The New Toolkit of Power: Finance, Dealmaking, Champions

Over just a few months, the Trump Administration has unleashed an unexpected array of tools to redress the perceived “burden” carried by the US for security and overvaluation of the dollar, wake up the rest of the world (especially Europe) to the need to “burden share” and push back on China’s march to economic hyperpower.

From tariffs, to control of the Federal Reserve, to support for crypto, to the return of national champions, to taming the traditional media, to dangling a sword of Damocles on Big Tech, and dealmaking on a vast scale – there is a thread connecting all this as America is asserting power at home and abroad. Europe needs to connect the dots, rewriting the rulebook entirely for a hard power world.

Rohit Chopra, former Director of the US Consumer Financial Protection Bureau and FTC Commissioner, joins Cristina Caffarra to discuss how finance, industrial policy and global power are being redefined and what that means for Europe.

Episode Transcript

“The New Toolkit of Power: Finance, Dealmaking, Champions” w Rohit Chopra

Former Director, US Consumer Financial Protection Bureau (CFPB) and Commissioner, US Federal Trade Commission (FTC).

CC: Hello, I’m Cristina Caffarra. Welcome to Escape Forward, a space where I have the pleasure of moving away from the narrow world of antitrust, my original domain, and the privilege of discussing the broader landscape of policy and geoeconomics with the most interesting thinkers and policymakers around.

Last January at my Brussels conference, just 10 days after the Trump inauguration, we had a fantastic discussion on “The Battleground for Global Domination: What’s Ahead for Europe as the US and China Fight for Supremacy”. It was an extraordinarily prescient conversation, which has played out indeed over the last nine months as we watched the Trump administration wield America’s power over the rest of the world, while China continued to march relentlessly towards economic hyperpower. And Europe somewhat cowering in the middle, having to shore up our economic model that’s faltering, facing President Trump’s coercion, the Chinese shock, just as we face war on the border with Russia. I’m extremely excited to have here today a key player, a key voice in that discussion, Rohit Chopra, who served both in the first Trump administration as a Commissioner at the Federal Trade Commission, and more recently in the Biden administration as head of a financial regulator, the Consumer Financial Protection Bureau, where he took multiple action against banks, credit card companies and financial institutions to protect consumers and small businesses against excess/lawful fees, and return money to the public. Above all, Rohit is recognized as one of the greats, one of the key thinkers in policymaking and statecraft in the Biden administration. Welcome Rohit.

The topic for today’s discussion is the new toolkit of power: finance, dealmaking, champions and more.  We are going to have a broad-ranging conversation on all of the tools that we see in play now by the Trump administration from finance to tariffs to dealmaking in all directions on a huge scale, to champions and much more. We will then pivot to Europe to consider where we are in this extraordinary time of profound global and geo-economic transformation.

Let’s get straight into the substance. Taking a long view, Washington and Wall Street have been historically pretty much all singing to the same tune, deregulate, break down barriers to capital flows, and watch the money flow. And this ethos was exported everywhere, including of course to Europe. The recent Biden administration put into place a new focus on industrial policy and  competition policy with a toolkit that was pursuing very much subsidies and ambitious aggressive antitrust enforcement and rulemaking. Now what we see is the Trump administration taking equity stakes in companies; the US who had long championed central bank independence is now installing loyalists on the board of the Federal Reserve.

Your former consumer protection agency, Rohit, has been in effect shut down, although it’s funny that the crypto industry, which is very much in favour with the White House, is trying to retain some of your rules, it would appear. So this is a whole set of issues that is worth unpacking. Would you give us your thought on this cluster of issues? Thank you.

RC:  Thanks for having me.  On both sides of the Atlantic there are the near daily headlines about tariffs and other aspects of a trade war. But one thing that is so underappreciated is how much what we are seeing is the result of a rethink about currency and really a feeling of resentment that many in the US political system have with the rest of the world. So we have started to see a distinct effort to try and devalue the dollar while retaining its reserve currency status. A lower dollar would be favouring our exports and industrial economy here – while still enjoying the benefits of the security umbrella where sanctions and other tools can be used through the global dollar system.

