This is from the man who won the Nobel Prize for his work on new trade theory and new economic geography, Paul Krugman. I think he knows what he’s talking about:
Six months ago Donald Trump announced his Liberation Day tariffs — huge tariffs imposed on just about every nation. As everyone noted, this announcement suddenly brought average tariffs back to 1934 levels. Less widely noted was the fact that the long decline in tariff rates over the previous 90 years had been achieved through many rounds of international negotiations, in which the U.S. and other nations solemnly agreed not to backtrack on past tariff reductions. So Liberation Day was, among other things, a massive betrayal of the world’s trust.
Now Trump is learning, to his obvious shock, that other nations can also play trade hardball. His reaction to China’s new export controls on rare earths, which are crucial to digital technology, would be comical if the stakes weren’t so high:
Krugman dryly quips: “Gosh. Aggressive unilateral trade action is a “moral disgrace.” Who knew?”
And as he points out, China has the upper hand in all this because it’s economy is bigger than the U.S:
He continues:
Furthermore, while our economies are interdependent, America is more vulnerable to a rupture than China is. True, Chinese industry has relied to an important degree on sales to the United States. But the U.S. economy is dependent on China for critical inputs, above all those rare earths. And here’s the thing: China can quickly compensate, at least in part, for the loss of the U.S. export market by stimulating domestic demand. Given time, America could wean itself from dependence on Chinese inputs — but doing so would take years.
He points out that until a year ago we still had some important advantages over China, number one being the fact that our world class universities and research institutions attracted the best talent from all over the world. We also had many allies which China did not. Not anymore.
Krugman goes on to lay out the particulars and the terrible consequences of Trump’s destruction in those areas. He concludes:
So we may be entering into an all-out trade war with China having destroyed the non-trade advantages America used to have in the form of scientific leadership and major allies. As a result, it’s just a question of which nation can do the most damage to the other. And if those are the terms on which a trade war is fought, it’s clear who is in the stronger position. China wants access to the U.S. market, but America needs Chinese rare earths and other inputs. America is going to lose this conflict.
… America will take a bigger hit than China, both to its economy and to its reputation. It’s bad when the world sees you as a bully; it’s worse when the world also sees you as weak. The man who promised to make America great again has probably ended our position of global leadership for the foreseeable future.
For all his strutting around on the world stage today and getting his crown polished by everyone, Trump has done incalculable damage to this country and the world. And he’s just getting started.
