Tuesday, May 13, 2025

Don't Be Fooled - Rationality Has Not Returned To Trump Policies


 Economist Paul Krugman gives us this chart and four points to know about the Trump announcement of a 90 day pause between the U.S. and China with lower tariffs.

Four points:


1. A 30 percent tariff is still really, really high, especially combined with the 10 percent tariff we’re imposing on everyone else. The back of my envelope says that the average U.S. tariff rate will now be around 13 percent, up from around 3 percent when Trump began his trade war. Before all this drama that would have been seen as wildly protectionist.


2. This wasn’t a case of both sides backing down. China only imposed its tariffs as a response to Trump’s gambit, and has reduced them only because he retreated. And retreat he did. This was basically Trump running away from the killer rabbit.


3. The prohibitive tariff has been paused, not canceled. Nobody knows what will happen in 90 days. I’ve long argued that the uncertainty created by Trump’s arbitrary, ever-changing tariffs is at least as important as the level of those tariffs. Well, the uncertainty level has arguably gone up rather than down.


4. This retreat probably hasn’t come soon enough to avoid high prices and empty shelves. Even if shipments from Shanghai to Los Angeles — which had come to a virtual halt — were to resume tomorrow, stuff wouldn’t arrive in time to avoid exhaustion of current inventories.


I guess it’s good news that Trump slammed on the brakes before driving completely off the cliff. But if you think that rationality has returned to the policy process, that the days of government by ignorant whim are now behind us, you’ll be sorely disappointed.

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