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Listening to him was Paul Krugman, the Nobel Prize winning economist now based in New York
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who's here to give us a broader perspective on the impact of the Trump tariffs
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Paul, very, very good to have you on the show. Could I ask you, as it were, to hover high above the globe, look at the entire world economy
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and tell me what you believe the effect of the widespread Trump tariffs might be on the world economy tomorrow
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Well, this is going to be very, very ugly. I mean, if you do a comparison, the infamous Smoot-Hawley tariff of the late 1920s was actually small compared with what's about to happen
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Given our best, you know, it's all in the mind of Donald Trump, so we don't actually know what's going to happen
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But the best estimates are that we're going to see tariffs rise to a level that we haven't seen for 80 to 90 years
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And the world is a much more integrated place. World trade is much bigger as a share of income than it was in the 1930s So this is a huge shock to the system It no you know we have models which tell you X percent but we really don know how big the impacts are except that they large
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And you want to combine that with the fact that it's also unstable. Well, everyone is guessing
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what Trump will announce tomorrow. And now there's no reason to think that that's the end of the
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story. He may back off some of them. So there'll be retaliation, and then retaliation against the
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retaliation, and tit for tat, and on and on. Well, and also some possibility that he might
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back down. Nobody really knows. And in a way, the uncertainty is a bigger killer than the tariffs
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themselves. If you're a business person trying to make an investment, you have an investment
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which will make sense if we have 25% tariffs on everything, but will be nonsense if we don't
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And you have other investments that might make sense if you think the tariffs are going to be
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that Trump is going to relent. And so what's going to happen, we can already see it happening
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starting to happen in business surveys is that business is sitting on its hands You know hold on to cash Don do anything because Trump next whim may turn your decision into a disaster
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And is this why we're seeing markets tumbling all around the world and a kind of rush to gold
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People are buying gold wherever they can. Yeah, I have to say normally the whole argument, buy gold because it's a dangerous place, is a bad argument
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But this really is. It's hard to see. I think there is some sense in it
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And the markets, if anything, I would say the markets are still not fully facing up to the reality
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They're still imagining that this is Trump four years ago who allowed himself to be held back
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Basically, the Wall Street guys holding him back by the elbows and step back from the brink, but not this time around
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So it's it's really awesome. You do a chart of tariff rates over time and our best guess about what Trump's about to do
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And it's like, you know, down, down, down and then spiking right up to levels that we haven't seen again since the 1930s
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And how long do you think it take for American consumers to notion to notice the inflationary impact of tariffs Well they already noticing You already starting to see it And you know one of the things that interesting is that I actually had imagined that it would take a while
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before consumers realized that they were facing a sudden bout of inflation. But it's already in
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there. So people are already anticipating a lot of inflation. And we will actually
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You're starting to see it already. The official numbers are a bit of a lagging indicator, but the soft data, we just had some report on input costs from manufacturers in the United States today, and it's spiking
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So you can already see the tariffs. Partly some prices rise in anticipation of the tariffs
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Some of these things like metals prices, input prices, are rising because people know the tariffs are coming
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and so there's a rush to stockpile stuff. So this will happen
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This is not going to be a slow motion event. This is going to be really quick. Really quick
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It's going to be a very, very wild few days and weeks ahead. Professor Krugman, thank you very much indeed for talking to LBC tonight
