In a world already defined by deep fragmentation and strategic distrust, the Trump administration’s latest foray into aggressive protectionism threatens to trigger consequences that are graver than they first appear. As former Greek Finance Minister Yanis Varoufakis warned recently, the real loser in the widening tariff war is not China but the European Union – and, by extension, the postwar global order painstakingly built by the United States itself. Speaking with his characteristic candor, Varoufakis argued that the EU is now “caught in a vice,” unable to chart a coherent path between Washington and Beijing. More provocatively, he suggested that China’s rise, fueled by the Trump administration’s retreat into economic nationalism, marks a “historic opportunity” for Beijing to redefine the rules of global commerce in its favor. The diagnosis is blunt but difficult to refute: what we are witnessing is not merely a clash of tariffs or a scuffle over supply chains, but an attempt to fundamentally remake the international monetary and trade system that the United States has underpinned since 1971.
The irony is unmistakable. After World War II, Washington led the construction of an open, liberal order – anchored by the General Agreement on Tariffs and Trade (later the WTO), the Bretton Woods institutions, and an implicit promise to keep global markets relatively free and stable. America’s prosperity – and security – depended on the rest of the world buying into that vision. Now, Trump’s America seems intent on dismantling it. The White House’s latest salvo, announced earlier this month, imposes sweeping tariffs not only on Chinese goods, but also on a wide array of imports from the EU. These measures come despite repeated warnings from economists, policymakers, and even members of Trump’s own party. The administration’s rationale – that these tariffs will revive American manufacturing and protect national security – rings hollow in an interconnected 21st-century economy where supply chains span continents and technological innovation thrives on openness.
Varoufakis, who once locked horns with the EU during Greece’s debt crisis, is no stranger to the internal contradictions of Europe. His critique now focuses on the EU’s impotence in the face of escalating American protectionism. Europe’s internal divisions – between the Franco-German core and the increasingly nationalist periphery – have left it politically paralyzed. Efforts by Brussels to forge a unified response have been half-hearted and slow-moving. Germany, still struggling with the fallout from its overreliance on Chinese markets, is particularly reluctant to escalate tensions. Meanwhile, smaller European economies fear pressure from both Washington and Beijing if they take sides too aggressively.
If Europe appears weak and confused, China is seizing the moment with strategic clarity. Beijing has doubled down on its “dual circulation” strategy, insulating its economy from external shocks while deepening ties with the Global South. In recent months, Chinese President Xi Jinping has signed major trade agreements with Malaysia, Vietnam, Brazil, South Africa, and even some Gulf nations – deals that pointedly exclude American and European companies. Moreover, the trade war is not just about goods and services. It is, as Varoufakis notes, an audacious effort to reframe the monetary system. Since President Nixon abandoned the gold standard in 1971, the U.S. dollar has served as the world’s reserve currency, giving Washington unparalleled financial power. Trump’s trade war – combined with sanctions weaponized against geopolitical rivals – has accelerated efforts by China, Russia, and others to create alternatives to the dollar-dominated system. Already, the yuan is making modest inroads into global trade settlements, and discussions about a BRICS currency are gaining traction.
None of this is to suggest that China faces an unimpeded path forward. The Chinese economy is grappling with a property sector crisis, demographic headwinds, and a complicated transition toward a more consumption-driven model. But relative power shifts are not measured in absolute terms. If the West stumbles while China merely maintains its position, the balance of global influence will inevitably shift. Beyond Europe’s paralysis and Trump’s belligerence, the broader West has failed to articulate a cohesive vision for globalization in the 21st century. Meanwhile, Europe oscillates between strategic autonomy and Atlanticism, unable to reconcile its economic dependencies with its security alliances. The result is a vacuum – one that China, with its massive Belt and Road Initiative, AI ambitions, and relentless diplomacy, is eager to fill.
History teaches us that economic isolationism rarely ends well. The U.S. Smoot-Hawley Tariff Act of 1930 deepened the Great Depression and sowed the seeds of global conflict. Today’s trade wars, unfolding against the backdrop of climate change, technological disruption, and geopolitical rivalry, risk producing similarly destabilizing outcomes. If Trump succeeds in reconstructing the global economic order on a foundation of tariffs and unilateralism, it will not be a world where America is “great again.” It will be a world where the United States is isolated, where Europe is sidelined, and where China emerges – by default rather than by design – as the principal architect of a new, less liberal order.
The stakes could hardly be higher. Yet the political debate in the United States remains mired in short-termism and populist rhetoric. Trade policy, once the domain of serious, bipartisan discussion, has become another arena for nationalist grandstanding. Meanwhile, Europe dithers, China maneuvers, and the rest of the world watches, recalibrating its allegiances and ambitions. In this unfolding drama, Yanis Varoufakis offers a sobering reminder: the West’s greatest vulnerability is not external – it is the erosion of its own foundational principles.
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