Donald Trump's tariff policy has been ridiculed by a Nobel Prize winner who says the administration is "depressing the economy".
Trump introduced tariffs earlier this year, hiking prices on importing and exporting goods across the world. American economist Paul Krugman believes the boom in "AI-related investment" has boosted the economy, but this achievement has been burst by the "unpredictably" worsening tariffs.
Writing in his Substack, Krugman explained, "We could say that the US economy in 2025 was schizoid. On the one hand Donald Trump abruptly reversed 90 years of U.S. trade policy, breaking all our international agreements, and pushed tariffs to levels not seen since the 1930s."
"Worse, the tariffs keep changing unpredictably. This uncertainty is clearly bad for business and is depressing the economy. On the other hand, there has simultaneously been a huge boom in AI-related investment, which is boosting the economy."
The potential for an AI bubble bursting is at the forefront of economist's minds as they watch to see stocks fall and rise in line with excitement surrounding artificial intelligence.
Krugman added, "During most of that month [November], these stocks were falling, as concerns that AI is a bubble increased. But on Monday the Mag7 index surged, erasing a large fraction of the losses. Why?"
"Analyst chatter about supposed causes of stock market swings should always be taken with many grains of salt. But it’s clear that this surge was catalyzed by remarks by Fed officials which the market interpreted as making a cut in the Fed Funds rate next month more likely."
Whether there is a bubble bursting moment to come or not, Krugman has warned the president's choices are not the right man to lead the charge into the potential economic downturn.
Krugman wrote, "So as doubts about AI creep in, I’m hearing growing chatter to the effect that the Fed can and should save the industry. But the lesson from the last big tech bubble is that it can’t. In fact, I have doubts about whether the Fed can head off a broader recession if the tech boom collapses — but that’s a topic for a future post."
"For now, my point is that if you’re worried about an AI bubble, don’t expect Jerome Powell or his Trump-appointed successor — rumors are not encouraging — to come to the rescue. They can’t."
