Paul Krugman, a Nobel laureate in economics and a columnist for The New York Times, has repeatedly warned that the tariff and immigration policies of the Trump 2.0 administration may not reduce trade deficits, but could instead lead to a resurgence of inflation.
Is the chaos of Trump's policies leading the US to recession?
On February 28, Krugman published an article analyzing whether the "chaos" brought by Trump's policies could lead to a recession in the US. In the article titled "Surprise: Chaos Is Bad for Business", Krugman wrote:
Earlier this month, Trump announced that he would impose a 25% tariff on Canada and Mexico, then said he would suspend it for 30 days. Will they continue this performance next week? He insisted yesterday that it will indeed happen, but will it? No one knows.
Trump has also threatened a trade war with the EU, saying the EU "was set up to take advantage of the United States". (In fact, it was established with US support, because we saw it as a force for peace and democracy.) Will he follow through on his threats? No one knows.
The legislation that currently provides the funding to keep the federal government running expires on March 14, but it's unclear whether the Republicans have enough votes to continue providing that funding. Will the US government face a shutdown crisis? No one knows (although the betting markets suggest a fairly high probability).
In addition to the possibility of a full government shutdown, DOGE is reportedly trying to lay off a large number of federal employees, including half the staff of the Social Security Administration! Will this undermine the operation of basic government services? No one knows.
Most worryingly, there are reports that officials within the government are proposing to restructure US debt through a "Mar-a-Lago agreement", forcing holders of US Treasury bills (short-term debt) to exchange them for 100-year bonds.
This would effectively constitute a US debt default. Given that the entire global financial system relies on the safety of US debt, and US debt is widely accepted as collateral for many transactions, this could risk plunging the global economy into chaos. But has the government even considered these consequences? No one knows.
Krugman: The uncertainty is because "Trump is an ignorant megalomaniac"
In short, the Trump administration's policies are currently plagued by a great deal of uncertainty, with huge implications for both individuals and businesses in the US.
Where does this uncertainty come from? Simple: the US government is currently under the control of an extremely ignorant, vindictive, and impulsive megalomaniac. And it's not just Musk - Trump shares these same characteristics.
If you don't believe me when I say they are "ignorant", just look at how Trump is hyping the opportunities for US investment in Russia. Leaving aside the risks of doing business in an authoritarian dictatorship, does he not realize that the EU, which he is insulting and threatening with a trade war, has an economy 9 times the size of Russia's? I ask, which business relationship is worth cultivating?
If you think I'm exaggerating in calling them megalomaniacs, just look at the AI-generated video Trump shared on Truth Social about the future of Gaza. This video depicts the war-torn Gaza Strip being rebuilt into a beachfront resort, with a gleaming Trump statue standing tall.
Trump's economic policies create uncertainty that is detrimental to individuals and businesses in the US
Krugman warns that the US is now facing a complete policy uncertainty, making it increasingly impossible for consumers and businesses to make long-term or even medium-term plans. This is not good for the economy.
Imagine you are the CEO of a US company considering a range of potential investments, the profitability of which depends on future federal policies. For example, if the US upholds the free trade agreement with Canada and Mexico that Trump himself signed in 2020, then some factories would be worth building.
But if Trump tears up the agreement and imposes high tariffs on our northern and southern borders, those factories would not be worth constructing. Instead, you would need to make defensive investments to limit the damage of severing business ties with Mexico and Canada. The rational course of action may be to hold off on major expenditures, wait and see as policies become clearer.
Weakening consumer demand, economic recession may not come
Krugman also emphasized that he has not predicted an imminent economic recession, although he does not have a good record in this regard, but he still believes that the biggest risk of Trumponomics is the inflationary impact of tariffs and the deportation of illegal immigrants.
Consumer and business surveys show that people's concerns about economic trends are increasing. Two major consumer confidence surveys released by the University of Michigan and the Conference Board have both declined. The latest S&P Global business survey found that optimism about the coming year has fallen to its lowest level since December 2022, except for September last year, when uncertainty over the presidential election caused businesses to be in turmoil.
The deterioration of the economic situation in February mainly reflects the increase in uncertainty in the business environment, especially the uncertainty related to federal government policies...
Business economists like Neil Dutta are starting to seriously consider the possibility of an economic recession.
You should know that these signs will not be reflected in the "hard" economic data very soon, including the non-farm employment data for February to be released next week, although there are some signs that consumers have already started to reduce consumption, the impact of companies cutting investment will not be seen for at least a few months.
While it is still unclear whether Trump 2.0 policies will plunge the US into an economic recession, one thing is certain: letting ignorant, impulsive people with poor self-control manage the government will certainly be detrimental to business.
