Paul Krugman warns Trump doesn’t understand the world’s ‘Germany problem’ and recession is looming

Economist Paul Krugman. Photo by Lou Gold license CC NC SA 2.0 via Flickr

President Donald Trump’s trade war with China is not going particularly well and everyday Americans will soon feel the costly effects of this. But as if that weren’t enough, there’s a growing consensus that this is fueling the likelihood of a recession in the near future, AlterNet reports. Economist Paul Krugman notes that Trump is causing an additional problem that’s likely to worsen the situation.

At his recent rally in New Hampshire, the president suggested a trade war with Europe is now on the horizon and Krugman argues this is especially bad news because Trump doesn’t understand what an economic debacle this could be.

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Trump used his usual crayon words to complain that the European Union was behaving badly.

“The European Union is worse than China. Just smaller. It treats us horribly: barriers, tariffs, taxes,” he told his supporters. “They treat us really badly.”

But in an opinion piece for The New York Times, Krugman notes Trump is just plain wrong. While Germany’s economic problems are troubling and do cause harm to the world economy, Trump, he says, is going after the wrong thing.

Instead, Trump is blaming economy problems on a vast conspiracy that people are out to get him, Krugman notes. This gives him and his supporters the chance to play the victim once again and ignite the flames of resentment, victimhood, and entitlement into a white nationalist bonfire.

But his claims that the European Union is treating the U.S. unfairly fly in the face of facts, Krugman says.

“Europe does not, in fact, treat us badly,” he writes, “its markets are about as open to U.S. products as ours are to Europe’s.”

And if you’re curious about this, you can find out more here.

Krugman also notes the U.S. may have much more to lose if the economic situation worsens. This is because the U.S. exports to Europe are three times greater its exports to China, meaning the impact of a second trade war could do serious damage.

For reference, Krugman sites 2010, when real economic austerity hit the U.S. and Europe. That resulted in catastrophically high unemployment, something that those in power did little to fight. Instead, they demanded spending cuts which greatly slowed down the recovery and did nothing to help unemployment.

Krugman notes:

“While debt alarmism both here and in Europe, however, it eventually became clear that there was a crucial difference in underlying motivation. Our deficit hawks were, in fact, hypocrites, who suddenly lost all interest in debt as soon as a Republican was in the White House. The Germans, on the other hand, really meant it.”

So on the one hand, Germany forced some debt-bedeviled nations in southern Europe into severely austere and society-destroying spending cuts, but on the other hand, it also punished itself severely. And it has steadfastly refused to take advantage of negative interest rates for government borrowing to spur demand, writes AlterNet’s Cody Fenwick.

German consumers are willing to spend but the government isn’t willing to pick up the slack and that means a recession may follow soon, Krugman writes.

“Most of the costs of German fiscal obstinacy fall on Germany and its neighbors, but there are some spillovers to the rest of us,” he adds. “Europe’s problems have contributed to a weak Euro, which makes U.S. products less competitive and is one reason American manufacturing is sliding. But characterizing this in which Europe is taking advantage of America gets it all wrong and is not helpful.”

But it’s not just that Trump’s completely wrong. His bad ideas — additional tariffs and trade wars may plunge the U.S. and much of the rest of the world into another recession. Krugman admits he would like to see Germany take less drastic action, but he also understands why the U.S. offers little help “if our own leadership had any intellectual or policy credibility, but of course, it doesn’t.”

“There’s a sense in which the whole world has a Germany problem, but it’s up to the Germans themselves to solve it,” he notes.

In conclusion, he notes this isn’t a problem you can easily throw ice water on, and Trump’s so-called “solutions” are terrible ideas.

“One thing is for sure: starting a trade war with Europe would truly be a lose-lose proposition, even more so with our trade war with China,” he writes. “It’s the last thing either America or Europe needs. Which means that Trump is probably going to do it.”

Krugman is sounding the dog whistle here, but Trump is too deaf to hear it.

Featured image by Lou Gold license CC NC SA 2.0 via Flickr