“The Anti-Chinese Narrative Leads Humanity To Destruction”

GUANCHA.CN: Today, we have an immensely interesting person sitting in front of me, who is best known as the former finance minister of Greece during the country’s sovereign debt crisis. But before that, he had a lesser-known career in Valve, one of the leading gaming companies, to manage the virtual economy. But there’s much more to his personality. He’s a biker and a movie character, literally a movie character. He appears in countless news, and stories and podcasts. As the media put it, a maverick economist, progressive politician, and most importantly, a provocative thinker, and his bestselling book, Techno Feudalism-What Killed Capitalism just came out this year. He is Yanis Varoufakis. Welcome, Yanis. You are a very complex figure. There’s so much information about you. And I had imagined various ways to open our conversation, but I just want to stick to the basics like, how are you doing these days?

Yanis Varoufakis: I am very lucky, because in the midst of one of the worst periods of humanity, except for, perhaps the second world war, this is a bleak period. There are genocides happening in the war in Gaza, in South Lebanon, a bigger war in Ukraine, and a new intensifying and highly combustible new cold war between the United States and China.

Climate catastrophes are hitting us left right and center. And yet we didn’t know this. And having suffered some of the slings and arrows of very political repercussions on a personal basis. Nevertheless, I am here in front of you, saying that I’m very privileged because I’m almost 64 years old now. And I have retained the most precious gift, a capacity to not have a boss, and not have to say something I don’t believe in of writing my books, of talking to good people like yourself and the audience, and to do it without fear or passion. That is a godsend. It isn’t something I’ve always aspired to. So in that sense, I’m well.

The Anti-Chinese Narrative Dominated by the US

GUANCHA.CN: Let me begin with the most recent. Why are you in China? What brings you to China?
Yanis Varoufakis: I’ll be frank with you. I have many invitations to go to different places. That’s not necessarily a good thing, because I don’t like traveling much. I’m tired. I’ve traveled too much. Airplanes are black. If we were to travel the old-fashioned way, a small boat or even a ship, it would be different, but I don’t like flying.

So why am I here? It is my considered opinion that the world is not so slowly at an increasing pace, moving towards a major confrontation between the United States and China. I’m amazed by the concerted effort in Europe and in America to poison public opinion with anti-Chinese propaganda. This is all part of the process of preparing the population for a clash. You can see this clash started 10 years ago or so. Gradually, the US began to present China instead of a great success story of globalization as a great threat, then you have Donald Trump introducing tariffs against Chinese imports.

Then you had the election of Joe Biden who was supposed to be the anti-Trump. And many people hoped and believed that Biden would reverse the new cold war that Trump started against China. Instead, he signed the Microchip Act to ban the import and export of chips to China. It was essentially the American government saying to the Chinese people and to the Chinese government, we’re not going to allow you to become a technologically advanced country, which is madness because China is a technologically advanced country. And it’s becoming increasingly so.

Now, in Europe, in the last 2 years, maybe three, I noticed that there is a lot of external pressure to adopt the anti-Chinese rhetoric narrative.  For instance, the German chancellor, Olaf Scholz was in China a month ago, trying to mend fences with the Chinese government, but he’s not allowed to do it by somebody. He came to China to promote trade, but when he went back to Brussels, the European Commission began to impose tariffs on Chinese exports, especially electric vehicles, which are against the policy of the German chancellor. That has never happened in the history of Europe. The Brussels bureaucracy, which is unelected, supposedly, is simply an instrument of national governments. But now it is imposing a Chinese policy which the German chancellor disagrees on German.

Now, the reason why this is happening is because Brussels has been completely sold to the United States. Ursula von der Leyen, the president of the European Commission, is essentially totally aligned with the United States. She’s more or less an employee of the United States. EU’s foreign policy chief, Mrs. Kaja Kallas, the former Estonian prime minister, who is a NATO plant, and who in 1/2 crazed manner, has advocated even the breakup of Russia and nuclear war.