A lot of this is part of a broader puzzle that much of the West has been dealing with the rise of China. So I think that we are now have a number of components we’re seeing, whether it’s the recent unusual and highly problematic bailout of Argentina, the new incursion into the Federal Reserve Board and a rethinking of central banking, as well as how tariffs are not simply being used as a tool to reinvigorate particular industries, but a way to negotiate completely different sets of rules. Including taking equity stakes in companies.

CC:   Why in particular do you think that currency matters so much in this landscape?

RC: Well, there has long been a concern really by many major economies that China manages its currency to be artificially weak – or in other words, to make other currencies artificially strong. This has allowed China to position its goods globally to be cheaper and even if the US or Europe are able to produce as effectively, efficiently, they lose out because of that currency dimension. So when you see on both sides of the Atlantic a rethink of the euro, the dollar, the role of US treasuries, stable coins, and monetary policy, a lot of this has a deep intersection with trade and opportunity domestically for people. If there are currency imbalances, it can rob opportunity for those who work in the goods producing sectors, both in the US, Europe and across the world.

CC: Let’s go a bit deeper into some of that. You talked at the beginning about this being a manifestation of a resentment in the US around the way in which the rest of the world has taken advantage of the United States. Why is this resentment bubbling up now in this way? Is it not something that was felt under the previous administration? Did you feel it? Was it felt at government level? Where was the Biden administration on this scale?

RC: Yeah, and I think there was a diversity of views across the past decade about America’s place in the world. But there was one thing that does seem to be animating today’s issues, which is that a sense that the US, through its own contributions by its citizens and taxpayers, has really funded an enormous security umbrella for really so much of the world, and particularly Europe and NATO members.  You have seen for many years, in some ways, annoyance by multiple US administrations about the lack of defense contributions from EU member state budgets toward the defense umbrella, a sense that the US is shouldering the burden of keeping the world safe. This was, of course, very much animating some of the discussions around the Russia’s invasion of Ukraine.

So what does that mean? You have a pretty broad sense among the American public that they are fatigued. We are fatigued of overseas conflicts. Why is it that Americans are often holding the bag or paying the price financially for it? I think what you’ve seen in some of the Trump officials, but particularly individuals in the financial space, is they are openly saying, openly writing in the months before they took office, that countries should be paying more. And not just paying more in terms of their own defense spending, but perhaps they should be grouped into good countries and bad countries. And if they are a good country, they are going to be supporting the US financially in terms of investments, as well as the purchase of US treasuries, particularly long-term treasuries.

While I think the execution has not worked at all, I think a key motivating strain of the Trump administration is to lower the value of the dollar, to continue President Biden’s reshoring of industrial production, but also in some ways to feed and cure that resentment of Europeans simply not paying their fair share. Now of course I know in Europe there will be a rebuttal to this point of view, but I’m just trying to crystallize where I think what a number of individuals in the highest levels of the US government are thinking.

CC:  And indeed the thinking that underpins this vision bubbled up over time. We are aware of a paper that at the time was not really noticed, by Stephen Miran, who is now the head of the Council of Economic Advisers (on leave) and is on the Board of the Federal Reserve.  A paper nobody noticed at the time, end of last year, laying out this vision for using tariffs as a way to somehow realign global economies and make others, in particular Europeans, pay their fair share. We will go back to tariffs and how they’re playing out. But what is the significance in this landscape of what is happening with the Federal Reserve? There has been a very public spat between the administration and the Chair, culminated into the attempt by President Trump to sack Lisa Cook. What is the logic and where is it going?

RC: So we have a few things kind of colliding here. One is the view you mentioned, Stephen Miran, now a governor on the Federal Reserve Board. He’s been installed there. He previously outlined a point of view about how to address the significant imbalances in global trade and specifically set out a new type of accord (that has become known as the Mar-a-Lago accord) that would allow the dollar to have a different place in global markets, perhaps less valuable in terms of its exchange rate, but while preserving the security umbrella. And he outlines how broad-based tariffs could be used to counteract some of those effects.

