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TRUMP IS STUPID, ERRATIC AND WEAK  
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Paul Krugman
April 10, 2025
Paul Krugman's Substack Blog
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_ The tariff story so far is that Trump announced extreme policies,
insisted that he would persist no matter what, then beat an
ignominious retreat. In other words, Trump is a typical bully, full of
swagger, who runs away in the face of adversity. _

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Anyone sounding the all-clear on tariffs, or Trump economic policy in
general, should be kept away from sharp objects and banned from
operating heavy machinery. We’re in a hardly better place than we
were before Donald Trump announced a tariff pause (in a Truth Social
post, of course.) In fact, we may be in a worse place.

Let me make four points about Trump’s post-pause tariff regime.

1. Even the post-pause tariff rates represent a huge protectionist
shock

2. Destructive uncertainty about future policy has increased

3. We’re still at risk of a major financial crisis

4. The world now knows that Trump is weak as well as erratic

_Still a huge protectionist shock_

Yesterday Trump announced that he wasn’t going to impose all those
tariffs he announced last week after all. Instead, he’s putting a 10
percent tariff on everyone, and 125 percent on China.

Question of the day: Does the 10 percent rate still apply to the
penguins of the Heard and McDonald islands
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Anyway, this new announcement still sets tariffs at a much higher
level than they were before Trump took office, indeed higher than he
suggested during the campaign. For example, during the campaign
researchers at the Peterson Institute for International Economics
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a model assuming Trump implemented a 10 percent tariffs across the
board and _60_ percent on China. The researchers concluded that this
regime would impose a nasty shock on the US economy. Now we are facing
a tariffs of more than twice that level against China as well as 10
percent on all other countries.

How high are overall tariffs after the “pause” was announced?

That’s actually a tricky question. China accounted for 13 percent of
U.S. imports in 2024, and if you apply the newly announced rates to
2024 imports you come up with an average rate of 24.95
— _higher_ than before the pause. Incredibly high tariff rates on
China will, however, lead to lower imports from China, so a
calculation based on 2024 trade is problematic.

However, _not_ importing from China is also very costly: if we no
longer import a good from China we must either shift to other, more
expensive suppliers or the good simply disappears from the shelves. In
the chart at the top of this post I’ve made an estimate
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the “effective” tariff rate post-pause. The effective tariff takes
into account both direct and indirect costs, and reflects the increase
in the cost of living imposed by the tariff. With a 125% tariff on
Chinese imports and a 10% tariff on all other imports, I arrive at an
effective tariff rate that is slightly below the Smoot-Hawley level of
1930. But this still represents a huge jump in tariffs in a US economy
that now imports three times as much as it did in 1930. Trump’s
post-pause tariff regime remains the biggest trade shock in U.S., and
I think world history.

_It's the uncertainty, stupid_

Like many other observers, I’ve been arguing that uncertainty about
Trump’s policies
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as big a drag on the economy as the policies themselves. Before the
Rose Garden announcement, I warned that it wouldn’t be the end of
the story:

Trump may impose further tariffs, or slash them as suddenly as he
raised them, depending on who spoke to him last. L’Etat, c’est
Trump.

This kind of uncertainty is paralyzing for businesses, who are
realizing that any kind of long-term commitment can turn out to have
been a disastrous mistake. Build a plant that depends on imported
parts, and Trump may cut you off at the knees with new tariffs. Build
a plant that’s only profitable if tariffs stay in place, and Trump
may cut you off at the knees by backing down.

Again, the point is that there really isn’t a MAGA economic
philosophy, just whatever suits Trump’s fragile ego.

And so it has proved. So are things settled now? Hardly. The pause is
for 90 days. Then what happens? Nobody, Trump included, has the
faintest idea. If you imagine that the U.S. can negotiate “tailored
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tariff deals with the more than 75 countries Trump claims
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seeking a deal in just three months, ask yourself, who’s supposed to
be sorting out the details?

So if you were a business owner or executive, would you make any major
investments or long-term commitments over the next few months? I
wouldn’t.

_Still a risk of financial crisis_

Yesterday I noted
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financial markets were showing the telltale signs of an incipient
financial crisis. I looked mainly at the breakeven inflation rate, but
many other indicators were also flashing yellow. Even yields on
long-term federal bonds, normally a safe haven in troubled times, were
sounding a warning.

The inimitable Nathan Tankus has a new post
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we were and continue to be vulnerable to a new crisis. He explains why
the Rose Garden announcement may have been a new tariff-induced
“Lehman moment” for the financial system. He explains a lot of
stuff that I didn’t know or had grasped only vaguely — in
particular, how hedge funds have become key providers of liquidity,
even in the Treasury market (via the “basis trade.”) So when hedge
funds’ portfolios take a hit from erratic policy, this quickly
creates system-wide stress.

I’m planning to write a primer about financial crises and how they
happen this weekend.

The level of financial market stress declined somewhat yesterday, but
the situation remains fraught. Trump’s next stupid policy move —
and there _will_ be more stupid moves — could quite easily tip us
over the edge.

Above all, don’t take yesterday’s relief rally as a sign that the
danger is behind us. Look at how the NASDAQ behaved after the original
Lehman moment:

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There were several big but short-lived stock rallies along the way to
a huge decline. Assuming that yesterday’s surge was the end of the
story requires ignoring both the fundamentals of erratic policy and
the lessons of history.

_Bullies are weak_

The story of the tariffs so far — at least as other countries will
see it — is that Trump announced extreme policies, insisted that he
would persist with those policies no matter what, then beat an
ignominious retreat. In other words, Trump is a typical bully, full of
swagger and tough talk, who runs away at the first sign of adversity.

On tariffs, Trump’s cowardice and weakness may be a good thing. But
what about everything else?

_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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to Paul Krugman's Substack  column._

* Tariffs
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* trade wars
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* financial crises
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