not inherently bad and that tariffs are unlikely to reduce them significantly. The U.S. trade deficit is driven by macroeconomic factors like high domestic consumption and capital inflows, not bilateral trade imbalances. Tariffs may even strengthen the dollar, offsetting any reduction in imports by making U.S. exports more expensive.
Why Economists Share These Concerns
  1. Economic Theory and Evidence:
    • Standard economic theory, supported by historical data, shows that tariffs increase consumer prices and disrupt supply chains. The elasticity of demand for imports (estimated around 4 by Krugman) suggests significant trade reductions, which hurt both importers and exporters.
    • The Smoot-Hawley Tariff of 1930 is a historical cautionary tale, often cited by economists like Thomas Sowell, who warned that Trump’s tariffs could trigger a global trade war with devastating effects, as seen in the Great Depression.
  2. Global Supply Chain Integration:
    • Modern economies are deeply integrated, especially in North America under the USMCA. Tariffs on Canada and Mexico disrupt industries like automotive manufacturing, where parts cross borders multiple times, raising costs and reducing competitiveness.
  3. Retaliation Risks:
    • Economists like Joseph Stiglitz and Marcus Noland (Peterson Institute) emphasize that tariffs provoke retaliation, harming U.S. exports and straining diplomatic relations. This risks a spiral of escalating trade barriers, as seen in Trump’s first term but potentially worse given the scale of current proposals.
  4. Inflation and Recession Risks:
    • With the U.S. near full employment, tariffs could overheat the economy by raising costs without increasing output, leading to stagflation. Deportation policies, if implemented, would exacerbate labor shortages, further limiting manufacturing growth.
  5. Undermining U.S. Credibility:
    • Economists like Krugman and Jeffrey Sachs argue that Trump’s disregard for trade agreements erodes trust in the U.S. as a reliable partner, potentially reducing foreign investment and cooperation on global issues.
Critical Perspective
While Krugman’s critique is grounded in mainstream economics, it’s worth noting potential biases. Krugman has historically leaned toward free trade, though he’s acknowledged past errors in underestimating globalization’s downsides for U.S. workers. His strong language (“malignant stupidity”) reflects both his economic analysis and a critical stance toward Trump’s broader policy approach, which may amplify his rhetoric. Some economists, like Dani Rodrik, have long advocated for more strategic trade policies, suggesting that targeted protectionism could address specific market failures, but even they view Trump’s approach as overly aggressive and poorly executed.
Conclusion
Paul Krugman views Trump’s trade war as “stupid and self-destructive” because it relies on flawed economic assumptions (e.g., trade deficits as inherently bad), lacks strategic coherence, invites retaliation, and risks inflation, recession, and damaged U.S. credibility. He dismisses the fentanyl rationale as a pretext, given the mismatch between tariffs and smuggling patterns. This perspective is broadly shared among U.S. economists, with figures like Summers, Zandi, and Stiglitz echoing concerns about economic disruption and global trade risks. While some economists see value in limited protectionism, the consensus is that Trump’s tariffs are excessively broad, poorly planned, and likely to harm the U.S. economy more than help it.
For further details on Krugman’s views, you can read his Substack at paulkrugman.substack.com or his New York Times columns.

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