Global political chaos

Global political chaos

Editorial, Prague, September 1, 2025

Below we offer a different perspective on the current political situation. This is a translation from German of a summary of the monthly newsletter of the Austrian Institute of Economics and Social Philosophy, based in Vienna, written by its president, Martin Rhonheimer, in August 2025. He was Professor of Ethics and Political Philosophy at the Pontifical University of the Holy Cross in Rome (1990-2020) and has since been a visiting professor.

https://Austrian-Institute.org/

The current confusion, which I have mentioned repeatedly, has now been compounded by a new inability to express oneself. Because what is currently happening globally, in the US, Ukraine, and the Middle East, is perplexing to everyone; even the most important journalists are beginning to lose their bearings after the twists and turns of Trump’s diplomacy that we have seen in recent days and weeks. No one knows exactly what is happening in Gaza because the information is confusing. Then there is President Trump’s tariff war, which has turned out to be less harmless than initially expected.

It is difficult to classify and assess these events.

Trump’s diplomatic negotiations: impulsive twists and turns or rational calculation?

Is Trump a diplomatic harlequin who gives way to Putin, ridiculing himself and making Ukraine pay a high price in human lives? Or has he managed, with his erratic and chaotic—or at least seemingly chaotic—policy, to reshuffle the cards and make possible what until recently was considered impossible? Honestly, I dare not make a definitive judgment, but I am extremely skeptical and inclined to think that Trump is performing an egotistical balancing act, following the resounding failure of his announcement to end the war in 24 hours.

Since then, he has been driven by the expectations generated by his promise, both his vanity and his unhidden desire to receive the Nobel Peace Prize, with the childish secondary desire to thus equal his hated adversary, Barack Obama. In my opinion, he is being deceived by the cunning former KGB agent Putin, blind to reality and still unable to understand the true nature of this war. Putin has not given up on his goals of destroying Ukraine as a sovereign, democratic, and Western-oriented state in order to turn it into a vassal of Russia; quite the contrary. Trump is doing nothing to prevent him from achieving this goal.

The meeting in Alaska

The meeting in Alaska was a farce. Trump still does not understand the origins of the war and, therefore, Putin’s intentions. This is not, as Trump seems to continue to believe, a territorial conflict, but a war of conquest. And that means that all peace efforts, especially if they do not currently aim for a ceasefire, which is now off the table, are built on sand and ultimately only benefit the Russian autocrat by buying him time. And time is clearly on Russia’s side at the moment. Only massive Western military aid to Ukraine could change this and bring Putin to a ceasefire, thus ending the bloodshed. Will Trump end up choosing this option? The president’s latest posts on his social network Truth Social indicate so, according to my observers.

In the short term, territorial concessions by Ukraine could also be a solution, but they would only be a prelude to further Russian aggression as long as Russia’s war aims are not achieved. It should not be forgotten that this is not just about territory, but above all about people. As all the reports of the OSCE Office for Democratic Institutions and Human Rights show, in the territories annexed and occupied so far, as part of a systematic Russification, Ukrainians, prisoners of war, and civilians are being detained, imprisoned, tortured, and deported, and terror reigns. One wonders which is worse: Ukrainians dying on the battlefield or falling victim to acts of mass violence.

Trade war, tariff policy, and state capitalism in the US

But let’s return to Trump’s trade war: not only has the EU been forced to pay high tariffs, but Switzerland has also been hit with tariffs of 39%, which seem crazy. And that’s not all, as even higher tariffs await the pharmaceutical sector. All this with the aim of “making America great again.” Whether this will work is highly doubtful for many reasons. History teaches us that protective tariffs may bring short-term benefits to one party, but in the long run they are detrimental to everyone.

However, in this case, these are not the usual protective tariffs. Trump does not intend to protect domestic industries from international competitive pressure, but rather to bring industrial production back to the United States. In addition to this industrial policy, with its punitive tariffs, he is pursuing a geopolitical strategy aimed at weakening China politically. Thus, several different objectives are being pursued with a single means, which generally does not work well and contradicts the most basic economic wisdom, according to which a single means can be used to pursue a single objective, not several at once.

What is most surprising, and even worrying, is that the country of freedom and free economy, which is precisely why it is so far ahead of Europe in terms of growth and innovation, is increasingly following the path of interventionism. The Neue Zürcher Zeitung newspaper, under the headline “A Marxist in the White House,” even goes so far as to describe Trump’s system as state capitalism: “more state control, more state ownership, more centralization.” All this had already begun with Biden’s industrial policy. However, Trump offers no liberal counterpoint on economic issues, quite the contrary. He has just initiated the partial nationalization of Intel. In addition, he is threatening the independence of the Central Bank, the Federal Reserve, and appears to be succeeding with the previously announced interest rate cuts.

