Dani Rodrik: ‘Trump’s ban on foreign students is catastrophic; the US must prepare for a very bleak future’

It’s not easy to have an idea or an economic concept named after you. Think of Keynesian, Ricardian, or Malthusian theories. The — much debated — Laffer Curve or the Phillips Curve. Nash equilibrium. And then there is Rodrik’s trilemma, named after the Harvard professor, regular contender — every October — for the Nobel Prize, author of the unforgettable The Globalization Paradox and, ultimately, one of the great economists of our time.

Dani Rodrik, 67, speaks with EL PAÍS shortly before participating in the CREO Forum, organized by Cinco Días and Prisa Media. Hours later, a U.S. court temporarily striked down most of Donald Trump’s tariffs, delivering the biggest legal blow of his second term.

Question. “Democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.” Your trilemma is a quarter of a century old, but it seems like it was written yesterday.

Answer. A few years ago, discussing this topic, a former finance minister from the eurozone told me: “The problem is that the populists are the only ones who are willing to explicitly say that you cannot have all those three things simultaneously.” They make their preferences very clear: in Europe, they don’t want further integration, and in the U.S., this backlash shows up in the form of the political appeal of Trumpism. Meanwhile, moderate forces, whether center-right or center-left, have not acknowledged the difficulties and tensions created by extreme globalization.

Q. And now they are suffering the consequences.

A. Yes. The worst part, perhaps, is that the far-right populists that this process has empowered are not fundamentally interested in democracy. So in the end, if they succeed, it’s not going to be [a battle between] democracy and the nation-state against globalization... In that scenario, what worries me most is that we will lose democracy too.

Q. Is Trump, then, a direct consequence of how globalization has been managed?

A. What globalization did was enable demagogues and ethno-nationalist politicians to capitalize on economic anxiety, the erosion of the middle class, and the disappearance of good jobs. Every society has an undercurrent of racial tensions and xenophobia. But when certain segments and regions are very adversely hit by trade shocks or, in the case of Europe, by the austerity after the financial crisis, politicians who offer scapegoats and easy remedies, such as pointing the finger at immigrants, are able to capitalize on these economic worries. Hence, the economic shocks associated with hyper-globalization have played a role in fostering the growth of far-right movements.

Q. The impact of hyper-globalization on Western societies was underestimated.

A. We underestimated how divisive it would be. And we overestimated how it would benefit everybody. One of the striking features of hyper-globalization is that the greatest beneficiaries have been countries that, like China, played by their own rules: state intervention, trade restrictions when it was convenient, industrial policies, and currency management. Europe and the U.S., on the other hand, didn’t do all that well: it created very significant divisions between the winners (professional classes, big banks, multinationals and highly skilled individuals) and those who didn’t have those advantages. For years, politicians looked at this as a normal situation, and their response was “get an education” or “go where the jobs are” instead of addressing these economic anxieties more frontally.

Q. Many years later, the EU and, in particular, Germany, seem to be taking a step forward in investment.

A. What is happening in Germany, in terms of the reform of the debt break and the promises to increase public investment and national security spending, goes in the right direction. But I wish I could see more from Europe as a whole in terms of a coordinated investment strategy.

Q. With more Eurobonds, perhaps?

A. With a general commitment to raise public investment across the board, not just on national defense, but also on science and technology and in green industries by a couple of percentage points a year.

Q. Europe can raise money at lower interest rates than the U.S. right now. But it doesn’t seem to be taking advantage of that opportunity as much as it could...

A. European integration hasn’t gone so far that you can think about a Europe-wide strategy from the center and articulate it. This is its greatest structural weakness and, frankly, it’s disappointing.

Q. Can you envision a 50% U.S. tariff on all European goods?

A. From a conventional perspective, it seems unthinkable, crazy. But then, one thing we’ve learned very quickly about the Trump administration is that it is crazy: there is no coherent overall strategy. Trump himself is not a strategic thinker... So yes, anything is possible.

Q. The implications would be enormous.

A. Not only for Europe, but also for the U.S.: countries that impose tariffs hurt themselves first and foremost. However, we shouldn’t exaggerate the impact: in the short term it would be tremendous, yes, but also transitional. And Europe could still be prosperous and socially cohesive, even if the U.S. continues to shoot itself in the foot.

