I’m no fan of the Trump tariff tantrum, but weak criticism of it does no one a service. And while I agree with Paul Krugman on a lot of things, he has a long history of being misguided on trade policy. Alas, his op-ed in today’s New York Times continues the legacy of the Bad Krugman, not the good one.
Before getting to the theoretical meat, let’s take a moment to observe the holes in his argument that should have been identified and vetted before publication.
1. He cites a graphic from the Peterson Institute for International Economics that claims that Trump’s tariffs on Chinese goods have risen to 21.5% this month from 3.1% under Obama (under the Most Favored Nation provision). Applied to $500 billion in imports from China, that comes to almost $100 billion more in tariff collections, right? Not so fast. He reproduces a FRED chart that shows tariff revenue rising by only about $35 billion during the same period. He hedges a bit (“the revenue numbers don’t yet include the full range of Trump tariffs”) and then tries to squirm his way out of the evidence that US consumers aren’t really paying $100 billion more for these goods. We’ll get to the squirm in a moment, but note that some portion of the tariff will be paid by Chinese producers in the form of lower prices to maintain market share, and the evidence suggests that this portion is much too great to simply handwave away.