He noted that while the long-term US economic outlook remains strong, short-term volatility and policy uncertainty could destabilise markets.
“The risks to US inflation have gone up, and the risk to a US recession has also gone up. I think the recession risks are real,” Rogoff said, adding that while Goldman Sachs estimated a 20% chance of recession, he placed it at 30-35%.
Reciprocal Tariffs Could Backfire on the US
Rogoff was particularly critical of the Trump administration’s push for reciprocal tariffs, calling the policy “a terrible idea.” He emphasised that countries imposing tariffs ultimately suffer the most, with American consumers bearing the brunt of the cost increases.
“The country that suffers the most from imposing tariffs is the one that does it,” Rogoff stated. Citing research by IMF Deputy Managing Director Gita Gopinath, he pointed out that US tariffs tend to be passed on almost entirely to domestic consumers. Furthermore, if foreign nations retaliate with their own tariffs, American exporters also bear significant losses, worsening the economic impact.
Rogoff warned that the chaotic and unpredictable nature of the tariff strategy could undermine investor confidence and economic stability. “Obviously, President Trump likes leveraging his power over other countries. The trouble is that he’s creating chaos in the minds of American investors and people in the US economy,” he said.
India: A Bright Spot Amid Global Uncertainty
Despite global economic turbulence, Rogoff remained optimistic about India’s growth trajectory. He highlighted that India continues to benefit from strong capital spending and its position as an attractive alternative for companies diversifying away from China.
“India still has better growth than most emerging markets and the US,” he said. “I don’t see any reason for that not to continue. It’s not helpful if the world slows down, but India has certainly been a bright spot in the global picture for the last couple of years.”
Below is the verbatim transcript of the interview.
Q: One of the pressing problems of investors all over the world has been this US exceptionalism over the past 12 months, particularly since the election of President Donald Trump. Now with fresh doubts over US growth, is this exceptionalism coming to an end?
Rogoff: I don’t think the exceptionalism is coming to an end. I think the next 10 years for the United States are going to be very strong, but near-term President Donald Trump has just sort of intimated that a recession might be in his master plan for making the economy better. So as confused as investors were already they are even more so.
Q: Would you still wonder if in the near term for the year 2025, US growth forecasts may have to be lowered because of tariffs?
Rogoff: Not just because of tariffs, but the sort of aggressive and somewhat random cutting of government spending, the unpredictability of policy, I think it looks like US growth is down, shifting to maybe 1% towards the end of the year. I don’t think that’s normal, but yes, absolutely, the risks are going up and up.
I mean, whatever Donald Trump’s master plan is, it’s very hard to know where he’s going, and that unpredictability is very difficult for investors to work around.
Q: This unpredictability is now not just US-specific. It is a global issue, because most countries don’t know where their own policies are headed, and therefore where their economies are headed. So, can there be a danger to global growth, because the investment climate is uncertain?
Rogoff: I don’t want to overstate it. I mean, Europe’s having a wake-up call. Europe’s been in a coma for the last decade at least, and now they’re suddenly realising that they need to make a shift from just ageing and expanding the welfare state to trying to be more dynamic, to have their own AI industries, and, by the way, to defend themselves. And I think all of that could, in the long run, be good for Europe’s economy.
China is another matter for going around the world. I still don’t think they’re doing nearly enough to ride the ship. The over-centralisation of power and decision-making has been disastrous for China, and I don’t yet think they’ve figured that out.
Q: How do you see US inflation? If products were to get expensive simply because of higher tariffs, are we looking at no rate cuts from the Fed and the general inflation picture, some people have increased their forecast of US inflation to 3% by the end of 2025.
Rogoff: I think the risks to US inflation have gone up, and the risks to US recession have also gone up. So, it makes it a little bit difficult to call. If you had asked me two months ago at Davos, what was happening to US rates? I would have said it is likely to go up, but it should go down. I think they are a little more likely to go down than up at this point. I think the recession risks are real.
In many ways, Donald Trump has accelerated trends that I think were happening anyway. I have a book forthcoming, in a month or two, titled “Our Dollar, Your Problem”, it’s a historical book, but it sort of says we may come back to the 70s in some ways, there may be another burst of inflation. I was saying, five to seven years, and now, Donald Trump is an accelerant of all these factors. So, the risks are high. I think Donald Trump’s people say we are going to go at 4% growth at the other side of it, you can’t believe how good it’s going to be. I think it’s more likely we’re going to go to 4% inflation at the other end of this, than 4% growth.
Q: Europe has agreed to an expansion of its deficit after 30 years, it’s after Maastricht that we are first hearing of a higher than 3% deficit. What does this mean? Do you actually see that generating sufficient growth for Europe? Will you up your growth forecast if you have any for Europe?