So if the US currency is structurally overvalued, whatever it may be, say 10%, could it be counteracted with a broad-based tariff with the rest of the world? Now, that hasn’t gone to plan, so now they’ve looked to really invade the Federal Reserve Board. This is important, I think. Europeans sometimes don’t fully appreciate the role of the central bank in the US, that has really been cordoned off from much of the overall economic policymaking with real focus on monetary policy. What you’re seeing here is a desire to use the Fed as a weapon as well, to use the President’s control of the dollar money supply to essentially re-contour and even pick winners and losers in it.

I do think this is in some cases long in the making. There has been broad discontent with the accountability and frankly some of the results of the Federal Reserve Board. It played a pivotal role in the 2008 financial crisis by failing to regulate subprime mortgages. And in general, there is a perception that it has overall favoured Wall Street interests over the real economy. So President Trump fires Lisa Cook, a governor on the Federal Reserve Board appointed by President Biden. He alleges that she engaged in some sort of mortgage fraud, though most observers and commentators found that the allegations are pretextual, to find a way to knock her out or to essentially be able to communicate that the President controls the Fed. He can come up with a reason to remove people, whether it’s true or false. And even if he can’t remove them, he has the spectre of being able to go after them. So we are really in a totally different place now, and issues of industrial production, trade balance, concentration and antitrust, high finance, it’s really all coming together right now in a lot of these fights.

CC: On the tariff front, there was at the beginning, at the time of Liberation Day, a sentiment by many that this was eccentric, it was going to lead to significant inflation, to a major recession. And yet that hasn’t happened – at this point at least. I’d be interested in your views as to where we are in that process. Then, control over the central bank is not something that all object to per se or in principle, indeed I know of some even on the Democrats’ side who see it as legitimate – but it appears to be part of a broad effort to establish a unitary executive and the power of the President with multiple tools, in multiple ways, in every direction. So where do you think we stand?  You said that the tariffs haven’t worked as planned. Where do you think that piece may be headed?

And then we’ll talk about what it does for Europe.

RC: On tariffs, what we have seen and at the time that we’re taping this, there is another major development in terms of dropping trade negotiations with Canada. When a lot of Americans think about the problems with trade, Canada is usually not the one that comes to mind. Canada is a very similarly situated country economically to us. Some of this, you’re right, has just sounded so weird. The types of fights that are being picked. And in the backdrop of all of this, is a legal case that is working its way to the Supreme Court about whether any of these tariffs are even legal because they’re allegedly in response to some sort of economic emergency.

So we don’t know how all these tariffs will play out, but here’s what I think is permanently different. In the past decade we saw a real shift away from the consensus that there’s a free market. In reality, we never really had a fully free market. But now you’re seeing rather than just the CHIPS Act, which was really about giving grants to be able to seed and incubate more critical industries, you’re actually seeing the state taking equity stakes. And I think that in some ways this is very closely related to how tariffs fit in the entire picture.  Tariffs are not necessarily creating that domestic investment quickly enough, and they may not. But the use of cash infusions in companies to take equity stakes, we have now seen this in the case of Intel, in the rare earth industry, we have recently heard news that maybe it is also going to be in the quantum computing sector…. Many people would argue that the US is turning more into China or turning more into how Europe once was, picking winners and losers. The story is much more complicated, but I do think that this type of tool may stay around, whether people like it or not.

CC: So this is particularly salient. I mean, you draw the connection between the purpose of tariffs and how things are going on that front, and another tool which is being wielded, which is taking stakes into companies, direct investment by the state into companies. The Biden administration was big on industrial policy that meant a lot of subsidies. But taking stakes into companies is novel. It’s not something the US has done, and the sentiment was that national champions is not something that America necessarily does. We were lectured in Europe, very many times that we should not be picking winners and losers. But now this appears to be an active effort: quantum is possibly on the horizon, chips are very big, so it is a vision that appears to be coming closer to China’s intervention in capitalism.

