Paul Krugman warns that Germany poses real economic problems for the world — but Trump doesn't understand them

With a growing consensus emerging that President Donald Trump's trade war with China appears to be driving up the likelihood of a recession in the near future, one of the latest provocations from the White House has gone largely overlooked. But in a new column for the New York Times, economist Paul Krugman noted its significance.

Trump appeared to suggest at his recent rally in New Hampshire that a trade war with Europe could be coming next. But as Krugman argued, the president doesn't seem to understand the genuine economic dangers emanating from the continent.

“The European Union is worse than China, just smaller. It treats us horribly: barriers, tariffs, taxes,” Trump boomed to his supporters on Thursday. “They treat us really badly."

Not so, said Krugman,

"The funny thing is that there are some aspects of European policy, especially German economic policy, that do hurt the world economy and deserve condemnation," Krugman wrote. "But Trump is going after the wrong thing."

The president loves to rail against other countries for not treating the United States fairly. It feeds his own and his supporters' ingrained sense of resentment, victimhood, and entitlement while stoking the dangerous flames of nationalism. But his claims about unfair treatment from Europe fly in the face of the facts, Krugman said.

"Europe does not, in fact, treat us badly; its markets are about as open to U.S. products as ours are to Europe’s," Krugman wrote.

He also pointed out that the United States exports to Europe are three times greater than its exports to China — suggesting the impacts of a second front in the trade war could be even more damaging.

But right now, the real risk — exemplified most in Germany's own policy — is that European policies are failing to stimulate enough economic activity. Krugman said that while the "deficit hawks" in the United States after the Great Recession were mostly hypocritical Republicans who turned on a dime as soon as President Barack Obama was out of office, in Europe, fear of deficit spending is genuine. So despite facing severe economic headwinds, Germany has refused to take advantage of negative interests rates for government borrowing to stimulate demand. With consumers willing to spend, and the government unwilling to pick up the slack, Germany may already be in recession.

Krugman continued:

Most of the costs of German fiscal obstinacy fall on Germany and its neighbors, but there are some spillovers to the rest of us. Europe’s problems have contributed to a weak euro, which makes U.S. products less competitive and is one reason American manufacturing is sliding. But characterizing this as a situation in which Europe is taking advantage of America gets it all wrong, and is not helpful.

Not only has Trump misdiagnosed the problem with Europe, his go-to solution — tariffs and trade wars — would almost certainly make the situation worse, not better. And that really could throw the United States — and possibly much of the rest of the world — into a recession.


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