Paul Krugman Warns 2026 Will Be Worse For Small Businesses, A Month After Small Firms Cut 120,000 Jobs

Krugman pointed out that small businesses were unable to weather the storm brought about by the Trump administration’s tariffs and immigration policy changes.

• The economist stated that big businesses have the advantage of access to resources and the ability to leverage political connections to navigate changes in government policies.
• Krugman cited the example of large businesses being able to shift their suppliers, handle paperwork, and dodge tariffs on certain categories.
• He also pointed to the dependence of small business owners and their employees on the government programs, who reportedly account for nearly half of the adults benefiting from government insurance.

Economist Paul Krugman warned on Monday that 2026 will be worse for small businesses, a month after they reported a sharp 120,000-job cut.

In his latest post, Krugman pointed out that small businesses were unable to weather the storm brought about by the Trump administration’s tariffs and immigration policy changes.

According to data released by payroll processing firm ADP, small businesses registered a sharp pullback in November, with a net decline of 120,000 employees, while mid-sized and large businesses added 90,000 employees on a net basis.

Big Corporations Better Positioned

The economist stated that big businesses have the advantage of access to resources and the ability to leverage political connections to navigate changes in government policies.

Krugman stated that big businesses have the resources to shift their supply chains to other countries, while small businesses won’t have the manpower or money to do so.

He also stated that businesses imported goods from Mexico and Canada under the U.S.-Mexico-Canada trade agreement, capitalizing on the duty-free option. However, businesses chose not to fill out the required paperwork for such imports, but after the announcement of Trump tariffs, big businesses decided to comply with the rules. Again, they were able to do so because they could better bear the costs involved than their smaller counterparts, Krugman said.

Lastly, the economist cited Apple dodging some of the worst impacts of tariffs. While President Donald Trump imposed 50% tariffs on Indian goods, smartphones were exempt from the levies. Krugman pointed out that Apple is one of the donors to President Trump’s $300 million White House ballroom.

“All of these factors help explain the trends shown in the chart at the top of this post: 2025 was a difficult year for many businesses not benefiting from the AI boom, but it was especially hard on small business,” he said.

Why Are Small Businesses Worse Off?

Krugman warned that the worst is yet to come for small businesses, heading into 2026.

The economist pointed to the dependence of small business owners and their employees on the government programs, who reportedly account for nearly half of the adults benefiting from government insurance.

He also pointed to a report that states that insurance premiums under the Affordable Care Act (ACA) would more than double in 2026 if enhanced premium tax credits expire.

“In short, small businesses placed its faith in Trump but has been betrayed,” concluded Krugman.

Meanwhile, U.S. equities were mixed in Monday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.19%, the Invesco QQQ Trust ETF (QQQ) declined 0.35%, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged lower by 0.01%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.1% at the time of writing.

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