Protests in Turkey.

The Erdogan Regime and Its Future Amid Mass Protests: Prospects for Change?

by CommentariesEconomicsEditor’s ChoiceHome

Recep Tayyip Erdogan’s political journey reflects a dramatic transformation—from a reform-minded leader once hailed as a model for Muslim democracies to an autocrat presiding over a deeply polarized and economically fragile Turkey. His consolidation of power, particularly after the 2016 coup attempt, has ushered in a regime marked by institutional erosion, economic mismanagement, and authoritarian repression. Recent mass protests sparked by the arrest of Istanbul Mayor Ekrem Imamoglu highlight growing public resistance, yet the broader trajectory remains one of democratic backsliding. Erdogan has found space to entrench his rule in an increasingly multipolar world, with Western pressure diluted by competing geopolitical priorities. The critical question now is whether domestic mobilization can meaningfully challenge this entrenched authoritarianism.

By Ibrahim Ozturk 

Populist rhetoric, which denounces the deficiencies of the established order while claiming to embody the will of “the people,” is inherently problematic. Populist leaders typically emerge from within a system of rules, institutions, values, and routines—even if that system is imperfect. Once in power, they frequently seek to undermine the structures that enabled their ascent, engaging in arbitrary and opportunistic governance. Confronted with the inevitable challenges of effective administration, their policies often fail to fulfill their promises and increasingly veer towards autocracy. 

The central irony of populism lies in its capacity to mobilize marginalized or resentful constituencies by implying that the prosperity and freedom typically associated with rule-based institutional governance can instead be achieved through contingent modes of rule—marked by unpredictability, uncertainty, and the personalized authority of charismatic leadership.

Even more concerning is the global diffusion of these populist ‘illusions.’ They have gained traction not only in advanced, affluent societies such as the United States and across Europe—despite the historical entrenchment of robust welfare state institutions—but also in major developing countries of the Global South, including Brazil, Hungary, India, Russia, and Turkey, where similar narratives have found fertile ground.

In the case of Turkey, Recep Tayyip Erdogan has at times been cited by social scientists as an exemplar of ‘positive’ or ‘progressive’ populism, particularly in light of the early wave of comprehensive reforms undertaken during his initial years in power. However, his governance trajectory over the subsequent decade has increasingly veered toward a regressive and authoritarian model. Notably, following the 2011 general elections—which secured him a third consecutive term—his reliance on contingent and arbitrary modes of decision-making, marked by repetitive ‘trial and error’ and ‘learning by doing’ strategies, contributed to systemic rent-seeking and widespread corruption. These dynamics, in turn, played a significant role in precipitating a deepening economic crisis.

Multiple independent sources suggest that, following the revelation of widespread government corruption during police investigations between December 17 and 25, 2013, the Turkish state apparatus under President Erdogan orchestrated or capitalized on the failed coup attempt of July 15, 2016. In its aftermath, and under the guise of heightened security imperatives, Erdogan moved to dismantle the constitutional system of checks and balances, culminating in the 2018 transition to a de facto one-man rule. Much like the instrumentalization of the Reichstag fire in Weimar Germany, this episode marked a turning point that ushered in a prolonged era of political instability and economic decline.

From Democratic Leadership to Absolute Authoritarianism: The Political Trajectory of Erdogan

Lord Acton famously observed that ‘absolute power corrupts absolutely,’ underscoring the inherent risks of unchecked authority in enabling corruption and authoritarianism. This insight resonates strongly with the trajectory of the Erdogan regime, which, after eroding its electoral viability through manipulative tactics and the strategic distribution of financial incentives disguised as ‘election bonuses,’ has increasingly moved to suppress direct opposition and compromise the integrity of the electoral process—ultimately at the expense of the public.

Beyond the prolonged pretrial detention of civil society figure Osman Kavala, attorney Selcuk Kozagacli, and parliamentarian Serafettin Can Atalay, the Erdogan regime has systematically targeted political adversaries across the ideological spectrum—from left-Kurdish leader Selahattin Demirtas to right-nationalist party leader Professor Umit Ozdag—often in the absence of substantive judicial proceedings. The latest escalation—the pretrial detention of Ekrem Imamoglu, Mayor of Istanbul, one of the world’s largest metropolitan centers—has significantly exceeded the limits of societal tolerance, triggering a sharp upsurge in public outrage. Imamoglu’s arrest on March 19, 2025, has provoked widespread condemnation: citizens have flooded the streets of Turkey’s major cities, university students have launched campus protests, and demands for ‘rights, law, and justice’ resonate across all social media platforms.

Let us begin with a set of critical questions: How did the Justice and Development Party (AKP), after a decade of seemingly successful governance between 2003 and 2013, descend into authoritarianism and preside over profound economic and political deterioration? How can we account for the stark contrast between President Erdogan’s two political trajectories—first, as a leader widely hailed as a model for the Islamic world, steering a ‘Muslim yet secular, democratic, modern, and European-oriented’ nation with a liberalizing market economy; and later, as the chief architect of accelerated Putinization, complete authoritarianism, and systemic economic decline?

More critically, the question now is: Where is Erdogan’s trajectory headed, particularly in light of the legitimacy afforded by the global rise of authoritarian right-wing populism—most notably in the United States and increasingly within the European Union—amid escalating challenges related to security and migration? In this context, Erdogan occupies a strategically pivotal position. What values, normative frameworks, and strategic latitude does the emerging multipolar world order afford him? Is Turkey gradually evolving into a new ‘Iron Curtain’ state within a reconfigured Cold War landscape—defined by transactional, interest-based relations with its traditional US and EU allies? As some have suggested, was the centennial of the Turkish Republic, founded by Ataturk in 1923, merely a symbolic intermission—now giving way to a neo-Sultanist order governed by a singular authority, one unrestrained by modern institutional checks or even the fixed doctrinal constraints of Sharia, thus allowing for unprecedented levels of conditionality, contingency, and arbitrariness?

In a comprehensive analysis I authored for Project Syndicate and Al Jazeera following Erdogan’s third general election victory in 2011, I acknowledged his government’s relative ‘economic miracle’ but concluded with a note of cautious skepticism: ‘The big question is how Erdogan will use this increasing power in the coming period.’ In the years since, Erdogan’s governance has offered considerable clarity regarding his long-term ambitions—developments that can be analytically divided into three distinct subperiods.

Episode One (2003–2013): The More Orthodox, the Greater the Success

The two successive analyses referenced above emphasized that during the AKP’s first decade in power (2003–2013), the implementation of comprehensive reforms aligned with the European Union accession agenda—coupled with the oversight of the IMF and World Bank—catalyzed substantial economic growth, largely driven by a notable rise in productivity for the first time in decades. In addition to favorable global liquidity conditions, Erdogan’s strong electoral legitimacy and effective leadership further reinforced this period of economic and political consolidation.

Despite rapid growth, the surge in productivity and currency appreciation—both closely tied to capital inflows—underpinned Turkey’s macroeconomic transformation. Decades of chronic inflation, which had hovered in triple digits in the early 2000s, declined to single digits by 2005, while income distribution improved markedly. Supported by wide-ranging structural reforms and sustained macroeconomic stability, the European Union officially recognized Turkey as a ‘functioning market economy’ in 2006. During this period, Turkey’s performance outpaced that of many peers in emerging markets. Declining risk premiums and an increasingly favorable investment climate ushered in a wave of foreign capital across nearly all categories—from long-term credit to record foreign direct investment (FDI) levels. This capital surge was driven by privatization initiatives, mergers and acquisitions (M&As), and substantial greenfield investments.

Source: World Bank data set.

However, this growth model soon revealed its structural limitations. Turkey failed to consolidate its early gains due to emerging signs of reform fatigue, policy reversals, and a gradual shift away from the European Union accession framework after 2007. Additionally, the model became increasingly reliant on short-term foreign capital inflows and debt-fueled expansion, while economic growth was driven largely by currency-induced consumption booms and a surge in construction and service sectors—rather than high-value-added manufacturing. This pattern of deindustrialization rendered the economy particularly vulnerable to external shocks, as evidenced during the global financial crises of 2008 and 2009. As a result, Erdogan entered his second term amid growing policy uncertainty and strategic drift.

Episode Two: Experimenting with a Sui Generis Model

During Erdogan’s second term (2013–2018), a series of significant policy shifts deepened his alignment with loyalist business elites, notably through the preferential allocation of state contracts and the consolidation of crony capitalist networks. The corruption investigations of December 17–25, 2013, exposed the extent of this system, triggering an intensification of political crackdowns and a decisive turn toward authoritarianism. Systematic attacks on institutional autonomy—particularly targeting the judiciary and the Central Bank—undermined the rule of law and eroded policy credibility. Economic growth slowed to a range of 3–5%, while political unrest, exemplified by the mass Gezi Park protests and the controversial 2016 coup attempt (widely seen as orchestrated or exploited by Erdogan), exacerbated instability. Market volatility intensified, compounded by rising US interest rates and Erdogan’s growing interference in monetary and fiscal policy, which together eroded investor confidence, prompted capital flight, and accelerated the depreciation of the Turkish lira (₺). Despite ongoing flagship infrastructure projects—such as the Istanbul Airport and Kanal Istanbul—that remained central to Erdogan’s economic narrative, Turkey shifted from a trajectory of reform-led growth to one of deepening economic and institutional uncertainty, primarily driven by the consolidation of authoritarian governance. This pivotal second period was catalyzed by the revelations of the 2013 corruption investigations.

Despite experiencing his first electoral setback on June 7, 2015, President Erdogan not only obstructed the formation of a coalition government but also exploited a climate of fear—amplified by a series of leveraged terrorist attacks—to regain electoral support under the guise of restoring ‘stability,’ ultimately securing victory in the snap elections of November 2015. This trajectory culminated in the aftermath of the controversial coup attempt on July 15, 2016, which Erdogan leveraged to consolidate his authority further. The event served as a pivotal pretext for the contested and coercively implemented regime transformation of 2018, marking the onset of his third term under a newly centralized executive presidential system.

Source: Author’s compilation from national and international datasets.

 

Episode Three (2018–Present): Crossing the Rubicon with Heterodoxy

Following the comprehensive dismantling of institutional checks and balances through the formal institutionalization of the presidential system in 2018, President Erdogan departed from conventional economic orthodoxy in favor of what he termed a “homemade indigenous model with a nationalistic outlook,”—a framework rooted in heterodox and highly politicized economic policies. The most prominent indicators of this period in the economic sphere included the politicized capture of key institutions such as the state statistical agencies and the Central Bank, accompanied by sustained political pressure that severely undermined their autonomy. Economic policymaking became increasingly unmoored from rational, evidence-based frameworks and was instead dictated by short-term political imperatives. From 2021 onward, this phase was marked by aggressive currency manipulation, credit rationing, the provision of subsidies through public banks, and a range of direct and indirect rent-transfer mechanisms benefiting political insiders aligned with the ruling elite.

The consequences were severe: hyperinflation, wage erosion, currency collapse, and escalating economic instability. The Turkish lira lost over 90% of its value between 2018 and March 2025. Inflation, which stood at 20% in 2021, soared to 85% in 2022, moderated to 43.5% in 2024, and remained high at 39.5% by March 2025. While these dynamics disproportionately burdened the poor and middle classes, they enriched Erdogan’s political allies through preferential access to state contracts and financial mechanisms, exacerbating wealth inequality. Despite this deterioration, the economy experienced short-term growth, driven by elevated public spending and an export boost facilitated by a severely devalued currency. This third era represents the most acute economic crisis under Erdogan’s leadership—one largely self-inflicted through policy mismanagement and institutional degradation.

In summary, Erdogan’s political trajectory can be delineated into three distinct phases. During his first era (2003–2013), he emerged as a pro-business reformer who modernized Turkey, attracted substantial foreign investment, and lifted millions out of poverty. The middle period (2013–2018) was marked by mounting political instability, decelerating economic growth, and an increasing consolidation of authoritarian control. The most recent phase (2018–present) has been defined by self-inflicted economic turmoil, characterized by hyperinflation, financial mismanagement, and institutional erosion. Over time, Erdogan has shifted from being hailed as an economic success story to assuming the role of a crisis manager. At the core of this transformation lies his unwavering determination to retain power and reengineer the political regime through an experimental economic and governance ‘model’—one that he neither fully comprehends nor implements coherently, operating instead through a framework of disorder, contingency, and arbitrariness.

Governance Tragedy

Erdogan’s somewhat surprising—yet, in retrospect, foreseeable—abandonment of his previously successful economic and political development model following the 2011 elections precipitated a profound governance crisis. Echoing, in form if not in content, Mao’s Cultural Revolution in China, Erdogan embarked on a series of self-declared, large-scale experiments characterized by opaque logic, undefined mechanisms, and uncertain causal relationships. Adopting a ‘learning by doing’ approach, he entrusted critical policymaking to inexperienced party loyalists and ideologically driven militants. Whereas the initial phase of governance was marked by competent technocrats and the strengthening of institutional capacity, the subsequent phase, particularly after 2018, was defined by institutional degradation, as unqualified yet ambitious individuals assumed control over key state structures. This transformation has far-reaching implications for the stability and functionality of the Turkish state apparatus.

The government’s patronage practices have extended well beyond large corporations aligned with the ruling party, encompassing individuals deemed politically loyal through strategic appointments to secure and well-compensated public sector positions. The transformation in the scale and composition of Turkey’s civil service is well documented. As of 2024, the number of public employees stands at approximately 5.3 million—more than double the 2 million recorded in 2002. Between 2002 and 2024, an estimated 3.3 million individuals were recruited into the civil service. Notably, of the 2 million civil servants employed in 2002, roughly 1 million have since retired, bringing the cumulative number of civil servants hired during the AKP era to approximately 4.3 million. This dramatic expansion reflects a broader trend of public sector growth under Erdogan’s leadership, characterized by the politicization of state institutions and the instrumental use of public employment as a means of consolidating political loyalty.

As of January 1, 2025, the national monthly minimum wage in Turkey has been set at a net TRY 22,104.67, while the base salary for civil servants has reached approximately TRY 43,726—nearly double the minimum wage. This stark disparity underscores the material privileges afforded to public-sector employees, a cohort that has increasingly been leveraged as a tool of political patronage. In contrast, individuals outside the ruling party’s patronage networks face systemic barriers to accessing public employment and are disproportionately relegated to the lower-wage private sector, where monthly earnings generally fall within the same range as the minimum wage and civil service floor (TRY 22,104.67 to TRY 43,726).

The consequences of Turkey’s governance crisis are clearly reflected across all major governance indicators. According to the Worldwide Governance Indicators (WGI) project, which evaluates six key governance dimensions for over 200 economies between 1996 and 2023, Turkey has experienced a marked and persistent decline in performance. Each WGI dimension is measured on a scale ranging from approximately -2.5 (weak governance) to 2.5 (strong governance). Table 3 summarizes Turkey’s scores across selected years, illustrating the country’s overall trajectory of governance erosion. For example, the ‘Control of Corruption’ indicator improved in the early 2000s, rising from -0.45 in 2002 to 0.08 in 2005, reflecting early reform efforts. However, by 2023, this score had deteriorated to -0.50, signaling a reversal of progress and deepening institutional fragility. Similar negative trends are observable across the other five dimensions, underscoring the systemic nature of Turkey’s governance decline.

This sustained decline in governance indicators reflects a broader erosion of Turkey’s rule of law and civil liberties. The Rule of Law Index, published by the World Justice Project, assesses countries based on factors such as constraints on government power, absence of corruption, and protection of fundamental rights. In 2024, Turkey ranked 117th out of 142 countries, significantly deviating from rule-of-law standards. Similarly, the Freedom in the World Index by Freedom House—which evaluates political rights and civil liberties globally—assigned Turkey a score of 33 out of 100, classifying it as ‘Not Free.’ Further underscoring this deterioration, Transparency International’s Corruption Perceptions Index (CPI), which ranks countries on a scale from 0 (highly corrupt) to 100 (very clean), shows Turkey’s score declining from 50 in 2013 to 34 in 2024. This sharp drop reflects a growing perception of entrenched public sector corruption and declining institutional integrity.

While definitive assessments are best left to subject-matter experts, President Erdogan’s underlying motives for Turkey’s authoritarian turn can be broadly summarized as follows:

📌 The 2008 Constitutional Court case that sought to dissolve the Justice and Development Party (AKP)—posing a direct threat to Erdogan’s political survival—catalyzed a sustained effort to assert control over the judiciary.
📌 Perceptions of European Union double standards, particularly regarding issues such as the Cyprus dispute, the stalled modernization of the EU–Turkey Customs Union, and persistent delays in the EU accession process, contributed to Turkey’s gradual disengagement from reform commitments. The government also strategically instrumentalized these grievances to avoid implementing critical reforms tied to transparency, inclusivity, and fair competition in public procurement, especially in infrastructure investment tenders.
📌 The collapse of the Kurdish peace initiative resulted in a resurgence of violence, further destabilizing domestic politics and hardening Erdogan’s security-focused posture.
📌 The fallout with the Gulen movement, once a close ally of the regime, culminated in a sweeping purge of state institutions following the 2016 coup attempt, consolidating Erdogan’s unchecked authority.
📌 Facing a shortage of qualified technocrats, Erdogan increasingly staffed key institutions with ideologically driven loyalists, while shifting economic focus toward sectors amenable to centralized control—such as construction, tourism, and rent-seeking industries.
📌 Ideologically influenced by the National View (Milli Görüş) movement, Erdogan has pursued the replacement of Turkey’s Kemalist-secular state tradition with a sui generis, neo-Ottoman model of governance marked by centralized power, religious symbolism, and historical revisionism.
 

Conclusion

Turkey’s recent development trajectory reveals a recurring pattern: periods of economic and political advancement have tended to coincide with phases of openness and integration with the West, while inward-looking, ‘local and national’ strategies have frequently corresponded with stagnation or regression. Given its geostrategic location, Turkey’s engagement with Western institutions and normative frameworks has not been merely opportunistic, but structurally imperative for sustaining reform and modernization. However, shifting global power dynamics have expanded Turkey’s strategic autonomy, simultaneously weakening the external normative pressures that once served as a moderating force on its domestic governance and policy orientation.

Available evidence strongly suggests that President Erdogan has decisively abandoned democratic norms, transparent governance, and the rule of law. The current international environment—marked by growing multipolarity, the global resurgence of populist movements such as Trumpism, and Europe’s acute focus on security and migration—has provided Erdogan with the strategic latitude to expand executive authority with minimal external resistance. Although recent episodes of public dissent may pose temporary tactical constraints, they are unlikely to alter the broader trajectory of authoritarian consolidation that appears poised to define Turkey’s political future.

Trump supporters marched toward Capitol Hill on January 6, 2021, in Washington, D.C., USA. Photo: Dreamstime / © Bgrocker

Dr. Boucher: Trump Is Not the Cause, but a Symptom

by EconomicsEditor’s ChoiceHomeInterviews

In this incisive ECPS interview, Dr. Jean-Christophe Boucher, Associate Professor at the University of Calgary, explores how populism is reshaping US foreign policy—from tariffs as symbolic resistance to institutional erosion under Trump 2.0. Arguing that “Trump is not the cause but a symptom,” Dr. Boucher warns that even without Trump, populist forces will endure, backed by media ecosystems, think tanks, and loyalist networks. He emphasizes that “this is not really an economic argument. It’s a political and populist argument,” driving a shift from multilateralism to nationalist retrenchment. A must-read for anyone interested in the ideological drivers behind today’s turbulent geopolitics.

Interview by Selcuk Gultasli

In this timely and penetrating interview with the European Center for Populism Studies (ECPS), Dr. Jean-Christophe Boucher—Associate Professor at the University of Calgary’s School of Public Policy and Department of Political Science—offers a comprehensive assessment of how populist ideology is transforming American foreign policy, institutional norms, and multilateral engagement. Central to Dr. Boucher’s argument is a provocative but sobering claim: “Trump is not the cause but a symptom.” Even if Donald Trump were no longer on the political stage, Dr. Boucher insists, “this movement would remain part of the political conversation,” underscoring the durability and depth of populist forces within American society and institutions.

Dr. Boucher advances the ideational approach to populism, which links belief systems to behavioral patterns. Rather than viewing populist discourse as purely performative or strategic, he argues that “these people really believe in these values and these hierarchies of beliefs, and they’ll start to act upon it.” This perspective, he contends, helps explain the internal coherence of Trump’s policies across domains, including trade, immigration, and foreign relations.

One of the interview’s central themes is the symbolic repurposing of trade tools like tariffs. For Trump and his supporters, tariffs are no longer just economic instruments; they are reimagined as expressions of national sovereignty and resistance against a “globalist elite.” As Dr. Boucher puts it, “this is not really an economic argument. It’s a political and populist argument.” This reframing speaks to broader populist tendencies that elevate identity, emotion, and anti-elite resentment over technocratic expertise and institutional procedure.

Throughout the conversation, Dr. Boucher traces how institutional degradation—accelerated under what he calls “Trump 2.0”—is being enabled by a growing ecosystem of populist actors, from think tanks like those behind Project 2025 to social media influencers and tech elites. He warns that foreign policy institutions like the State Department and Department of Defense are being hollowed out, potentially making way for a more centralized, nativist, and unilateralist foreign policy doctrine.

Ultimately, Dr. Boucher’s analysis is a call to recognize the structural, not merely electoral, nature of the populist threat. “There’s significant support for it,” he reminds us. Understanding this dynamic is essential for those hoping to defend democratic institutions and multilateralism in an era of resurgent populism.

Dr. Jean-Christophe Boucher—Associate Professor at the University of Calgary’s School of Public Policy and Department of Political Science.

Here is the lightly edited transcript of the interview with Dr. Jean-Christophe Boucher.

They Don’t Just Talk Like Populists—They Behave Like Populists

Professor Boucher, thank you so very much for joining our interview series. Let me start right away with the first question. How does the ideational approach to populism help us understand the continuity between Trump’s first and second administrations in shaping foreign policy through anti-elitist and pro-people rhetoric?

Dr. Jean-Christophe Boucher: That’s a great question, as it delves into a central debate in populism studies: the distinction between the discursive and ideational approaches. What I appreciate about the ideational approach is its emphasis on the connection between beliefs, values, and behaviors. This perspective posits that populist leaders and their supporters don’t merely articulate anti-elitist and pro-people sentiments—they genuinely hold these beliefs and act accordingly. Thus, when viewed through the ideational lens, populism is seen not just as rhetoric but as a guiding ideology that influences actions across various domains. This framework helps explain the consistency in populist behavior, as individuals internalize these values and implement them in practice.​

And this is why I really like the ideational approach to foreign policy—because the argument is that Trump not only holds a thin-centered populist ideology, but also implemented policies aimed at realizing these ideas, targeting elites and advancing pro-people narratives. This approach influenced not only domestic politics but extended into foreign policy as well. When using a discursive approach, it’s harder to explain why a populist would shift across different policy sectors. But if they have an ideology, the assumption is that this belief system extends across various domains—economics, immigration, and, in this case, foreign policy. So, I really believe the ideational approach helps us better understand the consistency in the Trump Administration’s policies.

In foreign policy, for example, the first Trump administration made several decisions closely tied to populist views. There was a strong emphasis on tariffs, as well as on immigration—remember the travel ban and the push for anti-Muslim policies. These moves clearly reflected a blend of populism and ethnonationalism at the core of the administration’s agenda. And we’re seeing similar patterns emerging again in Trump 2.0. I think that’s important to understand.

You’ve written about populism’s impact on foreign policy coherence. In the current environment, can foreign policy institutions remain resilient under populist leadership, or do they inevitably erode?

Dr. Jean-Christophe Boucher: When you sent me that question, I really thought about it, and I’m still kind of debating it in my head. I think there’s a lot of interesting research about  populism on how populist leaders go after institutions and try to change or disaggregate them so that a lot of the power centers shift back toward the populist leaders and away from these institutions. In foreign policy, we’re seeing the same thing, especially in Trump 2.0.

In the first Trump administration, foreign policy institutions—the State Department, the Department of Defense, even the Department of Homeland Security—were more or less able to maintain their integrity. A lot of the so-called “adults in the room” at the time came from the national security and foreign policy environment.

But when we look at Project 2025, a lot of the post-Trump reflections suggest that one of the administration’s misgivings about the first term was that these institutions resisted Trump’s agenda. In Trump 2.0, a major focus is on restructuring these institutions—the State Department, the Department of Defense, Homeland Security, even the NSA. There’s a strong push against the elites and a shift toward loyalists.

At the international level, Trump is doing the same thing: pulling the US out of the WHO, expressing skepticism about the G20 and G7, and generally trying to undermine international institutions that might constrain his foreign policy decisions.

What I find interesting is that Trump uses the same kind of discourse to justify what he’s doing domestically and internationally. He talks about elites controlling institutions, about those institutions not representing the will of the people, and about the need to undo them so that the people’s voice is heard. And you see the same thing at the international level, where he argues that globalists and internationalists are controlling those institutions. That’s why, he claims, the United States has to put Americans—the American people—first and, in doing so, take back control from those institutions that influence foreign policy.

Extending the Manichean Divide: From Domestic Elites to Global Conspiracies

How has the Trump administration weaponized populist narratives that portray global trade regimes as elite conspiracies to justify protectionism?

Dr. Jean-Christophe Boucher: This is a question I’m asking myself all the time. I think it really— from an ideational perspective—it’s not just about weaponization. My question always, in my head, is whether populists really believe what they say, or is it just kind of a way to frame their issues? And if you take an ideational approach, you’ll say these populists actually believe that that’s true.

Trump has been very consistent across his career in thinking that tariffs are a good way and a good policy, and much of the argument was that outside actors and the elites were essentially taking over American policies and abusing the American people unfairly. It’s about transposing this kind of anti-elite argument from the domestic environment onto the international level, and saying: “All of these countries in the world and all of these globalists are creating this network that’s abusive to the United States,” and that somehow they have removed the capacity of Americans to make their own policies and decide for themselves—that the American people have lost agency.

Trump really used this kind of language to articulate a protectionist policy that frames outside actors as abusive and corrupt institutions, countries, and people—and that he, as the populist leader, is fighting back and reclaiming these powers for the American people.

So the way I see it, you essentially extend the Manichean view of populism to the international level, where “the people” becomes the American people and “the elites” are reimagined as foreign actors or global institutions seen as corrupt and exploitative. It’s the same framework of a divided world: the corrupt versus the pure people, who are portrayed as disenfranchised and disempowered by those elites.

Your chapter in a recently published book highlights the role of nativist securitization in justifying the travel ban. In today’s context, how might similar nativist framing be deployed in foreign policy debates such as immigration from conflict zones or relations with ‘globalist’ institutions?

