Trump's global tariff war is temporarily "on hold": tariffs for most countries and regions have been delayed by 90 days, while China and the US remain at an impasse; after the EU introduced retaliatory measures, some national leaders, such as Italian Prime Minister Meloni, met with Trump in the US.
How will this trade war evolve? How can China win more friends and gain greater benefits in this game of strategy? Guancha Observer Network has interviewed former Greek Finance Minister Yanis Varoufakis on this matter.
In response to China's "achievements" in the first phase of the trade war, he warned, "Do not misjudge the situation, thinking that when the pain for the US reaches a critical point, the Trump administration will retreat." He also harshly criticized the EU's indecisiveness, asserting that the EU is the biggest loser in this tariff war. Additionally, he believes that if the Trump administration insists on closing itself off from the world, China is gaining a historic opportunity.
[Interview/Observer Network Gao Yanping]
Policy will only shift when the cost to the American ruling class becomes severe enough
Guancha Observer Network: What are your thoughts on Trump's initiation of tariffs on over 180 countries and regions globally on April 2nd? What do you think Trump's motivations or goals were?
Yanis Varoufakis: The goal of the Trump administration is very clear—I am not saying whether these goals are correct, but emphasizing their clarity. His team has publicly outlined these goals through numerous documents. It must be noted that Trump's public statements to the media differ from his true motives behind the scenes. In short, his real motives are twofold: one is to devalue the dollar by about 30%, because they believe this will balance America's trade relations with other countries globally, reduce imports from China, Europe, etc., and increase exports.
The challenge lies in how to devalue the dollar without losing its international dominance. To achieve this, they need to persuade allies and competitors—whether Germans, Japanese, or Chinese—to use the vast dollar reserves accumulated through exporting goods to the US in areas that won't undermine the dollar's dominant position. For example, the Trump administration tried to persuade Japan to use a significant portion of its $1.1 trillion reserves to purchase long-term US Treasury bonds or invest in stablecoins, bitcoins, etc., rather than switching to renminbi, euros, or yen. Their logic was to exert tariff pressure and then force the other side to accept conditions through bilateral or multilateral economic negotiations.
On April 16th local time, Japanese Minister of Economic Revitalization and US negotiation representative Akira Akazawa met with Trump at the White House. Photo by Trump's social media account.
This strategy is not unprecedented. In 1985, the Reagan administration used the Plaza Accord to take similar actions against Japan: the US demanded that the yen appreciate against the dollar, otherwise, it would impose a 20%-30% tariff on Japanese goods exported to the US. Japan ultimately yielded under pressure. But China is not Japan, and Trump's ambition is global. This is what the Trump administration is trying to do behind the scenes.
Guancha Observer Network: I know you teach economics at university. Trump weaponized tariffs against China, which once caused a collapse in the US capital market: stock prices fell, and Treasury yields surged. At the time, Trump also attempted to persuade the public that the current economic pain was for the long-term benefit of the US. My question is, how credible do you find the argument that "short-term pain is for long-term gain"? Can the weaponization of tariffs solve America's problems?
Yanis Varoufakis: We must wait and see if this constitutes a real threat. I have no doubt that this is indeed a real threat. Allow me to make a correction—it’s not just about containing China. Trump's global trade war essentially aims to completely restructure the monetary and trade system that the US established since 1971, recalibrating it comprehensively—not just targeting China, but also involving the EU. It should be noted that the EU's annual trade volume (though slightly less than China) also amounts to a scale of $240 billion.
This situation bears structural similarity to what Japan faced back then. We need to compare the Trump administration's actions with Richard Nixon's move in 1971. At that time, the US destroyed its own Bretton Woods system (which operated from 1944 until 1971), but this approach came at a great cost to the US itself.
Therefore, we must recognize that the current US strategy of maintaining hegemony even at the cost of its own interests is identical in logic to Nixon's actions. Although the Nixon shock inflicted significant costs on the US in the 1970s, it was a carefully calculated move—despite severe losses for the US, the impact on Germany and Japan was even more devastating, thereby enhancing the competitiveness of American industries. This strategy hinges on a core assumption: capitalists from Germany and Japan, who hold dollars earned from the US, will eventually flow back into the US market. Thus, although the US incurs costs, it ultimately prevails. However, this “victory” comes at the expense of the majority of Americans—the shadow of the Nixon shock still lingers for many Americans today.
