Nobel Laureate in Economics and Professor of Economics Paul Krugman Talks SCOTUS

Summary

Bloomberg Talks: Nobel Laureate in Economics Paul Krugman Talks SCOTUS

Episode Date: February 21, 2026
Guest: Paul Krugman, Nobel Laureate and Professor of Economics
Host: Bloomberg
Topic: The Supreme Court ruling on IPA tariffs, consequences for U.S. trade revenue, economic impacts, and policy alternatives

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Overview

This episode of Bloomberg Talks features Nobel Prize-winning economist Paul Krugman discussing the Supreme Court’s recent decision to strike down the IPA tariffs, a major pillar of the former and current U.S. administrations’ trade policy. Krugman explores the immediate fiscal and economic consequences, the motivation behind these tariffs, and the broader implications for U.S. trade power and consumer costs. The conversation also looks at what alternative options the administration might pursue and the potential impact on Americans.

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Key Discussion Points & Insights

1. Revenue Impact of the Supreme Court Ruling

• Tariff Revenue Loss
  The ruling jeopardizes approximately $260 billion in tariff revenue (roughly 0.6% of U.S. GDP, or a tenth of the federal budget deficit).

  "We're looking, I believe now at losing revenue that's around 0.6% of GDP, which is something like a tenth of the budget deficit."
  —Paul Krugman (01:43)

• Is Revenue Central?
  Krugman argues tariff revenue was cited as justification but not the real motivation behind the tariffs—it was more about executive flexibility.

  "I don't actually think the revenue was a key part of the agenda. I think it was part of the case that the Trump administration made for the tariffs, but I don't think it was really their motivation."
  —Paul Krugman (01:43)

2. The True Stakes: Presidential Discretion over Tariffs

• Why IPA?
  Trump’s use of the IPA allowed the executive branch to bypass Congressional approval and impose tariffs at will, granting “license” to target countries for diverse reasons.

  "The point about, you know, what does IE say about the conditions under which you can impose tariffs? And the answer is it says nothing... Trump took it as a license to impose tariffs whenever he felt like it."
  —Paul Krugman (02:40)

• Ripple Effects on Global Deals
  The ruling renders past trade deals leveraging IPA tariffs effectively “null and void” since the president no longer has that level of discretion.

  "All of the trade deals that were made on the basis of, we will scale back the IA tariffs that we imposed on you if you give us the following things are now null and void."
  —Paul Krugman (03:27)

3. Potential Policy Alternatives & Their Limitations

• Section 122 Tariffs
  Krugman discusses the Section 122 provision, a relic from the Bretton Woods era, permitting a flat 10% tariff on all imports — but it lacks the flexibility Trump previously enjoyed.

  "Look at what he just said with the Section 122 tariffs, which is... a flat 10% tariff on everything. That's very, very different from saying, 'I'm doing 50% on Brazil because I don't like what they're doing domestically.' ... He may be able to replace the revenue, but he doesn't regain the flexibility."
  —Paul Krugman (04:28)

• Revenue vs. Flexibility
  While new tariffs might offset some lost revenue, they constrain presidential power to target countries at will. Additionally, the administration likely owes refunds for previously collected IPA tariffs.

4. Economic Impact: Who Really Pays?

• Tariffs as a Sales Tax
  Krugman underscores that, practically, tariffs operate like a sales tax — falling primarily on American importers and consumers rather than foreign exporters.

  "But. No, it's not. It's, no, this is a, this is a sales tax tariff is in the end, the sales tax... everybody's cost of living is somewhat higher because of these tariffs."
  —Paul Krugman (05:40, 06:13)

• Potential Drag on the Economy
  Tariffs are per se contractionary and could marginally or more than marginally slow economic activity, raising costs for U.S. households without benefiting them in the long run.

  "It's a tax hike, the tariffs are slightly contractionary. Maybe more than slightly."
  —Paul Krugman (06:13)

5. Consumer Prices: Will Tariff Rollbacks Cut Costs?

• Price Stickiness and Inflation
  There's skepticism about whether corporations will lower prices if tariffs are repealed, given inflation's habitual nature.

