by Paul Krugman
The Mexican tariff incident is truly amazing, because it shows dysfunctional, ignorance, and incompetence at multiple levels. The motivation for Spicer’s initial remarks seems to be that Trump is feeling disrespected (again): people are making fun of him (again) because he promised that Mexico would pay for the wall, and it won’t. So someone had the bright idea of claiming that a tariff will do it imagining that the House plan for a border tax adjustment as part of corporate tax reform is the same thing. But it isn’t.
For one thing, that adjustment can’t be country-specific; also, it isn’t really just like a tariff. But wait, it gets worse. Tariffs aren’t paid by the exporter; it depends a bit on the details, but it’s basically a tax on domestic consumers. Wait, it gets worse still: the claim that everyone else taxes imports is wrong too. A VAT [Value-added tax] is NOT like a tariff. It’s a sales tax that is neutral in its effects on trade. Now, the proposed border tax adjustment is a bit different. It might in fact act like a combined export subsidy and import tariff. But for that very reason, it might well be considered WTO-illegal because it’s not just doing what others do. And even if it somehow doesn’t bring down the world trade system, its effects would be dissipated by a stronger dollar.
So let’s sum up: Trump was probably feeling low, so aides told him they had an answer to his critics but they didn’t understand either the economics or the world trade rules, and didn’t realize how explosive the whole thing was. Now they’re trying to walk it back, looking even more ridiculous in the process. How are we going to survive years of this?
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This blog will focus on political images I have found all around the Internet, though I will intersperse some commentary and quotes that I find interesting.
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