Pages

Showing posts with label Paul Krugman. Show all posts
Showing posts with label Paul Krugman. Show all posts

Wednesday, July 02, 2025

Why Tariffs Are a Bad Idea — Even When They Raise Money



 

Why Tariffs Are a Bad Idea — Even When They Raise Money

In the world of economic policy, few ideas are as persistent — and as misleading — as tariffs. Often sold as a way to protect domestic industries and generate government revenue, tariffs are, in truth, a drag on growth, innovation, and everyday affordability. And the math doesn’t lie: even when tariffs bring in billions, the economic damage they cause outweighs any revenue gains.

It’s time to call it clearly — tariffs are bad economics. So bad, in fact, that countries would be better off unilaterally reducing their own tariffs — even if other countries don’t reciprocate. Let’s break down why.

The Illusion of Revenue: $30B a Month, But at What Cost?

Let’s say the U.S. government imposes tariffs that bring in $30 billion per month, or $360 billion per year. Sounds like a windfall, right?

But consider this: the U.S. GDP is approximately $30 trillion. A 1% drop in GDP—caused by disruptions to trade, higher input costs, inflation, and retaliation—translates to a $300 billion loss in total economic output.

So even if tariffs “earn” $360 billion, they may be causing a $300 billion loss in growth. That’s a razor-thin $60 billion difference — and it vanishes the moment you account for rising prices, lost jobs, delayed investments, and reduced tax revenues elsewhere in the economy.

Tariffs Feed Inflation

When tariffs raise the cost of imported goods, they ripple through the economy in the form of higher prices for consumers and businesses. Everything from electronics to construction materials to food gets more expensive.

Inflation eats into wages and savings, driving up the cost of living. Central banks respond by raising interest rates, which increases borrowing costs for mortgages, cars, and business expansion. Tariffs become an indirect tax on the entire population — especially the working class and small businesses.

Small Businesses and Manufacturers Take the Hit

Many small and medium-sized American businesses rely on imported materials or components to produce their goods. When tariffs make those imports more expensive, margins shrink. Small businesses don’t have the pricing power of giant corporations, so they are forced to absorb losses, cut staff, or shut down entirely.

Even domestic manufacturers, the supposed “winners” of tariffs, often get hurt. Why? Because they depend on global supply chains. They import machinery, electronics, and raw materials to build their final products. Tariffs disrupt those flows and raise their costs, making their products less competitive both at home and abroad.

Lost Tax Revenues and Reduced Investment

Tariffs aren’t just bad for businesses — they’re bad for government budgets too.

When GDP growth slows by even 1%, the government loses billions in tax revenue:

  • Lower business profits → less corporate tax

  • Fewer jobs or wage growth → less income tax

  • Reduced consumer spending → less sales tax

Meanwhile, uncertainty caused by tariffs makes companies delay or cancel investments. No one wants to build a factory when global supply chains are unpredictable. Capital that could have gone to innovation sits idle.

What the Economists Say: A Rare Consensus

In an era where economists often disagree, the consensus on tariffs is overwhelming: they are inefficient, distortionary, and harmful to long-term prosperity.

  • A 2018 survey of top U.S. economists by the University of Chicago found zero who agreed that tariffs improve domestic welfare.

  • Nobel laureate Paul Krugman has called tariffs “an exercise in self-harm.”

  • The Peterson Institute for International Economics estimates that the Trump-era tariffs cost American consumers $57 billion annually, while saving only a tiny fraction of jobs — at a cost of millions of dollars per job saved.

The Case for Unilateral Tariff Reduction

What if the U.S. reduced or eliminated tariffs — even if other countries didn’t?

It turns out that’s still a smart move. Why?

  • Cheaper imports benefit consumers and businesses.

  • Lower production costs make U.S. companies more competitive globally.

  • Efficiency gains allow industries to specialize and scale.

  • Greater openness encourages innovation, collaboration, and investment.

This is not a fringe view. Countries like Singapore and Hong Kong have long practiced near-zero tariffs and have thrived. The U.K., post-Brexit, has lowered tariffs on numerous goods to reduce inflation and improve supply chains, regardless of what trading partners do.

When a country opens its economy, it helps itself first — and creates a positive ripple effect for global trade.

Conclusion: Tariffs Are Taxes That Hurt Us All

Tariffs may raise money for the government, but they do so by making life more expensive, hurting small businesses, and slowing the economy. They are a tax in disguise — a tax on every imported good, every consumer, and every company trying to grow and compete.

The evidence is clear. The economic logic is clear. The global experience is clear.

It’s time to move beyond protectionist fantasies and embrace what works:

Open trade, lower tariffs, stronger growth.

Even if other countries don’t follow suit — we should lead.