Dr. Jean-Christophe Boucher: The paper was written a long time ago, and it’s ironic that it took so long to get published—only for the same kinds of nativist and anti-immigration policies to reemerge. It’s depressing to realize that, in a grim way, we were right. The argument in that paper was that, on immigration issues, ethno-nationalism and populism were structured similarly, creating a framework of outside and inside actors—an idea central to ethno-nationalist thinking.

I thought at the time that it was an interesting way to frame those issues in the populist context. Others have worked extensively on populism, far-right populism, and ethno-nationalism. In this context, what we saw was that Trump’s framing of immigration issues was really centered around the narrative of elites versus the people—with “the people” portrayed as a kind of ethno-nationalist, pure group—and this created an outside/inside actor dynamic. That framing was central to the policy and shaped much of how these issues were understood. That’s how we approached the argument.

Trump Is the Symptom of a Deeper Foreign Policy Shift

A Trump supporter holds up a “Make America Great Again” sign at presidential candidate Donald Trump’s rally in the convention center in Sioux City, Iowa, on November 6, 2016. Photo: Mark Reinstein.

In the light of the increasing overlap between populism and foreign policy, do you foresee a lasting structural transformation of US foreign policy priorities—away from multilateralism and toward identity-driven narratives of national sovereignty and civilizational conflict?

Jean-Christophe Boucher:  I do. I think so. I’m a Canadian, and of course, we’re very close to the Americans. We’ve been witnessing a lot of what’s happening—and as you know, we’re bearing the brunt of much of the United States’ abuse at this time: being called the 51st state and facing challenges to our sovereignty.

What we see from our perspective—and I think this applies to the populist perspective as well—is twofold. On the one hand, we sometimes mistake the leader for the movement. We tend to think that Trump, the populist leader, is the architect of everything. That’s a mistake. What we’re seeing among the American people right now is a real appetite for populist discourse at the grassroots level—at the demand level—and Trump is merely an embodiment of that pressure. Many individuals within American institutions and among the elite also hold populist ideas. Even if Trump were to disappear from the scene, the movement would remain part of the political conversation, and I don’t think it would fundamentally change what’s happening in the US. Trump is not the cause but a symptom. There’s a broader movement that supports the way he behaves, which helps explain why the pushback against his undermining of institutions hasn’t been as strong as one might expect—because there’s significant support for it.

The second part is that systematically, the Trump administration is going after the foreign policy establishments and institutions in the US—State Department, DoD, DHS. At all levels, there’s been a deep dive into these institutions and an uprooting of many programs and checks and balances that had been in place. It’s not just USAID. If you look at what the Department of Defense is doing on DEI and other issues, there’s a deep restructuring underway. So even if Trump moves away in 2028, those institutions will look very different from when he came in. It will take time to rebuild them—if that even happens.

Not only is there an appetite for what Trump represents, but the institutions that once safeguarded against that appetite may no longer exist. We’ll be left with institutions that make it easier for a populist leader to pursue a foreign policy that is more self-centered, more nativist, and more protectionist. And I think that’s the future we’re likely to see in the coming years.

Social Media Lets Populist Leaders Sidestep Institutions and Speak Unfiltered

Given your findings on the use of social media to propagate populist foreign policy, how do you assess the evolution of this communication strategy in Trump’s second term, especially with shifting media platforms and increasing polarization?

Dr. Jean-Christophe Boucher: I think it’s part of the argument. There’s a lot of good research on why populist leaders prefer social media or alternative media as a way to communicate with the people. There are a lot of arguments. One is that mainstream media are portrayed as those of the elites, and somehow populist leaders have a deep-seated obsession about that. But social media also allows the populist leader to have a direct connection with the people and talk to them specifically.

If you look at what the Trump administration is doing, there’s a lot of that. In Trump 1.0, there were all these attacks on mainstream media, on fake news, and all of those were constant. We see it in our data on tariffs, but even on nativism—a lot of the anti-elite discourse coming directly from Trump and from the people is directed against those media institutions that seem to represent the elites.

What I find interesting right now in Trump 2.0 is that Trump is actually going after those institutions directly. You’ve seen, for example, how they’re suing CBS and other institutions, cutting ties with NPR, and really going after a lot of the power centers of mainstream media.

You also see how he’s allowing a lot of alternative media to attend press conferences, giving those outlets a larger impact.

Finally, we see that the Trump administration—like Trump 1.0—really communicates many of its ideas and arguments on social media. On tariffs, for example, policy officials actually learn about new directions in tariff policy through Trump’s posts on Truth Social or X. Social media becomes a really strong way for him to do this.

It also allows the populist leader to sidestep all the checks and balances of institutions—but also internally—where what he can say and how he addresses himself is unrestrained by those actors. And that really makes it an important part of that conversation.

Trump Is No Longer Alone—Populism Now Operates as an Institutionalized Ecosystem

Photo: Dreamstime.

You demonstrate that populist narratives were reinforced by networks of actors beyond political elites, including media and think tanks. How do you see these networks evolving under renewed populist leadership, and what new actors have emerged in this space since 2017?

Dr. Jean-Christophe Boucher: This is one of the things we wanted to highlight. The more I reflect on how we wrote about those issues at the time, the more I realize that our central argument was this: much of the literature focuses on populist leaders but overlooks the broader network that supports them. In fact, if you’re trying to understand a populist movement, you have to consider all the actors who enable and sustain the leader. It’s very difficult for a populist leader to operate in isolation—there’s always a constellation of other actors involved.

When we looked at social media networks and influencers, we found that while the populist leader was the most influential figure, there were many other groups—advocacy groups, think tanks—that supported the environment around him.

Today, you see exactly the same thing. Some of those actors are now part of the Trump administration. For example, Project 2025, which was at the center of a think-tank effort to produce populist ideas on transforming government in a potential Trump 2.0 administration, is now embedded in the administration. Figures like Elon Musk and the tech bros, who pushed populist ideas on social media, were essential to Trump’s reelection and are now part of the governing sphere, helping implement the president’s agenda.

People like Jack Posobiec and other far-right network figures who were once just part of the ecosystem around Trump and the MAGA movement are now in or close to government. So, when we think about the Trump administration, we should stop thinking of Trump as the sole actor—there’s an entire ecosystem that was nascent in Trump 1.0 but is now fully institutionalized in Trump 2.0.

What I saw in 2016–17 was a loose, informal network. Over the last four years, that network has crystallized into a proper movement—with influencers, money, institutions, and architecture that now serve as the base of the MAGA movement. It’s a lot more formalized.

That’s why the Trump administration is now able to move faster on its agenda and more effectively push its populist ideas into the system—because of the support from all these actors. He wouldn’t be able to do what he’s doing without Elon Musk and others backing him. He wouldn’t be able to move without Mike Johnson controlling Congress. Many of those actors who were loosely connected in 2016–2020 are now firmly part of his circle, accelerating and deepening the reach of his agenda into institutions.

How have Trump’s populist politics redefined the symbolic value of tariffs—not merely as economic tools, but as performative instruments of sovereignty and resistance against the ‘globalist elite’?

Dr. Jean-Christophe Boucher: This is where the populist argument comes in—where you mix the economics of it with the politics and belief system behind it. In the US right now, in the conversation around tariffs, there are really two conversations happening at the same time. You have the economic conversation, where a lot of economists are trying to explain why tariffs are a good thing for the US and trying to justify them. I’m less interested in that, because it seems like all the data goes against that argument. The idea that tariffs are economically beneficial is a marginal one.

What I find more interesting and more conducive to explaining what’s happening is this belief system. Trump genuinely believes that tariffs will undo the power of the elites and recreate a structure of economics that refocuses on the good of the American people. And somehow, that’s how it should be. The interesting part is, you can hear it when he talks—he recognizes that this will have deep economic impacts. He says, “This will be difficult. This will produce pain. But this is a good thing for the American people.” We’re going to bring back real jobs for real Americans—for workers—and that matters more.

Despite the economic pain, this is not really an economic argument. It’s a political and populist argument that explains why he supports tariffs. And when you listen to his political rationale, it makes a lot more sense than if you approach it purely from an economic perspective. I also think that’s why trying to argue with the Trump movement on economic terms doesn’t work—because in their view, it’s not an economic argument at all. It’s a political belief system they’re trying to put in place. They really don’t care if some economic pain is produced in that process. What they’re seeking is to re-center economic power around the American people, and not around what they see as the elites and people in the cities who benefit from a global international system.

Tariffs Are Populist Symbols of Sovereignty and Struggle

3D illustration: Lightspring.

You argue that foreign policy is increasingly shaped by emotional and identity-based appeals. To what extent do you see populist trade wars as cultural projects, not just economic or strategic ones? Are we now seeing what you anticipated: the normalization of tariffs as political theatre, rather than as policy tools grounded in economic rationale?

Dr. Jean-Christophe Boucher: Remember that we wrote this paper in 2017–2018—it was a long time ago. What really concerns me is that I was hoping we would be wrong, or that it would turn out to be just a passing moment. But today, it’s becoming more and more about exactly that—and it’s not just within the Trump administration. We’re seeing increasing arguments that trade and protectionism are being framed as formal expressions of the will of the people. I think that’s the important part.

One of the arguments we see in the populist movement is that global trade networks really removed the center of power from the people to these elites—the bankers, the traders—who were able to control global markets, while the people were left behind. And, of course, they characterize these people—these Davos and World Economic Forum elites—as corrupt actors controlling the international economic system.

What I find interesting—and this is why I think it’s an ideology more than just a discourse—is that most populist leaders, from the left and the right, have the same rhetoric. From Marine Le Pen in France to Nigel Farage in the UK to Orban in Hungary, you’re seeing the same kind of argument: that we have to take power away from the globalists, create protectionist policies to protect the people, and disengage from these global economic networks.

I believe that right now we are in that phase. We’re seeing a retrenchment from global politics and a refocusing on national manufacturing and supply-side arguments. Trade will become more sticky, and there will be more friction in international trade than we were used to.

What I find interesting—last point—is that even without Trump, when we listen to the Biden administration, there’s a lot of talk about supply chain management, supply chain security, and bringing back manufacturing jobs and national economic capacities. So even without Trump, you still have this kind of retrenchment from loose international trade and a renewed focus on domestic politics and domestic economics.

Tariffs Aren’t Just Economic Tools—They’re Instruments to Recenter Power on ‘the People

Drawing on your “I, Tariff Man” analysis, how has Trump’s second term intensified the personalization and performative use of trade policy? In what ways does this reflect broader populist tendencies that reject institutional expertise and multilateralism while mobilizing domestic political support?

Dr. Jean-Christophe Boucher: From an ideational perspective, populism—and its Manichean view of the world—shapes how people think and behave. In the trade environment, we see this clearly: tariffs become a tool for constructing a populist framework. Through tariffs, institutions built to manage global trade are effectively weakened or disassembled. Power is taken away from the elites who control international networks and redirected toward “the people,” refocusing economic forces inward.

In the populist literature, there’s always this argument—whether populism is a disease of democratic systems or a correction to a lack of representation in an economic system. And I really think the way a lot of populists think about tariffs reflects the latter. It’s seen as a corrective to brittle trade negotiations that took economic power away from the people and handed it to elites—people in cities, in the service industry, who were able to live well while workers became less powerful. So, retaking that power becomes the goal.

I don’t think it’s just performative. I think they genuinely believe this will recenter power on the people and help recreate a manufacturing base. When you listen to how some economists frame it, they suggest it will make life harder for service industries in cities, reduce their economic influence, and shift that power toward manufacturing and “Middle America,” where more of the population resides. Personally, I don’t think it will work that way—automation and other structural factors have played a major role in the erosion of US manufacturing—but from their perspective, the argument is clear: jobs were exported, elites benefited, and the people suffered. Tariffs are intended to sever those global networks and refocus the economy internally.

It might result in a less productive America. It might hollow out the cities and the service economy. But for populists, that’s probably the point—and they’re okay with that.

We’re Heading Toward a Smaller, Less Open World

With Trump’s renewed disengagement from WTO norms, do you see this as a terminal moment for the postwar liberal trade order, or is there still a path to restoration? What lessons can be drawn from the Trump era about the vulnerability of international economic governance to populist subversion, and what reforms are needed to future-proof institutions like the WTO from nationalist retrenchment?

Dr. Jean-Christophe Boucher: As a Canadian, I think about this all the time—and to be honest, there’s a lot to consider.My first assumption is that the Trump administration is just a symptom. So you’re still going to see a broader retrenchment from free trade, and even if, say, in 2028, a new president were elected, I don’t think this kind of protectionism would simply go away. A lot of international institutions will have a hard time surviving in that kind of system.

What I’m seeing, at least from Canada’s perspective, is that maybe some countries will keep these institutions alive and reduce the dominance of large multinational corporations. My sense is that the future lies in minilateralism—where like-minded countries who still see value in trade will maintain these institutions, but more for their own benefit than for the global system.

At the EU level, I think we’ll see more internal consolidation of trade and governance policies—unless, of course, a far-right government comes to power in a major state like France, which could unravel key aspects of the EU. Countries like Canada still want more trade and strong relationships with institutions like the WTO, but I believe the global trade environment will be significantly smaller than it once was.

Governments like ours can’t replace the United States in terms of global leadership—our prime minister recently said “if the Americans won’t lead, Canada will,” but let’s be honest: no one can replace the US in terms of resources and influence. What we might see is more involvement from China, Russia, and Iran in shaping these institutions—but their vision for the international system is quite different from that of the US and its allies.

So, my assumption is that we’re entering a deeply transformative period. The world will become smaller, more fragmented into blocs of countries defending their own values and interests—and far less open at the international level.

In the end, I think the countries that will suffer most are those in Africa, Latin America, and other regions of the Global South, because they benefited significantly from openness and multilateral institutions. Wealthier nations can still provide many of the services and information gathering that multilateral institutions once offered, but smaller states can’t. If you were a small country in Africa, those institutions were a lifeline.

I guess I’m a pessimist here, but I do believe we’re heading toward a smaller, less open world.

Multilateralism Is No Longer a Principle—It’s a Strategy

And lastly, Professor Boucher, how should policymakers in Canada respond to the dual threat of economic harm and normative erosion posed by populist-driven trade wars? What counter-narratives can be mobilized to restore public trust in multilateralism?

Dr. Jean-Christophe Boucher: Even in Canada, I’d say that—let’s put it this way—there was a movement not that long ago, when I was doing my PhD, that argued multilateralism was more of a practice than a belief. The idea was that what was good was not multilateralism as an end in itself, but as a means—a mode of engagement. The work in practice theory and international relations emphasized that what mattered was the activity of multilateralism, rather than its outcomes.

I don’t think that holds anymore, even in Canada. I think Canadians are now less and less devoted to multilateralism as a principle, and more interested in promoting their own views and strategic interests. What we see here is a sense that the world is retrenching, becoming smaller, and that we need to refocus our attention more narrowly.

The rise of China and Russia has shown how difficult it is for multilateral institutions to adapt. Now that the United States has also joined this retrenchment, I think it signals that those institutions won’t survive in their present form. As a result, a lot of Canada’s foreign policy is moving away from traditional multilateralism and toward more bilateral or minilateral relationships.

For example, if you look at what Canada is doing: we’re deepening ties with key European partners—not just through Brussels, but also through Paris, London, and Berlin. There’s been increasing talk about Canada joining the European Union, and frankly, if there were a referendum today, it might actually pass. Many Canadians feel that makes sense strategically.

Recently, we also published a document formalizing our Indo-Pacific strategy. If you look at where Canada is focusing its efforts, it’s clearly on strengthening relationships with partners in the Pacific—Japan, Taiwan, South Korea, Australia. There’s a renewed emphasis on ASEAN as well.

So we’re moving away from the big, universalist international institutions and focusing more on regional, minilateral partnerships. It’s just easier. The commitment to shared values is clearer, and the conversations are more straightforward than what we often encounter at the global level.

Donald J. Trump, the 47th President of the United States, at his inauguration celebration in Washington, D.C., on January 20, 2025. Photo: Muhammad Abdullah.

Professor Jones: Trump’s ‘Tariff Dictatorship’ Is Undermining the Global Trade Order

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In an in-depth interview with ECPS, Professor Kent Jones warns that Donald Trump’s second-term trade strategy amounts to a “tariff dictatorship,” dismantling WTO norms and centralizing unprecedented power. “Trade has become a populist weapon,” says Professor Jones, “used to stoke anger and identify scapegoats rather than manage the economy.” He explains how Trump’s emotionally charged, anti-globalist rhetoric recasts trade deficits as existential threats while ignoring economic realities. Yet Professor Jones remains cautiously hopeful: “Globalization has faced downturns before. The human impulse to exchange and specialize endures.” As America retreats, he argues, others may step up. “If the US won’t lead, new trade alliances will form. But unpredictability is a burden—not a strength.”

Interview by Selcuk Gultasli

In this timely and wide-ranging interview with the European Center for Populism Studies (ECPS), Prof. Kent Jones—Professor Emeritus of International Economics at Babson College and author of Populism and Trade: The Challenge to the Global Trading System—offers a sobering yet analytically rich critique of the Trump administration’s second-term trade strategy. Drawing on decades of experience and deep institutional knowledge, Professor Jones warns that the United States is no longer the steward of the postwar liberal trade order, but rather its chief saboteur. He argues that President Donald Trump’s erratic and hyper-personalized approach to trade—what he calls a “tariff dictatorship”—has effectively dismantled key pillars of the World Trade Organization (WTO), including most-favored-nation treatment and tariff binding, while concentrating unprecedented power in the hands of one individual.

Professor Jones emphasizes that trade policy, under Trump, has ceased to function as a tool of economic management and has instead become a populist weapon—repurposed to rally a nationalist, anti-elite political base through emotionally charged narratives about foreign threats and national decline. Trade deficits are recast as existential challenges, tariffs are imposed arbitrarily, and America’s longstanding commitments to multilateralism are eroded in favor of bilateral, loyalty-based deals that reflect Trump’s personal brand of grievance politics.

Yet amid this bleak portrait of institutional decay and populist distortion, Professor Jones also leaves room for cautious optimism. He underscores that globalization has weathered cyclical downturns before and that the human impulse to exchange, specialize, and cooperate across borders remains strong. While the US has stepped back, other actors—including the European Union, Canada, and emerging regional blocs—may step forward to rebuild a rules-based trade system, albeit imperfectly and without American leadership. Furthermore, Professor Jones suggests that the very unpredictability and economic pain caused by Trump’s tariffs may provoke renewed public scrutiny, mobilizing calls for Congress to reclaim its constitutional role in trade policymaking.

Ultimately, Professor Jones invites us to consider not only what has been lost, but what might still be recovered—provided that political institutions, civil society, and international alliances respond with resolve. As the world faces growing economic fragmentation, his insights provide a vital lens for understanding what’s at stake and how democratic societies might chart a path forward.

Dr. Kent Jones, Professor Emeritus of International Economics at Babson College and author of Populism and Trade: The Challenge to the Global Trading System.

Here is the lightly edited transcript of the interview with Professor Kent Jones.

Trade as a Psychological Tool in Trump’s Populist Arsenal

Professor Jones, thank you very much for joining our interview series. Let me start right away with the first question: How has trade policy been strategically deployed by Donald Trump as a tool of electoral mobilization? To what extent has the administration’s populist trade rhetoric succeeded in forging a durable political coalition that bridges economic grievances and cultural identity politics?

Professor Kent Jones: As I try to communicate in my book, Trump undoubtedly used trade as a strategic element of his electoral platform. However, it must be understood within the broader context of other grievances he exploited—particularly in the most recent election in November—many of which could be described as cultural. Immigration, for instance, was a major concern for many Americans. Inflation was also a key issue, even though it wasn’t as severe as Trump portrayed it; nonetheless, he promised to bring prices down. These issues were part of a larger constellation of concerns, including cultural ones—such as transgender politics—which, in my view, received disproportionate attention.

What Trump effectively managed to do was to construct a political package in which trade plays a central role in identifying a scapegoat—namely, the globalist elite—whom he claims is responsible for many of the country’s problems. To the extent that he succeeded in doing so, he was able to extend his appeal beyond his base of highly enthusiastic and passionate supporters to include individuals concerned with broader issues—such as border security. At the same time, he found it politically expedient to block Congressional efforts to address immigration, ensuring that the issue would remain salient within his campaign platform.

My focus on trade has always been that it’s part of a larger—perhaps psychological—set of issues that allows a candidate like Trump to say: “Look at immigration and what a problem it is. Well, trade is a very similar thing. Globalists have destroyed American manufacturing, just as immigrants have come in and polluted our population with foreign, unfamiliar, non-American elements.” These themes converge. Trade, as it turns out, is a very important part of Trump’s populist agenda. I don’t see this as a general populist tendency. Most of the other countries I studied in my book had governments led by populists, but many of them were small, open economies that did not have the capacity to use trade as a weapon in their populist platforms. For example, Israel, which currently has a populist government, is a small, open economy that remains broadly committed to free trade. You’re not going to see the same railing against the WTO and related institutions from countries like that as you did from Trump.

Now, regarding whether this is a viable coalition—I think that remains to be seen, because Trump has not kept his promises on bringing inflation down. The immigration problem has somewhat subsided, but he now appears to be focusing as much on that issue as on tariffs. For example, deporting Venezuelans to El Salvador—something that is constitutionally very questionable, and probably illegal. The Trump administration is now trying to position itself as being independent of rulings by courts, including even the Supreme Court, in pursuing its policies. There’s a multi-pronged effort by Trump to gain and concentrate more and more power, and trade is playing a role in that. I think this also reveals some weaknesses in his use of trade, because while people may be upset about jobs being sent abroad, they are equally upset about being charged significantly more—for automobiles, clothing, steel, and aluminum—as a result of his tariff plan. So, I see this as a Trump attempt to use trade politically, but not yet a successful one in cementing a durable populist coalition.

Anger as the Engine in Populist Playbook

Have we now entered the phase you previously anticipated, in which economic expertise in trade policy is increasingly eclipsed by emotionally charged populist narratives? Under Trump’s renewed administration, what specific events or discursive strategies are being used to reignite trade as an emotional flashpoint?

Professor Kent Jones: Yes, of course. In the study of populism, the issue of affect is important. If you can make people very angry, you’re more likely to be successful as a populist—and I think Trump has done that to a certain extent. I’m not sure whether this coalition—going back to your previous question—is very stable, but when it comes to trade, this is something that, as an economist, I’ve always lamented: the idea that a trade balance or imbalance is a valid justification for tariffs.

Trump has attempted to weaponize trade by claiming that foreign countries have, as he puts it, “cheated” and “ripped off” Americans over the past decades by causing the US to run a trade deficit. If you take a close look at his tariff formula, economists have thoroughly ridiculed it. It’s essentially a trade balance-based formula that imposes tariffs according to the size of a country’s trade surplus with the United States—purportedly to justify his so-called “reciprocal tariffs.”

But these tariffs aren’t actually reciprocal, because they don’t target foreign tariffs levied against US imports. Instead, they create a system in which Trump can identify grievances—some trade-related, some not—and then use them to pressure countries into negotiating access to the US market. In this way, he is attempting to weaponize trade by consolidating sole decision-making power over market access. I call it a “tariff dictatorship,” and this authority has, in many ways, been enabled by Congress. It is now backed by a Republican majority that refuses to challenge him effectively.

This is the context in which trade is being used as an emotional issue. For example, many people were bewildered when he claimed, “Canadians have been ripping us off for years.” Most people don’t have that view of Canada. It seems like a friendly country, and yet Trump portrays it as a dark force damaging the American economy.

So yes, I agree that the typical populist playbook relies heavily on affect—on stirring voters’ emotions, particularly anger. The angrier people are, the more likely they are to follow you. When I was conducting research for my book, I found that anger motivates voters more than anything else—even more than fear. If you can make them angry, you can get them to the polls. An angry voter tends to be a more reliable populist voter. Maintaining that level of anger is, therefore, key to Trump’s political strategy and success.

But the Achilles’ heel for any populist, in my view, is basic economic performance. Once a populist is in control of the government, he can no longer present himself as the anti-elitist, because he becomes responsible for policy outcomes. I think the danger Trump faces now with his tariff policy is that he’s making a lot of people nervous—and even angry—because their retirement accounts are being eroded, the bond market is collapsing, the dollar is weakening, and interest rates are likely to rise.

He’s tried to point back to Biden as the cause of these problems, but it’s increasingly difficult to do that when you, as a populist, actually control the White House and both houses of Congress.

At Its Core, This Is About Power—Not Policy

Would you argue that the appeal of ‘economic nationalism’ has now overtaken economic rationale as the dominant force shaping US trade policy?

Professor Kent Jones: Well, certainly under Trump it has. The focal point of my book was the impact of all this on institutions. We’ve had tariffs before, and there are actually many Democrats who favor tariffs and may have been more reluctant to criticize Trump in principle for using them.

My argument—ever since these new tariffs began—is that regardless of whether you support tariffs, it is deeply problematic to vest all tariff authority in a single individual who can change them at will, for whatever reason he chooses, under the justification of an emergency economic powers act. Many now argue that this justification is not even legal, because its premise—that there’s a national emergency requiring tariffs as a solution—is questionable.

Just this morning, there was news of a new group of businesses suing the Trump administration over its use of tariffs, claiming it contradicts the very law invoked to support them. What we’re witnessing is the erosion of institutional checks and balances, with trade policy effectively centralized in one person.

There’s also a psychological factor to consider. When you have an individual with a narcissistic personality like Trump, who is used to getting his way, the accumulation of power becomes an end in itself. It enables him to exact revenge on perceived enemies, compel others to seek his favor, or pressure countries into buying more American goods or signing bilateral deals skewed in America’s favor.

So, at its core, this is about power. Trump has managed to concentrate it, and many voices are now calling on Congress to step up and reclaim the authority the Constitution grants it. According to Article I, Section 8, Congress—not the president—has the power to regulate commerce and trade. This is where the institutional battle lies, and it’s where the future of trade governance will likely be contested.

US Trade Has Become a One-Man Operation

Photo: Shutterstock AI.

Are we now witnessing the culmination of what you’ve described as the ‘de–legitimization of trade institutions’ in US politics? If so, what are the broader implications of continued US disengagement from multilateral trade frameworks for global economic stability and governance?

Professor Kent Jones: Well, certainly—as long as Trump is President—we’re not going to see much engagement with the WTO in US trade policy. As I’ve documented in my book, and more recently in my commentaries on his tariff policy, Trump has already done away with key institutional principles of the WTO.