It must be made clear that this is not merely a simple US-China confrontation or US-EU博弈. Its essence is an active strategy adopted by the American ruling class to maintain its power and strengthen global hegemony. If this strategy requires significant sacrifices from the American people, they will still proceed without hesitation. Therefore, my advice to Chinese friends is: Do not misjudge the situation, thinking that when the pain for the US reaches a critical point, the Trump administration will retreat. Only when the cost to the American ruling class becomes sufficiently severe will policies shift—this is the ultimate standard determining the development of events.
Photo from CCTV News report.
China plans multiple steps ahead, while the EU struggles with short-term responses
Guancha Observer Network: Timely reminder. We are also interested in Europe's reaction. The EU imposed retaliatory tariffs on US steel and aluminum. How do you evaluate the EU's retaliatory measures? Do you think Trump's global trade war will promote unity within Europe, or exacerbate cracks in the Atlantic alliance with the US?
Yanis Varoufakis: I believe it is instructive to compare the EU's reaction with China's, as they are both in similar predicaments: both China and the EU have multi-billion-dollar trade surpluses with the US, meaning neither can win in a trade war. Trade wars are inherently unequal—surplus countries inevitably lose, while deficit countries hold the initiative. Even if American citizens endure hardships, the damage to surplus countries is more severe because the tariff tool only works effectively against deficit countries. Both China and the EU face a common dilemma here.
Another similarity lies in the retreat of globalization. Since the 1970s, the global economic "recycling mechanism" that emerged has come to an end—Chinese factories, German factories, Japanese factories produce goods exported to the US, exchange them for dollars, and invest in US Treasury bonds, real estate, etc. This growth paradigm supporting globalization has completely ended, and even if Trump leaves office and the Democratic Party takes over, it cannot reverse this structural transformation of the post-war international order.
Both China and the EU need to restructure their economic pillars. For China, continuing to rely on an annual net export model of several hundred billion US dollars to the US is no longer sustainable. The Chinese government clearly recognizes this reality.
Therefore, both China and the EU face fundamental adjustments in their economic structures. The logic is very clear: China cannot continue to rely on an annual net export model to the US, whether it’s $300 billion, $350 billion, or $400 billion (the actual figure for 2024 was $361 billion). The Chinese government clearly understands this.
The EU faces a similar structural dilemma. It must be understood that the EU cannot continue to rely on export-driven growth either. There are two possible paths for adjustment: either fall into a severe recession (which no one wants to see), or increase internal consumption levels—redirecting goods originally destined for the US market to meet domestic demand. China is clearly moving toward rebalancing: increasing investment in artificial intelligence technology research, improving workers' living standards, building a more comprehensive social security system, etc.
In contrast, Europe lacks a key element—the EU lacks China's strategic planning capabilities. The EU is a loose alliance of 27 sovereign states, and the bureaucratic institutions in Brussels lack both political legitimacy and the practical power to coordinate. Under the current institutional framework, the EU simply cannot formulate and implement systemic investment plans like those in China.
Thus, the EU seeks alternative solutions, which is truly regrettable. They attempt to turn the military industry into an alternative path, vigorously promoting the manufacture of tanks and fighter jets, claiming "Russia is about to capture Berlin." This is entirely fabricated—its true motive is to fill idle production lines left vacant due to their inability to compete with companies like BYD. Using arms expenditures to replace industrial transformation is merely a self-deceptive expedient measure.
On April 3rd, Macron condemned Trump's global tariff war at a meeting, calling it "cutting off one's nose to spite one's face."
France proposed taxing digital service giants like Google, Apple, Airbnb, and Uber, which seems reasonable but is actually clumsy. China's experience provides a stark contrast: China chose strategic isolation, excluding Silicon Valley giants, and nurturing its own technological giants. This strategic decisiveness is exactly what Europe lacks.
If Europe adopts France's proposal to tax digital services, tech giants may relocate from Ireland to New York. Then, if Europe wants to upgrade its game, it would need to emulate China by banning Google, which is politically inconceivable—just imagining this scenario could give European politicians heart attacks.
There is a significant difference in strategic thinking between China and Europe: China plans several moves ahead like a chess player, while the EU is mired in short-term responses. The US thinks far ahead, China looks to the future, while the EU struggles to achieve even basic coordination—after all, we are a loose alliance of 27 countries, and the Brussels bureaucracy lacks both political legitimacy and practical authority. This means Europe is destined to become the biggest loser in this tariff war, with Trump being the instigator of this chaos.
