“We are walking back in a very dramatic way; it is a setback.” This is how US economist Paul Krugman, winner of the 2008 Nobel Prize of Economics, sees the US economy after the imposition of imports on imports by Donald Trump’s government-an unprecedented shock that threatens the US economy, according to Nobel. Krugman was one of Anbima Summit’s panelists, which took place in Sao Paulo on Wednesday (25).
The Nobel Economy also warned of the inflationary impact of this shock, explaining that the increase in tariffs will be passed on to consumers, albeit late. “The inflationary process takes time, we learned this in the pandemic. It takes time for a ship to leave Shanghai and reach the US, and even more to reach Rotterdam. But there is evidence of a peak inflation in the US economy soon,” he said.
Krugman traveled a critical overview of US commercial policy, especially the tariffs imposed during the Trump administration. He pointed out that the average US applied rate to imports jumped from less than 3% at the beginning of the year to about 17%, a drastic increase that classified as “the largest shock of history policy in history.”
The economist warned about the future of the American and global economy: “We are experiencing a moment of important imbalances; something drastic has happened. The scenario is quite discouraging, and I don’t think I’ll live to see the US back to what they were last year.”
Dollar uncertainty
Krugman stated that the dollar, despite being the dominant world currency, is facing an unprecedented moment of uncertainty. “When something bad happens in the world, the dollar strengthens. When something bad happens, the United States is strengthened. But that’s not what we are seeing. Interest rates have increased and the dollar is falling,” he explained.
He stressed that this does not mean a coin crash, but indicates that the US “are not being seen by markets as a reliable place.” The economist even said that if he were a central bank, he would reduce the participation of the dollar in his reserves at this time, as it is a more uncertain currency than it was in other times.
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“American leadership crisis”
About globalization, Krugman minimized the idea that she failed. “For me, it is not so clear that everything went so wrong with globalization. There were some crises, but it enabled the development of underdeveloped countries, such as China,” he said.
He recalled that the great growth of globalization occurred between 1979 and 2010 and that the tensions caused by it were largely overcome. “The rates we are seeing today are not a demand from the population, but of an individual. It is not a crisis of globalization, it is another crisis of American leadership,” he said.
According to the economist, the way the US has created its internal policies gives the president a lot of power. “The US president can act very individually. We had elections and elected a very different president from the others. And the American system was made for more reasonable presidents, to act without radicalism.”
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Brazil
Krugman assessed that Brazil is not so exposed to American commercial shocks, as its main partners are China and the European Union. “If this is not an American trade war, there is not so much exposure here, which is good news,” he said.
However, he warned of the risks of poor Brazilian trade with the US: “The US is doing a very big bullshit in our trade. So far we have not done any bullshit with the dollar, but if we do, that will be a problem for everyone.”
Cryptocurrency
About cryptocurrencies, Krugman was skeptical about his role as dollar substitutes. “The first generation of crypts is very volatile, with high transaction costs; you can’t consider them coins,” he said.
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He pointed out that StableCoins are more stable, but still distant from replacing the dollar. “What is closer to replacing the dollar would be the euro if that happens. In 2008, a more plausible competitor was beginning to appear, but then came the euro crisis,” he concluded.