Rogoff: Europe’s been in a torpor for sure. We’re talking about Germany running a bigger deficit. And the whole point of having a strong balance sheet is to be able to use it when you need it, you’re suddenly being told that the US might not defend you. By the way, I don’t think the US is really going to pull out of NATO. We may have to rename it. Trump may insist on renaming it. I don’t think we’re going to pull out of it, but I think they’ve realised they have to spend more. That does not translate into necessarily, Italy being able to spend more, Spain being able to spend more. Let’s understand interest rates have gone up. It’s a different world than 10 years ago. So, it’s not going to be so easy. But on balance, Europe needed shaking up, and this as many have described is a Hamiltonian moment. You can pick your analogy as you like, but Europe has really been sinking for the last 20-25, years. It was equal to the United States 20 or 25 years ago. And so yes, Europe can come back.
Q: For the world as a whole, if European, or as you say, German deficit goes up, and the US deficit is still going up as you say because the intent is of tax cuts, then we are going to look at a year of inflation, or maybe years of higher inflation than we are used to?
Rogoff: It depends on what central banks do. So central banks keep interest rates high enough and raise interest rates enough, we will not get inflation. But there are going to be a lot of challenges to central bank independence, not you just because of Trump. I think that’s been coming from the left and the right. So, I do think, eventually this will translate into higher inflation. I’m not sure about this year, that’s really a coin toss. I suspect US inflation is likely to come down than up, because we may even have a recession.
Q: You say that Trump will not pull out of NATO, but he has pulled out of the World Health Organisation. Do you think there is a chance that the World Bank and the IMF will also be attacked? Will there be any chance of the US either not contributing or contributing far less to these organisations as well?
Rogoff: I think it’s a very serious risk. I think it would be particularly in the case of the International Monetary Fund. But that could be a very serious mistake. The International Monetary Fund has been very good for the US economy for a long time. Countries mostly pay back their loans. But yes, I think there’s a rethinking of everything. I don’t know what the thinking is. I mean, it’s been very aggressive, muscular, but if you’re going to pull out of the USAID, which is the aid organisation, I think a lot of right-wing Republicans regard the World Bank, at least as an aid organisation and I fear that a lot of them don’t know the difference between the IMF, which is fighting financial fires and such, and the World Bank. So yes, I think, it’s highly unpredictable. We could see an Elon Musk-type figure appointed to the World Bank. That’s not hard to imagine. I think the World Bank and the IMF are both doing very great things for the world. I’m not supporting this, but they are right to be worried about it.
Q: There is this other announcement from Donald Trump, in fact, signing of an executive order of creating a strategic reserve of cryptocurrencies. At the moment, it appears to be only with the clandestinely earned currencies appropriated by the police. But do you think that even good money, tax money, can be used to buy cryptos. Do you fear that this is another area of instability?
Rogoff: This is just an awful idea. Of course, it’s supported by the crypto community. And I have to say, so many elements of this are just incredible. For one, if you’re going to have a reserve, you want to have some sort of arm’s length committee pick what would go into it, instead of having the President announce what coins are going to go into it, which, of course, bids up their price before we buy them. But of course, the crypto community helped fund both campaigns, by the way, and in some sense, this is a payoff. I don’t know where this is going, but I think right now, it appears that we’re headed towards another kind of financial crisis in this space, if we really go whole hog on deregulating it. I hate to say how it’s going to play out. That would require forecasting Donald Trump’s policies, which is very difficult to do.
Q: Your thoughts on how this argument for reciprocal tariffs may play out. That’s the biggest worry that’s bedevilling Indian policy makers. Do you think this Donald Trump administration, will go through with reciprocal tariffs the way they are speaking about it now?
Rogoff: It is a terrible idea. I am an economist, and the Trump administration has some very good economists in it. But they would get kicked out if they complain about the tariffs. Treasury Secretary Scott Bessent as an example, have very sensible things, I’ve been impressed, but he has to say that tariffs are a good idea. They’re not. And I think a thing your audience should understand is that the country that suffers the most from imposing tariffs is the one that does it.
India certainly suffered from its tariff policies. They’ve come down, but it’s not benefited. And the United States is not going to benefit from these, it’s going to hurt growth. That’s going to hurt inflation. On the other hand, the effects are not massive. I don’t think we should overstate it. The big risk is that everyone else feels free to do it. The United States is raising tariffs. Why shouldn’t we raise tariffs? And one thing I think that’s not so well known is that this is actually due to work by Gita Gopinath at the International Monetary Fund, and a co-author done before perhaps she went that when the US imposes tariffs, the price gets almost entirely borne by US consumers. But interestingly, if foreign countries retaliate, maybe only half of it gets born by foreign consumers and American exporters bear the rest. In other words, the US does not win in a tariff war.
Q: You quoted the Gita Gopinath article, and you said that, when tariffs are raised in the United States, it’s the US consumer who bears it, unlike the experience in other countries. Now, if there is a problem of inflation because of tariffs being raised, and there is a problem of job layoffs because the federal government has to be shrunk, is it not likely that the the US president, will pull back some of these? I mean, why would he want to shoot himself in the leg? Probably these are announcements and will not happen?
Rogoff: Who knows? I mean, I honestly have no idea what’s going on in his head. I had assumed we were going to put tariffs in place. They were going to be lower than he claimed he would negotiate it, country by country, and we’re going to sit with them. But I still think tariffs are going to happen. What’s very disturbing is how random and unpredictable they are. Obviously, the President likes leveraging his power over other countries. The trouble is that he’s creating chaos in the minds of American investors, people in the US economy.
