Back in the 1990s, I remember enjoying Paul Krugman's writings about trade policy and globalization. But now he writes things like this:
After all, doesn’t everyone know that protectionism causes recessions? Actually, no. There are reasons to be against protectionism, but that’s not one of them.
Think about the arithmetic (which has a well-known liberal bias). Total final spending on domestically produced goods and services is
Total domestic spending + Exports – Imports = GDP
Now suppose we have a trade war. This will cut exports, which other things equal depresses the economy. But it will also cut imports, which other things equal is expansionary. For the world as a whole, the cuts in exports and imports will by definition be equal, so as far as world demand is concerned, trade wars are a wash.
OK, I’m sure some people will start shouting “Krugman says protectionism does no harm.” But no: protectionism in general should reduce efficiency, and hence the economy’s potential output. But that’s not at all the same as saying that it causes recessions.
But didn’t the Smoot-Hawley tariff cause the Great Depression? No. There’s no evidence at all that it did. Yes, trade fell a lot between 1929 and 1933, but that was almost entirely a consequence of the Depression, not a cause. (Trade actually fell faster during the early stages of the 2008 Great Recession than it did after 1929.) And while trade barriers were higher in the 1930s than before, this was partly a response to the Depression, partly a consequence of deflation, which made specific tariffs (i.e., tariffs that are stated in dollars per unit, not as a percentage of value) loom larger.
Three points here.
First, a lot went into the Great Depression, and while it's true that higher tariffs were not the sole cause, surely they didn't help.
Second, the idea that cutting imports, as part of a trade war or otherwise, is "expansionary" is completely wrong, which he himself seems to realize, because ...
... Third, in the paragraph after asserting that cutting imports is "expansionary," he acknowledges that "protectionism in general should reduce efficiency, and hence the economy’s potential output."
If any economists out there want to try to make sense of what he is saying, and why he is saying it, please feel free to do so in the comments.
Krugman follows up with more here, in which he appears to say that Mitt Romney and Donald Trump support the same trade policies. I'll grant that no one, including Donald Trump, knows exactly what Donald Trump really believes with regard to any particular policy, but nevertheless Trump's public statements on trade with China seem significantly different than what Romney was saying back in 2012.
