There's a certain irony when your political base gets hit hardest by your own policies. That's the argument Nobel Prize-winning economist Paul Krugman is making about President Donald Trump's second term and its impact on small business owners, the very people who celebrated his return to the White House.

A Miserable Year, With Worse to Come

Writing in his Monday newsletter, Krugman didn't mince words: small businesses had a "miserable" year in 2025, and "2026 will be worse." This matters because small business owners tend to lean conservative on regulation, research shows. The experience of running a small business naturally leads people to adopt those views, Krugman noted. But ideology has collided hard with reality over the past year.

The problem is a one-two punch: Trump's tariffs combined with aggressive immigration enforcement. "High tariffs have been a body blow" to companies relying on imported products, Krugman explained. Meanwhile, "mass arrests of immigrants have also been highly disruptive for businesses, such as construction contractors, that depend on foreign-born workers."

Sure, these pressures affect everyone. But here's where size matters. Large corporations have resources that small businesses simply don't. They can hunt for new suppliers, exploit exemptions buried in trade agreements, and most importantly, leverage political influence to get special treatment.

Welcome to Crony Capitalism

Krugman put it bluntly: "Under Trump, the United States has moved rapidly toward crony capitalism." His example? Apple Inc. (AAPL) secured exemptions for its smartphone imports from India, even as punitive tariffs hammered other Indian exports. Small businesses don't have the political connections to land those kinds of sweetheart deals.

And just when you think it couldn't get worse, healthcare costs are piling on. Krugman points out that "almost half of the adults receiving health insurance via the government-run exchanges" either own or work for small businesses. The expiration of federal subsidies hits this group disproportionately hard.

Real Stories of Real Pain

This isn't just economic theory. Recent reporting has documented small businesses driven to the brink or into outright bankruptcy by tariffs on India and China. Owners describe skyrocketing input costs, contracts getting canceled, and bankruptcy lawyers on speed dial. Some are even contrasting Ronald Reagan's pro-trade legacy with Trump's tariff-heavy approach, wondering what happened to the Republican Party they thought they knew.

Former U.S. Trade Representative Roy Kirk summed up the chaos nicely: "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."

That uncertainty might be the worst part. It's hard to run a business when you don't know what the rules will be next month, or whether your competitor with better political connections will get an exemption you can't access. Small businesses operate on thin margins and tight timelines. They can't afford teams of lobbyists or the luxury of waiting out policy uncertainty.

The tension here is fascinating: the political coalition that powered Trump's return is discovering that campaign rhetoric and governing reality don't always align. Small business owners wanted less regulation and lower taxes. Instead, they're navigating a tariff minefield while watching big corporations play by different rules entirely.