Paul Krugman Says Trump Tariffs Will Hurt 80% Of Americans, Benefit Only The Top 1%: 'Burden Would Fall On…Working Class And The Poor'

Presumptive Republican candidate Donald Trump is rumored to have told Republican lawmakers that he would replace taxes with tariffs, and Nobel laureate and noted economist Paul Krugman on Tuesday weighed in on the ramifications of such a policy move.

Consumers To Bear Brunt? Much against claims by leading Republicans that tariffs are a tax on businesses and that they are paid by foreigners, they do hurt consumers, said Krugman in a New York Times op-ed.

To make his case, Krugman referred to the situation that prevailed when Trump was in office. The former president imposed high tariffs on China in 2018 and 2019, with the average U.S. tariffs on imports from China climbing from about 3% to 21%, the economist said. At the same time, the average price of imports from China fell only around 2%, he said, adding that an 18-point rise in tariffs was offset by only a 2% decline in Chinese import prices, net of tariffs.

“That sure looks as if American consumers bore the great bulk of the burden,” the economist said.

Ideally, if a big country like the U.S. imposed tariffs on a broad range of goods, it can improve the prices of its exports relative to its imports, provided the other countries do not respond with tariffs on U.S. exports, Krugman said. But in reality, the tariffs will work via a rise in the value of the dollar if the U.S. reduced imports, he said. This will lower the dollar price of the goods the U.S. imports, he added.

“And this effect wouldn't be confined to the prices of imports from the countries subject to high tariffs,” Krugman said.

The economist sees the scope of other countries retaliating if the U.S. imposed widespread tariffs.

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Who’s Impacted: Trump’s economic program calls for a combination of tax hikes in the form of higher tariffs and tax cuts for corporations and high-income individuals, Krugman noted. The former president’s idea of replacing income tax with tariffs isn't feasible, he added.

If Trump collected as much tariff revenue as possible while cutting income taxes by the same amount, this combination would affect Americans at different levels, the economist said, citing an analysis by the Peterson Institute.

“The net effect would be negative for 80 percent of the population, especially for the bottom 60 percent, while extremely positive for the top 1 percent,” Krugman said. This is because lower-income families spend a higher share of their income than the rich, so they would be hurt more by what would amount to a large sales tax, he said.

The benefits of tax cuts would flow mainly to the top, Krugman said, adding that income taxes are disproportionately paid by the affluent. Around half the population doesn't pay income taxes at all, although they pay lots in other taxes, such as the payroll tax, he added.

It’s not China or foreigners in general who will pay the tariffs which Trump will certainly impose if he occupies the White House once more time, Krugman said. “Everything says that the burden would fall on Americans, mainly the working class and the poor,” he added.

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