News & Politics

Paul Krugman Explains Why Trump's Ideas About Trade Are a Threat to Us All

Price hikes would come on everything from clothes to avocados.

Photo Credit: YouTube/Bloomberg

Remember when the White House imposed a 20% tariff on Mexico? Probably not, as Paul Krugman writes in his Monday column, "with the crazy coming so thick and fast." Reneging on trade agreements is clearly not as horrific as "slamming the door on refugees, on Holocaust Remembrance Day, no less," but follows a terrifying pattern of decisions based on a combination of perceived threats to his porcelain-fragile ego and a tendency toward white supremacy and authoritarianism. 

As Krugman explains, "The story seems, like so much that’s happened lately, to have started with President Trump’s insecure ego: People were making fun of him because Mexico will not, as he promised during the campaign, pay for that useless wall along the border. So his spokesman, Sean Spicer, went out and declared that a border tax on Mexican products would, in fact, pay for the wall. So there!"

There are two major problems with this. First of all, tariffs aren't paid for by exporters; it's customers who pay. Trump's hollow talk amounts to a tax on American consumers paying for Mexican goods. Everything from clothing to advocados will become more expensive, and American consumers, including many of the people who voted for Trump, are going to be feeling it in the wallet.

Second, and even more troubling, is how this impacts trade agreements. Krugman explains

America is part of a system of agreements — a system we built — that sets rules for trade policy, and one of the key rules is that you can’t just unilaterally hike tariffs that were reduced in previous negotiations.If America were to casually break that rule, the consequences would be severe. The risk wouldn’t so much be one of retaliation — although that, too — as of emulation: If we treat the rules with contempt, so will everyone else. The whole trading system would start to unravel, with hugely disruptive effects everywhere, very much including U.S. manufacturing.

Krugman puts on his economist hat for much of this week, but it's worth getting through the details on taxes here, especially when it comes to fact-checking the announcements made in Sean Spicer's press briefings: 

So is the White House actually planning to go down that route? By focusing on imports from Mexico, Mr. Spicer conveyed that impression; but he also said that he was talking about “comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from...ut here’s the thing: that overhaul wouldn’t at all have the effects he was suggesting. It wouldn’t target countries with which we run deficits, let alone Mexico; it would apply to all trade. And it wouldn’t really be a tax on imports.

Plus, technical details aside, don't we want the leaders of the free world to have an inkling of what they're doing before starting a trade war? Unless that was their goal all along? So let's review what happened in less than a week:

"The White House press secretary created a diplomatic crisis while trying to protect the president from ridicule over his foolish boasting. In the process he demonstrated that nobody in authority understands basic economics. Then he tried to walk the whole thing back."

Just because he walked it back doesn't mean that the administration won't try again. In addition, if Trump's treatment of contractors and business associates is any indication, our international partners have reason to be concerned, as Krugman writes, "whether they’ll be treated like stiffed contractors at a Trump hotel."

Read the rest of Krugman's column.

Ilana Novick is an AlterNet contributing writer and production editor.

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