Tariffs, Jobs And Why You Should Care About Poverty In Bangladesh
I’ve returned from Europe to the United States. Miraculously, my flight to Newark landed on time. So this seems like a good day to write about … Bangladesh. I’ll explain shortly.
First, a note on the current state of the trade war. Many people, including many small investors, still believe and/or hope either that Donald Trump will soon negotiate many trade deals or that he will claim he has, declare victory, and back off his massive tariff hike. They’re deluding themselves.
Consider what we’ve learned about Trump as the negative fallout from his tariffs has started to become obvious.
First, he’s invincibly ignorant. The collapse of imports from China has businesses terrified and warning both of soaring consumer prices and of looming shortages. But Trump says it’s all good:
We were losing hundreds of billions of dollars with China. Now we’re essentially not doing business with China. Therefore, we’re saving hundreds of billions of dollars. Very simple.
Hey, remember those empty shelves during Covid? Americans were doing great! Think of all the money they saved by not buying toilet paper, because there was none to be had. Very simple.
Second, when he’s in a hole, he just keeps digging. His talk about making Canada the 51st state had a decisive effect in Canada’s recent election, hugely bolstering anti-Trump forces. But yesterday, meeting with Prime Minster Mark Carney, who kept his office thanks to this backlash, Trump kept pushing the idea.
Carney remained polite — he is, after all, Canadian — but his facial expressions during the meeting were something to behold.
The best bet, then, is that the trade war will proceed, even intensify. There will be some winners, at least in terms of global influence, including China, which gains from America’s loss of credibility, and the European Union, which unlike Trump’s America can be trusted to honor its agreements. The United States will be a big loser, both politically and economically.
But the biggest losers will be poor countries that have become less poor largely thanks to exports and are about to see their hopes of progress dashed.
Possibly the most hated article I’ve ever written was a 1997 piece for Slate titled “In Praise of Cheap Labor,” which was mainly aimed at left-wing critics of globalization. I argued that much as the sight of low-paid workers producing cheap goods for rich countries may — and should — disturb us, labor-intensive exports are often poor countries’ best hope of progress.
This argument has only become stronger over time. The New York Times recently had a very good article on Bangladesh, which 50 years ago was the poster child for warnings about mass famine driven by overpopulation. Instead, the South Asian nation became, not a banana republic, but a pajama republic, one of the world’s leading clothing exporters. It’s still a poor country, with wages and working conditions that are appalling by advanced-country standards. But as the chart at the top of this post shows, Bangladesh is about four times as rich as it was in the 1980s, when its exports began rising.
But now the country faces the possibility of economic catastrophe, made in America. Trump’s “Liberation Day” trade plan would have imposed a 37 percent tariff on imports from Bangladesh. That plan is temporarily on hold, but it seems all too possible that it or something as bad or worse will come back.
OK, I know that most Americans don’t care about Bangladeshi living standards. They should, even on selfish grounds: condemning 170 million people to deeper poverty would be a threat to global stability. But here’s the thing: Throwing up barriers to Bangladeshi exports doesn’t involve a tradeoff, helping American workers at others’ expense. It’s pure loss, hurting both nations.
Why? Because making imported clothing more expensive here won’t create U.S. jobs. Apparel production, still largely carried out by people hunched over sewing machines, is just too labor-intensive to be economically feasible in the United States, no matter how high the tariffs.
Trump’s people don’t seem to get that. True, Howard Lutnick, the Commerce Secretary, famously claimed that tariffs could indeed create jobs in labor-intensive activities, although he didn’t use clothing as an example:
The armies of millions of people- well, remember, the army of millions and millions of human beings screwing in little- little screws to make iPhones, that kind of thing is going to come to America.
Um, no it isn’t, and shouldn’t.
Taxes on imported clothing will, however, raise Americans’ cost of living. The poor and the working class, who are more likely to buy inexpensive imported clothing, will be hurt worst. But hey, Trump says that children don’t need multiple dolls; why do their parents need multiple pairs of underwear?
Not incidentally, Greg Sargent looked into what it would actually take to manufacture dolls in the United States. Even if it could be done, it would produce only a handful of jobs — and the jobs would be terrible and pay badly.
The point is that Trump and his team have done something remarkable: They have started a trade war that is bad both for Americans and for countries that sell to us. But Trump is unlikely to change course. The economic punishment will continue until morale improves.
Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack, where he now posts almost every day.
Reprinted with permission from Paul Krugman.