RC: Yeah, that’s right. And I think for each of them there is a slightly different legal argument about why they’re allowed to do it. But we’re also seeing a companion effort to incubate what some would call a sovereign wealth fund. The idea of using a large amount of capital through government-related assets that produce income and cash, to be able to intervene in markets, maybe in foreign exchange markets. And I think this is giving a lot of the (let’s call it) “old school blob” a lot of concerns, but it’s also giving people who do want to see more balance, more industrial production in the US, concerns about corruption and grift.

To what extent are these decisions solely being motivated by political connections? And I’ll argue that the recent massive bailout of the US to Argentina, where a fund to help stabilize exchange rates is being used, I think inappropriately, as part of this broader statecraft, is a case in point. We are hearing reports that it is those with close connections to the administration who have taken large bets through their hedge funds that maybe they are pushing this. So I think there’s a big tension about the extent to which you can make investments at home to reshore critical industries or to make sure that you have supply for your defense industrial base, for your critical healthcare supply chain needs, with on the other side perhaps having the US government crown corporate royalty based on their own contributions or political influencing tactics. And that’s where things could go badly wrong.

CC: So this is a natural segue because indeed dealmaking is very much another major tool that this administration is seen to be using to further its own goals and certainly assert its power.  We started talking about stakes in companies, but there is a whole bigger world of dealmaking happening at the same time. We know Wall Street is at the moment wild with deals, but some of these deals in particular are either supported or favoured by the administration again as ways to perhaps subdue and exert power over certain sectors. Take for example, the media. It’s one area where we see considerable dealmaking movement. And the message that appears to be sent to the traditional media, the traditional broadcasters, even to Hollywood, is your deals will be allowed or not allowed depending on who essentially is sponsoring them, how close they are to the administration.

RC: I think it is pretty unusual what we’re seeing and it’s really dangerous. For your European audience, we had a number of incidents that were high profile in the US regarding well-known late night TV show comedians. Many of them were actually concerned about whether or not they would still have a job because corporate owners of their broadcast networks were trying to get mergers through the Federal Communications Commission. And we are seeing that the Federal Communications Commission is looking to put a thumb on the scale in favour of who is going to have a broadcast network that is aligned politically with the current administration. And this is absolutely dangerous. It is an enormous concern that many of us have been raising about consolidation, extreme consolidation, and media is one of the best examples: it can start having so much power over information and can start serving the needs and requests of the current regime.

We also saw in Trump’s inauguration, in the front row, the tech barons, those who control the flow of information. I would not describe that as dealmaking. I would consider that really as hijacking the rule of law in order to advance a particular political agenda. And I think it’s very, very dangerous. The overall theme is right: we are seeing many abuses in terms of how legal tools are being deployed. And I would say including in the opposite direction, the agency I ran, the Consumer Financial Protection Bureau, many have raised alarm bells as to why some individuals have taken such interest in shutting off all of its investigations, shutting off all of its inspections of financial institutions, and perhaps most notably, actively dismissing court cases, existing public court trials, and essentially pardoning companies. So I think that the word dealmaking is not really capturing what use of power is being deployed. And I think some of it is quite dangerous for Americans.

CC:  You mentioned the Big Tech companies in the front row at the inauguration. And of course, there is a very clear sense that this administration is in an ambiguous relationship to say the least with these companies. From where we sit in Europe, these companies are being protected by the administration, we are being told “on regulation you should just back off. These are the great American heroes” and so on. But at the same time at home, there is at least to me a sense that they are also on a leash. They are basically allowed to continue to print money, but at the pleasure of the administration, and don’t mess up. And this is a profound change from the previous administration in which there was a very clear drive that was novel for America to address corporate power in digital space with multiple antitrust actions. So in Europe we are thinking about how do we continue to pursue our own sovereignty in this space, how do we continue to enforce our laws. And then there is the further wrinkle of what appears to be a fairly unleashed brotherhood of eccentrics tech bros in Silicon Valley who talk about crazy stuff – from the Antichrist to “we need a president who is like a CEO and has got absolute powers”. This is very disconcerting,  a major change relative to the previous administration.

