The New Republic’s Greg Sargent and award winning economist Paul Krugman break down the hype over Trump’s latest trade deal with the European Union and why it’s actually a big loss for our country, and for Trump’s voters.
You’ve probably heard that President Trump and the European Union have reached a big trade deal. This is being widely portrayed as a “win” for Trump and a big humiliation for the EU. But it’s not at all clear what we gain as a country from this deal. Surely the phrase “Trump won” has to mean more than “Trump gets to claim a personal victory and the media is required to play along,” right? We talked to economist Paul Krugman, who has a great new piece on his Substack casting a lot of much-needed skepticism on the deal. Krugman explains in extensive detail what a sham it is: He argues that Europe’s concessions are fake; that the deal won’t spur a lot more manufacturing in the United States; and that its burden will fall heavily on MAGA, making it a “scam on his voters.” Krugman also discusses why the media seems incapable of reporting clearly and accurately on the magnitude of Trump’s incompetence and delusions.
As Krugman explained during their discussion, the great bulk of the tariffs are going to be paid by US consumers, and none of it is being paid by the Europeans. This is going to hit lower-income people much harder than anyone else, while we’re seeing tax cuts for high-income people, and as Krugman said:
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 also went onto explain how this is actually going to harm US manufacturing:
Sargent: Right. And so can you walk us through which goods we’re talking about? There are a bunch of goods that are exempted here, but the vast majority of goods that we import from Europe will be hit by this 15 percent tax. Can you just break that down a little bit for us?
Krugman: Well, what 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.
There’s a particular quirk here, which is really quite important: Cars from Europe will now pay a 15 percent tariff. Cars from Canada—there are some complicated rules that somewhat mitigate this, but basically cars from Canada pay a 25 percent tariff. The thing about a car from Canada is a lot of the content of the car and a lot of the parts out of which the car are made are made in America. So basically products that involve a lot of U.S. jobs are now paying a higher tariff rate than cars from Europe, which don’t. So we’re actually tilting the playing field against U.S. manufacturing. And on top of that, we have 50 percent tariffs on aluminum and steel. So if you think about making a car in Michigan versus making a car in Germany, it’s gotten substantially more attractive to make it in Germany as a result of this whole deal.
Sargent: It’s hard to see how that’s a loss for Europe and a gain for us, is it?
Krugman: No, it’s a loss for Europe because, in general, we’re cutting back on the possibilities of beneficial trade. But if the agenda was to boost U.S. manufacturing, well, this is the opposite. This is tilting in the opposite direction.
Sargent and Krugman also discussed the fact that this won’t do anything to boost spending on American energy, since the EU doesn’t actually have any ability to force companies to do anything, and the infrastructure to import more LNG from the United States doesn’t exist, so as Krugman said, the Europeans knew that, and “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.”
You can listen to the entire segment below:
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