क्यों टैरिफ एक बुरा विचार हैं — भले ही वे सरकार के लिए पैसे लाएँ

आर्थिक नीतियों की दुनिया में शायद ही कोई विचार टैरिफ जितना पुराना और उतना ही गुमराह करने वाला हो। अक्सर इन्हें घरेलू उद्योगों की रक्षा करने और सरकारी राजस्व बढ़ाने के तरीके के रूप में पेश किया जाता है, लेकिन वास्तव में टैरिफ विकास, नवाचार और रोजमर्रा की चीजों की किफायती उपलब्धता को नुकसान पहुंचाते हैं। और गणित तो बिल्कुल साफ है: भले ही टैरिफ अरबों डॉलर जुटाएँ, वे उससे कहीं अधिक आर्थिक नुकसान पहुंचाते हैं।

सच्चाई यह है कि टैरिफ खराब अर्थशास्त्र हैं। इतने खराब कि देश अपने टैरिफ खुद ही कम कर लें — भले ही दूसरे देश ऐसा न करें — फिर भी उनका लाभ होता है। आइए समझते हैं क्यों।

आमदनी का भ्रम: हर महीने $30 बिलियन, लेकिन किस कीमत पर?

मान लीजिए अमेरिकी सरकार टैरिफ से हर महीने $30 बिलियन जुटा रही है — यानी सालाना $360 बिलियन।

बिल्कुल फायदे का सौदा लगता है, है ना?

लेकिन सोचिए: अमेरिका की GDP लगभग $30 ट्रिलियन है। अगर टैरिफ और उससे पैदा हुई आर्थिक अनिश्चितता के चलते GDP 1% कम हो जाए, तो इसका मतलब है $300 बिलियन का नुकसान।

तो भले ही टैरिफ $360B ला रहे हों, अगर $300B की विकास दर छिन जाए, तो असली "फायदा" सिर्फ $60 बिलियन का बचता है — और यह भी छलावा है जब हम देखें कि इससे कीमतें बढ़ती हैं, रोजगार जाते हैं, निवेश रुकता है और दूसरे टैक्स कम होते हैं।

टैरिफ महंगाई बढ़ाते हैं

जब टैरिफ आयातित सामान की लागत बढ़ा देते हैं, तो उसका असर पूरे बाजार पर पड़ता है — उपभोक्ताओं और व्यवसायों दोनों पर।

हर चीज महंगी हो जाती है: इलेक्ट्रॉनिक्स, मशीनरी, निर्माण सामग्री और यहाँ तक कि खाद्य वस्तुएँ भी।

इससे महंगाई बढ़ती है, जिससे लोगों की खरीदने की शक्ति घटती है। फिर ब्याज दरें बढ़ती हैं, जिससे मकान खरीदना, गाड़ी लेना और व्यापार शुरू करना और मुश्किल हो जाता है।

छोटे व्यवसायों और मैन्युफैक्चरिंग को झटका

कई छोटे और मध्यम व्यवसाय आयातित कच्चे माल पर निर्भर करते हैं। जब टैरिफ की वजह से ये महंगे हो जाते हैं, तो मुनाफा घटता है। छोटे व्यवसायों के पास कीमतें बढ़ाने की क्षमता नहीं होती, इसलिए उन्हें नुकसान झेलना पड़ता है, कर्मचारियों को हटाना पड़ता है, या बंद ही करना पड़ता है।

यहाँ तक कि घरेलू निर्माता भी प्रभावित होते हैं, क्योंकि उनके सप्लाई चेन भी वैश्विक होते हैं। अगर आयातित पार्ट्स महंगे हो जाएँ, तो उनके उत्पाद भी महंगे हो जाते हैं — जिससे विदेशों में प्रतिस्पर्धा करना मुश्किल हो जाता है।

टैक्स की हानि और निवेश में गिरावट

टैरिफ से सिर्फ व्यापार को ही नहीं, सरकारी टैक्स सिस्टम को भी नुकसान होता है।

जैसे ही GDP धीमी होती है, सरकार को इन स्रोतों से टैक्स कम मिलते हैं:

  • कम मुनाफा → कम कॉर्पोरेट टैक्स

  • कम वेतन या नौकरियाँ → कम इनकम टैक्स

  • कम खरीदारी → कम सेल्स टैक्स

उधर, टैरिफ से पैदा हुई अनिश्चितता के कारण कंपनियाँ निवेश टाल देती हैं। कोई भी कंपनी ऐसी स्थिति में नया प्लांट नहीं लगाना चाहती जब उसे नहीं पता कि अगले साल कौन सी चीज़ पर टैक्स लगने वाला है।

अर्थशास्त्रियों की राय: दुर्लभ सहमति

आज के ज़माने में जब अधिकांश अर्थशास्त्रियों में सहमति दुर्लभ है, टैरिफ पर अद्भुत सहमति है:
टैरिफ नुकसानदेह हैं — वे बाजार को बिगाड़ते हैं, कुशलता घटाते हैं, और उपभोक्ताओं को चोट पहुंचाते हैं।

