Portrait of Paul Krugman
Commentator · policy
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Paul Krugman on Tariffs

Strong opponent (strong)

TL;DR

Paul Krugman firmly views tariffs as economically destructive policies that fail to achieve their stated goals like deficit reduction.

Key Points

  • He describes tariffs as fundamentally a tax paid by U.S. consumers, not foreigners, which acts as a regressive sales tax.

  • The economist argues that tariffs cannot sustainably reduce the trade deficit because the deficit is the counterpart of net capital inflows, which tariffs only suppress by impeding capital mobility.

  • He has criticized attempts to maintain tariffs following legal rulings against them, labeling them as 'zombie tariffs' that should be dead but are kept by political will.

Summary

Paul Krugman maintains a strong negative stance on tariffs, asserting that they are a form of selective sales tax paid by U.S. consumers, often disproportionately affecting lower-income populations. He argues that, contrary to claims by proponents, tariffs fail to reduce the overall trade deficit because the deficit is fundamentally linked to capital inflows. In practice, tariffs may only cause the trade deficit to shift or may lead to currency appreciation that offsets any initial reduction in imports.

He further contends that a tariff-heavy environment would also impede international capital flows, which is the true counterpart of the trade deficit, thereby damaging overall investment in the U.S. economy for negative, destructive reasons rather than achieving trade balance improvement. Moreover, he notes that recent tariff implementations did not accomplish goals such as reviving manufacturing employment, which has instead declined since their imposition.

Key Quotes

I'm extremely annoyed that we're exempting Brazilian orange juice, which I don't drink, and we're taxing the coffee, which is what I live on.

Krugman emphasizes that while policy debates grab headlines, public perception and midterm politics may ultimately matter more than the details of trade law or corporate strategy.

Frequently Asked Questions

Paul Krugman is a strong critic of tariffs, viewing them as economically damaging. He contends they fail to reduce trade deficits as claimed and instead function as a tax on domestic consumers. He believes their primary effect, if they succeed at all, is to damage international capital markets.

No, Paul Krugman does not believe tariffs can effectively reduce the overall U.S. trade deficit. He explains this using an accounting identity: the trade balance is the counterpart of capital inflows. Trying to squeeze the trade deficit with tariffs will only suppress the necessary capital flows, leading to economic damage.

Paul Krugman emphasizes that U.S. consumers ultimately pay the cost of tariffs, dismissing claims that foreign entities bear the burden. He likens a tariff to a selective sales tax, which is regressive and falls more heavily on lower-income citizens.

Sources6

* This is not an exhaustive list of sources.