RC: Yeah, but I think to me the more noteworthy contrast is with the first Trump administration. I was a Commissioner at the FTC, one of the minority commissioners. But the first Trump administration, don’t forget, Cristina, is where we voted a lawsuit against Facebook/Meta. That was the administration that also started the Google case. And it was very bipartisan. There was a lot of concerns about the abuse of power by the platforms. And I think a lot of that was actually genuine.

But now we are seeing that maybe they’re just flipping a switch and saying these powerful entities, why break them up? Why not just hold a sword of Damocles over their head so that they serve exactly what we want? And I think we’re seeing that in so many different ways those tech CEOs and others are really bending the knee.

CC: That’s exactly what it looks like.  

And before we turn to Europe (because I do want to go to Europe and discuss the predicament we find ourselves in given this broad landscape) what we are discussing is a systematic, very effective (at least seen from here) effort to wield power in multiple dimensions, some of which you are saying and others say does not necessarily conform to the rule of law. Given where things are, I know it’s a difficult question, but where is your head on “what next”?  What do you think should be a response to this?

RC: The reality is that we have a serious problem globally in terms of thinking about the future of the economy and society, especially when there’s so much technological development. There is no way in my view that the US is going to be able to compete with China alone. The Chinese have a larger population. They have essentially the same or maybe even higher GDP purchasing power. They have an industrial base that is extremely advanced and increasingly a technological development that I would argue is exceeding the rest of the world in more and more sectors.

So from a defence perspective and from an economic perspective, it is going to be critical for many other countries, including the US, to have a way to steward things forward. And that is going to require Europe. Europe is going to have to pull its weight in that as well. Rush Doshi and others have been important thinkers on how will we actually build resilience through our allies so that we will be able to advance prosperity for our people, and not just really create more oligarchs. That is going to have to take multiple forms.

There is a sense that countries in Europe and elsewhere in the world need to diversify away from both China and the US.  This is going to be a tough situation because in some ways the US, Europe, others need to be thinking about supply chains and be able to use our scale and assets to check some of the Chinese Communist Party’s aspirations.  For Europe, that does mean thinking through some degree of what kind of technological ecosystem do they want to have. It looks from here that Brussels and European capital simply want to accommodate big US tech giants. That is not going to be a successful recipe in my mind.

So this is going to be tough in terms of how those who are Democrats need to be responding. Using the same old playbook and returning back to the old ways of doing things are not an option. The old way of doing things was part of what got us into the situation we are in today. The old way of doing things used a playbook, especially an economics playbook, that didn’t really work, that led to a massive financial crisis, that led to serious issues with opioids, digital abuses. So there is a lot of work to do on both sides of the Atlantic to figure out how we are going to manage our financial system, our trading system, and our tech and industrial ecosystems in a way that is going to work in a world where China has growing influence.

CC:  There’s so much there and I want to pick up distinct threads. Let me go to the European thread first because you talk constructively about the work that Europe needs to do and the way in which Europe needs to emancipate itself. I know the sentiment that Europe needs emancipating itself is one that you’ve held for a while even when in office, and as you said, it is consistent with the growing sentiment in the US that Europe had been too reliant and too complacent. You recall at my conference earlier in January, Julius Krein made the audience gasp when I asked him what he thought the Trump administration would do about Europe – and his fairly dismissive answer was “I don’t think they’ll care very much about Europe, they might go to Berlin or Paris sometime, but they won’t really come to Brussels”. And it played out pretty much that way. There is a sense when you talk about Europe needing to become aware of its own weight and its future need to assert itself, that we’re not remotely there. And you know we are not.

