This article is based on a lecture delivered at the American International Club in Geneva on October 2, 2025, at the Hotel Warwick.

The trade policy of the second Trump administration once again places protectionist instruments at the center of economic policymaking – tools many had long thought consigned to the scrap heap of history. Punitive tariffs, threats against allies, and demands for a weaker dollar are presented as levers to make America great again.

Tump 2.0 has correctly identified some problems: the deindustrialization of the US, the decline of the middle class, and the lack of investment in security by allies. But will the proposed measures actually achieve the stated goals?

From Organizational Architect to System Critic

After 1945, the U.S. created a rules-based international order. With the Bretton Woods system, the GATT (later WTO), and the founding of the World Bank, IMF, and NATO, a network of institutions was established to regulate trade, security, and economic development.

At the end of the war, America depended on allies. Both the defeated and the victorious in Europe and Asia lay in ruins, and Washington faced the challenge of transforming a dangerous vacuum into a safer world. To this end, the U.S. created a rules-based order with supranational institutions – designed to offer opportunities to all participants and make conflicts less attractive. That way America could use its economic and military dominance to set the rules, while bearing only part of the costs.

That this order is now being questioned by Washington itself marks a fundamental rupture.

Problems Correctly Identified?

One fact is clear: despite robust economic growth, not everyone gets a good deal. Moreover, Washington bears too great a burden alone for the security of Europe in particular.

• Middle-class decline: Real wages stagnated for decades while GDP grew. Many Americans lack access to stable jobs and prospects.
• Social dislocation: Entire regions, particularly in the Rust Belt and rural areas, have fallen behind. Trailer parks and struggling communities symbolize the loss of opportunity and security.
• Epidemic of Despair: Anne Case of Princeton and Nobel laureate Angus Deaton describe the rising rates of drug abuse, alcoholism, and suicide, particularly among people without a college degree.
• Declining life expectancy: The US is the only OECD country where life expectancy is declining despite having the highest per capita health care spending.
• Underperforming security partners: the defense spending of important and wealthy NATO partners failed to reach the agreed 2% of GDP. Years of warnings had no effect.

So the problems have been identified, at least in part. But what about the solutions?

What Is the Logic Behind Trump 2.0?

The Trump administration frames trade as a zero-sum game: exports are a gain, imports a loss. Three central claims follow:

• Trade: Deficits are evidence of exploitation by foreign countries.
• Currency: The dollar’s role as reserve currency has contributed to deindustrialization.
• Security: NATO partners and other allies are “free riders” at America’s expense.

This results in the following trade policy agenda: tariffs as a panacea, pressure on allies, a departure from multilateral structures, and the weakening of the US dollar to promote domestic production.

Will the Goals Be Achieved This Way?

Empirical evidence contradicts this narrative:

• Tariffs do not reduce trade deficits overall – Neither theoretical models nor historical data show lasting effects. Balance of current account deficits and surpluses reflect macroeconomic dynamics; tariffs alone demonstrably do not shift them. Enrique Martínez García and Kei-Mu Yi from the Federal Reserve Bank of Dallas recently illustrated this point impressively. However, they lead to retaliatory tariffs, higher consumer prices, inefficient domestic industries, and a diversion of global supply chains.
• Industrial jobs will not return – Job losses stem primarily from automation, not trade deficits or an overvalued currency. Between 2013 and 2018, China alone lost over 22 million factory jobs – more than the world’s net decline. Switzerland, despite a strong currency and minimal tariffs, maintains a current account surplus, comparatively low unemployment, and one of the world’s highest life expectancies.
• Education is decisive – Modern jobs require higher levels of education. Income levels and employment security strongly correlate with education. In the U.S., however, college completion rates have stagnated, and there is no dual vocational training system comparable to Europe’s.

Moreover, the U.S. accounts for only about 12% of global trade—roughly the same as Europe. That means three-quarters of world trade occurs elsewhere. Tariffs are not a great lever already for that reason alone.

Does the Political Logic Correspond to Economic Reality?

The popularity of protectionist measures is less about their effectiveness and more about their symbolic value. They resonate with feelings of loss and injustice, even though they fail to address the underlying issues. In fact they undermine America’s economic performance and resilience and further reduce the prosperity of those left behind. Tariffs are simply consumption taxes on goods from abroad. Ultimately, American consumers will have to pay them.

What are the Implications for Europe?

Today, the rule-based order is increasingly giving way to a transactional order in which countries negotiate rules exclusively among and for themselves. For Europe, this means that governments and companies must adapt to a fragmented, less predictable global economic and security order. The following measures are essential:

• Risk management through scenario planning and early warning systems.
• Strategic autonomy in defense, energy, and technology.
• Rule-of-law mechanisms to manage and institutionalize trade conflicts.

And for America?

Tariffs and a weakening of the dollar cannot solve the structural problems facing the US. They will not reduce the current account deficit, nor will they create industrial jobs. The decline of the middle class, the “epidemic of despair,” and the erosion of social stability require reforms in the areas of education, health, and social security.

Without these reforms, protectionism remains a political symbol – economically ineffective and socially dangerous.

How Can We Help?

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