  "That's always a question. But, you know, we have ongoing inflation running at about 3% a year. So all that has to happen is for companies not to raise prices as much as they would have."
  —Paul Krugman (07:16)

• Short-Lived Relief
  Any reduction in tariffs could provide brief relief unless replaced by new tariffs, offsetting potential benefits to consumers.

  "So any consumer relief may be very short lived here."
  —Paul Krugman (07:43)

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Notable Quotes & Memorable Moments

• On Presidential Discretion:
  "Trump took it as a license to impose tariffs whenever he felt like it. He used it as a license to impose tariffs on Brazil because they convicted Jair Bolsonaro. He took it as a license to threaten Europe with tariffs because they sent troops to Greenland."
  (02:40)

• On Who Pays:
  "Tariff is in the end, the sales tax... everybody's cost of living is somewhat higher because of these tariffs."
  (05:40, 06:13)

• On Policy Substitutes:
  "He may be able to replace the revenue, but he doesn't regain the flexibility."
  (04:56)

• On Tariffs’ Macroeconomic Effects:
  "It's a tax hike, the tariffs are slightly contractionary. Maybe more than slightly."
  (06:13)

• On Price Dynamics:
  "We have ongoing inflation running at about 3% a year. So all that has to happen is for companies not to raise prices as much as they would have."
  (07:16)

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Timestamps for Key Segments

• Supreme Court Ruling Overview & Revenue Impact – 00:51–01:43
• Krugman: Tariffs’ Real Motivation was Discretion, Not Revenue – 01:43–02:40
• Implications for Trade Negotiations & Executive Power – 02:40–03:55
• Administration Response, Section 122 Tariffs, and Policy Limits – 03:55–05:17
• Who Pays the Tariffs? Taxation and Economic Impact – 05:17–06:13
• Effect on Cost of Living and Macroeconomic Conditions – 06:13–07:16
• Are Price Hikes Here to Stay? – 07:16–07:46

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Summary Takeaway

Paul Krugman makes clear that while the Supreme Court's ruling on IPA tariffs creates a fiscal challenge, the deeper consequence is restraining presidential latitude over trade policy. The burden of tariffs, he notes, falls mostly on U.S. consumers rather than foreign interests, complicating the narrative used to justify such policies. While the administration has tools to seek replacement revenues, the lost flexibility and the fleeting nature of any consumer gains will likely shape both economic and political responses moving forward.

Transcript

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been discussing, of course, the Supreme Court's ruling against those IPA tariffs has thrown into question what is going that is going to mean for some of the tariff revenue that the Supreme Court that the US Government has already collect did. As you can see there, IPA really accounts for the majority of the trade remedy revenue that the U.S. is raking in. That's estimated to be at about $260 billion. So let's discuss with Nobel Laureate in Economics Paul Krugman. He is research professor of economics at the City University of New York's Graduate Center. Paul, it's great to have you with us. So let's talk about that because as we know, when it comes to the tariff revenue, that was an important pillar of the economic agenda of this administration. If you take out the lion's share of that revenue in the form of these IPA tariffs, where does that leave that agenda?

[Paul Krugman]

Well, I don't actually think the revenue was a key part of the agenda. I think it was part of the case that the Trump administration made for the tariffs, but I don't think it was really their motivation. That said, okay, we're looking, I believe now at losing revenue that's around 0.6% of GDP, which is something like a tenth of the budget deficit. So that the budget deficit gets about 10% bigger as a result of of this ruling. Unless, you know, the in many ways, the other stuff that the Trump was saying he's going to do is not from his point of view, a good substitute for ipa, but it could replace a good part of the revenue. I actually think that's all really pretty secondary, but that's, you know, that in Some ways, the revenue is the least of the issues.

[Interviewer]

Well, in your view, then what is the big issue here? I mean, obviously, there's a myriad that we could name. But what comes mind to you is most urgent.

