Transcription
Starting the day, I take the oath of office. I will rapidly drive prices down, and we will make America affordable again. In the campaign, the big promise by Donald Trump was that he was going to bring down prices and make America affordable again. And everything he's done is the opposite of that. So, you know, if you were asking, um, you know, imported goods are going up in price, and we're going to see a lot more than that of that.
But, you know, vegetables are going up in price. And a little bit of that is tariffs, but a lot of that is, uh, farm workers are, uh, are making themselves scarce because they're afraid that ICE will pick them up. Um, if we're worried about housing costs, a lot of the construction industry's immigrant workers, and particularly the actual physical jobs, the guys actually up there on the roof tend to be immigrants. Many of them undocumented, and even the ones who are legal are afraid.
Ultimately, I think what really matters is the standard of living, yeah, for Americans across the board. What are we doing to the standard of living? Are we improving it, or are we actually turning it down? Oh, no. This is clearly all negative for the standard of living. You're making, you know, when you put a tariff on, one way of putting it, the sort of standard economist, Econ 101 thing, is you're taking things that, um, we do relatively badly and other countries do relatively well, and we're making, and we're insisting that those things be done here, which raises, raises costs, reduces our standard of living.
Um, if we look at the immigration policies, um, the really important thing about immigration in America is that the immigrants do not do the same jobs that native-born Americans do. They're very concentrated in a limited number of industries and occupations, which are very much complementary to the jobs that native-born Americans do. And, uh, by driving out the immigrants, we are reducing the productivity, reducing ultimately the, the living standard of the native-born workers.
Trump tariffs are a part of the story that Krugman knows well. His Nobel Prize was awarded in 2008 for work on trade patterns. But he says the tariffs themselves might not be the biggest problem. Consistent tariffs are bad, but not as bad as legend has it, right? You know, everybody's told, said Smoot-Hawley caused the Great Depression. That's not remotely true. And if you run, uh, even Trump's tariffs as they stand at the moment, uh, through a sort of standard models, they will reduce GDP by something like half a percentage point in the long run. That's serious. It's bad. It's, does terrible things to US credibility because we're breaking all of our agreements, but it's not a huge thing.
What we've never had before is tariffs where nobody knows what the tariff rates will be next month, let alone, you know, a year, two years from now. It's this complete, utter chaos. It's sort of the whims of the president, and then the question of whether the courts even allow him to do what he's doing, which wreaks havoc with business. Any investment a business makes right now has a good chance of turning out to be a really bad investment because the tariff rate isn't what you thought it would be.
What about margins for corporations? Because typically you might see it show up there. It's suggested that part of the reason we're not seeing tariffs is some of it's being absorbed by exporters, some by importers, and some by consumers. The exporters are not absorbing very much. We have independent data on prices actually charged by foreign countries for their exports to the United States, and those have not gone down. So they, it does not look as if foreigners are absorbing a significant amount. It does look like US businesses have so far absorbed a significant amount. Partly that's because they rushed inventory in. They rushed imports in to front-run the tariffs. Partly because they're not sure if the tariffs are here to stay. They don't want to raise prices and alienate consumers until they have no choice. But no, it looks quite significant.
And it's really important also to understand that, you know, um, this is not William McKinley's world economy. This is not what, what Trump thinks it is. This is not a world in which you export manufactured goods and you export farm goods, and that's it. This is a world of supply chains, complicated structures, and very many of the tariffs are actually being levied on inputs into US manufacturing. So this is doing a lot to actually raise costs of US businesses as well. So there isn't a lot of, of slack in, in, in the end. I'm enough of a, you know, I may be kind of center-left, but I don't believe that businesses are making massive profits that are can just be legislated away. So in the end, businesses won't be able to absorb them, and it's consumers.
What about the stated goals of President Trump? Uh, whether he's achieving them or not. One of them is actually to protect or bring back manufacturing jobs on shore of the United States. Is that a sensible goal? And by the way, how is it affecting the auto industry? Because the auto industry is supposedly one of the beneficiaries of all this. Yeah. The auto industry actually is sort of case in point for this is not actually working. And it's, for, for the auto industry, a lot of it has to do with the fact that there isn't a US auto industry. There's a North American auto industry. Uh, it's very integrated with Canada and Mexico. Parts of an individual car may cross a border seven or eight times before you end up with a finished vehicle. Um, and all of this stuff is adding cost. So the auto industry is particularly ill-suited. You know, steel and aluminum. What do you make cars out of? And we have tariffs on steel and aluminum.
