Krugman Plays Down US Economic Harm From Trump’s Tariff Plan

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(Bloomberg) -- Nobel Prize-winning economist Paul Krugman played down the damage that Donald Trump’s suggested 10% tariff on US imports would do to the economy.

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“The dirty little secret of international trade economics is that moderate tariff rates” don’t have huge growth effects, Krugman, who won his Nobel for his work on trade, said on Bloomberg Television’s Wall Street Week with David Westin. “To get really big numbers, you have to get well beyond 10%.”

In running for a second term, former President Trump has floated the idea of encircling US industry with a 10% tariff, arguing that US companies are being taken advantage of by their foreign rivals. He’s also pushed for a decoupling of the US and Chinese economies by, among other things, revoking the Asian country’s most-favored-nation trade status.

While a 10% levy might not hurt the US economy that much, it also wouldn’t get rid of the country’s trade deficit — part of Trump’s objective — according to Krugman.

“Tariffs don’t eliminate trade deficits unless they get so high as to basically make trade impossible,” said Krugman, who writes an opinion column for the New York Times and is a professor of economics at the City of University of New York.

Geopolitical Damage

Where the tariffs would do great damage would be on the geopolitical front, as they’d signal that the US was opting out of its role as leader of the global economy, Krugman said.

He also said that the US economy was perhaps in its best shape since the 1990s, with strong growth of gross domestic product and ebbing inflation.

“We’ve got an economy that’s hot where you want it to be hot — like in GDP growth — and cold where you want it to be cold, on inflation,” he said, adding “Recent productivity numbers have been really good.”

Read More: US Productivity Increases at Rapid Pace, Cementing 2023 Rebound

Krugman hypothesized that the US may be approaching another moment like it did in the latter half of the 1990s, where the economy benefited from a sustained pick-up in productivity.

(Updates with Wall Street Week program information, at end.)

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