As the international hegemony of the United States recedes, China is strengthening its global influence and methodically advancing its interests, while Europe risks being reduced to the role of a spectator—something akin to a “museum piece” at the center of the map, argues Kenneth Rogoff, Professor of Economics at Harvard University and former Chief Economist of the International Monetary Fund, in an interview with Economic Review.
Although he had viewed several of Donald Trump’s economic initiatives during his first term positively, he now sees the U.S. economy slowing and heading toward recession. He describes the new administration’s tariff policies as “simply stupid,” while emphasizing that the isolationism running across the entire American political spectrum is giving China room to present itself as a champion of globalization.
Interview by Thanasis Katsikidis
(Published in Economic Review - June 2025)
Trump, Tariffs, and the U.S. Economy
Professor Rogoff, you were among the analysts who argued that Trump’s victory could revitalize the American economy and boost production. With inflation rising and the dollar being shaken by administration policies such as tariffs, what do you see for the U.S. economy over the next 100 days of the Trump presidency?
I was fairly positive about Trump during his first term. I made it clear that I did not like him personally, but I believed the economy would perform well under his leadership. Regarding his second term, I wrote that many of the policies he introduced were concerning and that I was now much more worried about the economy’s prospects. I would not describe myself as particularly positive about Trump 2.0. In fact, I now believe there is a very strong possibility that the United States will enter a recession within the next two years. Furthermore, it is likely that economic activity will slow during the remainder of this year.
The trade war is also weighing on the economy, while Trump’s new and highly ambitious tax bill could undermine confidence because, in practice, it creates a larger deficit than Biden did—which is really remarkable and not easy to achieve! Consequently, I believe the economy will continue to slow and that inflationary pressures will persist.
Speaking of tariffs, President Trump’s favorite subject, will increasing domestic production in the United States while limiting cheap Asian imports benefit ordinary Americans, or will it directly harm small businesses?
I do not think it will benefit ordinary Americans very much because the jobs that are created will be automated. We do not build factories today the way we did in the 1980s with large numbers of workers. Even China is losing jobs due to automation. So we may bring manufacturing back over the next decade—and it certainly will not happen quickly—but there will not be many jobs.
To understand this better, what is happening is very similar to agriculture. We are extremely good at agriculture, but there are not many jobs because everything is automated.
At this point, everything depends on whether the tariffs remain in place and how the courts respond, since they are pushing back. Who knows, perhaps Congress will wake from its slumber and resist as well. But assuming the administration keeps the tariffs, they are bad for growth and bad for inflation. And obviously, we are never going to become a major manufacturing powerhouse creating vast numbers of jobs, nor will Europe or China.
There are valid national security arguments, because we need the capacity to build ships for our navy, at least to a certain extent, and clearly we do not want to import our warships from China.
In general, I do not disagree with all of Trump’s policies, but the tariff policies are simply stupid. There is no other word for them. They are stupid! You know, his advisers, Peter Navarro and Howard Lutnick, are completely wrong on tariffs. Unfortunately, they are telling Trump what he already believed when he was 25 years old. And he still believes it today. I hope he stops, because these policies are hurting his administration and the entire world.
The Dollar Will Weaken
For some people, a “weak dollar” means investment opportunities; for others, it means more expensive raw materials. In your view, what does it really mean?
In fact, I believe the dollar will weaken—not because of Trump or any particular policy, but simply because it is excessively strong. Even if Harris, or anyone else, had been elected, the dollar would likely follow the same downward path. It is currently near the historic highs reached in 2002 and 1985, which is unsustainable over the long term.
I actually think there is strong evidence that a weaker dollar would be positive for the global economy. Since many key commodities are priced in dollars, a stronger dollar raises their cost internationally, hurting demand and global trade. By contrast, a weaker dollar facilitates imports, improves liquidity, and makes trade more affordable for many countries.
Moreover, for most emerging economies, a weaker dollar is beneficial because much of their external debt is denominated in dollars. Finally, I do not believe a strong dollar makes the United States more competitive. On the contrary, it often acts as a drag on exports.
You recently urged Europe to remain calm in response to political developments in the United States. How can calmness be translated into political terms, and how can Europe distance itself from the instability generated by America?
Of course, you cannot distance yourself from instability caused by America. But if you follow Trump’s negotiations, there is this phrase, “TACO” (Trump Always Chickens Out), which has become associated with Trump. In a loose sense, it means that he got nothing from China, nothing from Putin, nothing from Iran, and nothing from many other countries.
He has achieved very little through his hardball negotiating tactics, and I think Europe should not panic. Do not become overly aggressive, and do not provoke him into making even more erratic moves. Continue negotiating, but understand that he does not hold as strong a hand as he believes.
