Paul Krugman warns tariff ‘chaos’ won’t bring back US manufacturing jobs — and adds Trump’s moves make America look like Denmark. What does that mean?

It started with the Nobel Prize-winning economist describing Trump’s erratic tariff strategy as “complete, utter chaos,” adding that it isn’t bringing manufacturing jobs back to the U.S.

But then interviewer David Westin countered with a question about tariff revenue paying down the deficit. [1]

To date, revenue from Trump’s tariffs total $130 billion, though Treasury Secretary Bessent estimated that could reach $300 billion in a single year. [2]

While Krugman deemed $300 billion in tariff revenue unlikely, it did open the door to discussion about a sales tax that “would raise revenue and reduce the deficit” — which invited the comparison to Denmark.

Krugman said tariffs are essentially a sales tax on goods that the U.S. imports — like the standard Value-Added Tax (VAT) that Denmark imposes on many goods it imports to raise revenue for programs like pensions and unemployment benefits.

At 25%, Denmark’s VAT rate is the highest among 170 advanced countries that employ such a sales tax, with an average global VAT rate of 15%. [3]

“Through a backdoor route Trump is making America a little more like Denmark, with a sales tax paying for part of the budget,” he said.

The Denmark connection

Krugman noted that many economists have suggested that the U.S. switch from the tariff system to a VAT sales tax, which is paid by each company in the supply chain of a product.

Companies get tax credits to make up for it — and consumers ultimately pay the cost.

One VAT proponent is Lars Christensen — an economist from, you guessed it, Denmark — who believes a 10–15% VAT “could plug a gap of 6.5% of GDP” far more efficiently than tariffs. [4]

In contrast, The CATO Institute likens a VAT to pouring gasoline on a fire, claiming “America’s fiscal problem is too much spending, not insufficient tax revenue.”

Most commentators agree that VATs can be political poison. It’s a tax hike that hits the poor hardest. The Tax Policy Center advocates for pairing it with a Universal Basic Income to help offset the blow. [6]

But could a VAT help revitalize the U.S. manufacturing sector? The answer is unclear.

The Tax Foundation also suggests that replacing corporate income tax with a VAT would allow corporations to deduct their investments and give them “an incentive to invest and expand more, leading to jobs creation and additional economic growth.”

But a 2018 study of the impact of a VAT on Southeast Asian manufacturing found a “negative correlation between VAT and manufacturing value added.” [7]

Why Trump’s tariffs aren’t bringing manufacturing back

VAT or not, it’s clear that, as Krugman noted, Trump’s tariff strategy is not resurrecting American manufacturing.

The U.S. lost almost 13,000 manufacturing jobs in August, while the Institute for Supply Management (ISM) reported that the manufacturing sector “contracted … for the sixth consecutive month.” [8]

The Bureau of Labor Statistics (BLS) stats showed that the U.S. has lost 78,000 jobs overall so far this year.

Krugman explained that it’s not specifically the tariffs that are the problem, but their unprecedented fluctuation, “where nobody knows what the tariffs will be next month, let alone a year, two years from now.”

Krugman also believes that any manufacturing industries that do return to the U.S. will be ones that are “very capital intensive” with a smaller labor cost disadvantage. Or, in other words, employing robotics and creating few actual jobs for Americans.

“We’re not going to be bringing back apparel,” he said. “There’s just no way … we’re going to bring clothing manufacturing back from Bangladesh to the Carolinas.”

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[1]. Bloomberg "Krugman says Trump's tariffs make America like Denmark"