Another great interview with Yanis Varoufakis talking about Trumps recent tariffs on countries around the world and how world leaders are “reacting” to it rather than thinking strategically. The conversation starts with a quote from an article he wrote on Unherd the other day, highlighting how what Trump is doing isn’t unprecedented.
Commentators should know better than to pretend that the shock Trump is now delivering is both “unprecedented” and bound to fail like all “reckless” assaults on the prevailing order. The Nixon Shock was more devastating than the one delivered today, especially for Europeans. And precisely because of the economic devastation caused, its architects achieved their main long-term objective: to ensure American hegemony grew alongside American’s twin (trade and government budget) deficits.
Yanis Varoufakis, Will Liberation Day transform the world?
What Yanis goes on to say after this is that while Trump may be an inarticulate fool, you can’t dismiss his team as fools. They have a plan.
This relates to something I mentioned to someone weeks back. That being that Trump is cognitively immature, effectively having the mindset of child and a bully-like one at that. But he has decades of experience being one and thus has mastered ways of manipulating people. So while he himself does not have the capacity to create an economic “plan” of this complexity, his team most definitely does.
To put this another way, Trump probably just approached his team and reiterated his simple needs which would benefit him the most (i.e. power, control, etc). His team then takes what he’s asking, yes something simply articulated but also something that might seem impossible as well, and they figure out a way to make it a possibility for him.
Again, people always blame Trump but what they don’t realize is how many people, including the entire Republican Party, are enabling him. As I said before, this isn’t because he is the root cause of American issues, he’s just an avatar or symptom of the deeper cultural issues of the country that lay below the surface of it.
A controlled disintegration in the world economy is a legitimate objective for the Eighties.
Paul Volcker
Yanis then refers to the above quote, by someone Nixon consulted with prior to his actions at the start of the 1970s, that really encompasses what Trump is effectively trying to replicate today (and which Trump’s economic team suggested he could do).
Even more so, he highlights the irony of the situation, both in terms of what the foundation of the old world was built upon but also how Trump’s new world order will be built in a similar way.
Here’s the delicious irony. If you look at the liberal establishment in Europe and the United States, what are they exactly lamenting? The passing of what world? The world that was created by the Nixon Shock.
So let us not pretend that this is unprecedented. It happened before.
And what Trump’s team is assuming, or this is their conviction, it is that the world needs another Nixon Shock (this time they call it the Trump Shock) in order to maintain American hegemony against the grain of the diminishing significance of the United States economy in a grander scheme of things.
Now whether he thinks he will succeed or not is another matter. Nixon succeeded at a great detriment to the American working class…
Yanis Varoufakis
He then goes on to explain that the way things unfold completely depends upon how nations “react” to Trump. If all countries start competing with each other, effectively applying tariffs on each other in “a tariff war of all against all”, then it’s not really going to help things. If, however, countries start cooperating with each other than the outcome might be different.
In effect, the outcome of how countries react to the Trump Shock will be similar to how countries reacted to the Nixon Shock back in the 1970s.
But then he goes on to explain the precarious nature of what Trump and his economic team are trying to do.
What I find fascinating is their attempt to have their cake and eat it.
That is the Trump administration wants to reduce the value of the dollar, which they are succeeding in doing clearly looking at the markets today, while at the same time they don’t want to see the dollar losing its exorbitant privilege.
Yanis Varoufakis
In effect, to drive investment in American, they need to reduce the value of the dollar, so that other countries will invest in building factories within it (i.e. Mercedes shifting their production plants to the US), yet at the same time not lose the privilege the American dollar has as a standard in the world (i.e. reserve currency status).
At least, that’s my interpretation of it, based upon another video of his that I’ve seen some weeks back that discussed it.
This question is are the costs going to be greater than the benefits for Trump.
And allow me to say that I think from a political perspective not so much from an economic perspective, Trump’s greatest enemy, the thing that should keep him up at night with terrible nightmares, is the prospect of complete success.
Because suppose he succeeds. I’m not saying he will. But suppose he succeeds beyond his own dreams to eliminate the trade deficit of the United States through these tactics. Let’s say he does it.
He’s going to have some very angry mates in the New York Stock Exchange and the real estate market.
…
He will have to choose whom to betray. The American working class that voted him in or his mates in the financial and real estate sector.
I think you know who my guesses are.
Yanis Varoufakis
In other words, his guess (I’m assuming) is that the American working class will be the one’s betrayed (which will be “the ultimate test of MAGA” as his interviewer notes).
Even more so, he stated, that if the investment of foreign companies into America don’t produce good quality jobs then “the impoverished working class that voted for him are going to be very disappointed with him.” Additionally, this working class are “going to continue to lose bargaining power and purchasing power, like they have since 1975.”
In effect, the very detrimental results of the Nixon Shock on the American working class in the past could be the very same results of the Trump Shock on the American working class in the future.
All said and done, what this highlights is how repeatedly throughout history world leaders often use and exploit their own people to further their own ends. That’s not real leadership.
This is why we need a newer form of leadership today, one more evolved that can understand the complexity of our world and make it better for all, not just a few.
In other words, leaders who have the capacity to think and envision beyond zero-sum games.