Trump Brazil tariffs ‘illegal,’ says economist Paul Krugman : NPR

President Trump’s threat to impose higher tariffs on Brazil is “grotesquely illegal,” says Nobel Prize-winning economist Paul Krugman.

Brazil was among the countries Trump threatened with tariffs in letters posted to social media last week. Trump said Mexico and the European Union will see new tariffs starting Aug. 1.

Most of the letters indicated that the new tariffs — 30% for most — were intended to rectify trade imbalances with the U.S. But the letter to Brazil cited Brazilian politics and said there was a “witch hunt” against Brazil’s former far-right president Jair Bolsonaro, who is currently on trial for trying to overturn the country’s 2022 election. Trump demanded the case be dropped or the U.S. will impose a 50% tariff on all Brazilian exports.

Krugman told Morning Edition that “not liking what a country’s judicial system” is not a typical demand made in trade agreements or a reason laid out under U.S. law for imposing tariffs.

Many observers assume Trump will back down from his demands, but Krugman says his tone is different this time around.

“This time, he’s proposing tariffs that are higher than the original ones. This doesn’t sound like a guy who’s about to go back to normal trade policy,” Krugman said. The White House did not immediately respond to NPR’s request for comment.

Krugman, who has been critical of the president’s approach to tariffs, spoke to NPR’s Steve Inskeep about why Trump is imposing higher tariffs on multiple countries again.

The following excerpt has been edited for length and clarity. 

Steve Inskeep: What do you make specifically of the tariffs announced for Brazil?

Paul Krugman: First thing that I’m not seeing people realize enough is that all of this is grotesquely illegal. The United States and Brazil have both signed international trade agreements that very specifically give grounds, which under some circumstances you can pose tariffs. Not liking what a country’s judicial system is doing is not on the list. And the president has significant discretion to set tariffs under U.S. law. But again, all of the justifications for temporary tariffs are economic. Interfering with another country’s legal proceedings is not on the list. So we’re basically breaking an international treaty. And the president is basically defying the law and doing stuff that he has no authority to do domestically.

Inskeep: That’s very interesting what you say there, because you’re talking specifically about the Brazilian example where the president is objecting to something that Brazil is doing inside their own country. But you’re reminding me that a trade court has found that other tariffs that the president has claimed, that his emergency authorities from a law in the 1970s, are being abused or overused because the law doesn’t specifically allow for tariffs in some instances. Is that argument true well beyond Brazil then?

Krugman: Of course. The bulk of what he’s doing is under the grounds that there’s an economic emergency that gives him special powers to set tariffs. But Trump is boasting about how great the U.S. economy is. So he himself has said that there is no economic emergency. So, again, this is a pure abuse of power. And if we had a functioning court system, he would be stopped from this right away.

Inskeep: Let me ask about the economics of this and essentially who pays the tariffs. The president has said, continuously, that a tariff is a tax on a foreign country. Economists like yourself have pointed out that actually it’s an import tax that American importers pay and frequently pass on to the consumers. And the idea is that we end up paying. We end up paying higher taxes. We end up paying higher prices. But then I’ve been looking at headlines in the last couple of days that challenge that a little bit, and I want you to address this. The headline is ‘Japanese automakers slash export prices to offset 25% tariffs.’ They haven’t cut prices 25%, but they’ve cut them 19%. They actually are picking up some of the cost of the tariffs. What do you make of that?

Krugman: Well, there’s going to be some of that, but not very much and not for very long. Suppose we imposed a sales tax on domestic producers of some good or a sales tax on people buying what domestic firms produce. For a while, companies might try to hold down their prices. They might try to absorb it to keep market share. But that can’t go on for very long. And if you went to the Small Business Association in the United States and said, ‘OK, we’re imposing a 25% tax on everything you sell, but we expect that you will cut prices so that consumers don’t pay it.’ They would go wild. They would say, ‘You’re dreaming.’ Nobody has that kind of profit margin. Nobody can do that.

What’s happening right now is a lot of people are still making decisions on the TACO theory — Trump Always Chickens Out — believing that this will go away in a month or two. I think they’re wrong. But once it becomes clear that these are here to stay, it’s going to end up being American consumers paying.

Inskeep: I feel that I have perceived the TACO theory in the last few days. I’ve heard it suggested that the tariffs promised in this series of letters by Aug. 1 are actually higher in the aggregate than on Liberation Day, which crashed the markets. The markets haven’t crashed so far. Are people assuming this isn’t really going to happen?

Krugman: Yeah. Everything I hear is that people are assuming that it’s going to back down, but there’s no hint of that in the tone of the letters. You should draw some lessons from the fact that after all this time, he’s actually proposing tariffs that are higher than the original ones. This doesn’t sound like a guy who’s about to go back to normal trade policy.

This digital story was edited by Obed Manuel. The radio version was produced by Linsday Totty.