“This will hurt the world economy, with the burden falling mainly on lower-income Americans. The Yale Budget Lab estimates that Trump’s tariffs will leave the U.S. economy 0.4 percent poorer in the long run, which is very close to my own back-of-the-envelope calculations.” Paul Krugman
I quote Paul Krugman again as with Trump’s Japan trade deal because it is also Trump’s usual smoke and mirrors—lots of promises but little substance. Why are markets relieved that Trump’s announced 30 percent EU retaliatory tariffs are now 15 percent, when retaliatory tariffs are illegal according to the Foreign Trade court?
Because it means less chaos and more predictability for the moment, but only for the moment.
Neither the EU nor Americans are better off with the new 15 percent tariffs levied on EU products, but none on U.S. exports to the EU. And it will once again shift more of the burden of paying off the tax cuts that benefit Trump and his buddies “onto poor and working-class families,” per Krugman
There is a very small trade imbalance when services as well as goods are included in our trade with the EU, despite Trump’s claims there’s a huge trade deficit. And U.S. exports to EU have just a 1 percent tax at present, so there’s no discrimination.
The biggest lie of all is Trump’s attempt to disguise the fact that a tariff isn’t an import tax, when it is levied at the U.S. Custom ports on goods entering the U.S., not elsewhere.
“…the tariffs are basically a sales tax that will reduce real income for poor and working-class families by about 1.5 percent, even as cuts in other taxes raise income for the wealthy,” says Krugman.
The trade deals are also hiding the fact that neither Japan nor the EU requirements for investing in the U.S. are specific enough.
The tariffs on EU manufactured autos will be lower than those manufactured in the U.S. and Canada, for instance, as with Japan. And the investment guarantees don’t specify whether they will result in actual factories.
So what are the Europeans really paying for? Protection. They have promised to buy more American weapons and keep Trump on their side in the Ukraine war that requires U.S. weapons to stop Putin and end the war.
There is much more to Trumponomics, Trump’s economic agenda, that I will cover in future columns. His insistence on cutting interest rates resembles GW Bush’s push to have then Fed Chair Alan Greenspan’s Governors keep interest rates artificially low to pay for his wars on terror. The inflation rate then was higher, in the 3-5 percent range.
I believe we will see inflation rise to a similar range when the tariff taxes really begin to take effect and kick in the slower growth plus higher inflation formula that prevailed during the Greenspan era at the Federal Reserve, and led to the Great Recession.
Trump contends the U.S. will no longer be paying as much to defend Europeans. Their smaller defense budgets made it possible for Europeans to afford their universal health plans and better social services, higher minimum wages, paid leave and mandated vacations.
The problem with having a conman as our president, is that most Americans won’t benefit from the cutbacks in military aid to the EU. We aren’t reducing our military budget but increasing it, while reducing our already underfunded social safety net, including social security.
What happens when the smoke clears and ordinary Americans realize that we have been short changed?
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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