Greg Sargent: This is The Daily Blast from The New Republic, produced and presented by the DSR network. I’m your host, Greg Sargent.
Paul Krugman: Thanks for having me on.
Krugman: Well, it means that anybody bringing European goods into the U.S. is going to pay a tax equal to 15 percent of the value. And that in itself doesn’t tell you who pays it, but there’s overwhelming evidence that the great bulk of that is going to end up being paid by U.S. consumers. Certainly, none of it is being paid by the Europeans. The way to look at it is to say, Has Europe reduced the prices of stuff it sells to the United States? And actually, the Bureau of Labor Statistics has a measure of that, and it hasn’t gone down at all. So the Europeans aren’t paying it. At the moment, probably a lot of it is being borne by U.S. businesses which haven’t yet passed it on to consumers, but they will. And so this is a sales tax on a bunch of stuff that American consumers buy.
Krugman: Yeah. People with lower incomes spend a higher share of their income than people with high incomes. There’s at least some indication, although this is true more for some of the other tariffs, that the goods that are being hit hard are things that lower-income people spend more on like basic clothing. And the main thing is: This tariff is part of a package. We’re also getting big tax cuts, and the tax cuts are entirely for high-income people. And we’re getting benefit cuts for low-income people. Put the whole thing together and this is a huge upward redistribution of income from people who really can’t afford to lose the money to people who don’t need the money. That’s the summary. And the trade policy is just fundamentally part of that. It isn’t really about trade at all.
Krugman: Well, we import from Europe is mostly manufactured goods, a few agricultural. It is true that wine will pay more, and maybe that’s somewhat an upper-income thing, though not very much. Also olive oil, which is used in a lot of things. So agricultural products, many of them … if you buy a box of better-quality pasta, it’s going to cost more. And then cars—we do import a fair number of cars from Europe and they’re not just luxury cars. So that’s going to cost more. We import a lot of intermediate goods, like capital equipment. A lot of the machinery that’s used in U.S. production comes from Europe. And so that will cost more, and that’ll end up being a higher price.
Sargent: It’s hard to see how that’s a loss for Europe and a gain for us, is it?
Sargent: Well, let’s go a little bigger on that very question. Obviously, one of the core goals, at least I think, of Donald Trump is that he wants to use this entirely overhauled trade regime to spur more manufacturing in the U.S. Will it do that when you take both this set of new tariffs that we just were agreed to in the European deal and also the whole global regime? What’s the long-term impact here?
So the overall thrust of his strategy is actually anti-manufacturing. During Trump’s first term, a bunch of studies went through trying to figure out the impact of the tariffs on manufacturing, and they all came to the conclusion that Trump’s tariffs on overall cost the US some manufacturing jobs. And we thought, Well, he won’t make that mistake again. But he is. He’s making that mistake again, but five times bigger.
Krugman: I would say.… I mean, it’s never going to happen. But if you look at it, maybe here’s a point of comparison. Biden had the Inflation Reduction Act, which had nothing to do with reducing inflation but was a lot about promoting green manufacturing and so on. And you could see within two years, it was obvious that the IRA was generating a huge boom in investment in manufacturing in the U.S. So I think to give Trump more than two years to show that this is actually doing something positive would be holding him to a different standard. If you don’t see this in two years, then it’s a failure. I have no question. There’s just nothing in there.
Sargent: It’s just so crazy. This is just never talked about. These two things are never talked about together. On the one hand, Trump is doing all these tariffs to supposedly try and spur manufacturing this country. Meanwhile, they’re functionally doing all they can to wipe out the nascent green energy manufacturing industry in the U.S., which is actually something that competes well with China if it works over the long haul. The whole thing is so ridiculous. Why don’t more people point that basic disconnect out: that they’re wiping away the manufacturing jobs of the future while imposing tariffs to create manufacturing jobs? Why don’t we hear that said more often?
