Trump had better shot on trade at ‘rogue’ Germany, Krugman says

U.S. President Donald Trump’s attack on international trade might have been more successful if he’d targeted Europe’s biggest economy rather than China, according to Nobel laureate Paul Krugman.

“Maybe the president should have started a trade war with Germany, the prospects would’ve been better,” the economist told German newspaper Handelsblatt in an interview. “Because the pressure on Berlin to change something is certainly low.”

After almost two years of tit-for-tat tariffs that have hurt global growth, the U.S. and China may be nearing the first phase of a trade deal this month. Trump has said he’ll sign an agreement on Jan. 15, though China has yet to confirm the date.

While German factories have been hit by the fallout from those tensions, and the nation has regularly attracted Trump’s ire because it sells much more to the U.S. than it buys, it has so far escaped similar treatment. The country probably had a current account surplus of 252 billion euros ($282 billion) in 2019, equivalent to more than 7% of the economy, according to the Munich-based Ifo research institute.

“In a world suffering from a lack of demand, the countries with large trade surpluses are the villains,” Krugman said in the interview, which was published in German. “Germany is first in line, but also the Netherlands and Sweden. The macroeconomic rogue states of the world economy are primarily in northern Europe.”

Tariffs of 25% on car imports, for example, could cause a recession given the role of the auto industry in Europe and its reliance on the U.S., Krugman said. Still, he said it’s unclear whether the U.S. would take that step, as Trump has threatened, adding that the reasoning they would be justified on national security grounds is “absurd.”

The European Union could damage the U.S. economy in a trade war and would likely target states that are pivotal in national elections, according to the economist. He cited the European Commission’s response to steel tariffs imposed by George W. Bush in 2002.

“There’s a lot that’s wrong in the EU, but the Commission knows how to wage a trade war,” Krugman said. “That would get very ugly very quickly. Trump’s not ready for that.”