US President Trump introduced a new round of tariff policies on April 3rd, announcing a 10% baseline tariff on multiple countries and imposing higher reciprocal tariffs on some countries like China and Japan, affecting over 180 countries and causing severe shocks to the global financial markets.
However, Trump has recently postponed the tariff implementation for many countries, maintaining only a tough stance towards China - a move that sparked market discussions. Some believe Trump's position is less aggressive than before, and he may want to avoid a full-scale trade war to prevent global economic recession. Encouraged by this, US stocks and cryptocurrency markets, which had been falling for days, rebounded, and market sentiment slightly improved.
US Treasury and US Dollar Plunge Sending Warning Signals
Notably, US Treasury and US dollar have both recently declined, prompting investor reflection. According to Bloomberg, the $29 trillion US Treasury market recorded its worst weekly decline since the 2019 repo market crisis, with 10-year bond yields rising to their highest point since February and 30-year bond yields briefly exceeding 5%. The US dollar also experienced its largest weekly decline since 2022.
Charles Schwab's Chief Fixed Income Strategist Kathy Jones analyzed that the simultaneous plunge of US Treasury and US dollar indicates a collapse of market confidence in US policies. Investors are beginning to question US Treasury's status as a safe-haven asset and seeking more stable bond markets like Europe. This phenomenon reflects not only investors' fears about Trump's tariff policy uncertainties but also suggests challenges to US fiscal health and economic stability.
Krugman Warns: Trump's Policies Inconsistent, US Future Worrisome
Against this backdrop, Nobel Economics Prize winner Paul Krugman issued a severe criticism of Trump and his policies on April 11th, warning that Trump's decisions are pushing the US economy to the brink of a "major financial crisis". He analyzed the fatal flaws of Trump's policies from multiple perspectives and elaborated on their profound impacts on the US and global economies.
Policies Inconsistent, Undermining Market Confidence
Krugman directly called Trump's tariff policies "stupid, inconsistent, and weak", arguing that announcing high tariffs and then postponing them for 90 days lacks coherence and logic. He pointed out that the 90-day suspension does not eliminate uncertainty but instead throws businesses and investors into greater confusion. "If you're a business owner, would you make major investments in the next few months? I certainly wouldn't," Krugman said.
Krugman believes Trump's decisions lack economic logic and are merely a political performance that will prevent businesses from making long-term plans, thus suppressing investment and economic activity:
Trump and his advisors, like Peter Navarro, believe trade deficits prove foreign countries are taking advantage of us, but this completely misunderstands basic economic principles. Trade deficits are driven by domestic savings and investment gaps, and tariffs cannot solve this problem.
Such uncertainty is as harmful as high tariffs themselves and could lead to supply chain disruptions and consumer price increases.
Can a Good Trade Agreement Be Reached? Unlikely
Moreover, Krugman questioned whether Trump can achieve favorable trade agreements. He stated that even with tariff postponements for some countries, the tough stance towards China shows that his trade strategy remains confrontational rather than cooperative. Krugman emphasized that even lighter tariffs (such as 10% globally, 60% on China) would severely damage the economy, let alone the current policy's scale.
Trump's postponed tariffs remain the largest trade impact in US and world history.
Krugman continued to point out that due to Trump's tariff policies damaging the United States' credibility as a reliable trading partner, both allies and opponents are skeptical of his intentions, making constructive negotiations difficult. He believes that the United States' trading partners, such as the EU, Canada, and Mexico, may adopt a "fake compromise" strategy, just like during Trump's first term, seemingly compromising to appease Trump but not actually changing the trade structure.
Where is the United States Heading? Financial Crisis Risk Intensifies
Krugman finally warned that Trump's policies are leading the United States to an unknown dangerous situation. He directly stated:
We still face the risk of a major financial crisis. He believes that the uncertainty caused by tariffs has weakened the attractiveness of the US dollar and US Treasury bonds, and foreign investors' withdrawal may drive up US borrowing costs, further exacerbating fiscal pressure.
Krugman sharply criticized those optimists who believe Trump's policies are harmless, saying they "should stay away from sharp objects". He pointed out that high tariffs will drive up inflation, suppress consumption, and disrupt global supply chains, thereby triggering a recession risk. The sharp decline of US Treasury bonds and the US dollar has already confirmed his concerns, showing that the market's confidence in the US economic prospects is collapsing. He believes that Trump's short-sighted policies may cause the United States to lose its global economic leadership:
The stock market sometimes fluctuates due to MEME investments or retail investor frenzy, but the bond and foreign exchange markets are where professionals play. And now, when you see the US dollar depreciate and US Treasury bond yields soar, it means the market is saying: We no longer believe the United States can properly manage its own economy - which is a very dangerous signal for a country with the global reserve currency.
