Power and Geopolitics After Trump

**Paul Krugman** (0:02)
Hi, everyone. Instead of a regular post today, I'm going to put up a video. There are a number of reasons why I feel like doing that. Instead of views, well, one of them is that this is a dry run for a talk that I will be giving virtually later today. There's a conference on the economics of regional transformation taking place in Croatia, although I'll be doing it remotely. And they have asked me to write about global power, geo-economics and Europe. So those are all themes that I've been thinking about quite a lot. And today's miniature talk is an opportunity to try talking through those themes. And the way I want to structure it is as to what has changed, at least in the way that we all now understand the world, since, well, basically since Donald Trump returned to power. That's an American-centric point of view, if you like, but it's kind of a natural bracket. Of course, everything really has changed. Mostly not for the better under Trump. And it has, as it turns out, big implications for Europe as well. So let me just try to get into that. Start by talking about the world as it seemed to be at the beginning of 2025 There were, and still are, three great economic superpowers in the world. China, the United States and the European Union, in that order. If we measure GDP at purchasing power parity, which is basically just adjusting for differences in national price levels, you had China with a GDP of something like 37 trillion dollars, the United States with something like 29 trillion, and the EU with something like 28 trillion.
That last bit may be a bit of a surprise, maybe all of it is a surprise to some people. But yes, in terms of the actual amount of stuff it produces, the Chinese economy is now substantially bigger than the US economy, and the European economy is almost the same size as the US economy. If you think that Europe is backward and poor and helplessly dependent, it's not. It is an economic superpower. And in fact, by this measure, Europe has basically maintained its position of being about comparable to the United States for a long time. This is a whole other topic that I've been writing about and will continue to write about in the future.
In the world, basically two things were really kind of striking. One is that the United States seemed to perceive itself as being a dominant power, even though China was bigger and even though Europe was about the same size, and Europe acted as if seemed to perceive itself as not a super power in the same league, as being not a super power at all. All of that may be changing, and events are part of the reason. Let's talk about the events. Now, the most obvious.
The United States just lost a war. Just lost it bigly, as Trump used to say. It's an astonishing story. We went up against Iran, which was definitely not a major military power, or a major economic power, or a sort of middle-ranked power, if that. And utterly failed to achieve the war goals. In the process, it affected a lot of damage on the world economy. Depleted our stocks of high-tech weapons that will take years to replace. Altogether, immense damage was inflicted on Iran, but Iran has clearly emerged stronger. The United States has emerged humiliated. The attempt by Trump and minions to pretend that it was a victory don't help. They only make the United States look not just humiliated, but delusional. So that's a big deal.
It has large implications for US power and influence going forward as well.
To explain those implications, it's helpful to talk about one of the other things that really dramatically changed with Trump coming back into office, which was trade policy. The United States began really seriously trying to throw its weight around. The Liberation Day, the tanneress on everybody, basically trying to pressure all of the world into giving us various kinds of concessions.
Give us what we want or we won't let you sell in our market, and everybody needs to sell in our market. Okay, what we learned from now well over a year of trade war is that US power in that dimension is substantially less than certainly than Trump appeared to believe it was. And just in general, trade, leverage in trade negotiations, leverage in trade disputes has less to do with market access than a lot of people assumed. And more to do with supply chains, with needing stuff that you would use in your economy, needing stuff, means of production, not in the sense of capital, but intermediate inputs or just inputs in general.