Nobel Economics Prize winner Krugman: The U.S. is "third worldizing," rapidly losing credibility as the core of global finance; within less than three months, the Trump administration has destroyed credit assets accumulated over 80 years by the United States, yet Trump remains deeply self-hypnotized.

The sudden announcement by the Trump administration to suspend reciprocal tariffs for 90 days, while raising the proportion of Chinese goods to 125%, was met with an immediate 125% countermeasure from China, shocking the globe. 2008 Nobel Economics Prize winner Krugman criticized Trump's deep self-hypnosis in his article titled "The U.S. Is Third Worldizing."

Krugman pointed out that a series of trade policies implemented by the Trump administration after returning to the White House have shocked the world, not only causing investor confidence to collapse but also leading to severe reactions in traditionally stable bond and currency markets, reflecting deep doubts about America's future.

For instance, using the reciprocal tariff policy along with high tariffs on steel and aluminum products, overall trade barriers remain high. Yale University’s Budget Lab estimates that the new tariff measures will increase U.S. consumer prices by approximately 2.9%, which is ten times the impact of the infamous "Smoot-Hawley Tariff Act" of 1930.

( ) Chaotic Tariff Policies

Krugman described the Trump administration's consecutive release of two equally radical tariff policies as incredibly chaotic. Even White House officials claimed such shifts were planned all along, further damaging policy credibility.

Some observers optimistically expected these tariffs to be negotiation strategies, but Krugman dismissed this notion. He emphasized that Trump and his core economic advisor Navarro firmly believe that foreign countries generally treat the U.S. unfairly, but this is not true. For example, the average tariff imposed by the EU on U.S. goods is only about 1.7%, lacking any so-called "hidden barriers." Navarro claimed that Europe's value-added tax is equivalent to a tariff, but this assertion does not hold up.

Krugman analyzed that foreign countries might make symbolic concessions to allow Trump to claim victory domestically. This has happened before; for instance, Trump exaggerated the achievements of trade agreements with mainland China during his term, but ultimately American soybean farmers failed to fully return to the Chinese market. Furthermore, Trump only made minor modifications to the North American Free Trade Agreement but boasted it as a major breakthrough.

( ) Trump Deeply Self-Hypnotized

Krugman believes that Trump is now deeply self-hypnotized. Even in the latest tariff version on April 9th, the U.S. maintained high rates for its top three trading partners. This explains why investors in the bond and currency markets generally do not believe that the U.S. can smoothly reach new agreements.

Usually, increasing tariffs should boost the dollar, but this time it was the opposite. Treasury Secretary nominee Bessent once predicted that a 10% tariff would theoretically cause the dollar to appreciate by about 4%, but the dollar has recently fallen instead of rising.

At the same time, the U.S. bond market has also been impacted. Typically, expectations of an economic downturn lead to a decline in long-term interest rates because the market anticipates the Federal Reserve will cut interest rates in the future. However, the current situation is abnormal, with the yield on 30-year U.S. Treasury bonds continuing to soar, reflecting serious damage to the financial system pipelines.

The U.S. is exhibiting phenomena typically seen in emerging markets

Krugman直言不讳地说："To be honest, I knew Trump's policies would be bad, but I didn't expect them to destroy America's international credibility accumulated over 80 years within just a few short months." Krugman concluded by stating that even if Trump were to completely reverse course now, it would be impossible to recover the lost credibility.

Source: https://www.toutiao.com/article/1829194162371011/

Disclaimer: This article solely represents the author's viewpoint.