These people now are running Europe. And they cleared sections from Washington as part of the new Cold War to go against the interests of Europeans by reinforcing the economic war with China. I was reading the Guardian yesterday. All hell has broken loose in the Middle East. Europe is shrinking. The German industrial model is collapsing. Britain is in tatters. The United States is facing an inconclusive election between a madman and a nobody. And yet the Guardian yesterday led with anti-Chinese articles. One was a made-up story about Chinese migrants to Europe. There were three, it made the big article of 3,000 words out of it.

So you asked me why I’m here? Because I’m very worried that the US will use Taiwan as an excuse, not a reason, or some other opportunities, to start a military confrontation against China, when we should be collaborating primarily to end the destruction of the planet as humanity.

And we’re not doing that. And we are talking about nuclear catastrophe. So for a while, I’ve been canvassing in Britain, in France, in Germany, in the United States. Recently I was in Australia and I gave a speech at the International Press Club, a very influential outfit, which was televised on state television, in which I admonished the Australian government or a series of Australian governments for having adopted the anti-Chinese, pro-United States or totally embedded in the United States attitude.

So I see my trip here in China as a way of building bridges and creating an international solidarity network, not for China, but to end the anti-Chinese narrative, which is a narrative that leads humanity towards destruction.

GUANCHA.CN: So the anti-Chinese narrative, as you mentioned, I think the core of it is propaganda that China seeks to expand its territory. It’s basically geopolitical revisionism that China wants to seize the South China Sea and the East China Sea and move against Japan and so on. So that kind of rhetoric, you’re saying the real source of confrontation or conflict or rivalry between China and the US is nothing about that. And what is the core confrontation that you have identified?
Yanis Varoufakis: This conversation is operating at two different levels which reinforce one another. One level is the geopolitics. Through my discussions with policy makers in Washington. It is clear to me that they are split between two camps. One camp opposes the policies of Washington, which is establishment politicians and policy makers. These are not talking about progressives, part of the democratic socialists of America. I’m talking about the administration of whichever party wins, because the Democrats and Republicans are actually two parties under one system.

One camp is saying we made a mistake with Ukraine. We should not have started a coup in 2014 to stock the fires of confrontation between Ukraine and Russia.

And after Putin invaded Ukraine, we should not have gone all out in a never-ending war, in support of a Ukrainian army, which is not capable of winning, but to barely maintain the current situation with NATO and American support. So the camp says that it’s a mistake to have supported Ukraine and stopped any chance of a peace process. If it wasn’t the Americans and the British, primarily the Americans pushing for a never-ending war, Zelenskyy and Putin has already reached a compromise. They are also critical of the support of Netanyahu in Israel, because their number one priority is China. They think this is distracting US from containing China. The second faction of the deep state is to say, no, we should be doing both. We should be attacking Russia. We should be supporting everything to contain China.

Michael Waltz, the national security adviser nominated by Donald Trump, is an advocator of the idea to deal with Ukraine in a short time and focus on containing China

So in the end, the both sides believe in containing China. If you actually ask them, why are you interested in containing China? What their answer is?

“Because the Chinese want to do what we are doing. The Monroe Doctrine, 200 years old doctrine, which was what we don’t want anyone in our hemisphere, telling fallen powers stay out of our hemisphere.

The Chinese are doing this now. We cannot allow them to do this because if we don’t have military bases choking the Chinese navy, the Chinese commercial fleet, or to make sure that we control who passes and who doesn’t pass through Indonesia and Singapore and so on. If we don’t do it, then the Chinese will come to our hemisphere. And they will create choking points there.”

That is a complete fallacy. It’s just ridiculous. Anybody who knows anything about the last 2,000 years of China knows that China is not interested in doing that.

GUANCHA.CN: But their argument is that China was willing to do that, but not capable of doing that.

Yanis Varoufakis: You see, this is the tragedy of the bully. If you’re a bully, you fear. Every time you are violent to somebody, you are fearful that if you did it, somebody else will do it. So this is the paranoia of the bully. This is at one level, but then for me, this is another level because that analysis is missing an important point. In the 1990s, the US inducted China into the world trade organization. Didn’t they know that China would grow big? Were they that stupid? When Apple placed its iPhone production line in China, didn’t they foresee that one day in the future, China would produce its own iPhones, and thus sooner or later become a competitor?

