Trump’s trade pol­icy founded on ba­sic er­rors

The Columbus Dispatch - - Opinion/ Forum - PAUL KRUG­MAN Paul Krug­man writes for The New York Times. oped@ny­

When Don­ald Trump came to of­fice, many feared that he would break up our close eco­nomic re­la­tions with Mex­ico and/or start a trade war with China. So far, nei­ther has hap­pened. But his trade ire seems in­creas­ingly fo­cused on an un­ex­pected tar­get: the Euro­pean Union, which he tweeted has ‘‘hor­rific bar­ri­ers & tar­iffs on U.S. prod­ucts go­ing in.’’

This is odd on sev­eral lev­els. To the (very large) ex­tent to which Trump­ism is based on racial en­mity, pick­ing a fight with Europe, of all places, seems strange. Be­yond that, Trump is just wrong on the facts. ‘‘U.S. ex­ports to the Euro­pean Union en­joy an av­er­age tar­iff of just 3 per­cent,’’ says the U.S. govern­ment’s own guide to ex­porters.

Where is Trump get­ting his mis­in­for­ma­tion? Prob­a­bly from Peter Navarro, his trade czar, whose star is clearly ris­ing. And the story of Navarro’s rise tells you a lot about the na­ture of the Trump ad­min­is­tra­tion, a place that re­wards those who tell the boss what he wants to hear.

First, how was Navarro re­cruited? Ac­cord­ing to re­port­ing in Van­ity Fair by Sarah El­li­son, dur­ing the cam­paign Trump told Jared Kush­ner to find some re­search sup­port­ing his pro­tec­tion­ist trade views. Kush­ner went on Ama­zon, where he found a book ti­tled ‘‘Death by China.’’ So he cold-called Navarro, one of the book’s au­thors, who be­came the cam­paign’s first eco­nomic ad­viser.

Navarro has an eco­nom­ics Ph.D. but holds views very much at odds with the main­stream. True, or­tho­doxy isn’t al­ways right. But giv­ing het­ero­dox views a hear­ing works only if the peo­ple seek­ing ad­vice are them­selves open-minded thinkers, will­ing to put in the hard work of un­der­stand­ing op­pos­ing views and as­sess­ing the ev­i­dence. If this sounds to you like a de­scrip­tion of Don­ald Trump, you might want to seek pro­fes­sional help.

In fact, Navarro’s non­main­stream views mainly seem to in­volve ba­sic con­cep­tual and fac­tual er­rors. One of these er­rors, which bears di­rectly on the TrumpEurope spat, is a com­plete mis­un­der­stand­ing of the trade ef­fects of value-added taxes (VATs), which the U.S. doesn’t have but which play a large role in most Euro­pean coun­tries’ rev­enue.

In Navarro’s ver­sion of the world, VATs give Euro­pean com­pa­nies a huge, un­fair trade ad­van­tage. U.S. prod­ucts sold in Europe have to pay VAT — for ex­am­ple, they must pay a 19-per­cent tax if sold in Ger­many. This, says the white pa­per, is just like an im­port tar­iff. Mean­while, Ger­man pro­duc­ers pay no VAT on goods they sell in Amer­ica; this, the pa­per says, is just like an ex­port sub­sidy. I’m pretty sure that’s what Trump means when he talks about ‘‘hor­rific’’ tar­iffs.

But what this story misses is the fact that when Ger­man pro­duc­ers sell to Ger­man con­sumers, they also pay that 19-per­cent tax. And when U.S. pro­duc­ers sell to U.S. con­sumers, they, like Ger­man pro­duc­ers, don’t face any VAT. So the tax doesn’t tilt the play­ing field at all, in ei­ther mar­ket. In re­al­ity, a VAT is ba­si­cally a sales tax.

So how does some­one who mis­un­der­stands such a ba­sic, well-un­der­stood point about taxes and trade get to be a key eco­nomic ad­viser? As I said, it’s be­cause he tells the boss what he wants to hear. More than that, he’s will­ing to abase him­self.

Here’s what he told Bloomberg re­cently: ‘‘My func­tion, re­ally, as an econ­o­mist is to try to pro­vide the un­der­ly­ing an­a­lyt­ics that con­firm his in­tu­ition. And his in­tu­ition is al­ways right in these mat­ters.’’ Wow. Since when has it be­come ac­cept­able to de­clare that Dear Leader is in­fal­li­ble?

Now, it’s com­mon­place, but also a eu­phemism, to say that Trump has author­i­tar­ian in­stincts. A more ac­cu­rate state­ment would be that he ex­pects the kind of treat­ment tin-pot dic­ta­tors de­mand, free from any crit­i­cism and greeted with con­stant hosan­nas of praise.

And ev­ery­one who isn’t will­ing to play the full game, who has tried to play by some­thing re­sem­bling nor­mal demo­cratic rules, seems to be flee­ing the ad­min­is­tra­tion. Soon only the shame­less syco­phants will be left. This will not end well.

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