For example, he’s discarded the most-favored nation rule, which is foundational to the WTO framework. He’s also rejected tariff binding, the commitment that countries won’t arbitrarily raise their tariffs. These principles stand in the way of Trump’s pursuit of unilateral power. Once those constraints are removed, he can assign different tariffs to different countries’ products—entirely contrary to the GATT/WTO system—and negotiate individual agreements that maximize his own leverage.

Trump claims there are now 75 countries wanting trade deals with him, meaning he can sit down with each one individually, judge the outcome on his own terms, and adjust tariffs at will. There’s no need for congressional input or legislative approval—just Trump’s personal satisfaction. That effectively turns US trade policy into a one-man operation.

This is the antithesis of what the GATT and WTO systems were designed to prevent. Back in 1947, when the GATT was founded, the memory of the Great Depression and the tariff wars of the 1930s—especially the Smoot-Hawley Tariff Act in the US—was still fresh. The global economic community had learned that trade wars were harmful, and for 70 to 80 years, that lesson held.

Now, Trump has effectively resurrected the notion that “trade wars are good and easy to win.” He justifies this by pointing to America’s trade deficit, claiming that other countries will bear the cost. But in practice, the 145% tariffs on Chinese goods, for instance, are paid by American consumers. People are starting to realize this—whether it’s an iPhone that might jump from $1,000 to $2,000 or $3,000, a house built with increasingly expensive Canadian lumber, or an automobile that now costs $10,000 to $15,000 more due to a 25% tariff.

These developments are creating a growing crisis for Trump. That’s likely why he’s started pausing tariffs and promising “great deals,” and recently announced some product-specific exemptions—such as with Chinese imports and possibly with automobiles. He knows that if Americans can’t afford their cars, it’ll hit both foreign and domestic models hard, and even drive up the cost of used cars—something already affected by COVID-era supply shocks.

All of this contributes to an unpredictable trade environment, largely because Trump has assumed complete control over tariff policy. At this point, no one else is making trade decisions—just Donald Trump.

Tariffs Have Become Symbols, Not Solutions

3D illustration: Lightspring.

In Trump’s second term, how have tariffs been repurposed more as political symbols than as instruments of economic policy? How is the administration using revived trade rhetoric to frame persistent trade deficits as existential threats, and how is it justifying these measures politically despite their mixed economic outcomes?

Professor Kent Jones: Yes, this really gets to the core of the economic critique of Donald Trump’s trade policy. When you use a trade deficit as a justification for imposing tariffs, there is no theoretical basis for that in economics. Economists understand trade deficits as a macroeconomic phenomenon resulting from the imbalance between savings and investment in a country.

In the United States, the persistent trade deficit reflects higher levels of consumption relative to production, and lower savings relative to investment. When consumption exceeds production, the difference naturally comes from imports.

Trump tried to use this logic in his first term to justify a trade war with China, and now he has extended that rationale globally. But this effort was not successful. The tariffs did not significantly reduce the US trade deficit—not even with China. And as long as the structural imbalance between savings and investment persists, the trade deficit will remain.

Moreover, any reduction in imports from China led to trade diversion. Chinese firms simply rerouted production through third countries like Vietnam, Cambodia, the Philippines—even Mexico. For instance, Vietnam’s trade surplus with the US grew substantially. Trump is now using that as justification for imposing global tariffs rather than China-specific ones.

So trade deficits are being repurposed symbolically. Whenever Trump can point to a trade surplus from another country, he frames it as a hostile act against the United States. Many Americans, including politicians in Washington, still believe that having a trade deficit means the US is “losing.”

As I often point out in my classes, the US is not a company with a balance sheet—it’s 300 million individuals making consumption decisions. A trade deficit is like an individual going to the grocery store and spending money. That doesn’t mean the store is cheating you. Likewise, if Americans choose to buy Korean cars or Vietnamese clothing, that doesn’t reflect economic weakness or foreign deception. In fact, it’s often a sign of economic strength—of choice, affordability, and productivity.

Nonetheless, Trump has succeeded in convincing many people otherwise. But eventually, the economic consequences catch up. Americans are now seeing the costs in the form of higher prices—for phones, homes, cars, and everyday goods. The stock market and bond market, both globally integrated, are reacting negatively, and that’s something even Trump cannot control.

He’s trying to de-globalize domestic production, but reshoring takes time. Manufacturing shoes, nails, clothing—these can’t be brought back overnight. He says it’ll take six months or two years, but that’s highly unrealistic.

So people are starting to ask: when does the promised pay-off arrive? When will we see the benefits that justify the current pain—higher prices, falling stock values, a weakening dollar, and a diminished global economic reputation?

This is likely why Trump is starting to pause certain tariff measures and promise relief. The symbolic transformation of tariffs into a nationalist cause has been attempted—but economic realities are hard to avoid, especially when you’re the one in charge and can no longer blame your predecessor.

Uncertainty Is the New Normal for Global Trade and the Vulnerable Pay the Price

What socio-economic burdens are likely to be borne by ordinary citizens—both in the US and globally—as a consequence of the Trump administration’s erratic and politically charged trade and tariff wars? How do these unpredictable policy shifts impact everyday economic security, particularly for vulnerable populations?

Professor Kent Jones: Well, certainly in the United States, one of the most significant developments in trade policy analysis has been the emergence of what we now call “uncertainty analysis.” In fact, indexes of trade policy uncertainty have become an increasingly prominent tool for tracking how markets react to Trump’s trade policies.

The original idea behind the WTO was to create stability. Everyone followed the same rules, and everyone benefitted from that predictability. These rules included non-discrimination and tariff binding—principles that gave businesses the confidence to invest in trade-related activities. If you were exporting to a foreign market, you could count on that market upholding WTO rules. If you were an importer in the US, you could similarly rely on your own government to follow those rules and not change tariffs arbitrarily.

There were, of course, accepted exceptions in the WTO framework—such as anti-dumping measures—but these were limited and rule-bound. That embedded liberalism allowed trade to flourish within a relatively stable system.

What we’re now seeing, however, is the erosion of that system. The socioeconomic consequences will come first through higher consumer prices. We’re already seeing that. Then, likely, through higher interest rates as global confidence in the US economy diminishes. And higher interest rates increase the likelihood of a recession, with all the accompanying hardships—job losses, reduced investment, and economic insecurity for average Americans.

Globally, the situation is equally troubling. We’re seeing punitive tariffs applied even to poor countries like Bangladesh, Vietnam, and Cambodia. In some cases—like Madagascar, which exports vanilla to the US—American trade officials are complaining that these countries don’t import US automobiles, using that as justification for tariffs. The logic is absurd and completely contrary to the idea of comparative advantage. Expecting a country like Madagascar to buy American cars in exchange for sending vanilla exemplifies the irrationality of these policies.

This kind of policy undermines the efficiency and fairness of the global trading system and inflicts economic pain on both developing nations and their trading partners. The decline in global trade efficiency will affect the most vulnerable—both at home and abroad.

As a result, other countries are beginning to rethink their trade strategies. We’re already seeing Canada and the EU discussing deeper trade ties with each other. And there’s emerging talk of building new multilateral frameworks that exclude the United States.

Of course, a global trading system without US leadership won’t be as effective. The US was, for decades, the anchor of global economic order after World War II. But with Trump’s retreat from multilateralism, we’re now seeing a broader pattern—one that also extends to military alliances. NATO, for instance, has been encouraged to think more about European-based defense. The war in Ukraine adds another dimension to this shifting landscape.

Altogether, this reflects a larger withdrawal of the US from global engagement. And that retreat has consequences. American stability and leadership added enormous value to global affairs. Take that away, and others will suffer—but it may also spur efforts to reconstruct international cooperation through alternative means.

Trump’s History Lessons Are More Political Theater Than Economic Strategy

How is trade policy being used in Trump’s second term to reinforce nationalist and anti-elite populist messaging, and what role do ‘chrono-political’ narratives—drawing on selective historical memory and future promises—play in sustaining public support for renewed protectionism?

Professor Kent Jones: We have a president who likes to use history for his own purposes. The more immediate history, of course, is that all of America’s current problems—including those Trump himself has created—are, according to him, really the fault of President Joe Biden. That’s one way he uses history: to convince people that during his first term, everything was a “golden age,” and then when Biden came along, everything fell apart. So, if there are problems now, don’t blame Trump—blame Biden.

Another interesting use of history—particularly for Americans who know their history—is Trump’s fascination with President William McKinley. Actually, not just President McKinley, but also Senator McKinley, a Republican from the 1890s who sponsored a major tariff bill. At that time, tariffs made up about half of US government revenue, since there was little in the way of income tax. Trump has used this historical reference to argue that we could eliminate income taxes altogether and rely on tariff revenue instead.

You may have seen news about Trump wanting to rename the tallest mountain in Alaska—Denali—back to Mount McKinley, because of this admiration. But historically, the McKinley Tariff was highly unpopular. After it passed, the Republicans lost many congressional seats in the next election because the public faced higher prices and increased industrial concentration. Trump doesn’t seem to think this historical lesson applies to him, but it’s already proving to be a similar liability.

So, we see a selective and manipulated use of history. The narrative is: “Look how great America was in the 1890s—look how we were growing, how proud people were to be Americans.” But in reality, that era had deep problems—racism, immigration tensions, and inequality—that tariffs didn’t solve. In fact, the introduction of a broader income tax in 1913 allowed the US to move toward a more liberal and successful trading regime. American economic growth since then has been strong—so why go back?

Trump continues to insist that tariffs are paid by foreigners, not Americans. He argues that this makes tariffs an ideal way to fund the US government—as if foreign countries are footing the bill. His advisors know this isn’t true, but you won’t hear them say so publicly.

In short, Trump is using history in a way that serves his populist message, but not very effectively. If he were a better student of history, he might find stronger justifications for his policies. As it stands, invoking the McKinley era and blaming “woke Democrats” for current issues doesn’t offer a coherent economic argument—especially when you consider that the US economy under Obama and Biden has actually performed quite well.

Trump’s China Policy Turns Trade into a Populist Proxy for National Decline

Photo: Shutterstock.

How does the Trump administration’s hardline stance toward China reflect a broader populist narrative of foreign threats and national decline? In the context of ongoing de–coupling efforts from China, how is this policy being used to mobilize anti-globalization sentiment and reinforce the administration’s appeal to its populist base?

Professor Kent Jones: It’s very interesting the way Trump seems to view China. On the one hand, he appears to admire President Xi as a strong, tough leader—something Trump seems to find admirable. At the same time, he insists that China has been “ripping us off” through its trade practices, largely because of the large volume of imports the US receives from China.

I think Trump has been surprised—and perhaps disappointed—by how assertive Xi has been in responding to US tariffs. Xi has made it clear he won’t back down. Trump would like to portray Xi as someone he can deal with—someone who respects him and will sit down to work out a deal. But if we look back at Trump’s first administration, we see how that played out.

The trade war Trump initiated in 2018, with escalating tariffs against China, did not, in fact, reduce the US trade deficit. By January 2020, Trump declared victory and announced a “Phase One” trade deal with China. This was essentially a countertrade agreement—China would commit to importing a specific value of US goods, and in return, the US would reduce tariffs. The goal was to balance bilateral trade flows.

But such a deal was never feasible. It would require a Soviet-style, government-managed trade system, completely incompatible with a market-based global trading regime. It violated WTO principles such as non-discrimination and the prohibition of quantitative restrictions. And ultimately, it didn’t work—COVID-19 disrupted global trade, and China didn’t meet its import commitments. Trump’s administration could blame COVID, but the agreement itself was flawed from the start.

Now, Trump claims that 75 countries are lining up to negotiate similar deals, and that he’ll finalize them within 90 days. Anyone with experience in trade negotiations knows that’s unrealistic. Bilateral trade deals are complex and time-consuming. My prediction is that we’ll see vague, formulaic agreements—pieces of paper promising balanced trade flows without any serious enforcement or economic logic behind them.

Trump may even try a version of this again with China. But the structural issues remain: we live in a world of complex technological interdependence, and the US cannot simply de-couple from China. Instead of trade wars, what we need is a return to multilateral cooperation. If the US worked with Europe, Canada, and other OECD countries, it could form a united front to pressure China into complying more fully with WTO rules.

China’s state-led economic model makes it difficult to enforce existing trade norms, but a coordinated multilateral effort could make progress. Unfortunately, the US—once the architect and guarantor of the global trading order—is now undermining it. That leadership vacuum is at the heart of the problem.

So to return to your original question: Trump’s framing of China as a threat fits squarely within his broader populist narrative of national decline and foreign exploitation. But his policies haven’t solved the trade imbalance—and now he’s trying to apply the same flawed logic to the entire world. He wants to control all trade through bilateral, Trump-approved formulas for balance, which are economically irrational and unworkable.

In the end, like many populist strategies, these deals may sound good in the abstract but will likely prove disappointing once implemented. The rhetoric may mobilize his base, but the economic outcomes could be far less favorable.

Globalization Is on Ice—But Far From Over

A metaphorical image depicting the US-China trade war, economic tensions and tariff disputes on imports and exports. Photo: Shutterstock.

And lastly, Professor Jones, in light of ongoing debates and speculation about the potential collapse or end of globalization, how do you assess the current trajectory of global economic integration, and what indicators do you consider most critical in evaluating whether globalization is truly in decline?

Professor Kent Jones: Well, certainly globalization is being damaged by President Trump’s policies—there’s no doubt about that. He’s taking the largest economy in the world, the original architect of the WTO and the postwar trade order, and essentially reversing its role. The WTO is now portrayed as the enemy by Trump and his followers.

So yes, globalization has clearly suffered. However, one thing I’ve learned as an economist—particularly from my early training in Geneva—is the value of taking a long historical view of trade. Trade has always gone through waves. Periods of free trade have often been followed by periods of protectionism, and vice versa.

Take Britain’s repeal of the Corn Laws in the 19th century, which ushered in an era of freer trade and economic expansion built around the British Empire. The US came on board later. Then came the Great Depression, which triggered a new wave of protectionism. The post-WWII creation of the WTO system marked another liberalizing wave. Now, with the resurgence of economic nationalism and protectionism, we appear to be in another downward swing.

That said, globalization has always required flexibility. The decline of some industries must be managed so others can emerge. In the 1800s, this adjustment was relatively smooth. But the entry of China into the global economy in the 2000s created a massive shock—its capacity to produce across a wide range of sectors was something even the US struggled to adapt to quickly.

We also cannot ignore the role of technology. Are we really going to return to an economy of cobblers and factory floor workers in an age of robotics, AI, and complex supply chains? It seems unlikely. I think it all circles back to what Adam Smith said about the innate human tendency to “truck and barter.” Even before language, early humans were trading. We’ve always valued specialization and exchange—and I believe that instinct endures.

Suppressing globalization won’t eliminate that fundamental impulse. If the US abandons its leadership role, others will step in. We may see regional trade agreements emerge as partial substitutes for global ones. It’s not a perfect replacement, but it’s better than nothing.

Technological progress is also linked to globalization. If you halt global exchange, you risk slowing innovation. Still, I believe there’s opportunity. Many countries that once focused heavily on trade with the US will begin looking elsewhere. China may try to lead, but many are skeptical of that. Perhaps another leadership structure will emerge—or perhaps we simply wait until 2028, when some hope the US will again elect a president who values multilateralism and stable partnerships.

What Trump doesn’t seem to understand is that unpredictability, which he views as a strength, is actually an economic burden. It erodes trust and undermines investment. The global economy thrives on rules and stability—not arbitrary decisions.

So, to return to your question: Yes, globalization has been put on ice for now. But I don’t think it’s over. There’s still a strong drive—among individuals, firms, and governments—to rebuild trade networks. Even if US leadership is absent, globalization will find ways to adapt and re-emerge.

Faded USA vs Germany vs Japan national flags icon isolated on broken weathered cracked wall background, abstract US Germany Japan politics relationship divided conflicts concept texture wallpaper.

The Future Course of German and Japanese Capitalism in a Multipolar World under Trump 2.0

by ArticlesCommentariesEconomicsEditor’s ChoiceHome

In his compelling analysis, Professor Ibrahim Ozturk explores how “Trumpism 2.0” and a multipolar world order are challenging the foundations of German and Japanese capitalism. As the US shifts toward protectionism, economic nationalism, and corporate oligarchy, both countries—once revitalized by American support after WWII—must now reassess their strategic and economic futures. Ozturk examines how trade wars, supply chain disruptions, and declining US cooperation threaten their export-driven models. From demographic decline to digital transformation, Germany and Japan face urgent structural reforms. This timely commentary not only maps the common and unique risks confronting these two economic giants but also outlines actionable strategies to maintain resilience in a fragmented world. 

By Ibrahim Ozturk 

I argued in my commentary that “Trumpism 2.0” marks a fundamental shift in global capitalism, blending nationalist protectionism, corporate oligarchy, and digital feudalism. The United States (U.S.) is transitioning from ‘neutral’ state capitalism to a model where government policies explicitly serve dominant private entities, eroding economic democracy and consolidating monopolistic power. This transformation deepens domestic inequality while driving international economic fragmentation, trade wars, and strategic decoupling. Meanwhile, the Global South is asserting greater autonomy, challenging Western dominance, and reshaping economic alliances. If these trends persist, escalating geopolitical tensions, supply chain disruptions, and financial instability may define the coming decades. Yet, this period of turbulence—reminiscent of the 1930s—also presents an opportunity for systemic change, though it raises the risk of large-scale global conflict.

This process will also challenge German and Japanese capitalism, distinct derivatives of America’s preferences after World War II and shaped by the demands and constraints of the Cold War context and the mentalities and cultural dynamics of German and Japanese societies. 

Considering new challenges, this commentary reveals a potential roadmap for German and Japanese capitalism. First, the article compares the characteristics of American and Japanese capitalism. Next, it examines the role of the US in revitalizing the struggling German and Japanese economies. The third section addresses the common and unique issues these countries face, along with the effects of the Trump Administration and a US-less world. The fourth section summarizes the possible responses from Germany and Japan.

Three Models of Capitalism under Flux

To compare Japanese, German, and American capitalism, one must examine their economic structures, government-business relations, corporate governance, labor markets, and cultural influences. As Robert Gilpin puts it, American, German, and Japanese capitalism embody distinct models shaped by historical, cultural, and institutional contexts. American capitalism, a Liberal Market Economy (LME), is highly market-driven and individualistic, characterized by minimal government intervention, shareholder-focused businesses, a flexible labor market, and a strong entrepreneurial culture, fostering innovation and financial dominance but also leading to corporate volatility, weaker social safety nets, and economic instability. 

On the other hand, German capitalism, a Coordinated Market Economy (CME), follows a stakeholder-oriented model with strong labor unions, long-term investment strategies, and an export-driven manufacturing sector, ensuring stability, high-quality production, and social welfare, though facing challenges in labor market rigidity, trade dependency, and adapting to disruptive technologies. 

Similarly, Japanese capitalism, a form of Developmental State Capitalism, is rooted in state-business coordination, the keiretsu corporate system, lifetime employment traditions, and a focus on incremental innovation, enabling industrial stability and technological leadership but struggling with an aging population, stagnant wages, and slow digital transformation.

Each capitalist model has distinct strengths and weaknesses: US capitalism is highly dynamic, fostering innovation and financial dominance but prone to volatility and inequality; German capitalism offers stability and social equity but lacks flexibility; and Japanese capitalism prioritizes long-term stability and industrial coordination but adapts slowly to change. While each system has trade-offs, nations often adjust their models over time. On the other hand, in the modern era, American influence played a significant role in shaping the German and Japanese models, and it is exerting pressure for change in another direction now.

America’s Revival of Japan and Germany

Germany’s assertive expansionism in Europe and Japan’s in Asia, driven by an obsession with becoming a leading global powerhouse during the first half of the 20th century, led both countries into the catastrophe of World War II. However, despite having inflicted severe defeats on them and initially signing humiliating surrender agreements that deeply restricted their rights to self-governance, independence, and sovereignty, the US, which emerged as the new hegemonic power—replacing Britain—did not choose to “punish” these nations after the war, due to the new global power contestations. Throughout the Cold War, the US considered the spread of communism the greatest threat to its hegemony and democracy, capitalism, and the free market economy. In response, it took steps to rebuild Europe, particularly Germany, and in Asia, Japan. By doing so, the US provided both nations a lifeline after the most devastating destruction in their histories, fundamentally changing their fate in favor of democracy and economic development.

Both countries were rebuilt through American economic aid, market access, and security guarantees, which allowed them to focus on economic growth rather than military spending. In terms of Japan, the US contributed to its economic development and industrialization via its post-war economic reconstruction through Marshall Aids, the war boom that came with the Korean War, and access to the US market with a Most Favored Nation status (MFN).

Starting with Japan, first under US occupation, led by General Douglas MacArthur’s SCAP (Supreme Commander for the Allied Powers), Japan’s economic reconstruction period (1945–1952) involved

🛑 Structural reforms like the demilitarization and restructuring of its economy.

🛑Land reforms that redistributed land from landlords to tenant farmers improved agricultural productivity.

🛑 The dissolution of Zaibatsu, large conglomerates that supported Japanese atrocities in Asia, aimed to dismantle industrial monopolies; however, later, keiretsu networks emerged, but this time, contributed to the development of a civilian and trade-oriented economy through the formerly well-established discipline and perseverance.

🛑 Labor reforms promoted unionization and strengthened worker rights. However, that measure was reversed after Japan’s alliance with the US against the expansion of communism in Asia.

🛑 Implementing the Dodge Plan 1949 aimed at fiscal austerity to manage inflation and stabilize Japan’s currency. As a result, the plan established a fixed exchange rate (1 USD = 360 yen), making Japanese exports competitive.  

Second, the measures’ first significant and advantageous outcome emerged during the Korean War Boom (1950–1953), when the US war effort in Korea turned Japan into a vital supply base, leading to rapid industrial growth. In this context, heavy industries (steel, machinery, textiles) thrived as Japan became a supplier of military goods. Moreover, US military protection under the US-Japan Security Treaty (1951) freed Japan from defense spending, allowing it to focus entirely on economic growth.  

Third, the expansion of the Japanese production economy, characterized by a strong export focus, extended beyond the market established by the Allied forces in Korea. Notably, the MFN status allowed Japan access to the US market and supported its economic integration from the 1950s to the 1970s. In addition to full access to American markets, which enabled companies like Toyota, Sony, and Honda to grow globally, technology transfers and guidance from US firms helped Japan modernize its industries. Substantial US investment in Japanese sectors facilitated technological upgrades, and by the 1980s, Japan had become the world’s second-largest economy, challenging even the US in some areas. With government-industry coordination (MITI—Ministry of International Trade and Industry), Japan’s Economic Miracle (1955–1980s), focused on export-led growth and high-quality manufacturing, emerged prominently. 

In the case of Germany, first, American support for the war-thorned German economy included the Marshall Plan(1948–1952), which envisaged the disbursement of $1.4 billion (part of Europe’s $13 billion US aid package). The fund helped rebuild factories, roads, and energy infrastructure destroyed during the war. Like Japan, currency reform (1948) helped introduce the Deutsche Mark, replacing the unstable Reichsmark and stabilizing inflation.  

Second, West Germany’s membership in NATO (1955) allowed a US military presence and security umbrella, which meant Germany could spend less on defense and more on industry. The Cold War made West Germany a key US ally, ensuring sustained economic and military aid.  

The third significant contribution stemmed from Germany’s access to the U.S. market. The US encouraged trade with Europe (EEC in 1957, which later became the EU), integrating West Germany into global markets. Moreover, US investments in the German industry strengthened the growth of advanced manufacturing (e.g., Siemens, Volkswagen, BASF).  

Consequently, technological advancements and innovations enabled Germany to become an export powerhouse in manufacturing. They fueled GDP growth at 8–10% annually during the 1950s, culminating in the so-called West German Economic Miracle (Wirtschaftswunder, 1950s–1970s). This era, along with Ludwig Erhard’s free-market policies and US support, led to rising wages and improved living standards. By the 1970s, Germany had emerged as the world’s third-largest economy, boasting robust automobile, machinery, and chemical sectors.

Key Similarities & Differences in US Support for Japan and Germany.

 

The US Impact on specific industries in Japan and Germany

Automobile industry: After World War II, the US played a crucial role in rebuilding and shaping the economies of Japan and West Germany, particularly in industries like automobiles, technology, and finance. This support was driven by Cold War strategy—strengthening allies against communism—and economic pragmatism, ensuring both nations became stable markets and production hubs.  

Technology transfers, quality management, and access to the U.S. market were the three most critical contributions to the automotive industry. Among other factors, introducing modern management and production techniques, such as W. Edwards Deming’s quality control principles, formed the backbone of the Japanese Total Quality Management (TQM) revolution, which enabled Japanese automakers to dominate the global market. Additionally, the US opened its market to Japanese cars, allowing brands like Toyota and Honda to thrive with fuel-efficient, high-quality vehicles, particularly after the 1973 Oil Crisis when American consumers looked for alternatives to fuel-hungry domestic cars. However, Japan’s MFN status almost culminated with the Plaza Accord (1985), when the US pressured Japan to revalue the Yen, making exports more expensive and prompting Japan to establish factories in the US, which led to direct investment and job creation.  

Like Japan, the precise contribution of the US to the automobile industry in Germany originated from the partnership between Daimler-Benz and Ford. Also, American capital and expertise played a pivotal role in revitalizing companies such as Volkswagen, which had fallen into disrepair after WWII. Through transatlantic trade and global expansion, the US emerged as a crucial export destination, allowing German luxury brands like BMW and Mercedes to dominate the premium segment.  

Technology and Electronics: Japan’s electronics giants, such as Sony, Panasonic, and Toshiba, benefited from US military R&D spillovers and Cold War-era procurement. However, the US-Japan trade war in the 1980s later limited their dominance in the semiconductor market. Meanwhile, Germany’s industrial powerhouses, including Siemens and Bosch, regained global market access through US investment, with NATO and defense contracts fueling demand for their precision engineering.

Financial and Banking Sectors: The US tolerated Japan’s keiretsu system, where conglomerates like Mitsubishi and Sumitomo were linked to banks, enabling rapid industrialization. However, in the 1980s, it encouraged Japan to deregulate its banking sector, contributing to the asset bubble that burst in the 1990s. Similarly, the U.S. supported Germany’s financial reintegration by promoting Deutsche Bank’s global expansion and stabilizing the Deutsche Mark through the Bretton Woods system, aiding Germany’s integration into the international economy.

In conclusion, US economic support was crucial in transforming Japan and Germany into global industrial powerhouses, with Japan benefiting from technology transfers and market access. At the same time, Germany rebuilt its engineering and manufacturing sectors through US aid. Without US assistance, market access, and security guarantees, neither nation could have industrialized as rapidly post-WWII, highlighting a US-driven framework that still influences their economies today.