Just like Japan, was allowed by the US to have trade with the US, thus grew magnificently. And then at some point, Japanese cars destroyed the American car industry. Didn’t the Americans foresee this before? I don’t believe the Americans are stupid. I believe they knew it, but they didn’t mind because the bigger China got, the greater the amount of dollars Chinese capitalists accumulated. And what did they do with that? They took it to the US. So the US didn’t mind that.

But there isn’t a very big missing piece in this analysis. Then I’m coming to the second level of my analysis, which is also part of my latest book.

Techno Feudalism-What Killed Capitalism, Yanis’s Latest Book

The Frontier of US-China Confrontation: Dollar Hegemony VS the Rising Chinese Cloud-Finance

Since 1968, 69, the United States is a major deficit country. After the war. It is a surplus country in the 1950s, because Europe was destroyed. China was nothing. Japan was are occupied. The US was the only country in the world capable of producing magnificently. They were producing cars, washing machines, airplanes, consumer goods, Coca cola, Marlboro cigarettes, everything, that the world wanders. We all wanted them, American genes, the whole thing. So it is a surplus country.

Their great worry in 1948 was how would they sell all this stuff. This is similar to one of worry that China has now. You rely on a lot of net exports. How would you sell? In the case of the United States, it was facing Europe and Japan that were destroyed. There was no money there. So what did they do? They sent money to Europe and to Japan, get them dollarized. And that’s how the Europeans and Japanese bought American goods.

So the US first sent money, and then the money flowed back through trade, so the US had full employment in the 1950s and was a surplus country. Since 1969, the US is no longer a surplus country, it has fallen into a deficit.

Just briefly two reasons. One is the Vietnam war. They were spending for the war, and therefore the government was going into deficit. And that money was accumulating in America. The Americans were using it to buy Japanese cars and French wines. I’m just making it very simple, but that’s more or less the story. And the second reason was because they had helped the Ferman and the Japanese industries improve their efficiency. And so in the end, the German and Japanese factors were more efficient than the American ones.

Now, in 1971, the American government and the president Nixon, to be precise, on the 15th of august of 1971, decided to blow up the system they had created, and essentially to stop sending dollar to the rest of the world. Instead, they decided to take the dollar away from the rest of the capitalist surrounding realm. They started doing something else. They used their deficit in order to create demand for the net exports of Japan Germany, Italy, and eventually China.

And then if you’re a Chinese business person selling aluminum to Los Angeles, and you get dollars, what do you do with that? You take it to America. You invest in American bonds, so you finance the American state. You buy a real estate in California. And you buy some shares in companies, they allow you to buy it, but they don’t allow you to buy a lot of companies, right. And that’s great for America.

The Congressional Budget Office estimates the federal budget deficit to be $1.8 trillion in fiscal year 2024. The projected deficit for 2024 is $139 billion larger than the shortfall in fiscal year 2023.

But this whole hegemonic power, this is incredible thing. It’s the only time in human history that the empire gets stronger by being in deficit. This has never happened for the British empire, the Roman empire, the Spanish empire, the Dutch empire. All empires up to now went collapsed once reduced into deficit. That’s why governments are very scared of deficits, but the Americans, when they went to deficits it again, they’ll make it bigger. They will grow their deficit and make other people pay for it, but that requires the monopoly, the monetary transaction system, which they have.

Why am I saying all this? Because to understand the new cold war, you have to understand the terror in the hearts and minds of officials in Washington that they will lose this monopoly over money over the payment system, the international payment system. In the middle of this nightmare for them, is China, because China is the only country in the world that can create an alternative payment system at the international level. It’s nowhere near doing it yet in a way that would seriously damage the dollar, but they can see it happening.

