Paul Krugman is back in a de facto way at the New York Times, talking to Ezra Klein about tariffs and Trump and national security and all sorts of good things.
The whole thing is worth reading, but I will extract some of it:
I think most people thought it was going to be some kind of across-the-board tariff — same on everybody. Or maybe two or three different types of tariffs.
Instead, he announced this whole complicated, different tariff for every country, at levels much higher than the smart money — or the money that thought it was smart — was betting. Something like a 23 percent average tariff now, which is huge. It’s higher than U.S. tariffs were after the Smoot-Hawley Tariff Act of 1930 was passed. And trade is a much bigger part of the economy now than it was in 1930. So this is the biggest trade shock in history.
And:
There’s a funny thing here, which is that ordinarily I would say that while tariffs are bad, they don’t cause recessions. It makes the economy less efficient. You turn to higher-cost domestic sources for stuff, instead of lower-cost foreign sources, and foreigners turn away from the stuff you can produce cheaply. But that’s a reduction in the economy’s efficiency, not a shortfall in demand.
What’s unique about this situation is that the protectionism is unpredictable and unstable. And it’s that uncertainty that is the recessionary force.
If you were a manufacturing company in the United States and your next investment is going to be, let’s say, a components plant or something — well, should you put that components plant in Mexico, where it’s cheaper? Not if there’s a 25 percent tariff. But should you put it in the United States, where it’s more expensive? What if the tariff comes off?
So either way, you run substantial risk of just having stranded investments. And that’s happening across the board. So this is the instability of policy. The fact that nobody knows what’s coming next makes a recession certainly a whole lot more likely.
And:
If you were asking what a national
security oriented industrial policy that tries to keep production of
strategically important stuff in the United States looks like, it looks
like the CHIPS Act. It looks like what the Biden people were trying to
do. Probably bigger than that — in an ideal world, we’d be doing
substantially more. But that’s how you do it.
Putting
high tariffs on imports of clothing from Bangladesh is exactly what you
shouldn’t be doing. That’s the kind of thing that is disruptive, raises
the cost of living for American consumers, does nothing to make us more
secure.
There is a national security
rationale for domestic production, but also for friendshoring and for
nearshoring, because the stuff that’s close by is a lot easier to
secure. If that’s what we were wanting to do, then we would not be
levying tariffs on Vietnam and Bangladesh, and we would certainly not be
putting tariffs on Canada and Mexico.
And this bit by Klein makes a lot of sense to me (it's in bold because that is how Klein's voice appears in the transcript):
When I try to dive into MAGA world’s thinking here, something that I tend to hear is a somewhat contradictory or troubled relationship to American power.
On the one hand, they want America to be stronger, more feared, more dominant. And on the other hand, there’s a broad view that we have overextended ourselves.
Financially, we’ve made the dollar the reserve currency. We’ve allowed all these other countries to buy our assets and buy our money even as our industrial base flowed out.
And then on the military side, we have these bases all over the world, we have all these troops in Europe, we’re part of NATO, we’re spending more as a percentage of gross national product than some of these other countries. But this is part of why we can no longer take care of our people.
And so there’s this feeling: Well, for America to be stronger, it can’t be operating this global umbrella of financial and military protection.
But then you ask: Well, do you want the dollar to not be the reserve currency? And they say: No, no, no, no. We definitely want to keep it the reserve currency.
If you ask: Do you want America’s military to be weak? Do you want people to not be tied to us in the way they are now? They say: No, we actually want more leverage over them.
There’s something here that I think is very strange and very unresolved in this movement that wants both more dominance and somehow, at the same time, to pull back from the actual architecture of that dominance and leverage.
Krugman's reply was something that I was recently saying to an overseas friend who is generally very anti-American:
We have been a kind of imperial power.
Some people say more than kind of — we’ve been an imperial power, in
many ways, since the end of World War II.
But it’s not like any previous empire. The Pax Americana starts with the Marshall Plan.
Instead
of plundering our defeated enemies, we rebuilt them. And then we built a
system of alliances: We have NATO. We have international economic
institutions like the International Monetary Fund, which do actually
kind of reflect U.S. interests, but at least on paper, we’re at most
first among equals. So we are a polite, low-key, relatively generous
imperial power.
That is a very hard role for many people to understand.
I'm sure that Krugman would, if asked, agree that there has also been a lot of awful direct foreign interference in the post war period; but America's role in re-building defeated countries after their destruction is no doubt the explanation for its continuing popularity (until now!) with much of the free world.
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