“There is no Trump exceptionalism, but rather a new and consolidating geopolitical order,” say Eugenio Peluso and Massimo Morelli, researchers at the Luxembourg Institute of Socio-Economic Research (Liser) in a policy brief from February 2025.

What is this new order, exactly? The researchers have found that the populist nation-states currently arising are, contrary to what theorists previously thought likely, able to simultaneously undermine global economic integration and liberal democracy.

The consequences of populism

There are three mechanisms deployed by populist leaders, says Peluso, stipulating that many of the concepts come from publications by Morelli.

The first is their tendency to fight bureaucracy, such as claims to “drain the swamp” or cut through so-called red tape. “One of the simplest messages populists use,” the researcher says, “is that there is an ‘elite’ that is using certain economic mechanisms to their own advantage and against the ‘pure’ people, who are sacrificed to this elite. And that this elite uses bureaucracy to create confusion and spends public money to simply sustain themselves.” But what actually happens when a populist gets into power, Peluso continues, is something else: they do get rid of bureaucrats, but the effect isn’t that it makes processes smoother. Just the opposite: it reduces efficiency. This is true at local and national levels.

The second mechanism has to do with inequality. Specifically, the loss of efficiency from cutting out bureaucrats leads to inequality, except the populist leader doesn’t acknowledge that. Instead, they explain it by inventing other sources, often immigrants, competition from cheap foreign labour markets and globalisation more generally. “This gives the first input for a protectionist policy or message,” Peluso explains.

The third mechanism is thus a turn towards “commitment policies.” Unlike the more general objectives favoured by non-populist governments--objectives like reducing inequality, saving the environment, promoting growth, etc.--commitment policies are more specific and attainable. For example: keeping out immigrants by building a wall or using tariffs to reduce foreign market competition. “It’s not a long-term social or economic objective; it’s a simple commitment to the public.”

Collapsing Rodrik’s Trilemma

In 2000, economist Dani Rodrik theorised that, at any given time, we may only have two of the following three things: democracy; a fluid global economy; and strong nation-states. Rodrik initially predicted that it will be nation-states that eventually disappear in favour of “global federalism.”

Peluso explains: if you want strong nation-states and a fluid global economy, then you’ll need laws to enable an easy international flow of goods and capital and people, but these laws will be at odds with local democracy--democracy taken here to mean simply policymakers’ respect of local people.

If you want the nation-state but also democracy, however, it’s globalisation that must suffer, because your laws will be looking inward towards taking care of the population, and thus not outward towards maintaining global economic channels.

The final case, of course, is democracy paired with a fluid global economy, at the cost of the nation-state. This is the model of the United States: a federal government ensures an easy flow of capital, goods and people across state borders; states are able to prioritise the political wishes of their own residents; but the states don’t have national sovereignty.

Now, 25 years after Rodrik’s theory, Peluso and Morelli are suggesting that sacrificing globalisation alone might not be enough to save democracy. In other words, today’s populist leaders are strengthening the nation-state--the typical basis of their movement (per slogans like “America first”)--by curbing globalisation via protectionist measures such as tariffs and border closings, while disengaging from shared global goals to combat pollution, poverty and conflicts.

According to Rodrik’s Trilemma, pushing away from globalisation would, in this case, save democracy (“democracy and national determination should trump hyperglobalisation,” he has argued more recently). Except this time democracy is being threatened too: maybe Trump’s tariffs will help local manufacturers, at least for now, but Trump is also attacking bureaucrats and judges and making them out to be part of a malicious “elite.” This amounts to threats to checks and balances, the protection of rights and the separation of powers.

“What we stress in this article,” says Peluso, referring to Liser’s February policy brief, “is that this is not unique to Trump. It’s the same phenomenon we’re observing in other countries, like Italy.”

Economic effects

Some of the economic effects of populism, at least the short-term ones, are obvious: tariffs will stifle international trade (though may indeed boost business inside the populist country), while opportunistic capitalists whose companies are already embedded internationally (Bezos, Musk, etc.) might benefit from this new geopolitical order.

Peluso also points to something else that can be counted on when the cost of international trade rises: greater inequality in certain countries. The economic effect of tariffs on poorer countries has been clearly documented. “Very often, in these countries, there is more heterogeneity and risk of conflict,” he explains. As such, hampering global trade networks can have only two consequences.

“If [people in such a country] find, to some extent, an agreement in accepting and spreading internally the cost of tariffs, then there will be a loser within the country,” he says. In poor countries with diverse groups, the loser--the one whose slice of the pie is going to be smaller--is often the minority group. “You create more inequality,” Peluso observes.

On the other hand, if the population doesn’t find a way to absorb the tariffs, then there’s only one other option: “if there is no agreement, we can expect an increase in local conflict,” at least in countries that are highly diverse in terms of ethnicity and religion and which are exposed to international trade.

As for further knock-on effects, Peluso says… that’s for economists to guess at.

This article was written for the  to the  of Paperjam magazine, published on 26 March 2025. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. .

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