That is why I think they are prepared to unleash not only economic warfare like Trump and Biden did, but actual nuclear warfare. Why is China a threat? We all know. Here in China, you pay with Wechat. In Europe and America, we pay with Google Pay, with Apple Pay, with all sorts of digital payment. We know that power to accumulate has shifted from diesel engines and railways to owning the algorithms, what I call cloud capital in my book.

Which countries own cloud capital? China and America. So China is becoming a competitor to the US in a realm of capital, which is now giving maximum power to whoever owns it. But that’s not the whole story.
Now we have something else, Chinese banks and Chinese big tech. And I think Wechat is a very good example emerged. So you can make payments using Wechat and you don’t pay for it. Wechat doesn’t withhold a percentage of commission for you to make payments. In the US and Europe, if I pay with Google Pay, Apple Pay, a percentage of cut goes to the bank. The bankers in America, Wall Street and big Tech, what I call cloud capital, are not collaborating. They are refusing to collaborate. Why? Because the bankers do not want to share their banking rents with big tech, with Silicon Valley. They’re clashing. The dollar payment system is fragmented because of this clash between the business interests of Wall Street and the business interest of the owners of cloud capital.

In China, you have the state regulation. You have a communist party, telling the bankers what the limits are and telling Tencent and Alibaba and so on what the limits are. Chinese cloud capital and Chinese finance have merged into what I called cloud finance

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On June 16, 2021, staff from the Beijing Branch of the Bank of Communications guided tourists to sign up digital RMB wallets.

China has another great advantage, which is the digital RMB (E-CNY), the digital currency of the central bank of the People’s Bank of China, which is a magnificent tool.

Because if everybody has one account with digital wallet belonging to the state, to the central bank, essentially, you are free of the bankers. The bankers will have to find ways of convincing you to put money in the bank. Because you don’t need them anymore. You can make transactions using the digital currency that the central bank gives you.  So this really increases the efficiency of cloud finance and creates competition for the bankers and poses as an alternative to the dollar.

Think of it, take a German producer for example, which is a real instance. They made large propellers for ships that are built in a shipyard near Shanghai. The metal, the aluminum or the steel is produced in China. The materials go to Germany, where they become a propeller and come back to China.

If you’re the German producer of the propellers, before the digital RMB, you had to buy the metal from China, which means you would have to tell Deutsche bank to tell the Bundesbank to tell the ECB to tell the Federal Reserve, to tell the People’s Bank of China, to tell the private bankers in China and to all the producer of metal, that a certain amount of money has gone through. Every time with every such node, you pay something and you give control to the Americans who are in the middle of this chain.

And then when the metal comes and you produce a propeller and you send it back, the Chinese sapiens has to go through this whole process again to pay you. But with a digital account that the People’s Bank of China produces the German one, the German manufacturer can have a nap. Also, it’s not confined to Chinese citizens. Then you can pay by pressing a button, and the shipyard can receive the payment by pressing a button, of course, in RMB, not USD. Since Germany has business dealings with China, such as purchasing Chinese electric cars or solar panels, why must it use USD?

That is a clear and present danger to the hegemony of the United States. For me, this is the reason why the new cold war is being unleashed against China, because the Americans are very smart people. They know that they are not hegemonic for producing the best things anymore. They are very good with technology, with Nvidia and so on, but they don’t produce the microchips, Taiwan produces them. So they know that the manufacturing sector of China is twice the size of the American. So they know that if it comes to making things, they are not hegemonic.

So where is their hegemony from? Not just the army. It’s because they have the dollar as the monopoly. But they can see that the Chinese have created superhighway for money. It’s not used very much. It’s like building a five-lane highway with very few cars. We will need money going up and down. Only 1 % goes through this, but the war in Ukraine has created interest for this Chinese superhighway of money by Russians, by Saudis.

Let’s say you are a Saudi emir, and you have lots of oil money, petrol dollars. You see Americans confiscated $450 billion from the Russians. Maybe they won’t like me tomorrow and maybe they will confiscate my dollars. What do you do? Perhaps you won’t put all your money in the Chinese superhighway, but you put some, you hedge your bets, right?