However, to understand how Trump and the emerging multipolar world—discussed in the next section—might shape the future of German and Japanese capitalism, it is crucial to recognize that the US approach to these economies reflects both global dynamics and America’s domestic interests. Since the 1980s, especially after the collapse of communism, the US has influenced the economic trajectory of these nations, which it began to see as “systemic rivals,” through trade disputes, financial pressures, and currency interventions. In the evolving, leaderless global order—often referred to as the “New Cold War Era”—changes in US strategy seem inevitable, bringing significant consequences for both Germany and Japan.

Germany and Japan under the Trump Administration and US-less World

Some of the problems and challenges facing the German and Japanese economies will be structural, some conjunctural, and some, it seems, will be Trump-related. Thus, the German and Japanese economies face a mix of common and unique challenges. Both countries struggle with similar demographic issues, such as aging populations and declining birth rates, leading to labor shortages, pressure on social welfare systems, and increasing healthcare costs, all of which impede long-term economic growth. Additionally, both nations face obstacles in modernizing their economies through digital innovation, with Germany contending with outdated infrastructure and excessive bureaucracy. At the same time, Japan wrestles with traditional work cultures and the slow adoption of AI and digital technologies. Furthermore, both economies heavily depend on exports, making them vulnerable to global slowdowns and geopolitical risks—Germany’s reliance on China and Japan’s exposure to US-China tensions exacerbate these vulnerabilities.

However, each country faces its distinct challenges. Germany’s energy crisis—from the shift away from Russian energy and delays in renewable infrastructure—has increased costs, impacting its industrial competitiveness. The transition to electric vehicles (EVs) and high manufacturing expenses have weakened Germany’s position amid fierce competition from China and the US. Meanwhile, bureaucracy hampers innovation, particularly in the public sector and among SMEs. In contrast, Japan is dealing with stagnant wages and deflation, which restrict consumer spending and hinder economic growth. The country also faces high debt levels, with government debt exceeding 250% of GDP, raising concerns about long-term fiscal sustainability. Additionally, Japan’s dependence on energy imports and raw materials and supply chain vulnerabilities, especially semiconductor disruptions, put its key industries at risk.

With Trump ascending to the presidency for a second time, Germany and Japan are confronted with significant economic and strategic challenges. Their concerns about the Trump administration stem from worries regarding the effects of his protectionist trade policies, geopolitical unpredictability, economic nationalism, and the sidelining of the rule of law in favor of contingency management. Additionally, there is a tendency to exert power and force while ignoring international norms and values.

🛑Trade wars and tariffs caused key economic fears for Germany and Japan. To remind you, Trump previously imposed 25% tariffs on European and Japanese steel and aluminum under national security grounds (Section 232). He has also threatened new tariffs on European and Japanese cars, which could severely hurt Germany’s auto industry (VW, BMW, Mercedes) and Japan’s car exports (Toyota, Honda, Nissan). He has also criticized US trade deficits with both countries, which could lead to harsher trade barriers.  

🛑 The second fear concerns the disruption of global supply chains. Trump’s “America First” policy prioritizes reshoring manufacturing to the US, which could pressure Japanese and German companies to shift production away from their home countries. If Trump weakens or removes from the World Trade Organization (WTO), global trade could become more chaotic and unpredictable.  

🛑 Security concerns are the most common fear in Japan and Germany. Trump has threatened to withdraw the US from NATO, forcing Germany to increase military spending significantly. If US security guarantees weaken, Germany may have to allocate more funds for defense rather than industrial investment. Russia could exploit this security gap, leading to economic instability in Europe. Similarly, Trump has repeatedly criticized Japan for not paying enough for US military protection. If the US reduces its military presence, Japan may have to massively boost defense spending, affecting government budgets and economic growth. 

Potential Economic Scenarios for Germany & Japan Under Trump

Germany and Japan’s Possible Responses

The problems of German and Japanese capitalism go beyond Trump’s negative impact and the rise of the new Cold War era under multipolarity. Germany faces significant structural challenges, including energy dependence, industrial competitiveness, demographic decline, bureaucratic inefficiencies, and gaps in digitalization. Addressing these issues requires comprehensive reforms, strategic investments, and policy changesto enhance long-term economic resilience and competitiveness.

🛑 The expansion of renewable energy should be accelerated while diversifying LNG and nuclear sources, and industries should support green hydrogen to strengthen energy security and industrial competitiveness.

🛑 Strengthening manufacturing demands increased R&D in AI and semiconductors, support for SMEs and startups, and investment in EV and battery production.

🛑 Addressing labor shortages necessitates streamlined immigration policies, expanded childcare and reskilling programs, and greater adoption of automation.

🛑 Reducing bureaucracy through digital public services, tax reforms, and faster permit approvals will improve business efficiency.

🛑 Finally, accelerating digital transformation with nationwide 5G, AI-driven innovation, and enhanced tech education will elevate Germany’s competitiveness in the global economy.

On the other hand, Japan also faces deep-rooted economic challenges, including an aging population, stagnant wages, deflation, high public debt, slow digital transformation, and supply chain vulnerabilities. Addressing these issues requires structural reforms, policy shifts, and innovation-driven strategies to ensure long-term economic resilience.

🛑 Japan must implement bold reforms to address its structural challenges and ensure long-term economic resilience.

🛑 To combat labor shortages and demographic decline, it should expand childcare support, streamline immigration policies, and invest in automation and AI.

🛑 Breaking stagnant wages and deflation requires tax incentives for wage growth, stimulating domestic consumption, and maintaining moderate inflation.

🛑 Reducing public debt calls for gradual fiscal consolidation, efficient public spending, and pension reforms.

🛑 Accelerating digital transformation through 5G expansion, AI adoption, and corporate modernization will enhance productivity and innovation.

🛑 Lastly, strengthening supply chains by diversifying energy sources, investing in domestic semiconductor production, and securing trade partnerships will improve economic stability. By tackling these issues, Japan can sustain its global competitiveness and long-term growth.

More recently, Trump has introduced new dimensions to these challenges in both countries. His return has resulted in increased tariffs, trade barriers, and geopolitical instability, putting pressure on the export-driven economies of Germany and Japan. Both nations must diversify trade, invest in strategic industries, and strengthen their regional alliances to reduce economic risks. The following measures and policy recommendations are plausible and foreseeable solutionsregarding conjunctural progress under the Trump administration and multipolarity. 

Strengthen Trade Ties with Other Regions.

🛑 Germany could deepen EU-China trade or increase ties with India and ASEAN.  

🛑 Japan could increase trade with Southeast Asia, Australia, and the EU. 

Accelerate Industrial and Technological Independence

🛑 Reduce reliance on US markets by boosting domestic demand and innovation.  

🛑 Invest in digital industries, AI, and green tech to diversify economies.  

Strategic Military and Security Adjustments

🛑 Germany may increase defense budgets and push for greater EU military cooperation.  

🛑 Japan may develop stronger regional security partnerships (e.g., with Australia, India, and South Korea).  

Conclusion

The resurgence of “Trumpism 2.0” and the evolving multipolar world are reshaping global capitalism, posing significant challenges for German and Japanese economic models. Historically shaped by American influence, both nations now face increasing pressure from protectionist policies, geopolitical uncertainty, and domestic structural issues. While Germany grapples with energy dependence, digital transformation, and industrial competitiveness, Japan contends with demographic decline, deflation, and technological adaptation. 

To navigate these shifts, both countries must pursue strategic diversification to navigate these shifts—strengthening trade alliances beyond the US, investing in innovation and industrial resilience, and adapting security strategies to new geopolitical realities. 

The coming years will test their ability to maintain economic stability and global influence amid rising fragmentation. However, this era of disruption also presents opportunities for transformation, pushing Germany and Japan toward greater economic autonomy and leadership in a rapidly changing world.

Professor Thiemo Fetzer, an economist at the University of Warwick and the University of Bonn.

Professor Fetzer: Populist Grievances Are More About Perception Than Reality

by EconomicsEditor’s ChoiceForeign PolicyHomeInterviews

In an interview with the ECPS, Professor Thiemo Fetzer argues that populist grievances are largely shaped by perception rather than lived experience. “Populism is a phenomenon of information overload,” Fetzer explains. “Many grievances amplified by populists are not grounded in demographic or economic realities but are shaped by narratives, particularly those spread through modern media.” Discussing global trade, economic inequality, and the rise of far-right movements, he warns that misinformation fuels discontent, making societies more vulnerable to populist rhetoric. From the future of the liberal order to the geopolitics of energy, Fetzer offers a data-driven perspective on the forces reshaping today’s world.

Interview by Selcuk Gultasli

In an interview with the European Center for Populism Studies (ECPS), Professor Thiemo Fetzer, an economist at the University of Warwick and the University of Bonn, argues that populist grievances are largely rooted in perception rather than actual lived experiences. However, as he warns, populists are particularly adept at exploiting these narratives for political gain.

“Populism is a phenomenon of information overload,” Professor Fetzer explains. “Many grievances that populists amplify are not based on actual demographic or economic realities but are shaped by narratives, particularly those spread through modern media.” He highlights how, in many cases, communities most resistant to immigration often have little to no firsthand experience with immigrants—a paradox that underscores the role of perception over reality.

Professor Fetzer’s research delves into the economic, political, and social forces driving contemporary populism. In this interview, he explores the dynamics of global trade, industrial policy, economic inequality, and geopolitical shifts, particularly in the wake of a second Trump presidency.

Discussing global trade realignments, he explains that while China has aggressively localized production and built dominance over key supply chains, the US has primarily specialized in financialization, service-sector trade, and digital technology. This has led to geopolitical tensions, as China’s strategic control over minerals and industrial supply chains threatens US economic leadership.

Regarding the rise of far-right movements like the AfD in Germany, Professor Fetzer stresses that economic grievances alone do not fully explain their appeal. Instead, he argues, populist movements often thrive on a combination of perceived cultural shifts, economic anxieties, and declining trust in institutions.

He also critiques the role of digital media in fueling discontent, stating that “the collapse of traditional media landscapes has created an environment where misinformation and sensationalized narratives shape public perception more than facts.”

Finally, addressing the decline of the liberal world order, he challenges the idea that neo-mercantilism and protectionism signal its end. Instead, he suggests that a shift toward industrial policy—particularly in the energy sector—has long been in motion.

With economic nationalism, trade wars, and geopolitical realignments defining today’s global landscape, Professor Fetzer provides a data-driven perspective on the forces shaping modern populism.

Here is the transcription of the interview with Professor Thiemo Fetzer with some edits.

Global Trade and the US-China Rivalry

A metaphorical image depicting the US-China trade war, economic tensions and tariff disputes on imports and exports. Photo: Shutterstock.

Thank you very much, Professor Fetzer, for joining our interview series. Let me start right away with the first question: How would a second Trump presidency reshape global trade dynamics? Given his previous and current tariff policies and confrontational trade stance, which sectors and economies are most vulnerable to renewed trade wars?

Professor Thiemo Fetzer: That is an incredibly complex and intriguing question. One important aspect to consider is the evolution of the international division of labor over the past 10–15 years, which provides context for the US trade policy maneuvers. Of course, this is my interpretation of the data and evidence, and I acknowledge that it may not be entirely accurate.

Over the last 20, or even 30 years, a global division of labor has emerged. The US has largely specialized in financialization, focusing on service sector trade, particularly through its digital tech companies, as well as its expertise in knowledge production and innovation. Meanwhile, China has aggressively localized production and strategically established dominance over key supply chains, particularly in industries that are crucial for global priorities such as climate action.

China is undoubtedly a leading player in decarbonization technologies, including renewable energy, photovoltaics, wind power, and electric vehicles. While the US has specialized in service sector trade, China has strategically developed control over value chains in industries that are not only considered the future of global economies but also essential for addressing climate challenges.

This context is key to understanding the confrontational dynamics and geopolitical rivalry between the US and China. While Europe is also engaged in this contest, it has not deindustrialized to the same extent as the US and has pursued a different specialization path.

A crucial element of this geopolitical contest is control over strategic minerals and supply chains. China holds significant leverage due to its dominance in mineral processing and access to raw materials. In response, the US is now aggressively shifting toward industrial policy, making efforts to secure access to critical minerals and supply chains through a mix of policy initiatives and strategic trade measures.

This is happening alongside increasing disputes over trade governance. Countries that specialize in service sector trade—particularly in knowledge production and innovation—rely heavily on intellectual property protections. However, a key point of contention between the US and China is that not all countries adhere to the same intellectual property governance standards. This discrepancy plays a major role in the US’s more aggressive stance in trade policy.

From a strategic perspective, the US has been outmaneuvered in certain areas by other geopolitical players—one of the most prominent examples being critical minerals. Both the US and Europe have been making efforts to develop alternative supply chains for rare earth elements and other crucial materials needed for technologies such as semiconductors and renewable energy infrastructure.

However, China has weaponized its control over these resources, particularly through its dominance in mineral processing and reserves. One interpretation is that China has deliberately disrupted competitors’ efforts to establish alternative supply chains by strategically releasing mineral reserves to drive down prices, thereby making it economically unviable for private enterprises in market-based economies to compete.

This dynamic mirrors what we observed in the early 2010s, when US shale oil and gas production disrupted global energy markets. Historically, energy-exporting countries—such as Saudi Arabia and the UAE—played a dominant role in setting crude oil prices through export relationships with the US. However, the rise of US shale production significantly weakened their influence by creating a new source of swing production capability.

There is a clear parallel here, highlighting the broader clash between economic and social systems. The primary challenge for the US and Western players is the short-term policymaking horizon within democratic systems, where leaders operate within fixed electoral cycles. In contrast, non-democratic regimes—as we define them within representative democracy frameworks—can pursue long-term strategic planning without the same political constraints.

These tensions are now coming to the forefront, and the US is responding aggressively, using trade policy as a key instrument to counterbalance these structural disadvantages.

The Rise of Protectionism and Economic Realignment

3D illustration: Lightspring.

What are the long-term risks of Trump’s trade policies for global economic stability? With the US not only decoupling from China but also distancing itself from the EU and shifting alliances, how might geopolitical fragmentation and economic realignment unfold?

Professor Thiemo Fetzer: Again, there are ways of trying to think about the future path. And I mean, on average, I would like to think that the US’s specialization in service sector trade, which is actually something that the UK, in particular the Brexiteers, strongly advocated, has made both the UK and the US quite vulnerable.

Service sector trade, particularly in the digital economy, digital goods, and so on, has a relatively high degree of localization potential. At the end of the day, many of the digital services we consume are controlled by global tech platforms like Google, Microsoft, and others. However, we have seen, for example, in Latin America, where language was a barrier, strong and competitive local players emerging and capturing parts of these value chains, preventing them from falling entirely under the control of major US brands. A key example is Mercado Libre in Latin America. Similarly, in China, a big tech ecosystem developed independently because the market never fully opened to major US tech players.

This has been a longstanding political tension, particularly between the EU and the US, well before the first Trump administration. Big tech companies generate enormous revenues from highly scalable products, where a single innovation can reach an infinitely large market. However, global governance frameworks around service sector trade have struggled to adapt to this reality, as tax and regulatory systems were originally designed with goods trade in mind.

This has created a wedge issue in Europe, where big tech firms access large markets but transfer profits to offshore tax havens, leading to disputes over digital taxation. Under Trump’s first presidency, both the UK and France attempted to impose digital service taxes, which challenged the US advantage in service sector trade. Currently, the US exports services, knowledge, and innovation while protecting them through intellectual property agreements and benefiting from transfer pricing mechanisms. Meanwhile, the US also absorbs excess global production, leading to imbalances in both goods and services trade.

Trump challenged this structure in 2016, particularly through aggressive tax cuts. As European countries sought to impose digital service taxes, the US responded with tax incentives that enabled American tech firms to repatriate profits from offshore havens. This disrupted the traditional global division of labor, where Europe and China produced goods while the US dominated services. While US tech firms never gained the same market access in China that they had in Europe, these shifts threatened the existing equilibrium.

With a second Trump presidency, I expect a continuation of Trump-era policies, with service sector trade pitted against goods trade. On average, the US economy could become more balanced by leaning into industrial policy and shifting slightly away from services, which has become somewhat excessive. However, the US may struggle to accept that this rebalancing could also prompt other countries to localize their own tech sectors, leading to the regionalization of digital trade.

We have already seen this trend in Latin America and China, where local tech champions have emerged. This could further encourage tech companies with more geographic focus or even explicit localization mandates, potentially driven by differing regulatory frameworks on private data governance. The regulatory landscape itself could create further friction in global trade.

In addition, the tense security situation in Europe, with Russia’s aggressive actions, could accelerate these trends, particularly if the US is no longer seen as a reliable partner but rather as a potential adversary in certain domains.

Three years ago, I warned that a second Trump presidency could end the NATO alliance, a scenario that would pose serious challenges for Europe given its dependence on the US for security. This shift could also disrupt the international division of labor, as Europe has historically granted US big tech firms market access while simultaneously struggling with taxation issues related to these firms’ profits being transferred offshore.

If this equilibrium is disrupted, I expect significant policy shifts in Europe. However, Europe may struggle with its own contradictions, as it lacks a unified tech ecosystem that could compete with US or Chinese tech giants. Unlike the US, where service sector trade is deeply integrated across states, Europe remains a collection of nations with high trade barriers in services.

This contradiction has been highlighted by figures like Enrico Letta and Mario Draghi, as well as in Brexiteer arguments, which claimed that service sector trade is the future and that Europe struggles with integration in this area. This situation is inherently risky, but at some level, perhaps necessary, if global trade is no longer governed by common standards.

Since 2016, we have seen a clear deterioration in global trade governance, accompanied by escalating trade conflicts. The situation today is highly dangerous and challenging.

All of this unfolds amid climate crises, rapid population movements, the weaponization of illicit migration, and demographic challenges. We are navigating an exceptionally fraught and difficult global landscape.

Populism, Economic Discontent, and the Role of Media

A protester holds a banner demanding economic justice. Photo: Shutterstock.

Your research highlights economic discontent as a driver of populism. How might Trump’s policies—such as protectionism or tax reforms—exacerbate or mitigate this trend globally?

Professor Thiemo Fetzer: When we look at discontent, oftentimes it can be attributed not necessarily to people being materially worse off. I mean, if we zoom out, we are actually in a situation where the world has never been richer than before. People are well-off, and we no longer experience the type of abject poverty that existed in the past. Even in Europe, despite the rise of populism, we have seen a gradual but consistent rise in living standards.

The big challenge with populism is that it is very successful in channeling narratives around discontent. This connects to my past research on austerity in the UK, where we saw the withdrawal of the state from many public functions. There was a wave of technological optimism, similar to what we see now with AI, suggesting that automation could make public services more efficient and reduce the financial burden on the economy.

However, all of this happened amid structural changes in consumption patterns due to the rise of the Internet, which accelerated economic transformation. Many people perceived these changes as a decline in their lived environment and a disruption of the status quo.

Across people’s life cycles, older individuals tend to feel more insecure with rapid change. In the UK, for instance, two key pro-populist voting blocs—particularly strong supporters of Brexit—were older people and those expressing dissatisfaction with the status quo. Populism often unites an unlikely coalition of voters, including those who oppose any type of change.

For example, when the high street declines visibly, when shops disappear, or when routine habits are disrupted, older individuals may struggle to adapt to these changes. We lack strong lifelong learning institutions to help older people adjust to a rapidly evolving world. In this context, simplistic populist messages that blame outsiders—such as immigrants, foreign competitors, or geopolitical rivals like China—become an easy and appealing narrative.

However, we know from hard data that in the communities where populism thrives, there are often no significant immigrant populations. This highlights a disconnect between actual demographic data and perceptions, showing that populist narratives shape public opinion more than lived experiences.

A major missing link in this discussion is the role of the media. I studied this in the context of what I call the media multiplier—a phenomenon that has intensified with the rise of social media and the decline of traditional media. Many older populations, who may not be digitally literate, struggle to differentiate between reliable information and disinformation.

This changing media landscape has been weaponized by geopolitical adversaries to influence public sentiment. As a result, populist grievances are more rooted in perception than in actual lived experiences, yet populists excel at exploiting these narratives.

Looking back at austerity, we can see its role in hollowing out state functions. In the UK, for instance, we saw cuts to youth programs, a visible decline in police presence, and reductions in public services. While these changes may have been made rationally, their perceived impact was significant.

Even if crime rates did not rise dramatically, people felt less safe because they were told they were less safe. Isolated violent incidents—such as terror attacks—further reinforce perceptions of chaos and loss of control, which populists exploit to advocate for border closures and nationalistic policies.

If this trend escalates, we are not far from restricting the flow of information, similar to what we see with China’s Great Firewall. This would directly contradict the foundational principles of Western liberal democracy.

It is crucial to recognize that accelerated structural change has visible and tangible consequences, particularly in societies unaccustomed to rapid transformation. In many developing countries, social and economic shifts happen much faster than in Europe.

Our political and governance institutions, however, have not adapted to this new pace of change. While some nations have moved from extreme poverty to relative wealth in a single generation, Western institutions have struggled to keep up with global transformations. This creates a major point of friction that populists exploit. 

We have people who resist any type of change because it happens so quickly that they struggle to process it. At the same time, our political systems—particularly democratic ones—face the constant challenge of power struggles and the difficulty of explaining complex relationships to the average person. As a result, these complexities are often oversimplified into digestible narratives. This is precisely where populists excel—by reducing intricate issues into simplistic, emotionally charged messages. This, I believe, is one of the major challenges we face today. In many ways, populism is a phenomenon driven by information overload—a reaction to the overwhelming complexity of the modern world.

The AfD’s Success and the Geopolitical Fragmentation of Europe

Co-chairpersons of the populist right-wing Alternative for Germany (AfD) Alice Weidel and Tino Chrupalla at a meeting in Berlin, Germany on July 4, 2023. Photo: Shutterstock.

How much role did economic grievances play in the strong showing of AfD in German elections last Sunday?

Professor Thiemo Fetzer: The country has been in recession for the last two or three years. However, if we consider the scale of the economic challenge and the shock caused by Russia’s invasion of Ukraine, the country has actually performed quite well in the grand scheme of things. It has cushioned these shocks reasonably well, though in a manner that might be irritating to global partners. This is why I suggest that Putin has weaponized a potential hypocrisy—because with the invasion, Europe, while championing global climate action and striving to build coalitions for sustainability, simultaneously expanded energy subsidies for hydrocarbons to help households and businesses absorb the shock.

Setting that aside, both the country and the continent have managed remarkably well in handling this multi-dimensional crisis. From a comparative advantage perspective, there has been a loss of access to cheap energy, which poses a major challenge for the industrial sector. On the other hand, the security shock and the broader disruption of the international security order have further complicated the situation.

To me, it was entirely predictable that a second Trump presidency could begin to question the foundational pillars of Europe’s security and the international division of labor. That’s why I highlighted this more than three years ago. However, in light of and despite that shock, Europe has, on average, managed quite well. That said, the AfD has been highly effective in channeling this narrative, questioning why Europe should position itself as a global leader in climate action and why the EU should advocate for a rules-based free trade system governed by law rather than force. In the broader context, Europe has performed well, and individual member states have managed to navigate these challenges effectively.

The major contradiction and risk at this moment is that individual European countries are being systematically picked apart, one by one, by geopolitical adversaries. It even appears that, in some ways, the US may be playing a role in this dynamic.

However, given the broader context, I remain cautiously optimistic, as this is truly a make-or-break moment for Germany within Europe and for Europe as a whole. To me, it has never made sense—though these numbers are hypothetical, they are probably not far from reality—for Portugal to maintain an independent air force with just four F-35s and a handful of tanks, when in reality, landing troops on the coast would already be a major challenge.

Now, there is a unique opportunity arising from the geopolitical pressure Europe is facing, both from the war in Ukraine and the uncertainty surrounding its security partnerships. This pressure could serve as a catalyst for Europe to build a common, integrated defense capability, something that has been attempted in the past but never fully realized. In this sense, we could be witnessing the emergence of a stronger European statehood.

Since this is happening within a highly challenging security landscape, it will inevitably drive shifts in industrial policy, sovereignty debates, and strategic planning. Europe must not only develop its defense capabilities with international partners beyond the EU, but also focus on building efficient and sustainable supply chains within Europe itself to ensure long-term resilience.

I am beginning to see emerging partnerships in this context, particularly in the Middle East, which holds strategic significance for Europe. The recent Suez Canal blockade, even though accidental, underscored the region’s critical role. Additionally, Turkey could become a key partner in this evolving dynamic. I also believe this shift could potentially bring the UK closer to Europe again, as it has a vested interest in participating in the expanding European defense cooperation. However, the US appears to be actively trying to pull the UK away from deeper European integration in this regard.

This, to me, defines the broader geopolitical context in which the AfD has been able to thrive. The party has successfully tapped into simplistic narratives that resonate with public sentiment, yet the solutions it proposes are entirely incompatible with the actual challenges that Europe faces. And for that, it’s really important.

Again, populist parties tend to make a country seem bigger than it is. The UK experienced this with populism, attempting to reinvigorate the idea of the old empire. However, when the UK then tries to reestablish ties with its former empire—whether with India or Pakistan—these are now emerging powers and significant players in the global division of labor. The Indians respond, “Well, UK, okay, that’s interesting, but you’re a tiny, tiny country in the grand scheme of things.” This reality applies to each individual EU member state. That is why it is crucial for the broader public to reflect on this: if Germany wants to chart a path that is optimal and beneficial for itself within Europe and the world, it is entirely dependent on working in conjunction and in very close partnership with others.

But again, this is a make-or-break moment, a make-or-break situation. Geopolitical adversaries—whether China, Russia, the UK, or even the US—all have an interest in a divided Europe, and to some extent, we are already seeing this play out. This is where Europe must step up and build a form of sovereignty. To me, this begins with establishing a European fiscal capacity, which is a necessary condition to ensure that many of the founding pillars of the European Union, originally intended to drive European integration, are no longer exploited as tools by adversaries. Key areas that require urgent reform include privacy regulation, the incompleteness of tax frameworks, the lack of integration in national tax systems, and information sharing—all of which must be addressed.

I do think that figures like Enrico Letta and the Draghi report have made it clear that the solutions are obvious. The real question now is whether a pan-European movement or a pan-European critical mass can be built to actually implement these solutions. However, this remains extremely challenging and difficult because economic interest groups within each individual nation-state benefit from maintaining exclusive contracting relationships within their own national jurisdictions. This has been the biggest obstacle to service sector integration and, ultimately, could become the very mechanism of its own downfall. If this continues, it could lead to countries becoming increasingly inward-looking, which in turn could result in the unraveling of the European project itself.

