Small business owners, long considered the core of President Donald Trump’s political base, are now increasingly feeling the brunt of his policies during his second term in office, according to economist Paul Krugman.
2025 Was A ‘Miserable Year’ For Small Businesses
In his newsletter on Monday, Krugman stated that the small business community, which had celebrated Trump’s return to the White House, had a “miserable” year in 2025, and warned that “2026 will be worse.”
The Nobel Prize-winning economist cited research that showed “the experience of being a small business owner leads people to adopt conservative views on government regulation,” but he said these expectations have since collided with policy reality over the past year.
Krugman said the combined impact of Trump’s tariffs and immigration enforcement has created significant operational strain for small business owners.
“High tariffs have been a body blow” to companies dependent on imported products, he said, adding that “mass arrests of immigrants have also been highly disruptive for businesses, such as construction contractors, that depend on foreign-born workers.”
While these pressures affect all companies, Krugman said large corporations have been better positioned to adapt by finding new suppliers, exploiting trade agreement exemptions and leveraging political influence.
“Under Trump, the United States has moved rapidly toward crony capitalism,” Krugman said, citing the example of Apple Inc. (NASDAQ:AAPL) receiving exemptions on its smartphone imports from India, despite punitive tariffs on the country’s other exports.
Small businesses, on the other hand, cannot get such preferential exemptions based on their political connections, Krugman said.
This pressure is now being compounded by rising health care costs, Krugman said, while noting that “almost half of the adults receiving health insurance via the government-run exchanges” either own or work for small businesses, which means the expiration of federal subsidies has had an outsized impact.
Small Businesses And Exporters Hit By Tariffs
There have been several stories recently, covering small businesses that became unsustainable and were even driven to bankruptcy following Trump’s tariffs on India and China.
Owners have railed against skyrocketing input costs, canceled contracts and looming bankruptcies, while increasingly contrasting former President Ronald Reagan’s pro-trade legacy with the tariff-heavy direction of Trump and the modern Republican Party.
According to former U.S. Trade Representative Roy Kirk, the chaos surrounding Trump’s tariff policies is doing great harm to small businesses and even exporters.
“Over 90% of US exporters are small businesses and family-owned businesses. And this is just driving them nuts trying to figure out what the rules of the road are going to be,” he said.
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