[Paul Krugman]

Well, the reason that Trump went with IPA when he was warned that it might not hold up in court, right. There was. There was a big risk, everybody understood, of this, of what just happened, happening. And the reason he went with that, as opposed to other more conventional trade, you know, tariffs, you know, aside from the fact that he needed something that didn't have to pass Congress because Congress wouldn't have approved his tariffs. But he. The point about, you know, what does IE say about the conditions under which you can impose tariffs? And the answer is it says nothing. The legislation doesn't even mention tariffs. And because it was so, you know, not really about tariffs, Trump took it as a license to impose tariffs whenever he felt like it. He used it as a license to impose tariffs on Brazil because they convicted Jair Bolsonaro. He took it as a license to threaten Europe with tariffs because they. They sent troops to Greenland. And the other things that are out there which might be able to replace the revenue will not give him the same amount of discretion. And of course, that also implies, you know, trade deals. All of the trade deals that were made on the basis of, we will scale back the IA tariffs that we imposed on you if you give us the following things are now null and void because, yeah, those doesn't have that discretion anymore.

[Interviewer]

I am curious, Paul, though. I don't know if you had a chance to actually see the press conference that Trump had a couple of hours ago in response to the ruling, and just not so much what he said, but also some of the emotion behind it. But after he spoke, we saw several administration officials on various social media platforms talk about the alternatives, in their view that they could use to not only keep these tariffs in place in some form or another, but to actually maybe increase them as a way for the President to get the leverage that, in his view, he needs to get the things he wants done.

[Paul Krugman]

Yeah, well, look at what he just said with the Section 122 tariffs, which is. Boy, I didn't. That's a very, you know, I never thought anybody would invoke that. It's really kind of a. Of a Bretton woods era thinking. It's actually post, by the way, the. But It's a flat 10% tariff on everything. That's very, very different from saying, I'm doing 50% on Brazil because I don't like what they're doing domestically. It's very different from saying I'm going to go after France, Germany and the UK Because I don't like what they're doing in Greenland. So although it may be able to replace the revenue, he may be able to collect enough money from these other tariffs that the revenue hole is filled, although I don't think that exonerates him from having to refund the money already collected. But he may be able to replace the revenue, but he doesn't regain the flexibility.

[Interviewer]

And that's for being pedantic. But was there but this really plug a revenue hole or am I missing something we saw?

[Paul Krugman]

Well, I mean, it's some revenue. It's a tax, I mean, a tax on Trump tariffs.

[Interviewer]

Do you know how many tariffs I've paid? If I order something or overseas, I get a message from FedEx or DHL or something else. I mean, that's not coming out of the pockets of people overseas.

[Paul Krugman]

But. No, it's not. It's, no, this is a, this is a sales tax tariff is in the end, the sales tax. It's, it's, there's a lot of, you know, moving parts in the way that works out, but it's in the end. And so this was, the Trump tariffs are about, in total, the tariff increase is around 0.9% of GDP. Okay, but that's, but if that's coming

[Interviewer]

out of the pockets of the American people does not potentially have a drag on economic activity, even if it does benefit the actual government coffers itself. I mean, I am the government to a certain extent. You are, we all are.

[Paul Krugman]

Yeah, no, that's right. It's a little bit. And if you actually kind of work it through. But the, I know because it's a tax hike, the tariffs are slightly contractionary. Maybe more than slightly. It's, it, that's one of those things where you have to ask what else is going on. But what, how does this affect the Fed? I mean, is the tariffs warrant there? The Fed would probably have lowered rates already and so on. But it's, it's a, certainly it, it is a, a significant increase in the cost of living. Not a gigantic increase in the cost of living, but everybody's cost of living is somewhat higher because of these tariffs. And you know, that will go away. But these other tariffs would also be a tax on, on the American people and.

[Interviewer]

Yeah, well, Paul, we only have about a minute left. But you said that will go away in reference to the cost of living. And I want to ask you about your confidence there, because when a company, you know, raises prices, they tend to be sticky. Do you have confidence that, you know, some of the corporations that have raised prices in response to tariffs actually will lower them?

[Paul Krugman]

Well, that's always a question. But, you know, we have ongoing inflation running at about 3% a year. So all that has to happen is for companies not to raise prices as much as they would have. So all of this plays out a little bit over the course of, let's say, a year. So I don't have much doubt that we will, in fact, of course, if this is a net reduction in tariffs, because, you know, Trump is basically proposing a new set of tariffs to make up for the loss of the old one. So any consumer relief may be very short lived here.

[Interviewer]

All right, Paul, always appreciate, appreciate your insights. Paul Krugman over at CUNY's Graduate center and of course, Nobel Laureate in Economics.

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