Cultural Backlash vs. Economic Factors in Populism

For right-wing populists in the Western world, “the others” primarily include immigrants but also extend to “welfare scroungers,” regional minorities, individuals with “non-traditional” lifestyles, communists, and others. Photo: Shutterstock.

Many scholars argue that cultural backlash, rather than economic factors, drives populism. How does your research challenge or complement this perspective?

Professor Thiemo Fetzer: Culture is a tricky thing. If we look at the data, the immigration topic is a salient and important one to consider here. Societies in Europe—the whole idea of European freedom of movement—is built on creating an integrated European labor market, fostering the emergence of a European identity and a European culture. This is particularly relevant for smaller countries because, geopolitically and globally, they are relatively insignificant in terms of projecting force or influence. It is much more difficult for them to do so, which makes this context particularly important.

To me, the cultural dimension is a very vague concept—it often serves as a catch-all excuse when the underlying economic or societal mechanisms cannot be precisely identified. Earlier, I alluded to this challenge in the context of immigration. The biggest backlash to immigration comes from communities that have no actual experience with immigration. This highlights how perceptions of different social groups—such as immigrants—are often entirely detached from real lived experience. That, to me, is the big challenge. If one wants to call that culture, so be it.

But consider the food system. One of the biggest successes in terms of food is what is commonly known as the Turkish kebab. My sister lives in a small town in the Swabian Alps in southern Germany, and one of the most successful businesses in her town is the local kebab shop. However, the type of kebab you find in Germany does not actually exist in Turkey. It is a product of cultural integration, a fusion that emerged through the blending of different influences.

This illustrates why perceptions, lived experiences, and the extent to which they are grounded in hard evidence are the most critical battlegrounds of all. I believe that media systems, which facilitate the spread of narratives and stories about “the other” or the unknown, play a crucial role here. This is where we, as societies, must take responsibility for investing in the absorptive capacity of our communities—engaging with different cultures, reaching out, and ensuring that the shaping of stereotypes is not left solely in the hands of those who control media reach and influence.

This is one of the major dividing lines emerging between the US under Trump and Europe, particularly in discussions about how to regulate social media and make it function more effectively. Of course, this is a highly complex and controversial topic.

To put it simply, what we often call culture is largely built on stereotypes, rather than lived experience. The vast majority of individuals who advocate for re-migration or the separation of communities do so based on narratives rather than firsthand interactions. This is a key battleground, but it requires investment in a society’s absorptive capacity and clear mandates for those who migrate—to share and participate in the evolving way of life. Culture is not static; it evolves over time and requires investment from both the receiving and the sending sides.

Germany, in particular, has made significant historical mistakes in this context. Turkish guest workers were regarded merely as temporary guests, with the expectation that they would eventually return home. Similarly, in the early 1990s, many Bosnian refugees arrived, yet little effort was made to facilitate their integration. The same applied to ethnic Germans from the former Soviet Union—despite having been entirely socialized in Russia or the Soviet Union, they were presumed to require no language or cultural integration, solely because they possessed German lineage or passports. This was a fundamental fallacy. In more recent years, Germany has invested significantly in improving integration and absorptive capacity, but this primarily benefits medium and large cities, while rural areas remain largely untouched by these efforts.

The same mechanisms that apply to immigration also apply to economic migration trends—entrepreneurial, risk-taking individuals are typically the ones who migrate, while those who prefer stability and familiarity tend to remain in their communities. For individuals in rural areas with limited direct exposure to migrants, the lack of firsthand contact can reinforce perceptions shaped entirely by media narratives rather than real-life experiences.

This is the generational challenge facing every European country. That is why, to me, the term culture is not particularly helpful in these discussions. It often serves as a placeholder for a lack of understanding, when, in reality, there are concrete ways to foster economic integration and investment in assimilation.

Big cities provide excellent examples of how successful integration can work. The real challenge is how to extend these benefits to smaller communities. One potential solution is remote work, which allows individuals to experience the advantages of cultural and economic agglomeration—typically found in diverse urban environments—without the need for physical relocation.

Ultimately, this could help shape a shared future. After all, what we consider German culture today did not exist 200 years ago. Germany was a collection of hundreds of small states and communities, yet over time, a German identity emerged. The same process is now unfolding at the European level, and some even argue that this mechanism should extend to a global level, fostering shared prosperity and understanding in an increasingly interconnected world.

And lastly, Professor Fetzer, the liberal world order, founded on interdependence after the collapse of communism, was once seen as the inevitable future, with Francis Fukuyama declaring the “end of history” and the triumph of liberalism. With the resurgence of neo-mercantilist and protectionist policies, can we now say that history is reasserting itself and that the liberal order has become a relic of the past?

Professor Thiemo Fetzer: What’s implicit in this question is a consideration of the role of the state. Mercantilism, in one interpretation, is based on the idea that the state has a mandate to shape economic development in one way or another. In contrast, the extreme form of liberalism—libertarianism—argues that the state should not exist at all, with everything being guided solely by market forces.

A lot of the tensions we see today, at least from my perspective, revolve around charting a more sustainable future for the planet. We are now realizing that our way of life, particularly in the Global North, imposes negative externalities on communities elsewhere—through global warming, environmental degradation, and the resulting instability. Climate change is already inducing population movements, particularly in Africa, where nomadic communities are struggling to find water for their herds. As they are forced into cities, this disrupts existing societal equilibria, often leading to conflict and instability. Unfortunately, these changes are happening very fast, making adaptation even more difficult.

If we accept this premise, then we must reconfigure how our economies function. This requires a role for the state or supranational institutions to shape incentives and engineer a systemic transition toward a more sustainable equilibrium. Achieving this demands the deployment of a broad economic policy toolkit, often referred to as industrial policy.

Energy Transitions and the Battle Over Industrial Policy

Aerial drone view of a hybrid solar and wind farm in Bannister, NSW, Australia, featuring large wind turbines in the background generating renewable clean energy on a sunny day. Photo: Steve Tritton.

Germany actually pioneered aspects of this transition in the early 2000s, introducing high subsidies for solar and wind energy production. Crucially, these subsidies were designed in a non-discriminatory way, making them compatible with global rules-based trade under WTO regulations. As a result, German subsidies played a key role in creating today’s renewable energy giants in China.

At some level, I find it difficult to view this as a negative development, because it offers a realistic pathway for systemic transition. It presents the possibility of maintaining, or even improving, high living standards, while socializing the benefits of natural resources—such as renewable energy. In the long run, the cost of energy could converge toward the cost of capital, since solar panels and wind farms require minimal ongoing expenses once installed. The world has vast amounts of barren land that could be used for energy production, allowing us to harvest the abundance of the planet. But achieving this required a shift in policy, which, unsurprisingly, faced resistance from economic interest groups.

Traditionally, many would blame oil-rich countries in the Middle East—such as Saudi Arabia or the UAE—for opposing energy transitions. However, in reality, some of the strongest resistance came from hydrocarbon producers with much higher production costs, particularly in the US and other regions.

In the Middle East, the cost of producing a barrel of crude oil is around $10, allowing these countries to continue profiting massively even as global energy markets shift. However, in the US shale industry, production is far more expensive and comes with major externalities, such as methane leakage, which are not properly priced into the system.

For these higher-cost producers, the energy transition poses a major financial threat. The biggest opponents of the transition—originally driven by forward-looking industrial policies in Europe (particularly Germany) and later seized upon by China—were actually mid-tier hydrocarbon producers in Africa, Latin America, and especially the US, where high capital costs create risks of stranded assets.

In contrast, producers in the Middle East are likely to be the last oil suppliers standing, as their low production costs allow them to outcompete higher-cost producers. To me, this transition in the energy system was strategically initiated through industrial policy. However, it was repeatedly disrupted, largely by hydrocarbon interests from mid-cost producers—most notably, those in the US.

This is not an unreasonable conclusion, given the structural nature of the US energy sector. In most countries, oil extraction is a public revenue source or controlled by a state monopoly. However, in the US, landowners hold subsurface mineral rights, a unique legal framework that allows private individuals to profit from oil production. As a result, many small landholders have deeply invested in non-renewable energy and have a strong financial interest in maintaining the status quo. This explains why hydrocarbon interests wield such strong political influence in the US. Meanwhile, oil-rich nations in the Middle East are likely content to let American hydrocarbon interests do the lobbying for them, ensuring continued hydrocarbon production and market stability.

The Future of the Liberal World Order

Stepping back to the broader question—is this the end of history? If we compare liberal economic orders to industrial policy-driven models, we must recognize that hydrocarbon-based industrial policy has always existed. It has simply functioned through market-based mechanisms, where economic interests buy political influence within democratic systems. For this reason, I find it difficult to frame the debate as a binary choice between liberal and non-liberal orders. The key issue is how to engineer a global energy transition in a way that is mutually beneficial, rather than disruptive. This requires strategic global institutional design to create a coalition for action. The goal should be to phase out hydrocarbons in a controlled manner, avoiding economic collapse while simultaneously scaling up renewable alternatives.

To me, industrial policy has always been present in one form or another. The real question is whether this policy should be led by individual nation-states, by regional blocs with shared objectives, or by a truly global framework. What worries me most today is that some key global players are turning their backs on multilateral cooperation, largely because their democratic systems have been captured by powerful special interest groups—particularly hydrocarbon lobbies. This is not merely a debate about liberal versus non-liberal governance. Rather, it underscores the critical need for public intervention to counterbalance vested interests and ensure that policy decisions serve the long-term global good.

Photo: Shutterstock AI.

Trump and The New Capitalism: Old Wine in New Bottle

by CommentariesEconomicsEditor’s ChoiceHomeLeadership & Persona

Trumpism 2.0 marks a fundamental shift in global capitalism, blending nationalist protectionism, corporate oligarchy, and digital feudalism. The US is transitioning from ‘neutral’ state capitalism to a model where government policies explicitly serve dominant private entities, eroding economic democracy and consolidating monopolistic power. This transformation deepens domestic inequality while driving international economic fragmentation, trade wars, and strategic decoupling. Meanwhile, the Global South is asserting greater autonomy, challenging Western dominance, and reshaping economic alliances. If these trends persist, escalating geopolitical tensions, supply chain disruptions, and financial instability may define the coming decades. Yet, this period of turbulence—reminiscent of the 1930s—also presents an opportunity for systemic change, though it raises the risk of large-scale global conflict.

By Ibrahim Ozturk 

Introduction

Despite its apparent economic, political, and social challenges, the US remains a global powerhouse that can profoundly impact the world with even the slightest changes, whether progressive or regressive. Therefore, it is essential to understand and analyze the unpredictability and uncertainties upcoming with Trump’s (dis)order.

To grasp what Trump is trying to achieve, one should step back and take a bird’s-eye view to avoid the chaos and noise generated by him and his team. What do the iconic skyscrapers of Manhattan, such as the Empire State Building and the Chrysler Building, towering above the clouds, tell us?

When one listens to the sounds beneath the clouds, the shining progress emanating from Silicon Valley in northern California—the focal point of American entrepreneurship—whispers of groundbreaking discoveries and a bright future for the US and humanity in general. In Schumpeterian terminology, America’s “creative destruction” is ongoing. The share of the US GDP has reached 27% of global GDP. Although this is just below the 30% recorded in 2000, it is significant compared to the 23% in 2023, marking the United States’ rebound from its trough, driven by the forces of creative destruction. This pace of change in the structure of the US economy also transforms the financial architecture of the powerhouses on Wall Street, including the New York Stock Exchange.

However, the ongoing global competition indicates that this alone is not enough for America to maintain its competitiveness and status as a global empire. China’s rapid advancements in strategic high-tech industries—such as artificial intelligence (AI), quantum computing, semiconductors, 5G, and renewable energy technologies—along with heavy investments in R&D and talent acquisition to close the gap with the US, have reached a critical stage with far-reaching implications.

Moreover, the competition extends beyond the US and China, as Europe, Japan, and South Korea also play vital roles in niche technologies such as EV batteries, advanced robotics, and biotech. The outcome of this race will shape global supply chains, security policies, and economic leadership, ultimately defining the nature of the ongoing global power transition in the coming decades.

Trump Is Emulating Xi Jinping

Photo: Shutterstock.

As Graham Allison has analyzed in historical cases, the key concern now is how the US will respond to this precarious situation. Signals from Trump’s first term and early indications from his newly started second term suggest that the US political economy may be shifting toward a model resembling China under Xi Jinping. In other words, despite its significant economic superiority, America appears to be emulating its rival to defend its interests and contain China’s rise.

This shift toward unilateralism disregards international norms and values, undermines the post-World War II order it once championed, and abandons the institutions and stakeholders that upheld this system. As a result, the US is embarking on a perilous path that extends far beyond China. Increasingly, it is drifting away from the principles of law, rules, and values, instead embracing arbitrariness and raw power—posing a global threat that contradicts its raison d’être.

Meanwhile, the Statue of Liberty, a powerful symbol of American ideals such as freedom, democracy, and opportunity, is slowly disappearing beneath the clouds. As it fades into the distance, so does the American Dream—the long-standing promise of opportunity, prosperity, and success—becoming an increasingly unattainable illusion.These symbols, once synonymous with American greatness, now represent the triumphs of a bygone era.

Accordingly, the country’s status as a world leader in finance, technology, and industry is being redefined, and the old certainties are giving way to a new, uncertain reality.

Having sought to maintain its position by rejecting its past hegemonic sacrifices or leadership and putting a unilateral emphasis on the rhetoric of “America First,” “Making America Great Again” (MAGA) to protect its “greatness” will also reshape the nature of capitalism and globalization. Several questions need to be addressed and examined in this context. This commentary focuses on the new capitalism the United States has adopted to respond to ongoing global power pressures, changing competitive conditions, and potential consequences.

Three Models of Capitalism

Economic systems (such as capitalism, socialism, and mixed economies) are compared based on several key pillars. These include the right for ownership, the role of government, central planning vs competition, the workings of prices and the production mechanism, income distribution, equity, efficiency, and productivity, economic stability and growth, innovation and entrepreneurship, social welfare and public goods, flexibility and adaptability, approach to free trade vs. protectionism or autarky. There are also various hybrid models combining different system elements at different doses. Each economic system has strengths and weaknesses, depending on societal goals such as growth, equity, efficiency, and stability. 

In addition to these differences between economic systems, as J. H. Dunning, D. Rodrik, and J. E. Stiglitz published terrific works on, the world economy has also been characterized by different stages of globalization or deglobalization. These range from mercantilism, a potent form of protectionism, to the extreme form of neoliberal globalization, which went beyond control with severe negative repercussions, and now to new protectionism and civilizational nationalism, along with rising multipolarity and power shift.

Several questions need to be addressed and examined in this context. This commentary focuses on the “new capitalism” that the United States appears to have adopted to respond to ongoing global power shifts, changing competitive conditions, and potential consequences. Whatever form capitalism takes, the debate will always revolve around the market economy, capitalists, big corporations, property rights, and how the state controls and regulates all of this.

Two eminent thinkers, economic historian Fernand Braudel, who focused on long-term structures, and Karl Polanyi, a political economist, who analyzed economic transformations, and anthropologist, provided fundamental critiques of capitalism concerning the state, power, and institutions. Braudel and Polanyi view capitalism as an evolving historical system rather than a static or natural economic order. Through his longue durée approach, Braudel analyzes how capitalism has developed over centuries within specific historical contexts, while Polanyi’s “Great Transformation” illustrates the shift from embedded economies to market-driven societies.  

Both scholars differentiate between market economies based on local trade and reciprocity and capitalism, which operates on a larger scale and inherently tends toward monopolization. Braudel views capitalism as an upper layer of economic activity that never functions under pure free-market conditions, exploiting markets rather than being synonymous with them. Capitalism always seeks privileged access to resources, political power, and monopolies. Thus, Braudel and Polanyi converge in their critiques, exposing capitalism’s reliance on state power and monopolistic control and its disruptive effects on society. Braudel emphasizes capitalism’s exploitative nature, whereas Polanyi underscores the commodification of key economic factors, particularly labor. 

In short, both view capitalism as a threat to market economies and open societies when left unchecked. Capitalism often operates at the expense of broader societal well-being, benefiting elites while fostering instability and social resistance. Most notably, when the economy becomes “dis-embedded” from society and socially disruptive, the adverse effects of non-market processes, such as externalities and monopolization, become apparent. These circumstances call for state intervention to sustain markets. 

However, these two scholars not only explored the state’s crucial role in developing and shaping markets, as D. North demonstrated as an instituted process, but they also showed how state intervention is a double-edged sword and a hazardous process. Given the different allocations of power dynamics, the state’s role cannot be taken for granted.

As shown historically by M. Olson, in the context of development theory by Theda Skocpol, and more recently by C. Jonson during Japan’s rapid post-war development, effective state intervention depends on several restrictive conditions, such as state autonomy and capacity, free from the influence of interest-seeking coalitions. Most notably, Olson explores how special interest groups and coalitions gradually capture state power, leading to economic stagnation. This is also relevant in relatively stable societies, where entrenched interest groups gain influence, creating rigidities that slow economic growth and hinder necessary reforms.

To explore these developments further, I will delineate three evolving variants of capitalism based on ownership structures and governance mechanisms.

State-Controlled Oligarchic Capitalism (Turkey – Erdogan Model)

👉🏿 The private sector’s independence diminishes as the government integrates strategic industries into political control.

👉🏿 State-backed business elites thrive through public contracts, incentives, and preferential credit.

👉🏿 Bureaucrats and politicians hold executive roles in private firms, aligning private enterprise with state agendas.

👉🏿 This model merges authoritarian populism with capitalist oligarchy.

State Capitalism with Strategic Planning (China – Xi Model)

👉🏿 State ownership dominates, yet specific industries operate with market-driven efficiency.

👉🏿 Despite their semi-independent façade, companies like Huawei and Alibaba align with national economic strategies.

👉🏿 The government employs market forces for efficiency while maintaining overarching economic control.

👉🏿 This hybrid model blends centralized planning with capitalist dynamics.

Techno-Feudal and Oligopolistic Capitalism (US–Trump Model)

👉🏿 Traditional neoliberalism is evolving into a state-elite partnership.

👉🏿 Billionaire elites increasingly influence governance, making the state an agent of corporate interests.

Caricature: Shutterstock.

Tech giants like Tesla, SpaceX, Facebook-Meta, and major media conglomerates serve as political tools for mass influence. For instance, in a clear transactional or win-win approach, President Trump appointed Elon Musk to lead the Department of Government Efficiency (DOGE). However, the court blocked his attempt to intervene in the US Treasury and access private data, a case that fueled Trump’s anti-law aggression. Stephen Schwarzman, the chairman and CEO of Blackstone, Ana Botín, the executive chair of Banco Santander, Patrick Pouyanné, chairman and CEO of Total Energies, and Brian Moynihan, chair of the board and CEO of Bank of America, participated in a public dialogue with President Trump at the World Economic Forum‘s 2025 Annual Meeting, indicating a collaborative relationship. Additionally, US business leaders have significantly increased their financial support for President Trump’s second inaugural fund, with contributions expected to surpass previous records. Major corporations such as BP, Chevron, Shell, Google, Microsoft, and Apple have adopted the term “Gulf of America” in their communications following President Trump’s executive order renaming the Gulf of Mexico. This move signifies corporate alignment with the administration’s directives. 

Whatever hybrid forms of capitalist models evolve, they underline the rise of Strategic Capitalism, diminishing market competition, increasing state-business convergence, and greater government control over economic participants. In other words, “state capture by entrenched interest-seeking coalitions” is becoming increasingly widespread and pervasive. Most notably, when capital infiltrates the state—through so-called “legitimate lobbying,” as seen in the US—and effectively merges with the government, a fundamental question arises: On whose behalf does the state intervene in the market? How can the criterion of rationality be upheld?

Besides such domestic political-economy implications of the evolving forms of capitalism, their various configurations are also catalysts for conflict when they attempt to externalize emerging problems and challenges. The main dimensions of problem externalization might take several forms:

Globalization’s Externalities and National-Level Risks: While globalization promotes economic interdependence, it has also resulted in significant negative externalities, such as income inequality, industrial decline, job displacement, and financial volatility. Traditional economic governance models suggest addressing these risks at the national level through various mechanisms:

👉🏿 Wealth redistribution via progressive taxation (such as wealth taxes) to fund social welfare and infrastructure.

👉🏿 Regulatory adjustments through stronger labor protections, improved financial oversight, and enhanced corporate accountability mechanisms.

👉🏿 Fair wage policies to ensure that productivity gains translate into equitable income distribution for the working class.

However, instead of internalizing these costs within their economies, some nations are now externalizing them—shifting economic grievances onto foreign entities, often framed within a civilizational nationalist discourse. This trend has been particularly evident under the Trump administration.

The Shift from National Economic Regulation to External Blame: Historically, economic nationalism has been used as a policy tool to protect domestic industries. However, the new wave of civilizational nationalism reframes economic struggles as existential conflicts between distinct cultural or civilizational blocs. This shift is evident in several key areas:

👉🏿 Trade protectionism and economic sanctions through tariffs and trade restrictions on perceived economic competitors (e.g., the U.S.-China trade war).

👉🏿 Industrial policy disguised as strategic autonomy, supporting vital domestic industries for national security purposes (e.g., the EU’s strategic autonomy, the U.S. CHIPS Act).

👉🏿 Resource and financial weaponization, using energy supplies, commodities, or economic systems as geopolitical leverage (e.g., U.S. dollar-based sanctions, Russia’s energy policy).

👉🏿 Anti-globalization narratives rooted in identity politics, portraying globalization as an elite conspiracy that threatens national sovereignty, thus justifying exclusionary economic policies.

The motivation behind these strategies is to “externalize” the burden of globalization’s side effects—shifting responsibility away from corporations and national policymakers onto foreign nations or civilizational “rivals”—ultimately deepening global fragmentation.

Civilizational Nationalism Increases the Likelihood of Conflict: Economic nationalism has historically led to trade wars and economic decoupling. However, civilizational nationalism extends beyond economics, intertwining identity, culture, and geopolitics into economic policy, making conflicts more intense and less negotiable.

In this context:

👉🏿 The West perceives China as both an economic competitor and a cultural and ideological challenger.

👉🏿 Russia is pivoting away from global capitalism, crafting its own “civilizational” economic model centered on Eurasianism.

👉🏿 The European Union, recognizing the limitations of globalization, is adopting industrial policies emphasizing strategic autonomy.

👉🏿 South Asia and the Middle East are developing distinct regional capitalist models.

👉🏿 Meanwhile, the US, under Trumpism, appears to oppose the “rest” of the world.

In conclusion, by replacing domestic policy reform agendas, such as corporate taxation and labor protections, with blame-driven economic nationalism, governments avoid addressing the root causes of economic discontent and fuel long-term geopolitical instability. If this ongoing trend persists, the world may experience an era of intensified trade wars, economic decoupling, and heightened geopolitical tensions, reminiscent of the 1930s, increasing the risk of large-scale conflicts.

Trump’s Presidency and the Shift Toward Authoritarian Capitalism

Obviously, Trump’s populist authoritarian and pragmatist rhetoric lacks a coherent theoretical foundation. It can be seen as a contradictory fusion of economic nationalism, protectionism, and populism, driven more by emotional appeal than analytical rigor. Unlike traditional neoliberalism, which has grown in the US and promotes minimal state intervention, Trump’s era witnessed the convergence of state power with elite economic interests. As Antara Haltar observes, Trump’s policies – tariffs, tax cuts, de/regulation, and re/industrialization- to “Make America Great” again (MAGAnomics) reject core tenets of neoclassical economics, notably free trade, and efficiency. As M. Mazzucatoputs it, this aligns with techno-feudalism, in which large technology firms exert immense economic and social control. 

What is idiosyncratic and hypocritical is that Trump rose to power by appealing to those experiencing poverty, feeling left behind, and abandoned. However, he has ultimately shaped his policies to further enrich giant capital owners. He not only serves the interests of capital but has gone a step further by directly placing capitalists in key government positions. Even though his protectionist trade wars were framed to protect American jobs and boost employment and income, there is broad consensus among economists that these policies may primarily benefit select corporations at the expense of consumers and citizens. As J. Stiglitz correctly noted, there is already a high degree of market concentration in the US. 

While it remains unclear how he will deliver on his political promises amid the growing challenges of techno-feudalism, these features suggest that Trump’s evolving capitalism, which carries significant global implications, will emerge as a hybrid model combining the following aspects.

👉🏿 Nationalist Protectionism: A more aggressive form of protectionism where the government prioritizes domestic industries and restricts foreign competition. For instance, Trump’s decision to block the acquisition of United States Steel by the Japanese company Nippon Steel created tensions with Japan. Prime Minister Ishiba responded by saying that “the president blocking a takeover is a significant ‘political interference’ and difficult to understand.” This could lead to a more insular, self-sufficient economy, with tariffs and trade barriers becoming more prevalent.

👉🏿 State capitalism: A blend of state control and private enterprise, where the government is more active in guiding the economy. This could involve increased government ownership of key industries like energy, finance, or infrastructure.

👉🏿 Authoritarian Capitalism: A system where the government exercises significant control over the economy, often through a combination of state-owned enterprises, regulations, and repression of dissent. This could lead to a more rigid, hierarchical economy with limited opportunities for entrepreneurship and innovation.

👉🏿 Neoliberalism 2.0: A revised version of the neoliberal ideology that dominated the 1980s and 1990s. This could involve a renewed emphasis on deregulation, privatization, and free trade but with a more aggressive approach to suppressing labor unions and social welfare programs.

👉🏿 Corporate-Friendly Populism: A system where the government prioritizes the interests of large corporations and wealthy elites while using populist rhetoric to appeal to working-class voters. This could lead to a more unequal economy, with greater concentrations of wealth and power.

👉🏿 Hybrid Capitalism: A system that combines elements of different economic models, such as state-led development, private enterprise, and social welfare programs. This could involve a more nuanced approach to monetary policy, focusing on balancing competing interests and promoting sustainable growth.

The actual outcome would depend on a complex interplay of factors, including policy decisions, economic conditions, and societal responses. The impact-response paradigm will also reflect the nature of (i) the state-corporate symbiosis, in which even if Trump does not formally integrate capitalist figures like Elon Musk or Mark Zuckerberg into the government, he might pursue policies favoring elite interests, such as corporate tax cuts. (ii) Media and technology manipulation. Trump weaponizes social media platforms like Twitter (now X) while simultaneously attacking tech giants that challenge his influence. (iii) Regulatory favoritism. Despite public criticism of Silicon Valley, Trump’s administration provided regulatory and tax advantages to major corporations. (iv) Preferential treatment for loyal capitalists. Trump’s government allocated state contracts, tax breaks, and industry protections to politically aligned business figures.

