Yanis Varoufakis: What to watch for in 2025 – Trump, the US dollar, and China

Donald Trump, the American dollar,
and China:

What to watch for during 2025.

Donald Trump wants to boost exports

to bring American jobs back
to the United States

and to reduce, to shrink
the American trade deficit.

For that, he needs a
lower value of the dollar,

for that, he needs a weaker dollar.

But at the same time, Donald Trump
wants a strong dollar,

and he will not brook
any discussion

of ending the exorbitant privilege,
the centrality, the hegemony,

the dominance of the American dollar
in international transactions.

Can Donald Trump possibly
have both?

Donald Trump's first problem
is that the tariffs

that he has invested so much
political capital in

introducing, announcing,
and advocating for

will most likely boost the
value of the dollar, why?

Primarily because every time

there is global uncertainty

whenever there is a problem that
emanates from the United States

whether that was the 2008 crisis

or whatever crisis there is,

there is a paradoxical rush
of foreign money

into the United States
boosting the dollar.

So if Trump's tariffs
create global uncertainty,

The likely outcome will be

an increased value of the dollar

and that's his first problem
because if his tariffs

succeed in creating a lot of
consternation across the world

in China, in the European Union,
in Britain,

the result will be, that even if
imports initially shrink

as a result of these large tariffs,

the influx of money into the
United States, of capital

is going to boost the
value of the dollar

therefore, countering whatever effects
the tariffs had on limiting imports

and enhancing American exports.

Donald Trump's second problem

is that if he proceeds with his
very large tax cuts

especially for corporations
and the oligarchs,

the very rich in the United States

this is also going to attract
into the United States

foreign capital
and what will that do?

Boost the value of the dollar

and therefore, enhance the gap between
American savings and investment

with investment being much
greater than savings,

which is a root cause of
the American trade deficit.

Tump's third problem

is the exorbitant privilege
of the United States dollar.

It is the reason why every time
there is a crisis

especially one emanating
from within the United States,

the dollar goes up and the
US trade deficit gets worse

especially during periods
of reduced demand,

jobs and employment
within the United States.

So if Donald Trump were serious

about shrinking the
American trade deficit,

he would want to do away
with the exorbitant privilege

of the United States dollar.

But of course, not only will he never
allow himself to do that

because his best friends, his tribe
are the rentiers

and the financiers who
will be aghast

if the United States loses the
exorbitant privilege of its dollar.

It is highly unlikely that
Donald Trump

will want to be the first
American president

after the Second World War,

that loses the hegemonic power
of the United States

by losing the exorbitant privilege
of the United States dollar.

Some argue, and I think they
do have a point

that maybe, what he's trying to do,

what Donald Trump is trying to do

is he is threatening the world,

China and the European Union
in particular,

with very large tariffs

in order to come to an
arrangement with them

to accept a depreciation
of the Chinese yuan,

of the euro,
of competing currencies

in order for the United States

to see its exports rise
and its imports diminish.

To cut a deal,
in other words,

something along the lines of what
Ronald Reagan did in 1985.

The infamous Plaza Accords,

supposedly a multilateral meeting

between the Europeans, the Americans,
the Canadians, the Australians,

but in reality, what the
Plaza Accords were about,

was an ultimatum by
Washington on Tokyo,

appreciate the yen massively,
or else

I'm going to slap large tariffs
on Japanese exports.

The Japanese rolled over,

They did as they were told.

The reason why Japan's
massive growth rates

between 1950 and 1985
were eliminated,

and why Japan lost its verve,
its dynamism

was because they accepted
those Plaza Accords.

Is China likely to accept
a new Plaza Accords?

I assign a zero probability
to that possibility.

China is no Japan.

Japan was an occupied country
by the United States.

The United States wrote
its Constitution,

there are tens of thousands of American
soldiers still occupying Okinawa.

China, I will repeat this once more,
is not Japan.

It is highly unlikely
that they will accept

at a time when the
capital account of China

if anything, would recommend
from an economic point of view,

a depreciation of the yuan.

They will never accept a massive
appreciation of the kind

that would make the difference
for the United States' trade deficit

in the way that
Donald Trump would like.

So, this to be pie in the sky.

No new Plaza Accords between the
United States and Beijing this time,

are on the horizon.

In that sense, it looks very unlikely
that what Donald Trump wants,

at least, both his objectives

of shrinking the US trade deficit and
maintaining the exorbitant privilege

of the dollar

that both these objectives
will be satisfied at once in 2025

in the next four years.

The great question however,
for 2025 and beyond,

concerns China's dilemma.

Will Beijing will decide to stay put,

gaining time until the United States
internal contradictions,

Trump's conundrum and dilemma

plays out, or will Beijing make
the choice that it has not made yet,

they have not
made up their minds yet,

and I think reasonably, will however,
at some point, make the choice,

make the decision to
convert the BRICS area

into a new version
of Bretton Woods

just as Bretton Woods had
at its heart, the US dollar

for the BRICS area to have
the yuan at its heart

with more or less
fixed exchange rates

between the yuan, the rupee
and other currencies

and with a view to recycle China's
surpluses within the BRICS area

because that would be the greatest
and most lethal danger

for the exorbitant
privilege of the dollar.

This is not a decision that
has been made as yet.

Well, in 2025 or in the
years following 2025,

I think we shall know the answer.

'Till then, be well.