Feb 18, 2026
As Donald Trump renews calls for sweeping tariffs and tougher trade negotiations, Nobel Prize-winning economist Paul Krugman is sounding an alarm, saying that the policies could leave Americans “measurably poorer.”
Krugman, a Nobel laureate recognized for his research on international trade and a frequent commentator on U.S. economic policy, says the warning isn’t about Wall Street or abstract trade balances. He says it’s about higher prices at home — from groceries and household goods to cars and construction materials — as tariffs function like a tax on consumers.
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In a recent Substack post, Krugman argued that Trump’s approach to trade risks pushing the United States toward what he calls an “economic divorce” from significant trading partners. If that happens, he says, Americans are likely to feel the impact in their wallets.
“Now US economic relations with other nations have turned abusive, and the world is moving toward divorce,” Krugman wrote.
Who pays for tariffs
Tariffs are taxes on imported goods, paid by U.S. companies when products cross the border. While politicians frame them as tools to protect American jobs or punish foreign competitors, many economists recognize that tariffs pass their costs on to consumers through higher prices.
That pattern played out during Trump’s first term. Kiel Institut found importers and consumers in the US bear 96% of the tariff burden. The analysis showed American buyers bore nearly the entire burden of those tariffs — effectively turning trade policy into a consumer tax (2).
Krugman argues that a renewed escalation would amplify those effects, especially at a time when many households are still struggling with elevated living costs.
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The ‘economic divorce’ risk
Beyond price increases, Krugman’s bigger concern is how Trump’s confrontational tactics could reshape global trade relationships.
Trump has repeatedly treated trade as a zero-sum game, threatening tariffs as leverage to extract concessions. Krugman argues that the strategy misunderstands the extent of the United States' leverage.
“This measure tells us how much of other countries’ output they sell to the United States,” Krugman noted, referring to trade data. “The answer, on average, is less than 5 percent, and much lower when you exclude Canada and Mexico.”
When analysts apply the same calculation to the European Union, the share roughly doubles. In practical terms, that means many countries depend more on access to EU markets than on access to the U.S. market.
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The result, Krugman argues, is that trade partners have incentives to strike deals with each other and fewer with Washington. He pointed to recent agreements between the EU and countries like India as evidence of that shift.
“Unlike Donald Trump, who thinks of international trade as a zero-sum game, the Europeans and the Indians understand that a free trade agreement between them is a very good deal for both parties,” he wrote.
What it means for everyday Americans
Economists note that shifts in trade alliances can affect supply chains and market access, which in turn may influence business costs and consumer pricing. Over time, sustained tariffs can reshape where companies invest, build factories and create jobs.
Federal Reserve officials have repeatedly noted that tariffs tend to put upward pressure on consumer prices, even if the effects don’t always show up immediately (3). Prices don’t always fall back to previous levels once they rise.
Other economists have echoed Krugman’s concerns. Moody’s Analytics chief economist Mark Zandi has warned that broad tariffs could slow economic growth or even tip the U.S. into recession (4). Hedge fund billionaire Ray Dalio has suggested escalating trade tensions could lead to broader “capital wars” (5).
The debate reflects a broader divide over whether tariffs protect U.S. workers or primarily raise costs for American consumers. For consumers, understanding how trade policy shows up in everyday costs could be key to navigating what comes next.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Paul Krugman Substack (1); Kiel Institut (2); Federal Reserve Bank of St. Louis (3); The Times of India (4); CNBC (5)
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Monique Danao is a highly experienced journalist, editor and copywriter with 8 years of expertise in finance and technology. Her work has been featured in leading publications such as Forbes, Decential, 99Designs, Fast Capital 360, Social Media Today and the South China Morning Post.