The Americans saw that. And suddenly they realized that their old-fashioned, fragmented, and backward, e-payment system, which was the only one in the world, now has a superhighway competing with it. They are prepared to launch a nuclear war to stop the flow of money and transactions from their highways to China’s superhighways, because they know that once this transfer begins, American hegemony will end

GUANCHA.CN: You have mentioned the hegemony of the dollar. When you look at the post war international system, the Americans would say they offer protection against the Soviet Union and et cetera. They built an ally system to give military protection with the threat of violence. So precisely because America has the biggest the biggest navy in the world that give rise to the kind of raw power that you saw in the feudal society, the feudal lords, exactly. They demand peasants to work on the fields. If you don’t obey, they will crush you.

Now, I think we are at the time that China has under this international system developed, like you said, a superhighway that peacefully with peaceful means. And the United States clearly regards that as a great threat, and they probably will use violence to attack that. Do I understand it correctly?

Yanis Varoufakis: They are already unleashing a trade war. It’s got nothing to do with electric vehicles. It’s got nothing to do with China having a surplus, because it was always part of the plan. The same way that it was a part of a plan to get Germany have a surplus, to get Japan have a surplus.

GUANCHA.CN: Germany and Japan were occupied countries.

Yanis Varoufakis: Indeed, you are absolutely right. A good example is 1985. In 1985, with the Plaza Accord, the US government decided that they want to diminish the Japanese surplus, not eliminate it, just diminish it substantially. They want to regulate the extent to which what they were interested in to reduce Japanese acquisition of American companies. Because the higher the trade surplus of Japan in 1985, the more dollars the Japanese had, and they could buy American companies. They could stop it from buying American companies, but it was easier to reduce the amount of dollars Japanese have, so they don’t have to intervene every time they want to buy a steel company or something. And the Regan administration convened the plaza debates, which led to the Plaza Accord. In simple terms, Japan accepted the US’s instructions and let the yen appreciate sharply against the US dollar. Then, the Japanese miracle ended that day. Why did the Japanese agree? Because as you said, it is still an occupied country. For example, the US military bases in Okinawa.

So this is the problem that the Americans have with China. It’s not an occupied country. China is not going to do as the Americans instruct them to do.
This is why reliance on net exports by China is a mistake. And this is why you need as a country slowly, but not so slowly, gradually, to eliminate your trade surplus with the West for your own national security.

GUANCHA.CN: That’s why China has been building different initiatives like developing partners with the rest of the world.

Yanis Varoufakis: At the same time, however, there is no substitute for increasing domestic demand, because China’s orientation towards the Global South is a very good idea, but not in order to find alternative markets to the West for net. It’s important to trade more with Brazil, to trade more with South Africa, with Zambia, with Bangladesh, with Pakistan even with India, in spite of the confrontation between China and India. It is important, but those countries cannot afford to absorb your net exports.

Increase exports, no problem; but China also has to buy more from them. So, in order to be a good partner of the global South, it is important for China to reduce the size of its net exports. You can increase exports, but you must also increase imports, right? But then you don’t have net exports. Because if China maintains net exports, it is exporting unemployment to these countries, exporting deflation, and increasing their dependence on China, and China doesn’t want to do that.

So how can we reduce the trade surplus between China and Europe and the United States without passing it on to your friends in the Global South, your real partners? The answer is to boost domestic demand. China needs to increase social wages. I think a basic income system should be established. Imagine that everyone can receive 2,000 yuan every month.

China and the United States Should Avoid Falling into the Thucydides Trap

GUANCHA.CN: That’s a very interesting proposition. I want to ask you this, because I think you have identified the core of the conflict nowadays in the world. And there’s a saying by a lot of geopolitical analysts, they say that China and US, they are destined for a clash because they will struggle, fight vying for a global dominance. That’s called the Thucydides Trap. That’s a pure power dimension. But what you have mentioned is that China is the threat in the other way. I think this is why I saw on your book, there’s this endorsement from professor Jeffrey Sachs. He calls you the Thucydides of our time. By this, perhaps he meant that what you have discovered is the real core contradiction between the two major powers

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Graham Allison, the originator to introduce Thucydides Trap theory into the analysis of China-US relation.

