STEVE INSKEEP, HOST:
The people watching the tariff debate include Paul Krugman. He is a writer and economist, formerly for The New York Times, now writing independently on Substack, which is where I often find him. And since he's in the United States, I pay no tariff. Mr. Krugman, welcome to the program.
PAUL KRUGMAN: Hi there.
INSKEEP: What do you make - I should note for people who don't know, you've been very critical of the president's tariff policies. What do you make specifically of the tariffs announced for Brazil?
KRUGMAN: OK. First thing that I'm not seeing people realize enough is that all of this is grotesquely illegal. The United States and Brazil have both signed international trade agreements that very specifically - you know, they give grounds under which, under some circumstances, you can impose tariffs. Not liking what a country's judicial system is doing is not on the list. And the president has significant discretion to set tariffs under U.S. law. But again, all of the justifications for temporary tariffs are economic. Interfering with another country's legal proceedings is not on the list. So this whole thing is both - you know, those agreements have the force of treaties. So we're basically breaking an international treaty, and the president is basically defying the law and doing stuff that he has no authority to do domestically.
INSKEEP: Well, this...
KRUGMAN: So that should top the list.
INSKEEP: Yeah. That's very interesting, what you say there because you're talking specifically about the Brazilian example, where the president is objecting to something that Brazil is doing inside their own country. But you're reminding me that a trade court has found that other tariffs that the president has claimed, that his emergency authorities from a law in the 1970s are being abused or overused because the law doesn't specifically allow for tariffs in some instances - is that argument true well beyond Brazil then?
KRUGMAN: Of course. All - the bulk of what he's doing is under the grounds that, you know, there's - an economic emergency gives him special powers - you know, special powers to set tariffs. But Trump is boasting about how great the U.S. economy is. So he himself has said that there is no economic emergency. So again, this is a pure abuse of power, and if - you know, if we had a functioning court system, he would be stopped from this right away.
INSKEEP: Let me ask about the economics of this and essentially who pays the tariffs. And I want to remind people of the arguments here. The president has said continuously that a tariff is a tax on a foreign country. Economists like yourself have pointed out, actually, it's an import tax that American importers pay and frequently pass on to the consumers. And the idea is we end up paying. We end up paying higher taxes. We end up paying higher prices. I totally get that.
But then I've been looking at headlines in the last couple of days that challenge that a little bit, and I want you to address this. The headline - Bloomberg has reported this. Auto industry news sites have reported this. The headline is "Japanese Automakers Slash Export Prices To Offset 25% Tariffs." They haven't cut prices 25%, but they've cut them 19%. They actually are picking up some of the cost of the tariffs. What do you make of that?
KRUGMAN: Well, there's going to be some of that, but not very much and not for very long. I mean, think of - suppose we imposed a sales tax on domestic producers of some good or, you know, a sales tax on people buying what domestic firms produce. For a while, companies might try to hold down their prices. They might try to absorb it to keep market share, but that can't go on for very long. And if you said - if you went to, you know, a small business association in the United States and said, OK, we're imposing a 25% tax on everything you sell and - but we expect that you will cut prices so that consumers don't pay it, they would go wild. They would say, you're dreaming. Nobody has that kind of profit margin. Nobody can do that.
And so it's just not - you know, what's happening right now is a lot of people are still making decisions on the TACO theory - Trump Always Chickens Out. They're making decisions, believing that this will go away in a month or two. I think they're wrong. But, you know, once it becomes clear that these are here to stay, no, it's going to end up being American consumers paying it.
INSKEEP: I feel that I have perceived the TACO theory in the last few days. I've heard it suggested that the tariffs promised in this series of letters by August 1 are actually higher in the aggregate than on "Liberation Day," which crashed the markets. The markets haven't crashed so far. Are people assuming this isn't really going to happen?
KRUGMAN: Yeah. Everything I hear is that people are assuming that he's going to back down, but there's no hint of that, you know, in the tone of the letters. And you should, you know, draw some lesson from the fact that after all this time, he's actually proposing tariffs that are higher than the original ones. This doesn't sound like a guy who's about to go back to normal trade policy.
INSKEEP: Do you think a tariff could be good in any instance at all?
KRUGMAN: Oh, there are some theoretical cases - right? - and there are some reasons to give U.S. industry a breathing space from import surges, but not like this. You know, we're back to Smoot-Hawley plus for no reason.
INSKEEP: Paul Krugman writes for Substack, formerly with The New York Times. Thanks so much.
KRUGMAN: Thank you.
(SOUNDBITE OF EXPLOSIONS IN THE SKY AND DAVID WINGO'S "DEAR MADISON") Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