To the extent that corporate feudalism is costly to the economy and society’s well-being, the US will likely turn to asymmetric power, military force, and destructive nationalist and civilizational rhetoric to balance, conceal, legitimize, and make it acceptable to the public.

Strategic Implications of Trumpism Globally

As Nancy Quian emphasizes, while initially seen as just a “trade war” with China, it quickly became clear that Trump’s ambitions were far more extensive. He started imposing tariffs on Mexico, Canada, and the EU, which were promptly met with retaliatory actions. Although it’s still uncertain whether Trump’s actions will dissuade his “strategic competitors,” they have already raised alarm among many European nations—long-standing strategic allies of the US since World War II and throughout the Cold War—along with NATO members and most OECD countries.  

Had he pursued his policies under the banner of democracy, human rights, the rule of law, multiparty free elections, separation of powers, checks and balances, and transparent governance, most of the OECD nations—controlling nearly 50% of the global GDP—might have been more open to closer cooperation with the US. However, Trump’s broad and aggressive stance and his confrontational rhetoric extending beyond trade wars are likely to leave the US deprived mainly of the allies it seeks.  

One reason for this maximalist stance may be Trump’s realization that gaining an economic advantage over China solely through trade wars is impossible. As a result, he has sought to incorporate military, political, technological, and other strategic means to secure a stronger position for the US. However, in doing so, he may have overestimated America’s strength—much like an empire already losing its hegemonic power. Instead of consolidating US influence, this overreach could accelerate America’s decline on the global stage.  

Additionally, should global resistance and retaliatory measures against Trump’s America gain momentum, two key consequences could emerge? First, competitors like China may grow even more potent. Trump’s disregard for international norms and values, his habit of barking orders at partners, and his use of political pressure like a small-town thug could alienate his allies and drive them closer to rising powers like China. Second, increasing costs for US consumers and damage to America’s strategic interests could weaken domestic support for Trump, potentially leading to a loss of the congressional majority in the 2026 midterm elections.

Conclusion

In our age of multipolarity, global capitalism is no longer a cohesive system under US hegemony. There are now competing forms of capitalism with different norms and values. There are three notable issues to underline here in terms of understanding the nature of rising capitalism under Trump 2.0. 

First, despite its contradictions, Trumpism exposes fundamental flaws in post-WWII economic orthodoxy—particularly its failures to address inequality, identity, and the unintended consequences of globalization. Therefore, the strength of Trump’s approach lies in its emotional resonance with voters who feel marginalized by globalization. Trumpism thrives not on traditional economic logic but on perceptions of cultural and economic displacement. 

Second, the fact that politicians come to power using right-wing populist rhetoric and then cede substantial control to capital rather than monitoring, directing, and engaging it in government for the benefit of the people underscores the volatile, elusive, and inherently dangerous nature of populist discourse. Trump’s apparent shift toward oligarchic capitalism (techno-feudalism) through his explicit favoritism toward specific billionaires signals a transition from “neutral” state capitalism to a system where the government actively serves dominant private entities. This shift undermines market competition, reduces economic democracy, and fosters monopolistic tendencies.

Third, rather than adhering to the principle of reforming the existing US system and global multilateral organizations, as Yuen Yuen Ang argues, Trump intends to export or externalize significant problems of the US economy, such as the ever-rising income inequality, chronic and systemic corruption caused by the rise of robber barons, and financial risks, to the “rest” of the world via “beggar thy neighbor policies.”

In this emerging conflict, the digital economy, technology wars, and financial sanctions have become key instruments. However, under Trump’s approach, the current global fragmentation and the new Cold War environment have evolved beyond a simple polarization between the West and the China-Russia axis. The struggle is no longer just between the center (West) and the periphery (Global South) but also within the Global South and the West.

That fragmentation might also lead to: (i) The breakdown of global supply chains as the West tries to reduce its dependence on China, shifting toward a “friendshoring” trade model. As a reaction, expanding BRICS nations are advancing de-dollarization and constructing alternatives to the Western financial system. (ii) A possible economic bloc formation against Western dominance reminiscent of the 1930s increases the risk of economic stagnation and geopolitical conflict. The US and the EU are implementing “Green Protectionism” via carbon tariffs. If these trends persist, the global economy may enter an era of trade wars, financial decoupling, and economic fragmentation. 

Finally, economists must grapple with the systemic issues that enabled its rise rather than dismissing it as an aberration. Until mainstream economics confronts these shortcomings, the populist movement it fuels is unlikely to fade.

Professor Cornelia Woll, President of the Hertie School in Berlin and a leading expert on international political economy.

Professor Woll: J.D. Vance’s Speech Was ‘Quite a Hypocritical Statement’

by AuthoritarianismEconomicsEditor’s ChoiceExtremism & RadicalisationHomeInterviews

In an exclusive interview with ECPS, Professor Cornelia Woll, President of the Hertie School, criticized US Vice President J.D. Vance’s speech at the Munich Security Conference, calling it “quite a hypocritical statement.” She pointed out that while Vance accused Europe of restricting free speech, the Trump administration actively attacks institutions like Wikipedia and NPR. Professor Woll also warned that the US, under Trump, is pursuing policies that align with Russia’s interests, deepening transatlantic fractures. With nationalist rhetoric rising on both sides of the Atlantic, she emphasized that Europe must navigate these challenges to maintain economic stability and security.

Interview by Selcuk Gultasli

In a striking critique of US Vice President J.D. Vance, Professor Cornelia Woll, President of the Hertie School in Berlin and a leading expert on international political economy, described his speech at the Munich Security Conference as “quite a hypocritical statement.” Speaking with the European Center for Populism Studies (ECPS) on Thursday, Professor Woll dissected the contradictions in Vance’s rhetoric, particularly his claims that Europe’s speech restrictions pose a greater threat than military aggression from Russia or China.

“I don’t know if one should even react,” Professor Woll said of Vance’s remarks, pointing out the glaring irony of his accusations. “Everyone in the room—and I was in the room when he gave that speech—was well aware of the hypocrisy.” She noted that Vance’s critique of European policies comes at a time when the Trump administration itself is actively attacking free expression within the US. “This comes at a time when the Trump administration is firing the head of an art institution, the Kennedy Center, attacking Wikipedia, and targeting public radio and NPR,” she explained. “It is a common strategy for the Trump administration to accuse others of doing precisely what they themselves are doing.”

Beyond hypocrisy, Professor Woll argued that Vance’s speech was little more than a domestic campaign statement. “It was a national campaign speech, like many heard during an election,” she said, adding that its delivery at a major security conference reflected “the weakness of J.D. Vance in international discussions.” She suggested that Trump’s broader geopolitical calculations—including talks with Russia and Saudi Arabia—likely influenced Vance’s remarks, forcing him to focus on internal US politics rather than engage in substantive global security discussions.

Professor Woll also raised concerns about the broader implications of US policy under Trump and Vance, particularly regarding Germany. “Let me put it very bluntly: what Elon Musk, J.D. Vance, and Donald Trump are currently doing is supporting Russia’s interests,” she warned. She emphasized that many Germans still see these actions as fundamentally against their country’s security and long-term development, not just because of their history but also due to the risks posed by increasing Russian influence.

This growing divide is not just about rhetoric; it has real consequences for transatlantic relations. Professor Woll pointed out that Europe can no longer count on the US as a reliable partner. “Even though the US is not fully disengaging or explicitly leaving NATO, the uncertainty about whether it can be relied upon is significant,” she said. “Today, who can say with certainty that if Russia attacked a NATO partner, like Finland, the US would intervene. We simply do not know, and that uncertainty is deeply consequential.”

These shifts in US policy are also contributing to a broader geopolitical transformation. Professor Woll noted that a post-Western economic order is already emerging, driven in part by China’s strategic investments and growing sphere of influence. “We already see a stable and strong Chinese sphere of influence, which is now challenging the structure of multilateral institutions established under the Bretton Woods system,” she explained. This raises the question of Europe’s role—whether it will align fully with US interests or attempt to position itself as a third force between China and the US. “In my opinion, the latter would be the better path forward,” Professor Woll concluded.

At the same time, Europe faces internal struggles that could weaken its global standing. The rise of far-right parties like the Alternative for Germany (AfD) has been fueled by economic grievances and anti-globalization sentiments. Professor Woll warned that if the far right gains further power, Europe could see increased protectionism and economic fragmentation. “Every far-right party includes economic protectionism on their agenda, across all domains—whether it is student mobility, economic exchange, or military investment,” she noted.

With nationalist rhetoric gaining traction on both sides of the Atlantic and traditional alliances under strain, Professor Woll’s analysis underscores the fragility of the liberal world order. As the US embraces economic nationalism and European politics become more polarized, the future of global governance remains uncertain. The challenge now is whether European leaders can navigate these fractures while maintaining economic stability and security.

Here is the transcription of the interview with Professor Cornelia Woll with some edits.

The World Returned to an Era of Protectionism

A metaphorical image depicting the US-China trade war, economic tensions and tariff disputes on imports and exports. Photo: Shutterstock.

Professor Woll, thank you very much for joining our interview series. Let me start right away with the first question: In one of your earlier studies, you and Ben Clift differentiate economic patriotism from economic nationalism, arguing that economic patriotism is not inherently protectionist but instead seeks to favor specific actors based on territorial status. You also examine how economic patriotism serves as a tool to balance market liberalization with national political imperatives. How do you see this concept evolving in an era of increasing protectionism, and do you see it as a sustainable strategy in an era of increasing economic fragmentation?

Professor Cornelia Woll: Thank you for that question. When we developed the concept of economic patriotism, Ben Clift and I were interested in how governments defend the interests of their countries in open societies committed to free trade and free exchange while still wanting to protect their national interests.

What I see now is that this is no longer the issue because we have returned to an era of protectionism that is willing to sacrifice an open liberal order with free trade on the altar of national interests. We are essentially back a century ago when countries sought to close their borders, and if their interests were not fulfilled, they would retaliate against trading partners with protectionist measures. To a certain degree, that work is almost outdated because it started with a different premise.

Given the resurgence of state-led economic strategies, do you believe we are witnessing a fundamental shift away from the neoliberal order, or is this merely a cyclical adjustment? In your view, how fragile is the liberal world order today, and do you see a path for its reinvigoration, or are we witnessing its irreversible decline?

Professor Cornelia Woll: I think we are seeing a fundamental shift. It is a break, particularly in the position of the United States, away from multilateral institutions that were built to support a liberal order of the West, one might say. It is also a break away from the political systems that came with that liberal economic order, particularly democracy.

There was this Western combination of democracy and free markets that formed the backbone of the post-war order, which I will refer to as the order of the West. What we see now is a trend in different parts of the world toward more authoritarian systems or illiberal democracies. There is an ongoing debate on the best term for this shift.

I definitely see that it is important for many players, even within Europe—European countries and different political parties—to promote a vision that is quite orthogonal to these ideals. And yes, that is the biggest challenge to the liberal world order and to the governments that support it.

Trump’s Second Term Would Be an Intensified Attack on the Liberal Order

What role did President Donald Trump play in the fragmentation of global governance structures during his first term, and do you foresee a second Trump presidency further accelerating this decline?

Professor Cornelia Woll: I think everyone would agree that Donald Trump did not change his fundamental convictions between his first and potential second term. His approach remains the same and is clearly articulated in the “America First” doctrine—highly self-interested and transactional in nature, both for himself as a person, for the government, and for America’s role in the world.

We saw this during his first term with numerous decisions that opposed multilateral institutions, including his withdrawal from the climate agreements. Now, we see this approach returning even more forcefully because he has learned how to better navigate the system to achieve his goals.

For example, he has become more strategic about avoiding legal challenges. In his previous term, he denied press licenses, whereas now, he simply withdraws access, which is more difficult to challenge in court. Similarly, in dismantling USAID, the development agency of the United States, he is effectively shutting it down without officially closing it—keeping only a handful of staff, making it harder to contest legally.

Everything he is doing in his second term represents an intensified, more systematically executed attack on the liberal order.

Trump to Sacrifice the Liberal Economic Order for His Own Gains

Donald Trump with a serious look as he delivers a speech at a campaign rally held at the Mohegan Sun Arena in Wilkes-Barre, PA – August 2, 2018. Photo: Evan El-Amin.

The Trump administration ushered in an era of economic nationalism, trade wars, and tariff challenges—how much of this shift has been institutionalized within US trade policy, and can it be reversed? Given the protectionist tendencies under the Trump administration, including tariffs on European and Chinese goods, how much do you think Trump’s policies accelerated the erosion of the liberal economic order? Do you see a long-term shift in US trade policy away from multilateralism?

Professor Cornelia Woll: Trump has engaged in an outright tariff war, and as everyone knows, trade wars are retaliatory. If you impose tariffs on goods, you will face tariffs on your own goods from the countries you are trying to exclude from your market. That is what we are currently seeing.

This type of protection for domestic production is one form of defending economic interests. I would say it is a form of industrial policy. We talk about the protection of infant industries, for example, and for a long time, I would have said this is the industrial policy of emerging economies—countries that lack many tools to protect their industries. The US had much sharper, more sophisticated ways of protecting its companies, but now it is reverting to a very crude tariff war, a trade war where one country’s interests are set against another’s.

What will happen next? Most countries have understood that Donald Trump only respects strength and that they must respond in kind and be very clear about where they set their boundaries. As a result, we will see an acceleration of retaliatory measures. However, we have also seen that Trump uses tariffs not just to influence the economy but often as a tool to negotiate deals on entirely different issues.

With Mexico, for example, one of the concessions he secured by threatening tariffs was increased protection of the US-Mexico border. Similarly, regarding the inflow of drugs, particularly fentanyl, the stakes may be different with other countries. Essentially, he uses economic threats to extract concessions on issues that may be related to security, borders, or other policy areas.

This means that, yes, Trump is willing to sacrifice the liberal economic order for his own gains and objectives. The question of what will happen in the medium or long term depends on how extensively he actually enforces these measures. If he primarily uses tariffs as a negotiation tool without fully implementing them, they might prove to be effective bargaining instruments. However, if he puts them into practice and raises the tariffs he has announced, the consequences will be significant.

Since the US is part of an interconnected global economy, these measures will also harm the US economy. For example, American car manufacturers—whom Trump wants to protect—would lose access to steel and aluminum imported from abroad. Technology producers might face disruptions in their supply chains due to components manufactured in China, and the list goes on.

Economists analyzing this issue are now trying to estimate the impact on US GDP, which will translate into economic pain for American consumers and producers. The key political question is: how long will Trump be willing to impose that kind of pain, and at what point will it start to hurt him politically? He knows that if gas prices rise in the US, even his base will be unhappy. He has stated on television that people will tolerate some level of hardship if they believe it serves their interests—but for how long?

At this point, we do not know exactly how long this will continue, because we do not yet fully understand the economic consequences and fallout—but there will certainly be an impact.

We Are Entering a Multipolar World of Fragmented Economic Influence

With the resurgence of mercantilist policies and protectionism, particularly in the U.S. and China, are we witnessing the end of globalization as we know it? What alternative economic models might emerge?

Professor Cornelia Woll: I don’t think an alternative economic model is emerging. What we are seeing instead is an alternative geopolitical model. Simply put, we previously lived in a world where economies were connected through structures created by the West, particularly the US, after World War II. It was a Western-led system of economic interdependence across markets. Today, the US is deeply concerned about the rise of China as an economic superpower and seeks to either shut itself off or at least reduce its rivalry with China by blocking certain aspects of Chinese economic development. This leads to greater fragmentation—both geopolitical and economic. China has been highly effective at forging partnerships and economic interdependencies around the world, creating its own sphere of influence. That sphere has now grown significantly.

The key question is: What kind of economic relationships will exist in a world increasingly dominated by China’s sphere of influence? What portion of global trade will remain within the US sphere of influence? And where will other countries position themselves? What role will Europe play between these two giants? What direction will Latin America take? Will what is sometimes referred to as the “Global South” develop into an independent trade bloc that avoids having to choose between the US and China? We are currently witnessing the emergence of a multipolar world with fragmented zones of economic exchange and influence. That trend is certainly to continue.

How has the EU responded to the deterioration of transatlantic relations under Trump, and do you believe these fractures are temporary or part of a long-term geopolitical shift?

Professor Cornelia Woll: I am quite certain they are part of a long-term geopolitical shift. The news cycle was filled with images from the Munich Security Conference, particularly Vice President J.D. Vance’s speech at the conference, which was a clear criticism of Europe at a time when much is at stake in international security and the global order—Ukraine, the Middle East, and many other issues where the transatlantic partnership is central.

The fact that none of these concerns were addressed in the Vice President’s speech, and that he explicitly criticized European partners, while at the same time the US was organizing peace talks for Ukraine with Russia—without inviting other stakeholders—signals that the EU can no longer count on the US as a reliable partner to support European concerns both on the continent and beyond.

I believe these fractures are real and will persist. Even though the US is not fully disengaging or explicitly leaving NATO, the uncertainty about whether it can be relied upon is significant. In security matters, guarantees and trust are crucial. Today, who can say with certainty that if Russia attacked a NATO partner, like Finland, the US would intervene? We simply do not know, and that uncertainty is deeply consequential.

European leaders have repeatedly stated that they have heard the wake-up call and understand the need to become more self-reliant. The challenge, however, is that this realization has come very late. Organizing military capabilities requires significant investment, is extremely costly, and must account for the diverging opinions of the 27 EU member states. Moreover, Europe has only a limited window—just a few months—to organize itself in response to the ongoing conflict in Ukraine and other potential crises.

This geopolitical shift is real and long-term. Where Europe ultimately positions itself will depend on the ability of European governments to coordinate effectively and forge a united path forward.

Far-Right Parties Turn Economic Grievances Into a Political Weapon

The rise of the far right in Europe, particularly the Alternative for Germany (AfD) in Germany, has been fueled in part by economic grievances and globalization backlash. How much of this is a structural trend versus a temporary political wave?

Professor Cornelia Woll: Economic grievances are always very important to address, and it is crucial to ensure that both mainstream and fringe parties recognize the challenges faced by different parts of the country. Globalization, as we know, has created both winners and losers. There is a highly mobile, urban elite that sees no flaws in global interconnectedness, and then there are other parts of the population—perhaps more disconnected or more concerned about the industries and regions they depend on, such as the automobile sector or others. These concerns must be central to political debate.

The rise of the AfD, in particular, is not solely fueled by economic grievances but also by how political leaders have been able to mobilize around these grievances. There is an element of political entrepreneurship at play—this is, in many ways, a political game. The key question for many countries, including Germany, is to what extent the far right is able to dominate the discourse and shape the terms of debate.

One issue that often emerges alongside economic grievances on the far right is migration. Economic concerns quickly become linked to migration, which in turn leads to discussions about internal security—an issue that currently dominates political debate in Germany.

A central question now is: Are we safe? Following Chancellor Merkel’s decision to welcome a large number of immigrants into Germany, many of whom have not been successfully integrated, some are now being linked to violent incidents in public spaces. How to address this issue is a major challenge.

The most emotionally charged and dominant topics in recent political discourse have been attacks in cities like Aschaffenburg and now Munich, carried out by individuals who initially came to Germany seeking refuge. As a result, migration has become an even more prominent issue than economic grievances. This trend is evident in all countries where the far right has gained significant influence.

In an interview you gave to Greece’s To Vima newspaper, you emphasized that protecting democracy in Germany requires centrist parties to focus on economic stability and security rather than engaging with the far-right AfD’s populist rhetoric. How can governments effectively address voters’ economic anxieties—such as deindustrialization, energy costs, and labor market access—without legitimizing the nationalist economic narratives of parties like the AfD?

Professor Cornelia Woll: That’s a good question. I do think it is important to address economic grievances. And, of course, for any government or any party running for office, it is essential to have a clear vision of where they want to take the country and its economy.

What is striking about far-right parties is that their rhetoric is often more focused on social and identity issues rather than purely economic concerns. They link economic grievances to broader themes of migration and national identity.

What I would recommend—because we have seen that it does not work in other countries—is that centrist parties should avoid adopting the identity-based language of populist parties. When centrist politicians begin to frame economic well-being in terms of who should be considered German and who should not, they risk legitimizing the far right’s rhetoric and giving it a more central place in political discourse. Most of the time, this strategy ends up benefiting the far right by increasing their support rather than drawing voters away from them.

This is ultimately a question of the best electoral strategy. My recommendation would be to focus on economic development and well-being: How do you address deindustrialization? How do you ensure energy costs remain manageable? How do you expand and improve access to the labor market for all? These economic issues should take priority over engaging in the identity politics promoted by the far right.

Europe Must Rely on Itself as the Transatlantic Divide Deepens

EU flags in EU Council building during the EU Summit in Brussels, Belgium on June 28, 2018. Photo: Alexandros Michailidis.

With the rise of economic nationalism in the US, Germany, and across Europe, coupled with shifting global alliances, do you foresee a deeper transatlantic divide between the US and the EU on trade and economic governance? How might the world navigate these fractures, particularly as it balances economic autonomy with its reliance on global trade?

Professor Cornelia Woll: Yes, we do see these fractures, and for European countries, it is quite clear that they will be cut off from some of the resources they previously relied on. Take Germany, for example. I may be oversimplifying, but Germany essentially outsourced its defense capabilities to the US and relied on Russia for cheap energy. It structured its economy and investments around the assumption that these needs could be met through external partnerships rather than domestic restructuring.

Now, Germany must find a way to provide for its own defense with less reliance on the US. It has also struggled in recent years to reduce its dependence on cheap energy from Russia, and this process will need to continue. For Europe, it is clear that the only viable scale for addressing these challenges effectively is the European market rather than individual national markets.

It is quite clear that in a world where two giants, China and the US, dominate the game—and where Russia is also an important player—Germany alone is not enough. France alone is not enough. Certainly, Belgium is not big enough. What we can do is leverage the market power of the single European market and use it as a still very important economic space, not only for Europe but also for other countries with which we aim to remain on equal footing.

This means we must move toward a European project that is less focused on overregulating every minor detail and more focused on answering the key question: How do we provide peace and stability within the region? By fostering an integrated economic space, Europe can actively participate in global discussions and remain on par with the world’s major powers.

Given the recent rise of the far right in both Germany and France, the traditional engines of European integration, do you believe these internal struggles will hinder the EU’s ability to advance industrial and defense strategies? Could leadership on these issues shift to other European actors, and if so, what role might Germany still play in shaping the future of European economic governance?

Professor Cornelia Woll: It is certainly true that both Germany and France have struggled domestically to provide leadership for the EU in recent years. Let me be an optimist here. I think France is slowly making progress. They have now passed the budget, even though the government remains fragile. A vote of no confidence is not imminent as it was in the past.

Germany is approaching an election this weekend, and there is still hope that the outcome will be less fragile than the three-party coalition of recent years. Perhaps a two-party coalition will emerge, allowing for a return to more stable leadership. So, I remain optimistic that both Germany and France will regain some footing.

On foreign policy, France has a strong presidency. Emmanuel Macron can take initiatives that are less constrained by internal debates. For example, he recently invited European countries to discuss defense and their position on Ukraine at the beginning of the week. Initiatives like this remain important in the security domain. Europe cannot move forward without France and possibly the UK as key drivers of decision-making.

Germany, meanwhile, remains crucial for any funding decisions. There will need to be significant shifts in how investments are financed, possibly through common borrowing or changes to the European budget. These decisions cannot happen without both France and Germany.

That said, other countries also matter and will take on leadership roles, which is a positive development. The traditional Franco-German axis is certainly less central than it once was, and in the future, forming strong coalitions of willing partners will be key.

Italy and Poland are hugely important players. There has been a divide between Western and Eastern European countries, and bridging that gap is crucial for many of these issues. The Franco-German axis will not necessarily be essential if a coalition of other countries can be built. If another country steps up to take leadership, that would be good news for Europe.

A Far-Right Surge Would Bring Further Protectionism and Economic Fragmentation

What are the economic risks if the far right gains further power in Europe? Could we see increased protectionism and economic fragmentation within the EU itself?

Professor Cornelia Woll: Yes, I think the answer is quite simple—yes. And I’ll give you one example. Every far-right party includes economic protectionism on their agenda, across all domains—whether it is student mobility, economic exchange, or military investment. So, it is quite a clear tendency.

With China, Russia, and other powers seeking to establish alternative economic alliances, do you see the possibility of a post-Western economic order emerging? What role, if any, will Europe play in this transition?

Professor Cornelia Woll: Yes, a post-Western economic order is emerging, and it has been for quite some time—over the past 20 years, I would say. If you look at the economic connections China has built through its initiatives to establish new trade routes across Asia and toward Europe, it is quite clear. The same is true of its investments in Africa and its support for countries struggling with sovereign debt. Many of these nations now turn to China as a lender of last resort, a role previously played only by multilateral institutions.

We already see a stable and strong Chinese sphere of influence, which is now challenging the structure of multilateral institutions established under the Bretton Woods system. As a result, these institutions must be redesigned and revised to continue playing a role in global economic cohesion. However, they are struggling to fulfill the functions for which they were originally created.

What role can Europe play? The reason, for example, that the International Monetary Fund (IMF) is not as inclusive of Chinese interests as it should be is not due to European opposition but rather to opposition from the US. I believe Europe must decide whether to align entirely with US interests, which are strongly anti-Chinese, or to position itself as a third force in the geopolitical struggle between China and the US. In my opinion, the latter would be the better path forward.

Trump, Vance and Musk Are Advancing Russia’s Interests

Matryoshka dolls featuring images of Vladimir Putin and Donald Trump displayed at a souvenir counter in Moscow on March 16, 2019. Photo: Shutterstock.

US Vice President J.D. Vance and Elon Musk have both lent support to the AfD, which is surprising given that they come from the US—a country Germans have long thanked for putting an end to a deeply shameful period in their history. Do you think this approach signals the end of bilateral relations between the US and Germany as we know them?

Professor Cornelia Woll: Well, it certainly makes clear to Germans that the US, even with its capacities in government, will pursue objectives that are contrary to what Germany considers its own security and national interests. Let me put it very bluntly: what Elon Musk, J.D. Vance, and Donald Trump are currently doing is supporting Russia’s interests. I think the majority of Germans still believe that this is not in Germany’s best interest or in the best long-term development of the country. This is not just because of Germany’s own history and the National Socialist period, but also because of what it would mean for Russia’s influence in Germany.

And lastly, Professor Woll, in his speech to the Munich Security Conference, J.D. Vance called Europe’s restrictions on speech a greater threat than a military attack by Russia or China, comparing them to those imposed by the Cold War Soviet Union. What is your reaction to this statement?

