Make America Denmark Again?
That’s not quite what celebrated economist Paul Krugman said on a recent episode of Wall Street Week. But he did draw a connection between Denmark’s Value-Added Tax on imports, President Trump’s tariffs and his promise to pay down the U.S. deficit.
Must Read
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don’t have to deal with tenants or fix freezers. Here’s how
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP
- Robert Kiyosaki says this 1 asset will surge 400% in a year — and he begs investors not to miss its ‘explosion’
It started with the Nobel Prize-winning economist describing Trump’s erratic tariff strategy as “complete, utter chaos,” adding that it isn’t bringing manufacturing jobs back to the U.S.
But then interviewer David Westin countered with a question about tariff revenue paying down the deficit. [1]
To date, revenue from Trump’s tariffs total $130 billion, though Treasury Secretary Bessent estimated that could reach $300 billion in a single year. [2]
While Krugman deemed $300 billion in tariff revenue unlikely, it did open the door to discussion about a sales tax that “would raise revenue and reduce the deficit” — which invited the comparison to Denmark.
Krugman said tariffs are essentially a sales tax on goods that the U.S. imports — like the standard Value-Added Tax (VAT) that Denmark imposes on many goods it imports to raise revenue for programs like pensions and unemployment benefits.
At 25%, Denmark’s VAT rate is the highest among 170 advanced countries that employ such a sales tax, with an average global VAT rate of 15%. [3]
“Through a backdoor route Trump is making America a little more like Denmark, with a sales tax paying for part of the budget,” he said.
The Denmark connection
Krugman noted that many economists have suggested that the U.S. switch from the tariff system to a VAT sales tax, which is paid by each company in the supply chain of a product.
Companies get tax credits to make up for it — and consumers ultimately pay the cost.
Read more: I’m almost 50 and have nothing saved for retirement — what now? Don’t panic. These 6 easy steps can help you turn things around
One VAT proponent is Lars Christensen — an economist from, you guessed it, Denmark — who believes a 10–15% VAT “could plug a gap of 6.5% of GDP” far more efficiently than tariffs. [4]
In contrast, The CATO Institute likens a VAT to pouring gasoline on a fire, claiming “America’s fiscal problem is too much spending, not insufficient tax revenue.”
Most commentators agree that VATs can be political poison. It’s a tax hike that hits the poor hardest. The Tax Policy Center advocates for pairing it with a Universal Basic Income to help offset the blow. [6]
But could a VAT help revitalize the U.S. manufacturing sector? The answer is unclear.
The Tax Foundation also suggests that replacing corporate income tax with a VAT would allow corporations to deduct their investments and give them “an incentive to invest and expand more, leading to jobs creation and additional economic growth.”
But a 2018 study of the impact of a VAT on Southeast Asian manufacturing found a “negative correlation between VAT and manufacturing value added.” [7]
Why Trump’s tariffs aren’t bringing manufacturing back
VAT or not, it’s clear that, as Krugman noted, Trump’s tariff strategy is not resurrecting American manufacturing.
The U.S. lost almost 13,000 manufacturing jobs in August, while the Institute for Supply Management (ISM) reported that the manufacturing sector “contracted … for the sixth consecutive month.” [8]
The Bureau of Labor Statistics (BLS) stats showed that the U.S. has lost 78,000 jobs overall so far this year.
Krugman explained that it’s not specifically the tariffs that are the problem, but their unprecedented fluctuation, “where nobody knows what the tariffs will be next month, let alone a year, two years from now.”
Krugman also believes that any manufacturing industries that do return to the U.S. will be ones that are “very capital intensive” with a smaller labor cost disadvantage. Or, in other words, employing robotics and creating few actual jobs for Americans.
“We’re not going to be bringing back apparel,” he said. “There’s just no way … we’re going to bring clothing manufacturing back from Bangladesh to the Carolinas.”
Article sources
At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.
We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines.
[1]. Bloomberg "Krugman says Trump’s tariffs make America like Denmark"
[2]. CNN “New tariffs are generating billions of dollars in revenue, but Bessent says that will go toward paying national debt”
[3]. Tax Foundation Europe “Value Added Tax"
[4]. The Market Monetarist “The US Consumer Goes to Fiscal Reality Mart: Tariffs or VAT?”
[5]. CATO Institute “The Case against the Value-Added Tax”
[6]. Tax Policy Center “How A VAT Could Tax The Rich And Pay For Universal Basic Income”
[7]. International Journal of Business, Ethics and Law “The Impact of Value Added Tax on Manufacturing Performance in Asean”
[8]. Institute for Supply Management “August 2025 ISM® Manufacturing PMI® Report”
What to read next
- Are you richer than you think? 5 clear signs you’re punching way above the average American’s wealth
- Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich — and ‘anyone’ can do it
- This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchase. Here’s how to buy the coveted asset in bulk
- 22 US states are now in a recession or close to it — protect your savings with these 5 essential money moves ASAP
Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
This article originally appeared on Moneywise.com under the title: Paul Krugman calls US tariff strategy ‘utter chaos’ — adding Trump’s moves make America look more like Denmark
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.