Q. Can Trump’s policies be judged by rational criteria?

A. We need to understand why so many people voted for him: the economic shocks; the middle class anxieties; the disappearance of good jobs... These three things added to the appeal to the xenophobic and racist rhetoric. Aside from that, it’s clear that he doesn’t provide any serious answer to the anxieties that brought him to office. The second Trump administration is really a coalition of convenience among different types of interests. There are the economic nationalists, who want to close off the country to trade and immigration. There are those who are worried about the disappearance of manufacturing jobs, who mistakenly believe that the solution lies in imposing tariffs. There is the tech right, which rejects any attempt to regulate Silicon Valley and wants to build a utopia — or dystopia — based on artificial intelligence. And then there are the free speech absolutists, who are against the liberal and academic establishment.

Q. Everyone seems to be winning.

A. Well, the free speech absolutists have clearly lost. But what we’re learning is that many of these groups care more about putting down their opponents than advancing their own principles. They can always say, “Maybe I’m not getting free speech, but my enemies are down.” None of these groups are getting all they wanted. But they are getting quite a lot.

Q. Broadly speaking, there have been two types of responses to Trump on trade: that of China — and, to some extent, Canada — which chose to retaliate; and that of the EU and Mexico, which opted for a more cautious stance, leaving room for negotiation. Which approach is more effective?

A. The argument for retaliation is that if you increase the costs on your opponent, they may have to step back. But I don’t see that kind of forward-looking rationality in the Trump administration. Rather, I think of Trump we the schoolyard bully who is swinging wildly. Most of the time he’s hitting himself and occasionally he’s also hitting somebody else. If you were one of those kids, what would you do? It’s costly to punch back, so perhaps the smartest strategy is to minimize your own costs and find areas where you can make those costs more obvious to Trump. Mexico has done that: it’s made it look like it was caving in without actually making any concessions. Europe has also played the right strategy, although there are more things it could do.

Q. Like what?

A. For example, taxing large U.S. technology companies, as [French economist] Gabriel Zucman argues. It would hurt the U.S. and, at the same time, generate revenues to increase public investment.

Q. Is there a real risk for Donald Trump that the rest of the world could stop taking his threats seriously?

A. That’s already happening: most of his threats are empty. He’s gone back on many of the things he’s said: one day tariffs go up, the next they go down, and then they go up again. This is something that will have to be fixed by the American electorate. Hopefully it will be. But in the meantime, it’s going to be a rough ride for the next three and a half years.

Q. Are we approaching the end of the dollar’s global hegemony or is that an exageration?

A. It could be. What Trump has done has made it very clear to the rest of the world that the U.S. is not a reliable ally. It would be unthinkable if every single central banker today wasn’t thinking on how to reduce their country’s economies’ and payment systems’ reliance on the dollar. So everyone making decisions about whether it will remain the key international currency is thinking of getting out of the dollar.

Q. How should we interpret what is happening at Harvard University?

A. It’s part of a much larger fight. Trump has chosen Harvard as his main target for its symbolism. But he miscalculated, thinking it would follow Columbia’s example. He raised the stakes so high, demanding things so clearly unacceptable, that the only feasible response was to say no. So Harvard has become a symbol of resistance, because the attacks on it are perceived as an assault on the fundamental pillars of the American economy and society: the rule of law, free speech, the importance of science and technology, and openness to foreign talent. These are all the things that are being attacked when Trump takes Harvard as its target.It’s a fight for the soul of America.

Q. And now comes the suspension of all visas for foreign students.

A. It’s catastrophic. Few things have contributed as much to the U.S.’s economic and technological prowesss as its ability to attract talent from abroad. Look at Silicon Valley, the Nobel Prize winners, the most distinguished scientists and technologists… A huge number of them were born outside the U.S., and the benefit they provide is unquantifiable. If that is undercut, the U.S. must prepare for a very bleak future.

Q. Once again, a golden opportunity for Europe and its universities.

A. Absolutely.

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