Late Friday afternoon, April 4, a Reuters headline read, “Trading Day: Trump Tariffs Wipe $5 Trillion Off Wall Street.” The Dow Jones Industrial Average and the S&P 500 were plummeting in response to steep new tariffs that President Donald Trump is imposing on a long list of countries, and many economists are warning that consumers can expect to pay higher prices for everything from fruits and vegetables to computers to vacuum cleaners to clothes to cars.
One of the economists who is sounding the alarm is former New York Times columnist Paul Krugman.
During an appearance on “The Ezra Klein Show” posted on the Times’ website on April 5, Krugman warned that a variety of factors could help push the United States into a recession — including tariffs.
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Krugman told Klein, “I think most people thought it was going to be some kind of across-the-board tariff — same on everybody. Or maybe two or three different types of tariffs. Instead, he announced this whole complicated, different tariff for every country, at levels much higher than the smart money — or the money that thought it was smart — was betting. Something like a 23 percent average tariff now, which is huge. It’s higher than U.S. tariffs were after the Smoot-Hawley Tariff Act of 1930 was passed. And trade is a much bigger part of the economy now than it was in 1930. So, this is the biggest trade shock in history.”
The economist added, however, that tariffs aren’t the only Trump policy that could help bring about a recession.
“What’s unique about this situation is that the protectionism is unpredictable and unstable,” Krugman told Klein. “And it’s that uncertainty that is the recessionary force…. So this is the instability of policy. The fact that nobody knows what’s coming next makes a recession certainly a whole lot more likely…. But unstable protectionism, coupled with all the other instabilities out there in policy: How many programs is DOGE going to ax?”
Krugman continued, “How many federal workers are going to be laid off? What’s going to happen to Medicaid?… That all creates an environment that is really bad for business.”
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Another major Trump-related problem, according to Krugman, is the possibility of the U.S. dollar losing value.
“We could undermine the dollar’s role as a reserve currency,” Krugman told Klein. “We may be doing that as we speak. Because who wants to hold an unreliable, erratic country’s currency as a reserve? But that’s not going to solve any major problems.”
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Ezra Klein’s full interview with Paul Krugman is available at this link (subscription required).