I think an important point that people don’t necessarily realise is that Donald Trump needed 51% of voters to get elected, but the other 49% are consumers, and they account for at least half of consumption. And I’ll tell you, speaking to them, many of them are terrified, and so we’re seeing a pullback on consumption. I’m not sure the Trump voters are making up for the ones who voted against him pulling back. So, there’s, a real danger that this chaos triggers a collapse in consumption that obviously would be recessionary. I don’t want to overstate the recession, Goldman Sachs has out it at 20%, I would put it higher at this point of 30% or 35% at least.
Q: My worry is more of the international order. Post 1945 we had some kind of a rules based order with WTO and with similar tariffs for all countries by all countries. But now with the United States going and imposing different tariffs for China already, tariffs on China alone have increased. There is a bit of a chaos in terms of tariff imposition. Do you think it gets even worse as each country imposes a different tariff for United States, a different tariff for others? You think it will come to that
Rogoff: It’s hard to know how this is going to play out. And I would say that about everything. When we talk about the international order, Trump is shaking things up. We can look at the Middle East, we can look at Ukraine, we can look at South Asia. He’s shaking things up. I hesitate to just say the worst-case scenario is going to happen, and we know how it’s going to land, and I’d say the same thing with tariffs, but yes, I think it looks likely we’re going to end up in a more, less globalised world. It’s not a good thing. There are some legitimate national security issues. Let’s not deny that, but I don’t know what they have to do with Canada. Yes, Canada should spend more on defence, but that doesn’t seem to be what he’s arguing about.
Q: The argument on the Indian side, especially with the automobile guys, the argument of zero tariff is seen as in favour of Tesla, so that Tesla cars can sell in India if India drops its tariffs down. But as Indian car makers point out, Tesla car would still not be competitive with Indian makers. But if the tariffs come down to zero, it’s quite possible that Chinese cars will become very cheap in India. So, the problem, really, that Indians are grappling with is, will the US go ahead when it will not even benefit Tesla? So that’s why my question, will they still go for zero tariffs when it doesn’t even benefit American business?
Rogoff: You answered what I was going to say as the question was unfolding that Tesla is not going to win out in the long run. It’s going to be the Chinese car makers. And the question is, how much the world’s going to shut them out. China’s surplus as a share of its own GDP is much smaller than it was, say, in 2010 when it was practically double digits. But China has grown so much that its share of world GDP, its trade surplus, is just as big, and so the rest of the world’s not going to be welcoming of this. I don’t know how it’s going to play out. In Europe we’ve already seen tariffs on electric vehicles. But I want to repeat the point that the country that imposes tariffs loses the most from tariffs, and I think that’s been true of Brazil, that’s been true of India, and it’s soon going to be true of the United States. It’s sad that the US is doing this and setting such a bad example.
Q: Do you think that although President Trump came with the view that he’s going to end wars, the fact that he’s threatening to withdraw from the NATO, and the whole global geopolitical divisions are rapidly changing. It at the moment looks like US and Russia are on the same side. So, do you think actually the potential for war or conflict increases?
Rogoff: I don’t. First of all, every US President now, going back into the 90s, has been arguing for Europe to pull its weight in defence. It’s really a joke. The differential between the US and Europe and finding a way for Europe to contribute, I’m not sure this is the best way. And I think as the world has become less stable, let’s face it, under the Biden presidency, it did become less stable, the US is stretched and stretched in order to be able to cover three regions of the world. And the US would like Europe to be able to take care of its region. I don’t know how fast that’s going to unfold. I mean, I don’t want to give you some pollyannish view that we’re going to have global peace over the next four years. It’s very concerning, but I’m not sure the US is the cause of this.
Again, going back to the point I was making and referring to my book, I think Donald Trump is an accelerant, perhaps, of these trends, but they were happening anyway, and would have happened even if Kamala Harris had won the presidency.
Q: A final question on the dollar contradiction that seems to emanate from what President Trump is saying. On the one hand, he wants the dollar to be the international reserve currency. On the other, as we all know, the Triffin’s paradox, unless the US runs a deficit, we cannot have dollar as the international currency. How do you think this contradiction will play out?
Rogoff: I think particularly with the US putting financial sanctions on everybody, there’s quite an appetite for some diversification. I don’t know for sure how that will play out. I do think the dollar has been falling. It’s still pretty high, and Trump has said he wanted a weaker dollar. That was probably coming anyway, we probably will get that.
Q: Have you pondered on India at all? You have done several studies on India, but how do you see it emerging from this new world order?
Rogoff: I think there’s no question, there’s a lot of positive energy around India at the moment. For one thing, countries are diversifying away from China, and India has benefited a lot from this. The tariffs will hurt a bit, but India still has very strong capital spending, better growth than most emerging markets and the US. I don’t see any reason for that not to continue. It’s not helpful if the world slows down. But India has certainly been a bright spot in the global picture for the last couple years.