He cannot paralyze the U.S. economy, nor can he be completely self-destructive. That is why he behaves so aggressively. But his negotiating power is not as strong as he thinks it is. Europe certainly has many problems that it needs to address, but it should not create new ones by making major concessions to Trump.
Europe Must Avoid Becoming a “Museum Piece”
At the moment, we see two different approaches: America’s “drill, baby, drill” strategy and Europe’s focus on the green and broader energy transition. If this leads to a velvet divorce, could Trump force Europe into action, and what radical changes would be necessary?
Europe’s behavior is moving in the right direction, while the behavior of the United States is irresponsible. The unfortunate reality, however, is that Europe has been naïve. It has devoted extraordinary attention to environmental concerns while China builds coal mines and the United States is focused elsewhere entirely.
As a result, Europe has fallen behind in manufacturing and technology. You cannot be competitive in artificial intelligence without energy, so you need to produce energy. This is therefore a very difficult moment for Europe because it is essentially moving forward on its own. The Draghi Report addresses exactly this issue.
One solution is certainly to follow the French model and build many more nuclear power plants. That seems like a viable path forward. Trump is pursuing this very aggressively, but it takes a long time. There is no simple solution, and the United States has never really demonstrated responsibility on this issue.
If you had to assess the situation, would you say the European Union’s greatest challenge is the lack of vision and leadership, or the lack of cohesion among member states?
Both. Germany had, until recently, a very weak government that made endless mistakes and greatly weakened the country. It now has a new government, but it is too early to judge its effectiveness.
Populism has grown significantly in Europe, just as it has in the United States, and it is very difficult for technocratic leaders such as Macron to reverse the trend. The lack of cohesion is also unquestionably a problem.
Europe will have to defend itself. The United States is pulling away, and Trump is doing so very aggressively.
However, even if Harris had won, she would have reduced defense spending. The United States simply does not have the resources to protect Taiwan, manage the Middle East, and defend Europe simultaneously. Europe will have to do more on its own.
To rearm effectively, Europe will need much deeper political integration. This is now a matter of survival, and the threat posed by Russia is not going away.
Even if Russia were somehow no longer a threat, there is Iran, which could soon possess nuclear weapons. Europe is much closer to Iran than the United States is. Therefore, Europe must be capable of defending itself and must become competitive in technology. It cannot afford to become a “museum piece.” It must be geopolitically strong.
I believe that would be good for the planet because we need a democratic counterweight to the United States. Right now, we are not behaving responsibly and cannot be regarded as fully reliable. The world needs Europe.
The China Challenge
Regarding China, at a time when the United States appears to be turning inward, China is presenting itself as a champion of globalization and expanding its soft power. Do you see China’s global expansion as a genuine commitment to international cooperation, or primarily as a strategic effort to advance its own interests?
Of course it is a strategic effort to advance its own interests. But China is in an excellent position to do so because the United States has become increasingly isolated.
It appears that we are retreating from military leadership. It also appears that we are retreating from trade. There is a very strong isolationist movement within both the Democratic and Republican parties. Bernie Sanders, Alexandria Ocasio-Cortez, and the progressive wing are highly isolationist, just as Trump is.
This opens the door for China, and China is walking straight through it.
We can hope that China will eventually become more democratic and less corrupt. But for now, it is what it is. And this is yet another reason why we need Europe.
In a recent article, you argued that China’s prolonged reliance on fiscal stimulus has distorted economic incentives, contributing to problems such as excess housing supply and spiraling public debt. Looking more deeply, how does China’s development model affect its long-term sustainability?
I think China is in a difficult position from a growth perspective. I do not believe its official growth figures, and I think it is effectively in recession.
Consumer confidence has collapsed, consumption has collapsed, and business confidence has collapsed as well.
There are sectors such as electric vehicles, shipbuilding, and green energy where China is highly competitive, but these sectors remain relatively small compared with infrastructure and real estate.
China therefore faces serious challenges. I believe the Chinese model has reached its limits. I do not think we will see genuinely rapid growth in China again.
However, even if China grows at only 2% annually, it remains larger than Europe and remains geopolitically powerful. Look at how many problems Russia creates, despite being perhaps one-eighth the size of China.
Unfortunately, Europe must adapt because the German export model relied heavily on China. More broadly, Europe developed a model that depended on imports from and exports to China, including Italian and French luxury goods.
Nevertheless, I see Europe as a potential bright spot in the global economy. People laugh at that idea and point to Europe’s many problems, questioning how it can truly grow or how the euro could strengthen.
First of all, Europe has fallen far behind the United States, but that means there is considerable room to catch up. Once again, I believe the euro has a genuine opportunity to expand its role in the global economy.
If Europe behaves responsibly, the euro could benefit significantly from what Trump is doing to the dollar and to business confidence. So if I were looking for a bright spot, I would choose Europe.
But that brings us back to your earlier question: is the real problem cohesion or governance? Because substantial progress will require improvements in both areas.