Tariff Man Has Become Deficit Man

March 2019

By Paul Krugman


Republicans hate deficits. Or at least that’s what they claim.

Republicans in Congress spent the entire Obama administration inveighing against budget deficits, warning incessantly that we were going to have a Greek-style fiscal crisis any day now. Donald Trump, on the other hand, focused his ire mainly on trade deficits, insisting that “our jobs and wealth are being given to other countries that have taken advantage of us.”

But over two years of unified G.O.P. control of government, a funny thing happened: Both deficits surged. The budget deficit has hit a level unprecedented except during wars and in the immediate aftermath of major economic crises; the trade deficit in goods has set a record.

What’s the significance of this tide of red ink?

Let’s be clear: Neither the budget deficit nor the trade deficit poses a clear and present danger to the U.S. economy. Advanced countries that borrow in their own currencies can and often do run up large debts without drastic consequences — which is why the debt panic of a few years ago was always nonsense.

Yet Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant.

[Paul Krugman did explanatory journalism before it was cool, moving from a career as a world-class economist to writing hard-hitting opinion columns. For an even deeper look at what’s on his mind,sign up for his weekly newsletter.]

About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits? The truth is that the phoniness of their fiscal posturing should have been obvious all along.

In any case, at this point it’s undeniable that their fire-and-brimstone debt rhetoric was nothing but a pose, an attempt to weaponize the deficit as a way to block and undermine President Barack Obama’s agenda.

The moment they had a chance, the very politicians who grandstanded about the need for fiscal responsibility rammed through a huge tax cut for corporations and the wealthy — a tax cut that is the main reason for the exploding budget deficit.

Oh, and the tax cut has utterly failed to deliver the promised investment boom. Companies didn’t use their
giant windfall to build new plants and raise productivity, they used it to buy back a lot of stock, passing the gains on to wealthy investors.

What about the ignorance? As many people have pointed out to no avail, Trump is all wrong about what trade
deficits do. True, at times of high unemployment deficits can cost us jobs. But in normal times they don’t reduce overall employment, nor do they make us poorer.

On the contrary, other countries are sending us valuable goods and services, which we’re paying for with pieces of paper — paper that pays very low interest rates. Who’s winning, again?

Beyond that, however, Trump is completely wrong about what causes trade deficits in the first place. In fact, his own policies have provided an object lesson in the falsity of his vision.

In the Trumpian universe, trade deficits happen because we made bad deals — we let foreigners sell their stuff here, but they won’t let us sell our stuff there. So the solution is to throw up barriers to foreign products. “I am a Tariff Man,” he proudly proclaimed.