  • शिकागो विश्वविद्यालय की एक सर्वे में एक भी अर्थशास्त्री ने यह नहीं कहा कि टैरिफ से जनता का भला होता है।

  • नोबेल पुरस्कार विजेता पॉल क्रुगमैन ने टैरिफ को “आत्म-हत्या जैसा कदम” कहा है।

  • पीटरसन इंस्टिट्यूट के अनुसार, ट्रम्प युग के टैरिफ ने अमेरिकी उपभोक्ताओं को हर साल $57 बिलियन का नुकसान पहुंचाया, और हर एक नौकरी बचाने में लाखों डॉलर खर्च हुए।

एकतरफा टैरिफ कटौती भी समझदारी है

क्या हो अगर अमेरिका अपने टैरिफ खुद ही घटा दे, भले ही दूसरा देश ऐसा न करे?

यह भी फायदेमंद है। क्यों?

  • सस्ते आयात से उपभोक्ता और कारोबारी दोनों को राहत मिलती है।

  • कम लागत से अमेरिकी कंपनियाँ ज्यादा प्रतिस्पर्धी बनती हैं।

  • बेहतर दक्षता से उद्योगों को बड़ा होने और विकसित होने का मौका मिलता है।

  • खुलेपन से नवाचार, साझेदारी और निवेश बढ़ता है।

सिंगापुर, हांगकांग जैसे देशों ने लंबे समय से टैरिफ कम रखे हैं — और उन्होंने बहुत फायदा देखा है।

निष्कर्ष: टैरिफ एक छिपा हुआ टैक्स है जो सभी को नुकसान देता है

टैरिफ सरकार के लिए पैसा ला सकते हैं, लेकिन यह पैसा ज्यादा महंगे सामान, आर्थिक मंदी और छंटनियों की कीमत पर आता है। यह एक छुपा हुआ टैक्स है — हर उपभोक्ता, हर छोटे व्यापारी और हर उत्पादक पर।

तथ्य साफ हैं। गणित साफ है। वैश्विक अनुभव भी साफ है।

अब समय है कि हम प्रोटेक्शनिज़्म के इस झूठ से बाहर आएँ और उस दिशा में जाएँ जो वास्तव में काम करती है:

खुला व्यापार, कम टैरिफ, तेज़ विकास।

चाहे बाकी देश साथ न दें — हमें नेतृत्व करना चाहिए।




Grounded Greatness: The Case For Smart Surface Transit In Future Cities
The Garden Of Last Debates (novel)
Deported (novel)
Empty Country (novel)
Trump’s Default: The Mist Of Empire (novel)
The 20% Growth Revolution: Nepal’s Path to Prosperity Through Kalkiism
Rethinking Trade: A Blueprint for a Just and Thriving Global Economy
The $500 Billion Pivot: How the India-US Alliance Can Reshape Global Trade
Trump’s Trade War
Peace For Taiwan Is Possible
Formula For Peace In Ukraine
A 2T Cut
Are We Frozen in Time?: Tech Progress, Social Stagnation
The Last Age of War, The First Age of Peace: Lord Kalki, Prophecies, and the Path to Global Redemption
AOC 2028: : The Future of American Progressivism

Trump's policies already cost US companies $82 billion — and that could 'more than double' tariffs and mass deportations will hurt American businesses and that the draconian Medicaid and SNAP (Supplemental Nutrition Assistance Program) cuts in his megabill will imperil vulnerable Americans. ........ Trump's tariffs "add about $82 billion in total new costs for all mid-sized U.S. companies, per a new estimate — a sum that would more than double if rates return to levels seen at the height of trade tensions in April." ........ Those tariff-related expenses, according to Brown, "could force" business owners "to shrink costs elsewhere, perhaps via layoffs." ....... "The cost amounts to 3 percent of their payroll — it's meaningful that they are paying that much to compensate for the tariffs." ...... Trump's "immigration crackdown is hitting key pockets of the economy, disrupting workplaces and communities around the country." ......... The sharp fall in immigration this year threatens to slow down economic growth, particularly in the sectors and cities that relied on newcomers to the U.S. in recent years…. There will be fewer workers to produce goods and services, slowing down growth and putting pressure on wages." ......... the U.S. economy "will find itself slightly diminished in the long run, and inflation will run a touch higher." ....... The 'big, beautiful bill' that passed the Senate contains about $175 billion for even more immigration enforcement.

at No comments:
Labels: , , , ,

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.

View on Threads
View on Threads
View on Threads
View on Threads
at No comments:
Labels: , , , ,
Subscribe to: Posts (Atom)