China and Europe need to reach a certain strategic consensus, and China should take the lead in this process
Guancha Observer Network: Despite what you said earlier, that Europe is not a country and the EU is a loose confederation unable to respond appropriately, China still hopes to establish good relations with the EU because we share common interests in defending free trade, global warming, and other agendas. Just recently, the Spanish prime minister visited China and reached several cooperation agreements. Considering the US protectionist measures, do you think there is an opportunity for China and European countries to strengthen cooperation and defend the global trading system in the future?
Yanis Varoufakis: Of course. But I don't think this is about fighting for the global trading system without the US, because the system cannot function without the US's participation. However, China has demonstrated a mature stance—like an adult suddenly appearing among a group of children. China consistently maintains strategic composure, adhering to the principle of reciprocity. When the Trump administration imposed huge tariffs, China immediately retaliated. This sends a crucial signal: China is ready to open a new chapter in history, no longer relying on the US market as a support for net exports. This is extremely important.
The current common predicament facing China and Europe lies in the fact that both are trade surplus countries. The essence of international trade dictates that it's impossible for China and Europe to mutually achieve trade surpluses in a win-win situation. Someone must assume the role of a deficit country. Therefore, China and Europe must break away from the mindset that "two economies need to rebalance," and stop fixating on achieving specific ratios of trade surpluses. China can continue to expand exports, but must simultaneously increase domestic demand. This requires China and Europe to reach a certain strategic consensus, and given the EU's lack of a unified government, China should proactively lead this process.
Specifically, China can propose jointly implementing an economic stimulus plan with the EU to jointly address the impending global recession wave. Such cooperation not only boosts internal demand in China and Europe but also forms an effective countermeasure against Trump's tariff war. For instance, central banks from China and Europe can collaborate with both governments to establish joint demand stimulation mechanisms. More importantly, China can help revitalize struggling industries in Europe through technology sharing—similar to how European enterprises came to China to build joint ventures twenty years ago.
China's green technology advantage is evident, particularly surpassing Europe in battery and solar panel fields. In response to the survival crisis of Swedish battery giant Northvolt, China can propose joint ventures to assist in the development of Europe's new energy industry. This pragmatic cooperation can rebuild trust and allow European citizens to genuinely feel China's sincerity. Although the EU has recently followed the US in adopting containment policies towards China, China should still take the initiative to show goodwill, creating strategic room for maneuver—even if it cannot expect the EU to fully embrace this, it demonstrates China's strategic vision and historical magnanimity.
If the Trump administration insists on closing itself off from the world, China is gaining a historic opportunity
Guancha Observer Network: You mentioned that China has entered a new chapter, yet China remains a steadfast defender of the international order, an advocate of economic globalization and trade liberalization, and a staunch supporter of the World Trade Organization. So, when Trump is destroying the international order, how do you think international organizations like the WTO should keep pace with the times and play their proper roles?
Yanis Varoufakis: Here lies a fundamental issue: when we claim to "defend the global order," we must be clear that the essence of globalization over the past 50 years has been imbalanced. This system was built on a dangerous premise—the US maintained massive deficits, absorbing dollar reserves from all surplus countries like China, Japan, and Germany. This model did indeed bring immense benefits to the American ruling class, who used the dollars flowing in from China, Japan, Saudi Arabia, Russia, etc., for capital operations. However, China should not endorse this unbalanced order that harms the American working class and undermines the development of the Global South.
China should raise the flag of building a new balanced order. Specifically: instead of maintaining the old system, push for establishing a new global governance framework based on mutual benefit and win-win outcomes. Regarding institutions like the WTO, IMF, and World Bank—as a Western leftist, I always believe these institutions serve the interests of Western capital. But even so, if China can push the WTO toward fair trade mechanisms, liberate the World Bank from Wall Street control, and build a multipolar global payment system, this would be a disruptive initiative.
Currently, the United Nations has become a tool of American hegemony, frequently using veto power to block any beneficial initiatives. But if the Trump administration insists on closing itself off from the world, China is gaining a historic opportunity: by constructing multilateral mechanisms serving all humanity, not only can it weaken the risk of a new Cold War, but it can also win support from the Global South, and even potentially prevent Europe from falling into the困境 of strategic neglect. This is China's strategic initiative—using multilateralism to counterbalance American unilateralism, avoiding the escalation of a new Cold War while reshaping the global governance landscape. If this move is executed well, it will completely change the balance of world power.
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