Paul Krugman Calls Trump’s Tariff Policy a “Stupid Deal”

Economist Paul Krugman, in his latest column, launched a scathing critique of President Donald Trump’s tariff policies, particularly the recently announced trade agreement with Japan.

At the beginning of this week, the Trump administration proudly unveiled what it called a major trade deal. Krugman, however, dismissed it bluntly: “Now the reviews are in—and it’s scoring 0% on Rotten Tomatoes.”

According to Krugman, the backlash isn’t just from economists, but also from U.S. manufacturers—both business owners and workers—who were supposed to benefit from Trump’s tariffs.

A Shift Toward Protectionism

Krugman argued that under Trump, the U.S. has swung sharply into protectionism. In a matter of months, the country, once characterized by minimal trade barriers thanks to decades of international negotiations, has reintroduced tariffs at levels not seen since the Smoot-Hawley Tariff Act of 1930, which worsened the Great Depression.

Many business leaders had hoped the steep tariffs were only temporary and would be lowered once new trade deals with other countries were reached.

But the result turned out differently: Japan was instead slapped with a 15% tariff, up from just 1.6% (Before Trump/BT). Reportedly, the European Union may soon face similar treatment. According to Krugman, this 15% tariff on most imports—sometimes even higher on specific goods—now looks set to become the new normal.

Trump claimed that foreign countries would be the ones paying these tariffs, and his supporters pointed to stable consumer prices as proof. But, Krugman argued, they were looking at the wrong metric. What matters is import prices—the prices the U.S. actually pays to foreign producers—based on data from the Bureau of Labor Statistics.

“If Trump were right, import prices should have dropped sharply to offset the tariffs. In reality? That hasn’t happened,” Krugman said.

So who is actually paying for the higher import tariffs?

“So far, the main burden has fallen on American businesses, which are facing significant cost increases,” Krugman said.

A survey by the Institute for Supply Management shows that production cost inflation has reached its highest level since 2022. Until now, companies have been holding off on raising prices for consumers in the hope that tariffs would eventually be rolled back. But once it became clear that tariffs on Japan and Europe would remain high even after the deal, consumer prices are bound to soar.

Why is U.S. manufacturing so angry? “Because the combination of Trump’s tariffs actually hurts them,” Krugman explained.

He pointed to the auto industry as an example. Trump imposed a 25% tariff on all imported cars—including those from Canada and Mexico—citing national security concerns. Yet, many Canadian and Mexican cars contain components made in the United States, while Japanese cars largely do not.

Now, Japanese cars are subject to only a 15% tariff, which is lower than the rate applied to vehicles from Canada and Mexico—countries that actually support American jobs.

On top of that, the 50% tariff on steel and aluminum—key raw materials for car production—does not apply to Japanese producers. The result? “This deal actually benefits Japan,” Krugman argued.

Krugman also criticized the U.S. trade negotiation team, which should have involved seasoned experts when dealing with key partners. “In reality, this looked like amateur work,” he charged.

He pointed to photographic evidence showing Trump holding a card that listed Japanese investment at $400 billion, which had been crossed out by hand and replaced with $500 billion, only to be announced officially as $550 billion.

“Clearly, Trump’s team had no idea what they were doing. They rushed to strike a deal without realizing the tariffs were hurting American manufacturing,” Krugman said.

He suggested that Trump and his team were eager to announce a “success” before the August 1 deadline. “They were in such a rush they ignored the details,” he remarked.