Yanis Varoufakis: Jeff is a good friend of me. It’s nice to hear him saying that, but this trap has nothing to do with Thucydides. That is an American idiocy. It’s an American misinterpretation. Indeed, Thucydides described the history of the Peloponnesian war. Athens rose militarily when Sparta was the great military power of ancient Greece, led at some point of confrontation. But the greatest stupidity of the human mind is to think that what happened in the past inevitably will happen in the future.

To imagine that the past events of slavery in a “democratic” country and a slave society – Ancient Greece was a very primitive society, although it was very advanced in philosophy and architecture, it was still very primitive overall – is the fate of today’s human beings. That to me is a testimony to the lack of imagination of those who have the most power, because there is an alternative to confrontation. How about cooperation?

America has already achieved technological advancement. Now you have China coming up with its own technological miracles.  But in America, the vast majority live in conditions of utter misery. You have a very low level of human accomplishment in the United States. There’s a great book called Deaths of Despair, which mentions that the US has obesity, suicide, gun violence, and a middle class that is withering away under the squeeze of deflation and inflation. American airports look like the third world, bridges are in disrepair and collapsing, and roads are full of potholes.

Why not trade and cooperate? Why not reach an agreement to remove military bases? The Chinese could say to the Americans, commit never to build a Chinese military post in the Americas. We don’t want to. It costs money. It’s ridiculous. Why do we want the military base in the United States or near it? And you Americans should take away your military bases from us. We will open up international waters. We will remove our navy, you will remove your navy, right? You stop choking us with idiotic tales about Taiwan. Let’s collaborate so that our people’s living standards can improve simultaneously.

Okinawa people protested against the US military base.

If you were an extraterrestrial, a Klingon from Star Trek and you arrived from outer space and you looked at the Earth, a small little blue ball, right? And you’ve got these people in there and they are trying to find ways of killing each other while poisoning their oxygen. Won’t you think that this is stupid?

GUANCHA.CN: Yeah, it is. But the realists would say the Earth is an iron case.

Yanis Varoufakis: Why can’t we find the common interests? That is why we humans fail. We are not very good at converting a common interest to common action. We have a common interest to stop poisoning the atmosphere. Right? But we cannot convert this to a common program. Why? Because it’s something we call the Prisoners Dilemma or the Three Rider Problem. The idea is this, I know and we all know what needs to be done, what should be done. We all agree on what needs to be done because we have a common interest.

If everybody else does the right thing, I’m better off doing the wrong thing. Because the wrong thing doesn’t cost me. I don’t pay the price for looking after the environment, for looking after everybody else. Everybody else looks after the common interest. So in the end, the good happens but I benefit more because I have not participated myself in the efforts.

GUANCHA.CN: So selfish became a virtue in that case.

Yanis Varoufakis: So if you look at it from this stupid, individualistic perspective, I’m better off doing the wrong thing, whatever you do. If you do that, I think which I prefer that you do, then I’m better off. If everybody does the wrong thing, I’ll be the idiot if I choose to do the right thing. In the end, everybody do the wrong thing. And everybody gets caught up in this so-called Prison Dilemma that operates at the level of the neighborhood, of your building, of the nation, of the region, of the periphery of the world.

So you have people now who make a lot of money out of this new cold war. So if you’re producing weapons, you are really laughing all the way to the bank. If you’re a banker speculating on Chinese stocks, when Chinese stocks fall because of the tariffs on electric vehicles, you’re laughing all the way to the bank. But as humanity, we are all heading straight to war, to this abyss.

So you asked me before why I’m here, because I think we need to discuss this, and we need to work towards progressive politics to help us escape from this. You can call it Thucydides strap, Prisoners Dilemma, whatever. As a Greek, I have to say that trap has nothing to do with Thucydides. But to escape this trap, that is the task of our times.

Unfortunately, in the United States, there is no state which represents the many. There is the United States that represent 0. 001 %. It is really, very difficult to come to terms to cooperate with a state that represents those who benefit from the disaster.