A Nobel Prize-winning economist issued a dire warning on Sunday about the potential impact of President Donald Trump's signature economic policies.
Paul Krugman, who won the Nobel in 2008 for his work on trade theory, wrote in a new Substack essay that Trump's deportation and tariff policies could create stagflation, or a period characterized by low economic growth, high inflation, and high unemployment.
"Stagflation is very much on people’s minds again, for good reason," Krugman wrote. "The Trump administration’s tariff and deportation policies are creating a significant inflationary shock. They’re also imposing a significant drag on economic growth."
Krugman added that there has been one saving grace to Trump's economy: investments in artificial intelligence. Several AI companies from NVIDIA to Apple and Taiwan Semiconductor Manufacturing Company have made centi-billion-dollar investments in the U.S. during Trump's second term, according to figures from the White House.
However, Krugman warned that any slowdown to the AI space could spell trouble for the U.S. economy.
"Today, it’s likely that the United States would be heading into a recession under the weight of higher prices and slower growth if the economy weren’t being supported by a huge boom in AI-related investment," Krugman added. "And this danger remains: if the AI boom goes bust, the odds are high that the US economy will be plunged into a recession."
