Nobel Award-winning economist Paul Krugman had some very strong words for Donald Trump’s Mexico tariff fiasco yesterday, tweeting in response to White House Press Secretary Sean Spicer’s claim that the tariffs were “just a thought.”
“Oh my God. These are spoiled children playing with loaded guns,” exclaimed Krugman, who then explained some basics of economic policy to those children:
“International trade policy is governed by rules — originally the General Agreement on Tariffs and Trade [GATT], now folded into the WTO [World Trade Organization]. A key part of these rules is that countries agree NOT to just impose new tariffs or import quotas unilaterally. So if the US just goes ahead and imposes a 20 percent tariff on Mexico, it has in effect repudiated the whole system (which it built!).”
But Krugman wasn’t finished. In a series of thirteen tweets he went on to lambaste Trump, whom he refers to as “Agent Orange,” for his ignorance and irresponsibility in failing to understand these basic facts about how trade works:
The Mexican tariff incident is truly amazing, because it shows dysfunctional, ignorance, and incompetence at multiple levels. The motivation for Spicer’s initial remarks seems to be that Trump is feeling disrespected (again): people are making fun of him (again) because he promised that Mexico would pay for the wall, and it won’t. So someone had the bright idea of claiming that a tariff will do it imagining that the House plan for a border tax adjustment as part of corporate tax reform is the same thing. But it isn’t.
For one thing, that adjustment can’t be country-specific; also, it isn’t really just like a tariff. But wait, it gets worse. Tariffs aren’t paid by the exporter; it depends a bit on the details, but it’s basically a tax on domestic consumers. Wait, it gets worse still: the claim that everyone else taxes imports is wrong too. A VAT [Value-added tax] is NOT like a tariff. It’s a sales tax that is neutral in its effects on trade. Now, the proposed border tax adjustment is a bit different. It might in fact act like a combined export subsidy and import tariff. But for that very reason, it might well be considered WTO-illegal because it’s not just doing what others do. And even if it somehow doesn’t bring down the world trade system, its effects would be dissipated by a stronger dollar.
So let’s sum up: Trump was probably feeling low, so aides told him they had an answer to his critics but they didn’t understand either the economics or the world trade rules, and didn’t realize how explosive the whole thing was. Now they’re trying to walk it back, looking even more ridiculous in the process. How are we going to survive years of this?
The World Trade Organization (WTO) “is a rules-based, member-driven organization — all decisions are made by the member governments, and the rules are the outcome of negotiations among members.” There are 164 members, including the United States.
In 1995, the WTO replaced the General Agreement on Tariffs and Trade (GATT), which dated to 1947. GATT had, as its purpose, the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.” The United States had been a member of GATT since 1948.
Needless to say, the United States has a long history of working with other countries to reduce tariffs and liberalize trade policies, and as Krugman pointed out, helped build the system in the first place.
Trump is either completely ignorant of this (or was at the time he announced his 20 percent tariff on Mexican imports) and true to form could not be bothered to learn (because it would take him away from his TV time), or he simply didn’t care. It is difficult to say which is the more terrifying. Neither brings credit to his vaunted intellect.
In response to a tweet by Josh Marshall, editor of Talking Points Memo that “AGAIN, entire point of Mexico Will Pay isn’t budgetary. it’s humiliation, like a war indemnity or unequal treaty,” Krugman added a final thought:
Yes. But proximate driver of today's crazy is Trump's own feeling of humiliation at Mexico saying no. https://t.co/gvEk0b5WJC
— Paul Krugman (@paulkrugman) January 26, 2017
As the Times‘ economic correspondent Neil Irwin tweeted, “I remember when officials rolling out a policy had spent more time thinking through the policy than I, a reporter, had.”
Right. Well, those days are gone.
Donald Trump is now the leader of the world’s only superpower and completely unsuited to the task, which requires knowledge he neither has nor wishes to be bothered with obtaining. Others would have learned a lesson from this humiliating experience. Donald Trump will not.