Professor Cornelia Woll: I don’t know if one should even react because everyone in the room—and I was in the room when he gave that speech—was well aware of the hypocrisy in J.D. Vance’s declarations about incidents in Europe. This comes at a time when the Trump administration is firing the head of an art institution, the Kennedy Center, attacking Wikipedia, and targeting public radio and NPR. It is a common strategy for the Trump administration to accuse others of doing precisely what they themselves are doing. So, it was quite a hypocritical statement.

Beyond that, his remarks were purely national in scope. It was a domestic campaign speech, similar to many others heard during an election cycle—nothing new.

The fact that he delivered it at a security conference, however, was, I think, a sign of J.D. Vance’s weakness in international discussions. Trump had just stated his intention to negotiate with Russia and was preparing talks with Saudi Arabia. I believe the last thing he wanted was for his Vice President to make any statements that could be considered newsworthy or that might contradict Trump’s own diplomatic efforts. As a result, J.D. Vance had to deliver a speech that was purely focused on domestic politics and did not address the security concerns of anyone else in the room.

As for the content, the attacks were so obviously false that I don’t think it is even worth deconstructing. Free speech is under far greater threat in Russia than in Europe. The anecdotes he cited—half of which may not have been as accurate as he claimed—do not change this reality. I won’t go into the details because doing so would give too much credit to the fake news bubble that J.D. Vance was catering to.

3D illustration: Lightspring.

The Economic Meaning and Consequences of Trump’s Trade Tariff Wars

by CommentariesEconomicsEditor’s ChoiceHome

Populist US President Donald Trump’s self-proclaimed favorite word, “tariff,” has far-reaching implications beyond simple taxation. In this insightful analysis, Professor Eser Karakaş dissects the economic distortions and welfare costs associated with protectionist trade policies. He examines how tariffs disrupt relative price structures, reducing efficiency and shifting wealth from consumers to producers, ultimately leading to net societal losses. Drawing on economic theory and Mancur Olson’s “Logic of Collective Action,” Karakaş explains why seemingly irrational tariff policies persist in political decision-making. He further explores Trump’s tariff war with China, its impact on global trade, and how it could weaken the US economy in the long run.

By Eser Karakas*

After being elected US president, Donald Trump declared that his favorite word in English was “tariff.” Tariffs refer to taxes and duties imposed on all goods and services subject to international trade. It is evident that the prices of tariffed goods and services will rise in the markets where they are offered to consumers. However, from an economic perspective, the most crucial issue is the change in the relative price structure between these goods and services and their substitutes, or more technically, the distortion of the relative price structure. This distortion in relative prices has significant implications for both efficiency and distribution. It can disrupt the natural functioning of markets, leading to inefficiencies in resource allocation and creating different economic consequences for specific industries and consumer groups.

At a certain stage in their careers, professional economists often share a well-known joke among themselves. Students who begin their economics education take a two-semester Introduction to Economics course in their first year of university. This course is built around a fundamental textbook, and the higher the quality of this book, the stronger the foundation for the student’s career in economics.

During our youth, Paul Samuelson’s textbook was widely used. Today, Gregory Mankiw’s book is the primary choice in many universities. Daron Acemoglu has also authored a highly contemporary and comprehensive introduction to economics textbook. However, for the author of these lines, the personal preference remains Mankiw.

As students progress, the level of economics courses becomes more advanced, leading to graduate and doctoral studies. A thesis is written on a specific field of economics, an academic career begins, and over time, one moves toward becoming a professor. As the years pass, one realizes that if the Introduction to Economics textbook studied in the first year of university was well-taught and well-learned, it provides significant insights into understanding global economic issues. In fact, I would go even further—half-joking, half-serious—and say that this book alone is often sufficient.

Let’s approach the meaning of the word “tariff” (customs tariff), which Trump has claimed to be his favorite, through a first-year Introduction to Economics textbook. However, towards the end of the article, I will reflect on the concept of tariffs through Mancur Olson’s The Logic of Collective Action and take the discussion to a more advanced level within the framework of endogenous growth theory.

Now, let’s consider Trump’s tariff policies. For instance, imagine he imposes a 30% tariff on automobiles produced in the EU, affecting brands like BMW, Mercedes, Audi, and Citroën. In the US market, importers of EU cars will pass on this additional tariff to consumers as much as they can, making EU-manufactured vehicles approximately 30% more expensive. As a result, the relative price structure between US-made and EU-made automobiles will be distorted. 

This distortion will have economic costs in terms of both efficiency and distribution. Because the most important factor in economics is the maximization of consumer surplus. However, the imposition of tariffs will reduce the surplus of US automobile consumers while increasing the producer surplus of domestic car manufacturers. This transfer of surplus (from consumers to producers) will grow even larger as tariff rates increase. Let’s not forget, surplus means welfare; therefore, as consumer welfare decreases, producer welfare increases.

As I mentioned above, the economic consequences of tariffs are not merely distributive. In other words, the issue is not just the transfer of consumer surplus or welfare from consumers to producers. Tariffs introduce significant efficiency costs to the extent that they distort relative prices. The practical implication of these efficiency costs is that the decline in consumer surplus (welfare) exceeds the increase in producer surplus (welfare). This is inevitable and results in an absolute welfare loss for society as a whole—including consumers, producers, and the state.

Just like balancing a shopkeeper’s ledger, when evaluating the effects of tariffs, one side should account for the increase in producer surplus and the tax revenue generated by tariffs (government revenue)—these represent the gains for certain segments of society. On the other side of the ledger, one must include the reduction in consumer surplus or overall consumer welfare. Theoretically, the losses will outweigh the gains. In other words, tariffs have a net negative impact on overall societal welfare. This decline represents the efficiency cost arising from the distortion of relative prices due to tariff policies. 

Therefore, as early as the 18th century, Adam Smith’s phrase “laissez-faire, laissez-passer” emphasized the need to allow the free movement of goods and services in international trade. It was argued that tariff barriers inevitably have negative effects on welfare, and thus, such restrictions should be avoided.

Trump’s statement, “I will close the US budget deficit by significantly increasing tariffs,” is narrowly correct, as it would lead to higher public revenues. However, on a broader scale, it is incorrect because, despite the increase in government revenue, overall societal welfare would decline due to these tariffs. At this point, we can ask a fundamental question: Although the welfare effects of tariffs—largely negative—have been well understood in economic theory for many years, why are they still implemented, at least to some extent, in every country and economic union, even if not as aggressively as Trump suggests?

Today, even the European Commission, which adopts a more liberal and Smithian stance on tariffs compared to the United States, imposes a Common Customs Tariff (CCT) on third countries and uses these revenues to finance a significant portion of the EU budget. However, it should be noted that these tariff rates are not at levels that would cause substantial welfare losses. Nevertheless, economic theory operates under the same fundamental principles everywhere and at all times.

Let’s delve a bit deeper into the negative effects of high tariffs with an example. Suppose the US imposes high tariffs on automobiles originating from the EU. As a result, American consumers will purchase fewer automobiles. Due to the distortion of relative prices, they will shift their consumption preferences toward domestically produced vehicles. However, it should not be overlooked that, thanks to these tariffs, US automakers, freed from import competition pressures, will be able to raise their prices and generate profits beyond normal levels. Additionally, as the competitive pressure from EU automobiles diminishes, the quality of US-produced cars may also decline. This situation presents a striking example of the distributive effects of tariffs.

Readers of this article can compare the quality and quantity of the Turkish automotive industry before and after the 1996 Customs Union and recall the welfare, efficiency, and distributional effects of tariffs and their removal (with a low common external tariff). As a result, due to the high tariffs Trump intends to impose on EU-origin automobiles, US consumers will be forced to purchase fewer and lower-quality vehicles at higher prices. Meanwhile, US automakers will be able to sell more expensive and lower-quality cars in greater numbers compared to the pre-tariff period. The winners and losers of this process are evident. The overall society experiences a welfare loss, and demographically, the number of those who lose from this policy far exceeds the number of beneficiaries.

So why, despite this reality, do political movements—such as the US Republican Party, even if not Donald Trump himself—dare to make such politically irrational decisions as they have to go an election? Could seemingly irrational actions, both politically and economically, actually be more rational than they appear? This question has long intrigued economists throughout the history of economic thought. However, one of the most significant contributions to this issue came from the renowned American economist Mancur Olson (1932–1998). Olson was a key figure in the public choiceschool of economics, which applies the fundamental philosophy of methodological individualism to group decision-making processes in a highly effective manner. Economists have coined the term “Olson Paradox” to describe his theory. In this brief article, I do not intend to delve deeper into this concept.

In the case of tariffs imposed on EU-manufactured automobiles, which I have attempted to outline above, the number of individuals experiencing welfare loss far exceeds those benefiting from the policy. However, despite their numerical superiority, these affected groups struggle to organize collective action to protect their interests. In fact, from a theoretical perspective, such collective action is nearly impossible. This is because an individual member of the large group suffering welfare loss seeks to maximize their potential gains from the group’s collective success while contributing as little as possible to the effort. This creates a paradox: the larger the group, the stronger the incentive for each individual to minimize their contribution. As a result, coordination costs rise, further discouraging collective mobilization. Consequently, due to this reluctance to bear even minimal costs, collective action fails to materialize.

In contrast, the small group that benefits from increased welfare faces minimal coordination costs. Their gains are larger and more tangible, making collective organization much easier. When considering the mechanisms of political financing in the United States, it becomes clearer which groups will take the lead in campaign donations and lobbying efforts. The logic of collective action is riddled with paradoxes, yet understanding these dynamics is crucial for making sense of the political and economic processes we experience today.

Now, let’s turn to the broader issue of Trump’s tariff wars and their impact on international economics. Earlier, we used the EU automobile industry as an example. Here, I would like to focus on the Chinese economy and its consumer goods sector as another key example.

The world’s annual value-added production—or global income, if you prefer—is approaching $120 trillion. The US economy, with a population of 350 million (compared to a global population exceeding 8 billion), accounts for more than a quarter of this global production. In the US, per capita income is approaching $100,000, whereas in China, it stands at approximately $15,000 at current exchange rates. This disparity in per capita income is crucial to our analysis. At this stage, in my view, Trump makes a critical mistake by imposing high tariffs on Chinese goods. But why do we see this decision as misguided—not only from the perspective of economic theory but also for the US economy itself? There are several reasons for this.

As long as Chinese consumer goods entered the US market tariff-free, an American worker with $100 in their pocket could walk into a mall and leave with a large basket of consumer goods. From an economic perspective, this means that even if nominal wages (in dollar terms) remained constant, the real wages of American workers would increase significantly due to cheaper goods. This scenario would have also benefited American employers, as the pressure to increase wages would have eased, allowing the US economy to gain efficiency in global competition. It is difficult to understand the logic behind a policy that deliberately increases the cost of wage goods within the US, thereby forcing monetary wages to rise inevitably. Beyond this, the services sector—which produces non-tradable services—would have also gained significant momentum as a result of rising real wages.

There is also the dimension of controlling and shaping the Chinese economy in this equation. As mentioned earlier, China remains a low-income economy in per capita terms, despite its massive population of just under 1.5 billion people. Given this reality, China is highly susceptible to significant employment challenges, making it a country prone to labor market instability in such a scenario.

As long as the US consumer goods market remained open to China with zero tariffs, the vast and wealthy American market’s high demand for consumer goods would have naturally shaped China’s economic priorities. In such a scenario, not only would China have had an interest in a cooperative US administration, but it would also have been compelled to prioritize consumer goods production to meet US demand. It is crucial to remember that, like every economy, China operates under the principle of limited resources. This means that the Chinese government, in its effort to create employment for its massive population, would have had to align its economic structure—at least partially— with the consumer goods demand of the US economy.

You may recall Trump’s fixation on bicycles, frequently questioning, “Why don’t we manufacture bicycles like we used to, instead of importing them from China?” This raises an important question: Within the framework of comparative advantage theory, which applies to the US economy as well, and considering the reality of limited resources, does it make sense for the US to allocate even a small portion of its labor and capital to bicycle production—an industry whose production techniques have remained largely unchanged since the 19th century? Would such a decision be economically rational for a nation with far more competitive and high-value industries?

One doesn’t need to be a Nobel laureate to recognize that eliminating tariffs on Chinese imports would create comparative economic structures that ultimately benefit the US. Instead of focusing on bicycle manufacturing or internal combustion engine cars, the US government should prioritize high-tech industries, driving economic expansion through endogenous growth (Paul Romer, 2018, Nobel Prize). By boosting national income at an increasing rate, the US government could then redistribute this growing wealth using the Hicks-Kaldor compensation principle, effectively mitigating social discontent and ensuring broad-based economic prosperity.

Paul Romer, half-joking yet half-serious, suggests that as long as major mistakes are avoided, the economy could continue growing for five million years. However, Trump appears to be doing the exact opposite—and is likely to continue on this path. These policies will have severely negative effects on both efficiency and income distribution within the US. Moreover, and perhaps equally significant, they will weaken the US in global economic relations, particularly with China, leading to relative economic decline and shifts in the balance of power. For now, I’m far from convinced—but let’s wait and see. Maybe they know something we don’t.

(*) Dr. Eser Karakas is a retired Professor of Economics from the University of Strasbourg, where he taught Law and Economics and the Economics of Public Issues at the Institut d’Etudes Politiques. He is also a member of the Advisory Board at ECPS. His primary research interests include public economics, public choice, public finance, European finances, public policy, law and economics, and good governance.

Map: Shutterstock.

Unveiling China’s ‘Transnational Populism’ and Sharp Power Politics: The Case of the Belt and Road Initiative

by ArticlesEconomicsEditor’s ChoiceHomeJournal of Populism Studies

Abstract

In a mutually reinforcing context, the rise of multipolarity and the decline of the rules-based liberal multilateral world order have transformed populism from a national phenomenon into one with global dimensions, characterized by transborder transgressiveness. Rooted in nationalist rhetoric that emphasizes independence and sovereignty, this dynamic challenges the norms and values of multilateralism, fuels a vicious cycle of sharp power politics (SPP), and opens new fronts in the competition for national interests. China’s recent political and economic trajectory under President Xi Jinping provides a compelling case for examining the interplay between these factors. Drawing on the evolving theoretical framework of populism and an analysis of the Belt and Road Initiative (BRI), this article argues that Xi Jinping’s strategic framing of SPPs within an appealing populist narrative does not qualify him as a transnational populist leader. Notably, Chinese rhetoric lacks a cohesive ideology, a clearly defined transnational citizenry with shared interests, and a corresponding mechanism for the participatory representation of global citizens.

Keywords: Populism, sharp-power politics, multipolarity, multilateralism, China, governance, development, (in)dependence, global public goods, cooperation.

 

By Ibrahim Ozturk

Introduction

The transformation of global power dynamics, particularly in the post-Cold War era, has exposed vulnerabilities in the Western-dominated liberal multilateral order, leading to a multipolar world (dis)order. This shift has also curtailed the dominance of any single superpower, intensifying competition for influence and resources. This complex landscape has witnessed two notable political phenomena: the global rise of right- and left-wing populism and the adoption of Sharp Power Politics (SPP) by rising powers like Russia and China to enhance their global influence.

The emergence of this geopolitical landscape significantly limits the global cooperation necessary for collective action to effectively secure global public goods. Increasingly characterized by a “negative-sum game,” this environment poses deeply troubling implications for the future. It fosters the development of a causal chain in which populism, typically addressed at the national level, transcends borders and amplifies the influence of sharp-power politics.

While populists often portray themselves as champions of the people, challenging the established order on behalf of the masses, SPP co-opts populist rhetoric to serve the interests of authoritarian regimes, ultimately consolidating their power. A plausible transmission mechanism involves the gradual co-option of a functioning, though flawed, rule-based democracy by exclusionary, interest-driven coalitions of established elites. These elites prioritize their class interests at the expense of long-term efficiency, leading to stagnation. Over time, populist leaders exploit systemic vulnerabilities, using their rhetoric to gain power. If they maintain power long enough, they eventually transform the system into a form of authoritarianism, reinforcing this new status quo through sharp-power tactics both domestically and internationally to expand their influence and national interests.

Within this framework, the central aim of this article is to explore the extent to which the concept of “transnational populism” (TNP) can be considered an intermediate stage linking the progression from national-level populism to authoritarianism and, subsequently, to SPP beyond national borders. Following these theoretical discussions, the article also seeks to examine whether the notion of TNP can be inferred from the extensive use of populist rhetoric within China’s SPP framework, specifically in the context of the Belt and Road Initiative (BRI).

The article is organized as follows: The second section explores key theoretical issues, evaluating the existence of a robust concept of transnational populism while examining the intersections, overlaps, and tensions between national populism, transnational populism, and sharp power politics (SPP). The third section builds on these theoretical insights to assess whether China’s foreign policies can be interpreted through the framework of transnational populism within its authoritarian regime. The fourth section connects China’s so-called transnational populism (TNP) to SPP, highlighting their incompatibilities, particularly in the context of the BRI. The final section concludes by summarizing the key findings.

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Two elderly men sit on the street in front of a café in Oslo, Norway, asking for alms on August 1, 2013. This image symbolizes the indifference of society and the state toward poverty. Photo: Medvedeva Oxana.

Recalibration, Not Austerity: Welfare States and the Struggle for Liberalism

by ArticlesEconomicsEditor’s ChoiceHomePopulism & Politics (P&P)

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Please cite as:

Olivares-Jirsell, Jellen. (2024). “Recalibration, Not Austerity: Welfare States and the Struggle for Liberalism.” Populism & Politics (P&P). European Center for Populism Studies (ECPS). December 6, 2024. Doi: https://doi.org/10.55271/pp0044

 

Abstract

Welfare states have acted as societal equalisers. They have reduced poverty, improved living standards, promoted equality, and supported democracy. However, their alignment with market imperatives and exclusionary definitions of deservedness threatens the welfare state’s role as a social equalising force. This paper aims to diagnose a challenge facing welfare states through two arguments. The first is that four recalibrations have taken place within welfare states: settling for universality, redefining universality, outsourcing, and reducing public spending. These recalibrations aim for market compliance, savings, and competitiveness. The second is that welfare states may prevent unequal distributions and promote equity by focusing beyond universality and prioritising socially liberal policies. By examining OECD countries and beyond, the paper highlights the pitfalls: a myopic focus on universality exacerbates inequalities; neoliberal criteria that align welfare states with populism and lend credence to welfare chauvinism; and outsourcing and privatisation that increase costs without improving service quality, weakening democratic capacity due to reliance on private providers.

Keywords: Recalibration, welfare states, austerity, producerism, populism, welfare chauvinism

(Received June 7, 2024, Published December 6, 2024.) 

 

By Jellen Olivares-Jirsell*

Introduction

The establishment of welfare states has significantly impacted societies. The incredible achievements in social equality that welfare states have created cannot be overlooked. The package of wealth redistribution, services, and programmes has successfully reduced poverty in the places where it has been implemented (Kenworthy, 1999), thereby improving the living standards of millions of people.[1]

Welfare states record of success includes transforming democracies’ form and character (King, 1987) by producing high levels of income and gender equality (Swank, 2000) as well as supporting the consolidation of democratic rule (Pestoff, 2006). The role of the welfare state as a societal equaliser and creator of a critically engaged populous, confident in challenging and scrutinising policy, is widely acknowledged and understood (Patrick, 2017); the inclusion of Target 1.3 – ‘Social Protection Systems for All’ in the Sustainable Development Goals (SDG) is evidence of this ideological consensus of welfare states as essential for society.

However, welfare states currently survive precariously and face the consistent and erroneous idea that deficits are always bad, and that the welfare state is an expensive luxury that can only exist in exchange for sacrificing economic competition(Wren-Lewis, 2018). They have nonetheless endured and—mostly—remained in place (King, 1987), lifting their populations out of poverty and protecting them from external shocks, especially during crises (Bhambra & Holmwood, 2018), but they sacrifice much in the process.

When we think about the most celebrated welfare systems, we may consider their universal provision. Our minds may also drift to generous parental leave, free healthcare, education, and support. Unfortunately, this rosy picture of welfare states describes a non-existent utopia, as even the most celebrated welfare states now face issues with their provision.

This paper makes two main points: First, welfare states are not retrenching due to austerity but are recalibrating to align more with market imperatives. This recalibration, often mistaken for austerity, has shifted the focus from real accountability to delivering provision. It has narrowed perceptions such that funding issues are considered the only reason welfare states struggle to support their citizens. Second, this paper argues against the conventional view of the universality of provision as a north star for welfare states. Instead, the analysis guides the argument by focusing beyond universality and towards the prioritisation of socially liberal policies. Specifically, welfare states may prevent unequal distributions and promote equity within universal welfare programs. In doing so, welfare states may also prevent populists and neoliberals from redefining their inclusion criteria. The specific dynamics of these redefinitions will also be elaborated upon.

The goal of this paper is not prescriptive; welfare states are as varied as countries. Hence, a generic solution would not address local needs. Alternatively, it highlights the maladies our communal abandonment of liberalism and prioritisation of market imperatives have caused.

The two main arguments challenge the idea that citizens should accept subpar support, as welfare states are adequately funded. Social spending takes up more than a quarter of the GDP of OECD countries (Ortiz-Ospina & Roser, 2023). Instead, they argue that welfare states may effectively safeguard their citizens if liberal priorities precede market competition.

The paper challenges the notion that welfare states are expendable luxuries, advocating instead for a reimagined role beyond essential provision, which can address deeper societal needs beyond mere bodily survival. After providing an overview of the debate around social public expenditure, this point is demonstrated by examining changes in public spending, the move towards outsourcing, and the redefined criteria of deservedness. Using examples within the OECD and beyond, emphasising Northern European countries, the paper illustrates how welfare states are recalibrating rather than simply cutting back. It underscores the essential role of welfare states in protecting the most vulnerable and maintaining social stability. The paper also critiques overemphasis on universality, arguing that this metric alone can mask underlying inefficiencies and exclusions in welfare provision. Instead, it calls for a broader evaluation of welfare states based on their impact and outcomes, not just their coverage.

A Few Words on Welfare States and Austerity

Welfare states are complex and multifaceted, sometimes seen as burdens or saviours, expendable or essential depending on the observer. In a first understanding of the welfare state, as King (1987) described, the welfare state embodies non-market criteria. It exists only to provide essential public goods and services to gain or maintain at least minimal well-being standards in a population. In a compromise between capitalist and socialist ideologies, welfare states look after their citizens so that they can be part of a healthy, educated and capable society, with the added benefit that healthy, educated and capable individuals make great contributors to the financial markets and democracies (Begg et al., 2015; Crosland, 1964). This represents a mutually beneficial relationship between citizens, markets and states. Another view on the welfare state is that it is costly, inefficient, creates dependence on government, and burdens markets, hence needs transforming to serve the market, generate growth and benefit society through generalised economic prosperity (Alesina et al., 2019).

Neither the idealised nor vilified version of the welfare state exists. Welfare states compile liberal goals of social protection and betterment with older themes, including the ubiquitous condemnation of the ‘unworthy poor’. At one point, these notions were used to justify the ‘progressive opinion’ that saw eugenics as a legitimate tool for raising the general quality of the population (Pierson & Leimgruber, 2010).

Moreover, welfare states determine who is part of society and deserves safety and security. This creates a sense of inclusion and trust for those considered members. At the same time, those outside are excluded, fitting well with the political manifestos of populists (Bergman, 2022; Busemeyer et al., 2021). As Zakaria (2007) warns, liberalism, the progressive force behind inclusive and fair societies and democracies, which endorses social justice and the expansion of civil and political rights, has been slowly extracted from liberal institutions such as welfare states. These ideas over the deservedness of some over others led over thirty years ago, to coining the term ‘welfare chauvinism’ to describe some Norwegians and Danes’ belief that welfare services should be restricted to the country’s own (Andersen & Bjørklund, 1990). In short, welfare states are complex and multifaceted, capable of much good but also capable of reproducing and sustaining unfair structures.

In a purely economic sense, the welfare state costs countries large chunks of their GDP (Ortiz-Ospina & Roser, 2023), and at times, when welfare states do not uphold liberal values, they can solidify or even widen societal cleavages (Kenworthy, 1999; Parolin et al., 2023). This means that despite the good they do, they are imperfect institutions that are both essential and need improvement.

Overall, welfare states are state institutions that deliver interventions that help a population achieve or maintain at least minimal well-being standards. Their aims, however, may vary. Variously, it focuses on protecting the population, the market, the societal order, or something else. These differences are defined by the social and political priorities governing the state at that moment in time, as the upcoming examples will shortly show. In truth, welfare states are intrinsically political entities, defining acceptable and deserving versions of their citizens and responding to political priorities as they occur. This means that welfare states are subject to the ebb and flow of politics and the changing norms around deservedness, the role of the state in individual life and the multiple political priorities of contemporary politics.

Among said political priorities, governments may be concerned with creating surpluses in their cyclical primary balance adjustments (austerity), requiring – among other measures – reduced social spending. As hinted in the introduction, the constant push and pull between economic and social needs have caused significant changes to welfare states; these economic forces permeate politics and democratic institutions. Austerity measures have been one of the most favoured economic interventions since the normalisation of neoliberal economics in the 1980s.

There are different forms of austerity measures governments can introduce. Although raising or decreasing taxes is part of the austerity arsenal (Union of International Associations, 2024), we have come to understand austerity to mean cuts in spending rather than tax adjustments. The general idea of austerity measures is to cut down on luxuries and unnecessary spending, work on paying back debt, and even create a surplus in the budget. However, especially in countries like the UK, the everyday use of austerity is almost always equated with spending cuts (The Guardian, 2024). It rarely includes consideration of tax increases or reductions in the public lexicon. This leads to a frequent conflation of austerity with cuts to the welfare state.

Despite this frequent confusion, austerity measures refer to policies that aim to reduce government budget deficits by decreasing spending but may also involve tax increases, decreases, or a combination of these. The creation of surplus or reduction of deficit that austerity measures aim to create can be pretty confusing, as at times, it may even include increasing funding of certain areas of the economy – for example, by providing subsidies to industries that are expected to create growth (GOV.UK, 2023) – and cuts in other areas not deemed to help with economic growth – typically social spending. However, it is essential to understand that austerity measures aim to reduce budget deficits.

The effectiveness of austerity policies is subject to much debate. According to Keynesian economists, since one person’s spending is another person’s income, reductions in government spending during economic downturns worsen economic crises (Fazzari et al., 2013). Further, these reductions pass down debt to the working classes (Blyth, 2013) and severely affect physical and mental health (Barr et al., 2015; Loopstra et al., 2016; Patrick, 2017). Others believe reducing government budget deficits through spending cuts is more effective than increasing taxes. They argue that such policies demonstrate a government’s financial discipline to creditors and credit rating agencies, making borrowing easier and less expensive (Alesina et al., 2019).

