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HOW A CON MAN PRESIDENT IS DESTROYING CONFIDENCE  
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Paul Krugman
April 4, 2025
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_ Permanent tariffs are bad for the economy, but businesses can, for
the most part, find a way to live with them. What business can’t
deal with is a regime under which trade policy reflects the whims of a
mad king. _

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Normally, I don’t believe in confidence.

In the aftermath of the 2008 financial crisis, “confidence” was
the first refuge of scoundrels. That is, the supposed need to retain
or restore confidence was constantly invoked as a reason to pursue
destructive policies. If you argued for adequate stimulus
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fight the Great Recession, you were told that this would undermine
confidence. If you argued against austerity
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would block economic recovery, you were told that slashing spending
would actually boost the economy, because it would inspire confidence
— a claim I mocked as belief in the “confidence fairy.”

The truth is that most of the time you should evaluate economic
policies based on what they actually do, not with speculation about
how you imagine they will affect confidence.

But this isn’t most of the time. This is the third year of the
second Trump presidency — OK, it’s actually only part way through
the third month, but it feels like years. And Trump is in the process
of showing that a sufficiently chaotic and incompetent government can,
in fact, do enough damage to confidence to inflict serious economic
harm.

The most telling indicator here isn’t the plunging stock market —
Paul Samuelson’s old jibe about the market having predicted nine of
the last five recessions still applies. It is, instead, the plunging
value of the dollar:

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Source: xe.com

Standard economic analysis says that tariffs strengthen a nation’s
currency. If the United States puts taxes on imports, this discourages
businesses and consumers from buying foreign goods, which reduces the
supply of dollars to the foreign exchange market and should drive the
value of the dollar up.

In fact, the normal effect of tariffs on the exchange rate was one of
the reasons to doubt that the Trump tariffs would help U.S.
manufacturing: A stronger dollar would make U.S. producers less
competitive, offsetting the protective effects of the tariffs. And as
you can see in the chart above, investors drove the dollar up after
Trump’s election win, partly because they believed that tariffs
would have their usual effect.

But the dollar fell once investors began to see Trump policy in
action. Permanent tariffs are bad for the economy, but businesses can,
for the most part, find a way to live with them. What business can’t
deal with is a regime under which trade policy reflects the whims of a
mad king, where nobody knows what tariffs will be next week, let alone
over the next five years. Are these tariffs going to be permanent? Are
they a negotiating ploy? The administration can’t even get
its talking points
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with top officials saying that tariffs aren’t up for negotiation
only to be undercut by Trump a few hours later.

Under these conditions, how is a business supposed to make
investments, or any kind of long-term commitment? Everyone is going to
sit on their hands, waiting for clarity that may never come.

Wait, it gets worse. You might have expected a lot of careful thought
to go into the biggest change in U.S. trade policy since the republic
was founded:

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But since Trump delivered his Rose Garden remarks
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we’ve had a series of revelations about how slapdash and amateurish
an operation this was. Trump declared that he was imposing tariffs on
nations “that treat us badly”:

[W]e will calculate the combined rate of all their tariffs,
non-monetary barriers, and other forms of cheating.

But we soon learned that no such calculation had taken place.
Trump’s tariffs were, instead, determined by a crude, and,
well, stupid formula
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made no economic sense. It’s still an open question whether that
formula was determined by some junior staffer or derived from ChatGPT
and Grok.

Maybe the next movie in the Terminator franchise will be
“Terminator: Trade War,” in which Skynet realizes that it
doesn’t have to destroy humanity with nuclear bombs, it can
accomplish its goals simply by giving bad economic advice.

An aside: Did anyone think about how to enforce wildly different
tariffs
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different countries, when it would be easy to transship goods? The
Republic of Ireland, which is part of the European Union, is supposed
to face a 20 percent tariff, while Northern Ireland, part of Britain,
faces only a 10 percent rate. So can Irish exporters cut their tariffs
in half by shipping goods out of Belfast? Will there be elaborate
rules of origin to prevent this? And who will devise and enforce these
rules?

Actually, I’m pretty sure I know the answer to my question: No,
nobody thought about that, because there wasn’t time. The Wall
Street Journal
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that the White House didn’t even settle on the idea of
country-specific tariffs until the day before the big announcement.

Again, the biggest trade policy change in history, hastily and
sloppily thrown together at the last minute.

It’s no wonder, then, that confidence has taken a big hit. If you
ask me, however, I’d say that confidence is still too high: business
still hasn’t grasped how bad things are. For while tariffs are
dominating the news right now, they’re part of a broader pattern of
malignant stupidity. It may take a while before we see the effects of
DOGE’s destruction of the government’s administrative capacity, or
RFK Jr.’s destruction of health policy, but we will see those
effects eventually.

And Republicans have just confirmed Dr. Oz to run Medicare and
Medicaid. What could go wrong?

Personally, I’m feeling very confident. That is, I have high
confidence in predicting that we’re heading for multiple policy
trade wrecks, inflicting damage like you’ve never seen before.

_I [Paul Krugman) am an economist by training, and still a college
professor; my major appointments, with some interim breaks, were at
MIT from 1980 to 2000, Princeton from 2000 to 2015, and since 2015 at
the City University of New York’s Graduate Center. I won 3rd prize
in the local Optimist’s club oratorical contest when in high school;
also a Nobel Prize in 2008 for my research on international trade and
economic geography._

_However, most people probably know me for my side gig as a New York
Times opinion writer from 2000 to 2024. I left the Times in December
2024, and have mostly been writing here since._

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* Tariffs
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* Economy
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* global economy
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* Donald Trump
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