As already mentioned, Trump hopes that his policy will lead to a reindustrialization of the United States. In some respects, this would certainly be desirable. The United States has for too long taken advantage of its privilege of being able to borrow excessively as a nation with the world’s reserve currency. At the same time, they have become world champions in imports of industrial and consumer goods. The fact that, at the same time, they are world champions in exports of highly innovative services, especially in the information technology sector, and that the trade balance is therefore not so negative, is of little use to today’s industrial workers, most of whom are Trump voters.

Illusory hopes of reindustrialization through tariffs

Trump hopes that his tariff policy will cause foreign industries to relocate their production to the United States, which would create jobs in the country and thus restore America’s former industrial greatness. This is very unlikely to work, at least the prospects are not very promising. It is not enough for European industries to relocate their production to the US, as they cannot take their highly skilled personnel with them. These must be found locally or trained first. Will they be found or can they be trained within a reasonable time frame? And if so, will the corresponding products remain affordable for US consumers?

Finally, will there still be a need for labor in the quantities that Trump and his voters have in mind? Cars, for example, are increasingly being manufactured by robots, so manual workers are not needed, but rather highly specialized personnel. And a corporate culture, which is part of success, cannot be easily transferred abroad, at least not without time. Therefore, instead of forcing reindustrialization with tariffs, it seems more important to improve local conditions for the economy itself by creating a labor market with highly skilled workers and thus creating incentives to relocate industrial production plants to the United States.

The big deficit in the US actually lies in the lack of vocational training. There is no dual training system or apprenticeship system like in Germany, Switzerland, and Austria. European companies that produce in the US would therefore first have to train their employees on site. Of course, this can be done. But it also means that it will take years before the fruits of this labor can be seen. As a result of the tariffs, inflation will have risen enormously, and since many people will no longer be able to afford imported products, which will de facto be taxed by tariffs and therefore more expensive, Americans will become poorer, especially the less fortunate.

Commercial enterprises that depend on imports will also suffer, which could further exacerbate the misery of workers. For the time being, US importers, in anticipation of high tariffs, have purchased goods at old prices to stock up, and warehouses are full, which means that the inflationary effect will not be felt until much later. The crucial question is: before or after the midterm elections to Congress?

Flawed trade theory and the mortgage of “exorbitant privilege”

However, the problem with Trump’s policy seems to lie primarily in the fact that it is based on erroneous theoretical assumptions or an erroneous economic “theory” whose main characteristic is that, as economists almost unanimously criticize, it does not seem to understand the mechanisms of world trade, nor the nature of trade deficits. They are not losses, as in a company. In the case of the United States, the fact that it imports more than it exports is precisely proof of the country’s wealth. It shows that it has been able to live on credit, with ever-increasing private and public debt, until now, without running the risk of having to pay the bill, i.e., without the risk of state bankruptcy.

This is precisely the famous exorbitant privilege, the compensation for the fact that, until now, the US has been both the guarantor of a stable political and economic world order and, through the Federal Reserve, the central bank of the global economy, thus stabilizing the international financial system. This was in everyone’s interest, and so we Europeans were also able to live well under the protective shield of consumerist and happy America.

This is precisely where Trump is right and rightly wants to force Europeans to reconsider their position: in the long run, this cannot continue. Europe cannot sustain itself at the expense of the United States. But Trump’s prescriptions are not the right ones. Even if they were suitable in the long term, which I doubt, they would take too long to bear fruit. This strategy is therefore unlikely to survive for long in the political arena, perhaps only until the next midterm elections in the US Congress. Unless Trump reacts to a change in Congress with a kind of coup d’état, as many fear.

But then we would have to place more trust in the resilience of American democratic institutions. Nor should Trump be demonized. He is vain and boastful, but other presidents before him, such as F.D. Roosevelt, have also ruled authoritatively, with countless executive orders. It is hard to believe that Trump, who craves the Nobel Peace Prize and is entering old age, has dictatorial ambitions. On the other hand, it is also conceivable that disruptive politics will have unpredictable consequences, many of which may be positive. No one knows. Only Donald Trump seems to think he is doing everything right. This is not harmless either, but it does not mean that the end of democracy has come, as many warn.

Therefore, let us remain alert and allow ourselves to be surprised, as far as possible in a positive way, by the possible consequences of this disruptive policy. Because disruption also gives rise to the unexpected, and it is not always the worst. We live in an age where nothing seems impossible, where no development seems out of the question.