Austerity is engaged with here because welfare states are often written and discussed in relation to austerity. This is central to the argument about recalibration. Austerity means more than cuts to the social spending budget; it has become a shorthand for welfare states’ funding challenges. In this paper, it is put forth that the issue lies beyond cuts to public social spending and that austerity (colloquially understood as cuts to the welfare state) is not the cause of the perceived retrenchment of welfare states; instead, recalibration is.

This paper aims to diagnose a challenge facing welfare states. The idea that welfare states have been reduced to nothing due to a lack of funding is as pervasive as the idea that deficits are bad. Both these ideas have severe implications for welfare states and their operations. However, as this paper argues, the strategies adopted to keep welfare states alive are geared around four central recalibrations: settling for universality, redefining universality, outsourcing and monetising public provision and reducing public spending on social protection. All these recalibrations are, in one way or another, based on the idea that welfare states ought to comply with market imperatives, making savings and operating competitively. To analyse welfare state recalibration empirically, some examples of countries facing these challenges are reviewed to assess how these recalibrations have taken shape.

The Recalibration Strategies

Settling for and Redefining Universality

Welfare states are permanently forced to justify their existence based on market imperatives due to the pervasive idea that governments should always grow, maintain a surplus and avoid debt at all costs (Wren-Lewis, 2018). There is a consistent thread of welfare provision as a value-for-money exercise: citizens are trained and kept sheltered and healthy to become productive members of society, but these protections must always cost less than citizens produce.

Considering this, welfare states are constituted as providers of social protection floors, overlooking their potential role in promoting liberalism through equality (Swank, 2000) and democracy (Patrick, 2017; Pestoff, 2006). Following the UN’s SDG, welfare states have been correctly lauded as basic protection floors with universal distribution as a deterrent to poverty and inequality.

The absence of a safety net can predispose the most vulnerable populations to extreme poverty; thus, implementing a basic yet universal provision may effectively mitigate this risk. However, in welfare states that have (or aim to have) universal coverage of those deemed deserving, citizens miss out on the broader societal benefits that welfare states provide when they instead focus on basic universal provision. Moreover, inequality and poverty may go unnoticed in places where universality of coverage exists as long as universality alone is the metric used to assess our welfare state outcomes (Patrick, 2017).

A case in point is that of the Netherlands, a country with a very high social expenditure budget and one of the most celebrated welfare states in the world. This country, however, has the highest level of outsourcing of social provision globally (Ortiz-Ospina & Roser, 2023). It is also a place with very high levels of wealth inequality (Van den Bossche, 2019), a growing opportunity gap in education based on ethnicity and socio-economic class and issues of accessibility for service users due to significant restrictions to cover, resulting in the duality of provision, known as welfare chauvinism (de Koster et al., 2013).

In the Netherlands, for-profit nursing home care is banned, but changes in the policy have enabled for-profit nursing homes to circumvent the for-profit ban. This leads to exclusionary practices. For example, selecting clients based on the severity of their disease and not hiring expensive staff for specialist care, then moving people out if they become too ill and need specialist care (Bos et al., 2020). Similarly, childcare was privatised in 2005 to make provision efficient. However, there is inequality in childcare use by family type, and the quality of provision has decreased since privatisation and outsourcing started (Akgunduz & Plantenga, 2014).

In the case of the Netherlands, the services are technically more widely available than before, at least in terms of spaces in nursing homes or childcare; thus, the universality of provision has yet to be challenged. However, even as the provision of nursing homes and childcare has increased since the private sector incursion (Akgunduz & Plantenga, 2014; Bos et al., 2020), the examples evidence, universality is caveated to exclude those very sick from nursing homes or certain family groups from childcare. In this case, it is clear that the goal of universality has been kept, but focusing only on universality alone obscures important aspects of accessibility for specific groups.

Sweden provides another example of this duality of high social expenditure with disparities in outcomes. This country has privatised and outsourced much of its schooling provision and now observes a significant drop in the performance of these schools (OECD, 2023; West, 2014). The metric of universality is met since Sweden provides universal coverage to its population (Janlöv et al., 2023). However, considering the performance variations between schools in low and high-income areas, especially since 2003 (OECD, 2015), the universal provision of education clearly evidences a Matthew Effect, whereby provision is most beneficial to those who need it the least (Bonoli & Fabienne, 2018). Besides the inequitable distribution of public goods, an additional challenge in the Swedish educational landscape is the establishment of lobbying. Private actors have evolved from holding purely economic roles to being strong political actors engaged in policymaking, adversely affecting transparency and democracy (Jobér, 2023). Moreover, this type of lobbyism can enhance existing socio-economic divisions, as schools with the capacity to lobby for more resources are also those in the wealthier areas.

The point here is not to minimise the achievements of welfare states; both the Netherlands and Sweden boast some of the best social well-being metrics in the world. Indeed, these two countries have some of the most acclaimed welfare systems in the world (Hutt, 2019; OECD, 2024a; OECD, 2024b). Sweden, particularly, was seen as the model for most welfare states in the post-war era for the rest of Europe. However, as the above examples show, the universality of public provision does not equate to better outcomes, and, at times, it may even perpetuate or exacerbate unequal societal constructions.

Moreover, the Netherlands and Sweden are not isolated cases. In the EU, native workers obtain the highest economic prosperity and employment returns from education, followed by EU workers, leaving non-EU workers last. Similar trends can also be observed in the US between natives and non-natives (Gamito, 2022). The universality of provision, therefore, does not signify equality in outcomes when inequity is built into the infrastructure of provision. Thus, universal provision may enhance societal cleavages and create or enhance a Matthew Effect.

This Matthew Effect exists in various forms in all welfare states (Heckman & Landersø, 2021; Pavolini & Van Lancker, 2018). If anything, the Netherlands and Sweden have been somewhat protected from adverse outcomes because of the societal duress and resilience created before these services were privatised and outsourced (OECD, 2018) and their goals were rearranged.

I have so far argued that welfare states have adopted universality as their central goal, even though focusing on universality conceals issues with exclusionary practices that may perpetuate and even enhance social crevices. I will build upon this argument on universality as a central goal and posit that, besides focusing on universality as a central goal, welfare states have also redefined universality, at least to some degree, due to producerism.

Producerism emphasises the importance of productive labour and the contributions of producers to society (Bergman, 2022). It often advocates for policies and attitudes that prioritise the interests of producers, such as workers, farmers, and entrepreneurs, over consumers or other groups. Producerism can manifest in various forms, including support for protectionist trade policies, subsidies for domestic industries, and efforts to promote self-sufficiency and national economic independence. It also lends credence to exclusionary forms of provision.

This emphasis on work participation within welfare programs dovetails producerism, underscoring the significance of productive labour and workers’ contributions to society through increasing adherence to workfare initiatives. Workfare refers to government programs or policies requiring individuals receiving welfare benefits to participate in some form of work or job training as a condition of assistance (Crisp & Fletcher, 2008). Unlike traditional welfare programs, which may provide financial support without a work requirement, workfare aims to promote self-sufficiency and reduce dependency on government assistance by encouraging recipients, via specific participation requirements, to gain job skills and enter the workforce. These requirements are often a combination of activities intended to improve the recipient’s job prospects and force the unemployed to contribute to society through unpaid or low-paid work comparable to community work (Ibid.). Forms of workfare programs include job placement services, subsidised employment, and mandatory community service or work assignments. Through workfare programmes, governments seek to enhance recipients’ employability and instil a sense of societal obligation to be productive members of society.

While employment can have a positive effect on well-being, the issue is not that the workfare approach may find jobs for those who want them; rather, it lies in that liberal protections are taken out of the equation as the main point of the welfare state, creating perverse incentives for the welfare state to become the surveyor and punisher of uncompliant citizens. This approach discourages fairness and social justice (Bonoli, 2010) because if all that matters is productivity, pensions serve little purpose, as does education beyond vocational training and services that cover sectors of the population that cannot access employment, such as those caring for family members and those with disabilities that prevent them from gaining employment. The issue is not that people will be encouraged to work but that this becomes a primary consideration of the welfare state, putting all others aside. In other words, welfare states have been recalibrated towards market imperatives and stripped of liberal notions.

Producerism can be said to be the ideological force behind workfare policies and is linked to welfare chauvinism (Van der Waal et al., 2013). Geva (2021), Cinpoeş and Norocel (2020) identify a producerist shift that coexists with welfare chauvinism in some post-communist countries. These authors argue that with the fall of the Soviet Union, post-communist countries like Poland, Hungary, and Romania aimed to shed anything resembling communism, hurriedly embracing neoliberal values to better fit into the rest of Europe. This symbolic return to Europe was so complete that the reconstructions of national membership and identity were combined with notions of entrepreneurship and self.

The vilification of people with low incomes is evidenced in Romania with the use of ‘asistat’ as a slur, a term referring to social assistance recipients; in Hungary, a Roma-specific welfare policy targeted Roma minorities who were construed as unwilling to work and carry their weight in society; and in Poland, this was articulated as lazy guests freeloading onto their hard-working hosts (Ibid.).

Other times, producerism can work to articulate the caveats of universality by allowing proxy exclusions. That is to say, producerism has redefined what universality is. Moral gymnastics have always surrounded universality considerations; at another time in history, being impious may have rendered someone unworthy of assistance and access to an almshouse (Lambeth Archives, 2024). What is novel about the redefinition of universality is that it is underpinned by neoliberal ideas, which claim to be unbiased and rational approaches to defining deservedness (Davies, 2014). By claiming rationality, producerism can help implement exclusionary policies that might otherwise create a political backlash by liberals and progressives.

Of course, it was a matter of economic competition. In that case, a purely homo-economicus approach to the ageing population challenges in many countries would involve welcoming migrants in any country they wished to work in, as they would contribute to the competitiveness of the nation and pay into the tax systems that fund the welfare state (Marois et al., 2020). However, producerism has been used to legitimise exclusionary welfare provisions that may ultimately operate against market efficiency. These neoliberal justifications for exclusion are most efficient as they sanitise and depoliticise prejudiced views under economic imperatives. The depoliticisation of prejudice enables governments to exclude significant portions of their residents from support. For instance, they may deny some individuals access to legal work and then claim those individuals are ineligible for assistance because they lack contributions or the required legal status.

Denmark, for example, currently has a two-tiered welfare system, one for Danish citizens and another for the rest (Van der Waal et al., 2013). Denmark prides itself on its universalist welfare regime; however, the universality of its provisions is truly exclusionary when considering that only some residents are included within this universal provision.

In the UK, the government, on the one hand, takes part in women empowerment campaigns (UN Women, 2023) and actively implements gender equality in the workplace regulations (UK Legislation, 2023) while at the same time actively restricting women from seeking help when experiencing domestic violence when they are not UK nationals and are stamped ‘no recourse to public funds’ in their passports. These actions can be justified under producerism because these groups are excluded only due to their lack of contributions (Pennings, 2020).

Producerism suggests that workers are virtuous and hard-working but are being squeezed by non-productive others both above them, such as bureaucrats, politicians, elites, bankers, and international capital, and below them, such as immigrants and undeserving poor who rely on benefits paid for by the labour of others. Moreover, it articulates and justifies divisions in a language many understand as unbiased and rational.

According to Larsen (2008), how welfare regimes are structured can impact how the public views those who are poor or unemployed. Van der Waal et al. (2013) have observed that various welfare regimes handle the provision/restriction duality differently but that, for the most part, producerist ideas of deservedness come to the fore. Guentner et al. (2016) find that groups framed as economically unproductive start to be considered a kind of human surplus and are, therefore, undeserving. In a UK example, a group of low-income individuals were pushed out of London’s social housing, resulting in their displacement because they were considered not to contribute sufficiently to the city to maintain their place in it (ibid.). Jingwei He (2022) finds the same concerning Chinese people’s attitudes toward welfare entitlements for rural-to-urban migrants.

Ward and Denney (2021) document a consistent rhetoric of abuse towards migrants framed around myths of them as less productive than nationals. Thus, we see here that producerist logic has been amalgamated with populism to create a type of welfare chauvinism that is both economic and cultural. This is crucial because, as argued, welfare states undergo producerist reconstructions whereby market-based logics are applied to social provision. This reconstructs the welfare state and the definition of universal provision upon caveated universal criteria – where universal does not mean everybody but those considered deserving. Hence, it is essential to re-examine welfare policies to ensure they promote fairness and social justice universally.

This section has discussed the evolution and challenges of welfare states, with a particular focus on the idea of universality in social protection. The argument is that welfare states have increasingly prioritised market-driven goals such as productivity and cost-efficiency over liberal objectives like equality and democracy. This shift has led to welfare systems that, while offering universal social protection, may fail to address underlying issues of inequality and poverty. Additionally, producerism was introduced as a factor contributing to the narrow and exclusive redefinition of universality. It rationalises social provisions that are only accessible to those considered deserving based on their productivity.

Outsourcing, Monetising and Reducing Public Spending on Social Protection

Thus far, this paper has mentioned privatisation and outsourcing only in relation to the universality of provision. Welfare states have undergone recalibrations that have made them settle for the simple goal of extended coverage. However, this may conceal issues with the quality of provision. I have argued that welfare states have always had an exclusionary criterion of deservedness disguised as logical and unbiased; the current iteration has been based on economic competition, best encapsulated under producerism. This has lent credence to policies of exclusion that affect the range, coverage and quality of welfare provisions.

In this section, I argue that welfare states have become privatised and outsourced to continue to exist. In the process, they have prioritised market imperatives instead of the liberal protections liberal democracies declare to prioritise. Nevertheless, this shift has not necessarily resulted in cost savings, improved service quality, or decreased public spending.

Public-private partnerships are becoming increasingly popular among governments to finance, design, build, and operate infrastructure projects and outsource goods and services, sometimes fully delivered by third parties but financed by governments (Jobér, 2023). The idea that the private sector is more efficient than the public sector and hence services ought to be outsourced, or else be done poorly and at more cost by the state, has prompted commissioning and subcontracting structures that are not necessarily more supportive of people’s needs, as I will shortly elaborate. Moreover, these outsourced services are not ipso facto cheaper than direct provision. This has resulted in for-profit companies becoming the primary or exclusive providers of public employment services in several countries (McGann, 2023) and failing to deliver the expected reduction in public spending on social protection.

Between 2005 and 2010, the total value of partnership projects in low and middle-income countries more than doubled (Ortiz-Ospina & Roser, 2023). In OECD countries, around 36 per cent of total general spending is dedicated to public social protection, of which around 9 per cent is outsourced to private providers (Ortiz-Ospina & Roser, 2023). In other words, a significant portion of OECD countries’ GDP is outsourced to the private sector. Swank (2000) argues that the structural transformations of welfare states include privatisation, decentralisation of authority, segmentation of benefit equality, and an increased emphasis on outsourcing provisions to non-state actors such as charities or private organisations through publicly commissioned services and are taking place worldwide. These changes align social policy with market-oriented values, emphasising work and market efficiency.

Whether these changes can be considered efficient depends on their goal. A 2018 OECD report showed that the rationale for privatising public provisions has mainly been geared towards economic stabilisation, improving the efficiency of the markets, or raising fiscal resources. The criteria for privatisation are based on two critical assumptions. First, it assumes that private markets are the most efficient way to provide public services. Second, it assumes that privatisation is the default option; those against it are tasked to prove why public services should remain state-owned (OECD, 2018).

With that in mind, the goal has been largely achieved if the rationale for privatising public provision is to improve market structures or economic efficiency. The state has effectively subsidised the private sector by providing extensive and profitable government contracts. Public sector privatisation and outsourcing have created millionaires and significant money transfers from the public to the private sector, especially during the COVID-19 pandemic (Lilly et al., 2020).

The OECD report is interesting because it presents how disjointed the rationales for privatisation are from public protection. The report shows evident market prioritisation over the protection of liberal values that countries in the OECD area may otherwise claim to prioritise.

The second argument in this section is that the goal of reducing public spending on social protection through privatisation and outsourcing of social protection has not materialised. As shown in the examples above, public spending is at its highest despite recent fluctuations. While raising fiscal resources by making savings in social public spending may be one of the rationales provided for privatisation, the outcomes do not necessarily give the taxpayer the opportunity for a discount (OECD, 2018). Countries continue to dedicate large sections of their GDP to social spending, but the savings expected due to the privatisation and monetisation of welfare provision have not been fulfilled. Moreover, welfare provision has not improved either; headlines abound about funding losses and service deterioration (Bambra, 2019; Boylan & Ho, 2017; Konzelmann, 2019; Pentaraki, 2017).

This increase in privatisation and outsourcing of public provision means that the state has less direct control over the provision of public services but oversees the delivery of these services through monitoring and surveillance. Many local authorities in the UK have shifted to commissioning-only or at least commissioning-heavy provisions (Dickinson, 2014), with staff overseeing the contracts and ensuring goals are met. Commissioning aims to decrease the government’s involvement in providing services. This encourages public authorities to act as enablers with a strategic oversight function that assesses the needs of defined populations and the outcomes delivered by third parties. The commissioning economy comprises an extensive network of public bodies, private firms, and third sector organisations that are variously involved in providing services (Macmillan & Paine, 2021). The state has thus reconfigured its mission as a regulator rather than a direct provider of welfare and other crucial services (Yeung, 2010).

This shift from rowing to steering (Osborne & Gaebler, 1992) has had two notable outcomes; the first is that, as we have seen, no saving has occurred. Since 1995, government social spending has increased in many countries (The World Bank, 2024). While several countries appear to be decreasing their social spending recently, they have maintained a very high level of social expenditure (Ortiz-Ospina & Roser, 2023). Governments still have to employ people to manage the commissioned services, and these private contracts are not cheaper for the public purse or better for the service user, as seen in the Swedish and Dutch examples.

The Netherlands is a valuable reminder of this reality as the country has a very high social expenditure budget and the highest level of outsourcing of social provision globally (ibid.). It has been very active in privatisation for around 30 years; between 1980 and 2015, the expenditure on health was around 5 per cent. Around the late 1990s, when privatisation and outsourcing began in earnest, the country spent around 1% less on health than it had a decade before. However, at the beginning of the 2000s, the number increased to around 6 per cent, peaking at 6.5 per cent in 2015, and currently at around 5.7 per cent (OECDc, 2024).

At the same time, the service provision became conditional and monetised, resulting in all persons residing in the Netherlands and all non-residents working in the Netherlands being required to buy private healthcare insurance (Pennings, 2020). In short, the Netherlands pays more now for a health provision that requires insurance premiums and deductibles (co-pays) to access (Government of the Netherlands, 2024). This diminished (in terms of accessibility) health provision is paid twice, once through taxes and again directly when patients require provision.

The second notable outcome is the loss of democratic capacity. The capacity-building exercise of democratic institutions occurs daily when providing goods and services to its citizens. When managing these social goods and services is outsourced, so is the daily exercise of liberal provision. As a result, welfare states lose their ability to maintain the liberal institutions that underpin democracies. Capacity building is essential for successfully navigating, adapting, and flourishing in a rapidly changing world (United Nations, 2024). When this is outsourced, governments become dependent on private provision and lose the ability to deal with complex challenges.

In the UK, outsourcing accelerated during the COVID-19 pandemic, when the government contracted various private providers to manage the logistics of and store personal protective equipment, the national drive-in testing centres and super-labs, run the contact tracing programme, build the COVID-19 datastore and onboard returning health workers (British Medical Association (BMA), 2020). The BMA report (Ibid.) shows that continued outsourcing of the national health service in the UK significantly limited the government’s ability to mount a coordinated response during the public health emergency. Paradoxically, outsourcing was used to fill gaps created by sustained outsourcing and privatisation.

Of course, the changes in privatisation and outsourcing of public provision are not unique to the Netherlands, the UK, or health. Indeed, this process is taking place widely (Jobér, 2023) and over various areas of social protection spending (Ortiz-Ospina & Roser, 2023). Meanwhile, private sector involvement in public provision trend is on the rise with no apparent slowdown on the horizon (British Medical Association, 2020; OECD, 2018); all the while, public spending on social protection has stayed at very high levels, and state capacity has become dependent on the private sector.

This section has examined the trend of privatisation and outsourcing in welfare states, arguing that these practices have shifted the focus from liberal protections to market imperatives. Welfare states, driven by the belief in the private sector’s efficiency, have increasingly turned to public-private partnerships and outsourcing to deliver public services. This shift has not necessarily resulted in cost savings or improved service quality. Instead, as commissioning and outsourcing increase, so does public spending, with significant portions of GDP now directed to private providers, furthering a disconnect between the goals of economic efficiency and the quality of social protection. Welfare states have increasingly become commodification engines, prioritising market-driven goals such as productivity and cost-efficiency over liberal objectives such as equality and democracy.

Moreover, the reliance on private sector provision has undermined democratic capacities by reducing the state’s direct control over public services and eroding the daily exercise of liberal provision. This dependence on private providers has also compromised the state’s ability to handle complex challenges. Privatisation and outsourcing have thus not achieved the intended economic efficiencies or service quality improvements. Instead, public spending remains high, and state capacity has become increasingly reliant on the private sector, raising concerns about the future of social protection and democratic governance.

Conclusion

Welfare states are complex and multifaceted. They have inherent issues, and their goals of social betterment coexist with older themes, including the condemnation of the ‘unworthy poor.’ Moreover, welfare states are costly, consuming significant portions of GDP, and can sometimes reinforce societal divides instead of bridging them. Welfare states are intrinsically political, defining acceptable and deserving versions of citizens.

However, they are also essential for equality and democracy and for lifting many out of poverty. This paper acknowledged that welfare states’ strengths are more potent than their weaknesses and aimed to identify the nature of the challenges facing them today.

Welfare states have fared rough neoliberal waters in some ways through recalibration strategies. By submitting to market imperatives and focusing on and redefining universality, outsourcing, and monetising public provision, they have managed to keep their place in society. However, these recalibrations have not met the promised savings to the taxpayer nor the desired liberal outcomes in protecting society’s most vulnerable. Welfare states have kept their places in society, but much has been lost in adapting to market imperatives.

These recalibrations have aligned welfare states with market imperatives, emphasising cost savings and competitive operation and forfeiting liberal priorities in the following ways. For example, focusing solely on universality has obscured and exacerbated existing inequalities. Second, by redefining universality through neoliberal criteria, welfare states have lent credence and inadvertently aligned themselves with the populist ‘us versus them’ criterion of difference. Third, outsourcing has led to higher costs without improved service quality. Lastly, such outsourcing has eroded democratic capacity as governments become dependent on private providers, losing the ability to manage social challenges independently.

In this paper, two main points were presented. The first is that the welfare state is undergoing recalibration, not austerity. This was illustrated through explanations around social public expenditure, the move towards outsourcing, and the redefined criteria of deservedness. Despite some small recent dips, the expenditure has increased overall. Social public spending is among the highest it has ever been, but what has changed is how it is spent. With that in mind, the issue is not austerity. Thus, the problem is that social spending is financing the private sector through outsourcing contracts instead of focusing on improving its provision.

As articulated here, welfare states are not luxuries; they can reduce poverty, protect citizens against shocks, and embolden citizens to be capable, educated, and healthy protectors of democracy, especially during crises and economic downturns. However, the essential liberal values that welfare states aim to protect are compromised when market imperatives become the priority. The public sector has effectively subsidised the private sector through commissioning contracts that do not necessarily provide cheaper or better support for service users compared to what governments can offer. This is because the primary incentive for the private sector is profit-making and contract renewal rather than focusing on reducing poverty and inequalities, protecting citizens from shocks, or empowering citizens to be capable, educated, and healthy protectors of democracy.

We now know that outsourcing and privatising public provision have not resulted in savings for the taxpayer; decades of data show that welfare states are not spending less (Ortiz-Ospina & Roser, 2023). However, when citizens inquire about what has happened to their community services, schools, or health services, a word frequently used is austerity. Used colloquially, austerity refers to budget cuts for public social spending. Still, if these budgets have expanded, then this means that the challenges faced by welfare states are not only due to austerity.

In the second point, I have demonstrated that governments’ focus on the universality of welfare states is at the expense of achieving liberal goals. The universality of provision, as shown, may create the illusion that it is worth having a welfare state just for its own sake, even if it barely functions as a social equaliser and poverty-reducing tool.

I reiterate that my argument is not for eliminating universality in welfare states but rather for implementing policies that prevent the unequal distribution of benefits within universal welfare programs. Specifically, I posited that governments might reconsider financing the private sector via outsourcing contracts and instead exercise their liberal muscle by working on improving their provision, not just coverage.

So much institutional knowledge has been lost through outsourcing, knowledge that may help adapt services to assist better those slipping through the cracks. By creating or rebuilding their institutional capacity, governments are better placed to deal with emerging crises instead of relying on the private sector, as was the case during the COVID-19 pandemic. By engaging with and prioritising market imperatives, liberal values have been put to one side, and producerism has entered welfare provision, shaping welfare programmes and objectives. However, this focus on universality is a recalibration emerging from an erroneous understanding that welfare states must trim their goals due to limited funding.

The two arguments presented challenge the idea that citizens must settle for scraps, as welfare states are suitably funded to provide the required provisions. Since the issue is not austerity, I suggest that citizens consider whether their welfare states suitably protect them under the current provision or if market imperatives have been prioritised.

The recalibration of welfare states often comes at the expense of service quality, equity, and democratic capacity, raising concerns about welfare states’ future direction. In truth, citizens are paying dearly for a poor product and are losing their capacity as capable, educated, and healthy protectors of democracy to reject a poor deal.

Confusion over the real cause of welfare state retrenchment obscures potential solutions. This diagnosis and the suggestion that welfare states may look beyond universality and stop working towards market imperatives are more straightforward said than done, as welfare states are intrinsically political and politicised entities. Still, I propose that by suitably diagnosing the issue, societies might have a fighting chance to save welfare states and, in turn, strengthen liberal democracies

 

(*) Jellen Olivares-Jirsell is a Doctoral candidate in Politics at Kingston University London. Her scholarly contributions include publications in the Global Affairs and Populism journals. Research activities include roles with the Trust Lab project at Swansea University and EUscepticOBS and Populism in the Age of COVID-19 at Malmo University. Research interests encompass politics, norms and ideologies, populism, neoliberalism, welfare states, trust, and polarization.

 

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[1] Acknowledgement: I am grateful for the feedback this paper received during and after the workshop and the anonymous reviewers. I am also incredibly thankful for Hannah Geddes’s full engagement as a discussant.