Nobel Prize-winning economist Paul Krugman is warning that President Donald Trump’s “Liberation Day” tariffs are backfiring, as he argues that China now holds the upper hand in the escalating trade war.
The Chinese ‘Know What They’re Doing’
In his newsletter on Monday, Krugman said that Trump’s tariff announcements six months ago were “a massive betrayal of the world's trust,” noting that previous tariff reductions were achieved “through many rounds of international negotiations, in which the U.S. and other nations solemnly agreed not to backtrack.”
Krugman said Trump now appears surprised that other countries are retaliating, referring to China’s new export controls on rare earths, which include several vital inputs for U.S. industry.
See Also: China’s Silence Is Scarier Than Tariffs--5 Ways It Could Hit Trump Hard
Reacting to the administration’s hypocrisy on the matter, Krugman said, “Gosh. Aggressive unilateral trade action is a ';moral disgrace.' Who knew?”
Krugman said that there is “one big difference” between the trade strategies of the two countries, and it is that, unlike the U.S., “the Chinese appear to know what they're doing.”
He warned that “America is more vulnerable to a rupture than China is,” adding that “the U.S. economy is dependent on China for critical inputs, above all those rare earths.” While China can “stimulate domestic demand” to blunt the impact of lost exports, he cautioned that weaning off Chinese supply “would take years” to achieve.
He also stressed that Trump has eroded America's traditional sources of advantage, such as its scientific heft and relationships with allies. “So we may be entering into an all-out trade war with China, having destroyed the non-trade advantages America used to have.”
Krugman concluded, saying, “It's bad when the world sees you as a bully; it's worse when the world also sees you as weak,” while adding that, “the man who promised to make America great again has probably ended our position of global leadership for the foreseeable future.”
Trump Walks Back On Tariff Threat
Just days after threatening a new 100% tariff on imports from China, Trump walked back on his stance, asking investors not to worry about China, while adding that “it will all be fine,” in a Truth Social post on Sunday.
Over the weekend, a spokesperson for China’s Ministry of Commerce said that their “position on the trade war is consistent: we do not want it, but we are not afraid of it.” They also accused Washington of a “textbook double standard,” highlighting that the U.S. has 3,000 items in its export controls list, as opposed to China’s 900.
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