Nobel Prize-winning economist Paul Krugman warns that President Donald Trump‘s unpredictable tariff policies—including imposing and pausing various tariffs as well as changing rates—make a U.S. recession seem “likely.”
Newsweek has reached out to Krugman for further comment via email on Friday.
Why It Matters
President Donald Trump largely campaigned on economic and immigration policies, pledging to levy numerous tariffs and increase U.S. manufacturing, as well as cracking down on illegal immigration.
Trump’s tariffs and shakeup of global trade has rattled global and domestic markets, with Wall Street tanking over the past month, marking the worst days for the U.S. stock markets since 2020. Markets later surged after Trump paused a broad set of retaliatory tariffs, but many businesses and consumers remain in limbo as the current economic policy remain uncertain.
Krugman’s latest warning, which has been echoed by leading financial institutes, highlights the risk that policy volatility could tip the country into an economic downturn. Many economists, financial firms, Democrats, and some Republicans have warned that Trump’s tariff policy would spark a recession, while the Trump administration has not ruled out the possibility, noting the transition period will be marked with some market “disruption.”
What To Know
Krugman, who won the Nobel Prize in economic sciences in 2008, said during an April 23 episode of a Goldman Sachs podcast that Trump’s tariff policy, and the way it has been delivered, is introducing severe uncertainty into the business environment.
“There has been nothing like this,” Krugman said, adding “the story keeps changing.”
Krugman has been critical of Trump’s policies in the past and warned ahead of the 2024 election that the Republican nominee’s economic policies would cause “economic chaos.”
The economist noted that what’s ironic about his prediction of a likely recession is “this is not the tariff,” as a “stable tariff rate would not cause a recession, but an unpredictable tariff rate that can change the next day is really a depressing effect on demand.”
Krugman further noted “the secret sauce of the Trump tariffs is that they are extremely uncertain. Nobody knows what they will be. Nobody knows what comes next.”
Louise Wateridge / Pacific Press/SIPA/ AP Images
Trump has repeatedly announced, imposed, paused and reimposed a series of blanket, sectoral and retaliatory tariffs. Notably, just hours after sweeping, retaliatory tariffs went into effect on April 9, he paused the majority of them.
Krugman noted that these conditions are impacting business investment, consumers, and homebuilders, among others, which “is the reason why a recession seems likely.”
He later noted that he doesn’t expect the recession to be “severe,” however he noted that “if consumer spending falls off a cliff, yeah, then it can become a severe recession.”
Trump has urged Americans to “hang tough” amid market volatility and the announcement of reciprocal tariffs by other countries, including China.
What People Are Saying
Ray Dalio, founder of Bridgewater Associates said during a recent NBC interview: “I think that right now we are at a decision-making point and very close to a recession, and I’m worried about something worse than a recession if this isn’t handled well.”
“Such times are very much like the 1930s. I’ve studied history, and history repeats over and over again,” Dalio added. “If you take tariffs, if you take debt, and the rising power challenging an existing power, and those factors—those changes in the orders, the systems—are very, very disruptive. How that’s handled could produce something that’s much worse than a recession, or it can be handled well.”
Economist Torsten Slok said in a Monday appearance on CNBC that there will “absolutely” be a recession in 2025 if tariffs “stay at these levels.”
President Donald Trump said in an April Truth Social post: “THIS IS AN ECONOMIC REVOLUTION, AND WE WILL WIN. HANG TOUGH, it won’t be easy, but the end result will be historic. We will, MAKE AMERICA GREAT AGAIN!!!”
Vice President JD Vance said in an X post earlier in April: “There is a category of DC insider who wants to fight an actual war with China but also wants China to manufacture much of our critical supply. This is insane. President Trump wants peace, but also wants fair trade and more self-reliance for the American economy.”
Lin Jian, a spokesperson for the Chinese Foreign Ministry, told reporters earlier in this month: “Tariff and trade wars have no winner. China does not want to fight these wars but is not scared of them. We will not sit idly by when the Chinese people’s legitimate rights and interests are denied…If the U.S. is determined to fight a tariff and trade war, China’s response will continue to the end.”
Cato Institute Vice President of General Economics Scott Lincicome told CNN: “Markets are relieved a bit, but I don’t know how you could possibly think the U.S. is a sound, safe and stable place to invest when the president is flipping tariffs on and off like a light switch and there could be more of these things in a mere 90 days. So a bit of a reprieve, but we’re definitely not out of the woods.”
What Happens Next
Trump placed a 90-day pause on dozens of retaliatory tariffs that briefly took effect earlier in April. The administration has said dozens of countries are seeking negotiations with the U.S. Tariffs on China remain intact amid growing tensions.