Could there be an ironic, uh, unintended effect which is actually, as you put more and more pressure on the costs for manufacturers, they automate more? So it doesn't turn into jobs. It might turn into GDP, doesn't turn into jobs. Well, just in general, even aside from the cost pressures specifically, if you ask yourself which industries might be induced to come back to the United States, um, it'll be industries where the labor cost disadvantage is not too large. We're not going to be bringing back apparel. There's just no way, uh, unless you have just, you know, hundreds of percent tariffs, that we're going to bring clothing manufacturing back from Bangladesh to the Carolinas. Uh, what you can bring back conceivably are industries where they're, they're very capital-intensive. They're robots do a lot of the work. So we may be creating more jobs for robots, but not a whole lot of jobs for US workers.
There is the effect, apparently, we hear from Secretary Bessant, uh, on the deficit, that in fact, we are putting a lot more money into the Treasury because of these tariffs. Is it helping us on the debt and deficit? Well, in the direct effect, look, uh, tariffs are basically a tax. They're a sales tax, uh, that are levied on selected goods. They're, it's a sales tax on goods that we import. And sure, if I put on a national sales tax, uh, it would raise revenue and, and reduce the deficit. And, uh, you know, a lot of economists have said the United States really should have a value-added tax, which is basically a sales tax. And, uh, you know, most other advanced countries do that. And we kind of could use the money. So through a backdoor route, Trump is making America a little bit more like Denmark with a, with a sales tax paying for part of the, but, it's really not going to be enough money. Secretary Bessant has said it's like $300 billion. It's extremely unlikely that we'll get that much. Although it's, it's possible if we're increasing tariff rates by around 15 points. That could get you to several hundred billion dollars. But the idea that if you impose a tax, it raises money, that's not an exotic, uh, that's not a policy triumph. That's just how budgets work.
Are you concerned about the long-term permanent effects of what's happening right now rather than just the ups and downs, the vicissitudes of an electoral system? What people don't, I think, fully realize is that on tariffs, almost everything Trump has done is probably illegal under US law, but definitely a violation of international agreements. I mean, we have, we built the world trading system, and we built, I say we because that's the, the United States, the US created this thing, which is a system of rules and laws. We've just ripped up a whole system of trading agreements, a system that we built over 90 years because this really goes back to FDR. You don't put that back together. Even if the next president says, "Okay, everything, my first, uh, act is to undo everything Trump did." The United States will never be trusted again. We, we used to be a country where if we made an agreement, that was an agreement. I mean, you know, I was in the Reagan administration working on trade things, and there would be meetings in which some proposal would be floated, and the, um, guy from the US Trade Representative's office would say, "That would be illegal under the General Agreement on Tariffs and Trade," which binds. And end of discussion. In the Reagan administration, if it was a violation of our international agreements, we didn't do it. This administration doesn't care. They don't even try to justify violating these agreements.
Even as the Trump administration charts a very different economic path for the US overall, Krugman's home city of New York is facing its own potential shift. As the self-proclaimed Democratic socialist Zoran Mandani is ahead in the polls for the mayoral race, Krugman is more sanguine about what that could mean. What we call a socialist in America, it would be just kind of a social democrat in Europe. It's really not extreme. Some of his proposals might be a little, uh, I'm not sure about the rent stuff. Um, uh, I actually don't think that opening some city-run groceries is a problem. Um, and, uh, in practice, he would almost surely govern pretty much just a slightly more, uh, populist version of what we have. I don't think we need to worry about radical change.
But the rent stuff, as you called it, if the problem is affordability of housing in New York, uh, really freezing rents is not traditionally the way to get more housing stock built. Yeah. But what he's talking about is not freezing all rents. He's talking about stabilizing stuff that's already rent-controlled. And so it's really, um, it's a policy at the margin. It's probably not likely to have much effect on housing construction. And it does sound from other things he said that that he really would try to get a lot of housing built. And that's, uh, that's the important thing. I'm not really worried about that. And it's, you know, the panic over what really wouldn't be very different, uh, from the way New York City has been governed, uh, is, is all wrong. And it would take a lot to really ruin this city. The resilience of New York City has just been amazing over the.