Because the reality right now is we feel that we get punched in the face quite a lot by the wielding of tariffs, by the coercion that has come with it. And of course, Europe is vulnerable in several dimensions. When it comes to “digital regulation or cars?”, there is no question that Europe will choose lower tariffs for its car industry that employs 13 million people. On digital, you mention that the European governments may have decided to go along with the digital giants – the UK has made that decision, but others have not made it proactively. But we are being punched down and told to “just comply and be happy with it, or else”. That is where Europe finds itself. I would like you to elaborate on that because I don’t think we need to accept that kind of narrative and mindset, but it seems to be difficult for us to get ourselves out of that hole. In defence we are reliant, in digital we are a total colony, we’re dependant in multiple other dimensions. And that’s a real problem right now.

RC: That is so important, not just for Europe, but for other major economies. Of course,  there’s a lot of amazing and important American contributions that will be used all over Europe, companies, technologies. But I also think that what we want for America is for Europe to also be creating and building and frankly defending itself because there is a sense politically that the US should not necessarily be the one bankrolling or fundamentally being responsible for the security of the world. It’s supposed to be a cooperation. here’s how I see it. I see a very serious energy crisis in terms of costs, I see manufacturing capacity in places like Germany in decline. And I see an approach to technology and AI that is largely about accommodation rather than really forward thinking on what are key industries of the future. In my last trips to Europe I heard about an agenda focused on AI factories. It’s really hard to even know what that means. At the end of the day, it just seems like trying to get US companies to invest and build data centres there.

I’m probably oversimplifying, but the way we all need to play our cards is one where we understand we cannot follow that old playbook of just drifting towards serving the interests of the financial industry and concentrated power, but instead build supply chains and an industrial structure that is resilient in times of serious disruptions, whether it’s something like COVID or a financial crisis or a war. Clearly tariffs are creating much tension around that; and we will see, but there are many in the US who worry that the damage is going to be deep and permanent. But that doesn’t mean that people shouldn’t be thinking about how the US, Europe, and others really can be making progress towards an economy that actually serves people rather than just those at the top.

CC:  This is really what I would like you to leave us with. You mentioned a couple of times that the old playbook is not something we can go back to. It isn’t coming back. The old order isn’t coming back. So whatever we thought even a few years ago was the policy and the playbook is obsolete now in the face of this very different landscape. What is unclear is who is actually going to generate that new playbook. What we see is a major transformation. And the question which remains open and we are in Europe uncertain about is: not just for ourselves, but also for the US – where is any new playbook coming from?

RC:  The “playbook” (and I use that term loosely), is essentially a consensus on how we structure global financial systems, trading systems, and really domestic regulation and tax. There was a sense that those ingredients and others were being used to create the most amount of growth and prosperity. And yes, maybe it was not distributed well,  and for that maybe we could give people some extra benefits or income transfers and everyone will be happy. We know that that didn’t work. And I think it’s very important on both sides of the Atlantic to not cling to something that will not come back.

And instead of reflexively criticizing any type of change (by the way, I served in the Biden administration and we felt those criticisms too, just reflexive attacks that “it’s not how things are always done”). We are going to need to do things that were not done before. There will need to be different ways of thinking about how our economy works and we will not be just outsourcing everything no matter who is in power. So what is the way to do that, which actually solves the serious problems people have? We need to be able to speak to the actual problems people are experiencing in their lives. especially when it comes to the horrible cost of living that is being felt in both US and Europe, the lack of opportunity, the lack of accountability for those in power.

So, Cristina, I think the answer is that it’s not going to come from one place. It’s not going to come from a political party or a specific academic bench.  It is probably going to be an intense fight of ideas of how this new global financial and economic statecraft will work. And whether it’s thinking about the monetary system, and I think that is very key, or what the future of our trading system will be, the rules of the game are going to change again, they will not revert to the past.

CC:  This is a great place to end. On my side as a European, I wish Europe will actually take advantage of what is now a moment of really deep weakness and reflect – but more than that, to act, not just reflect because we reflect quite too much. I also agree that as you say, there needs to be collective crafting of new playbooks, because I do not think the status quo is going to be permanent, something else will follow it and quite what it is, we need to work on it together. But I’m very grateful for your thoughts, Rohit, and it’s always such a privilege to have you in conversation. So let me thank you again for your time and I hope everyone will enjoy this as much as I did.