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 cut

especially for corporations and the oligarchs,

the very rich 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 Accord,

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 Accord?

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 be whether 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 reasonably, will however, at some point, make the choice,

make the decision to convert the BRICKS area

into a new version of Breton Woods

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

for the BRICKS 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 BRICKS 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.