'Trump isn’t right': Economist Paul Krugman torpedoes defense of key MAGA policy

Economist Paul Robin Krugman in Rio de Janeiro, Brazil during during FIDES 2023 on September 25, 2023 (A.PAES/ Shutterstock.com)

In MAGA media outlets, many defenders of President Donald Trump are claiming that economists were wrong when they predicted that his trade policy would significantly hurt both businesses and consumers. Trump's tariffs, they claim, aren't having the negative impact that economists said they would.

But liberal economist Paul Krugman, in a Substack column published on October 10, lays out some ways in which Trump's tariffs are, in fact, hurting businesses and consumers. And he fears that the worst is yet to come.

"Lately, there's been a lot of chatter that economists were wrong about Trump's tariffs," Krugman explains. "Didn't the economists predict that we would be stuck in a recession with runaway inflation by now? So maybe Trump was right after all? Well, no, Trump isn't right. If you look at what economists actually predicted — as opposed to what non-economists claimed that they predicted — much of it has come to pass. And to prove that point, today's post is about where we are right now on tariffs and their effects…. Economic models do predict that tariffs will raise consumer prices unless the cost of the tariff is absorbed by the foreign exporters."

Krugman continues, "But we know that foreigners are not, in fact, paying the tariffs…. Consumer prices are starting to show significant increases due to the tariffs, but so far, the price increases have been more modest than what many economists, myself included, expected."

Krugman notes that according to Digital Data Design Institute’s Pricing Lab, "retail prices of imports are up 4.4 percent since Trump took office, versus 2.8 percent for domestic goods."

"The widely cited estimates coming from the Yale Budget Lab say that the average effective tariff rate has gone from 2.4 percent before Trump came back in to more than 17 percent now, a roughly 15-point rise," Krugman observes. "So why aren't retail prices of imports up by something closer to 15 percent, rather than 4.4 percent? Part of the answer is that the Pricing Lab data reflect retail prices, not the prices paid by importers. The prices retailers charge consumers for imported goods always include a substantial markup, reflecting transportation and distribution costs as well as some profit margin…. So Trump wasn't right."

Krugman adds, "Once you look at the details, tariffs are having more or less exactly the effects economists would have predicted. And it's likely that those effects will become more pronounced over the next several months."

Economist Paul Krugman's full Substack column is available at this link.

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