Trump’s trade policies could leave Americans ‘measurably poorer,’ economist Paul Krugman warns — what that means for your money

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.

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.