Sargent: And never in the context of Trump and Vance’s constant rhapsodizing about manufacturing. You mentioned that there were other things in the deal that are empty, I want to quickly touch on those. You wrote in your piece that the promised $750 billion in spending on U.S. energy and the $600 billion increase in investment in the U.S. are probably illusory or nothing. What’s the deal with that? The whole thing is starting to look awfully like a pretty big scam as so much that Trump does is.
So you ask, How are they going to make this happen? And there’ve already been some pretty frank interviews with European commission officials who say, Well, actually, this is aspirational, or, We actually have absolutely no ability to affect how much money gets invested in the U.S. We’ve talked to some companies and numbers like this might happen, but not because of us. There is no policy. This is just saying something that they hope will make Trump feel good. There is no policy for the investment. And then they’re supposed to buy $750 billion of U.S. energy products over three years. And that, first of all, has the same problem: How does that happen? The decision about where to buy your oil and liquefied natural gas, or LNG, in the European economy is made by private companies. The bureaucrats in Brussels don’t have any authority over that. They would never think of trying to assert it. And even the governments of Germany and France are not going to really intervene in that. So there is no policy.
So I think that, and they know that, basically they just scammed Donald Trump. They humiliated themselves and then abased themselves before him—but they also made a fool of him. They also made a promise that they know they can’t fulfill. And then they’ll come up with all sorts of reasons why, Oh, I’m sorry. They’ll approach him with tears in their eyes and say, Sir, but all kinds of reasons why it can’t happen. But they know perfectly well that this is not going to happen.
Krugman: Yeah. In some ways I understand the difficulty. Here’s the thing. You assume Trump is fire and brimstone and the Europeans have been treating us very badly and we’re going to have to negotiate a deal. And then he slaps on these tariffs. Now, the reality is that the Europeans were not treating us very badly. In fact, once you include services, which are an important part of the world economy, trade between the U.S. and Europe was almost balanced last year. Small deficit on the part of the U.S., but that shouldn’t matter anyway. The average tariff on U.S. manufactured goods sold into Europe was 1 percent, so we had almost free access. U.S. corporations are in lots of profits in Europe. Europeans actually do invest quite a lot in the U.S.; European corporations invested more than $150 billion last year. So there is no actual problem. But to say that the president of the U.S. is making drastic policy changes in order to cure a problem that only exists in his imagination, that’s a very difficult.… That sounds unbalanced. That sounds like you’re shilling for the Democrats when it’s in fact just reporting the flat truth.
Sargent: Well, just to underscore your point there, you pointed out in your piece—to put some figures on this—that in 2024, U.S. exports to Europe were $998 billion, and U.S. imports from Europe were $1.1 trillion. So we were pretty close to parity.
Sargent: Yeah, but Trump’s worldview doesn’t permit an acknowledgement of that. That’s basically the essence of this. You mentioned that everything is based on a set of delusions. You could argue that the very claim that Trump won or that we win from this deal with the EU is itself based on a pretty massive set of delusions. And as well, if you add it all up, you’ve got—what?—higher prices on lower-income consumers. I’ll tell you what, a lot of Trump voters are lower-income consumers. You’ve got harm to auto manufacturing, which there’s a lot of that in Trump country. Trump voters are getting scammed here because of Trump’s delusions. Is that about right?
Sargent: Well, Paul Krugman, we’re giving them two to three years to show whether this thing actually is going to work according to Trump’s prescriptions and his predictions. And by the way, if there’s any poetic justice here, it’s that JD Vance, who rhapsodizes constantly about manufacturing, is going to have to be the person who defends this policy if it fails—as it probably will—as he’s running for president. What do you think? That’s going to be actually a pretty serious weight for JD Vance to bear.
Sargent: A few months down the pike and into next year when there are going to be midterms. Paul Krugman, thanks so much for coming on. Great explanation for us. We really appreciate it.
Krugman: Take care.
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