Slaying the global Minotaur
In a recent Substack article economist and former Greek Finance Minister Yanis Varoufakis works out the implications for today’s politics of what he calls the ‘global minotaur,’ the process whereby the United States imports goods from China and northern Europe, and in return China invests the earnings in American finance and property.
The metaphor dates to Varoufakis’s 2011 book, where he described how the US absorbs surplus capital from around the world, much like the mythical Minotaur consumed tributes from Athens. The horns symbolize Wall Street, debt accumulation, and the trade imbalance that allowed this system to function.
This ‘recycling mechanism’ — most prominently manifested as the US current account deficit/capital account surplus with China — has driven the globalisation of recent decades. It’s unsustainable in the long run and it’s helped cause the political schisms of recent years as well as the rise of the far right. The US buys Chinese goods. China invests the proceeds back in America.
Jobs have long been offshored from Europe and the US toward cheaper locations, particularly China, where workers take them up at a fraction of the wage. As the super-rich who benefit from this process rake in fantastical riches, the resulting inequality drives many voters into the hands of rightist populists and neo-fascists. Social and economic divisions are driving the rise of the ultra-right. The centrist governments that recently won by default in Australia, Canada, France and the UK aren’t doing anything about inequality.
However i’m less convinced by one of Varoufakis’s conclusions, that there’ll be:
“a confrontation with China that casts doubt on our species’ long-term prospects”
As last week’s trade deal showed, Trump is willing to back down. The US had more to lose than Beijing, which called his bluff. Chinese, Mexican and Canadian offers to control fentanyl are just pretend bargaining chips designed to give the impression that something’s being done. Trump, too, is posturing about fentanyl.
The US had more to lose in negotiations than China, as shown by the respective financial market reactions. The Dow and S&P collapsed along with the dollar and Treasuries. Chinese stocks fell less, recovered quicker and showed lower volatility. Beijing allowed the yuan to weaken on purpose to counteract the impact of tariffs. The dollar’s uncontrolled decline alongside the Treasury yield spike showed investors’ concerns about the safety of US markets.
Trump couldn’t see that the US trade deficit could be a disadvantage in negotiations — that his country needed Chinese goods more than China needed the export earnings. The Chinese economy relies less and less on trade; it can diversify elsewhere more readily than the US can source cheap manufactures from other countries; and Xi is trying to boost consumer demand to replace export earnings. China’s trade peaked at 64.5% of GDP in 2006 but declined to about 37.4% in 2023.
Globalisation means that the fortunes of the two economies remain intertwined. Supply chains are so complex that they can’t quickly be unwound. Apple, for example, can’t readily move production to the US because making iPhones is incredibly sophisticated and intricate, because it’s so rooted in certain specific Chinese locales and production networks, and because US wages are about five times those of China. The recent opening of factories in India is only about screwing things together using parts imported from China. The combination of Chinese technology, skills, networks and economies of scale would be extremely difficult to reproduce elsewhere.
I think the idea of a supposed race between two great nations might be overdone. I’d bet on a more permanent trade deal with China as the large American companies that manufacture everything there press Trump to secure their profits. Consumers will balk at higher prices and supply shortages. Trump has no spine and will quickly bend to their demands. China still wants to sell some of its goods to the world’s largest economy and it needs somewhere to invest its capital surplus. Globalisation benefited China more than any other country and the economic gains it makes from peace and stability have to be weighed against the costs of disruption — for now.
While the global recycling mechanism is unsustainable over the long run, it won’t immediately be replaced. Vanquishing the global minotaur will take time. In the original Greek myth, Theseus only defeated the beast after many years and much sacrifice. Rather than war with China, the real threats to our species’ prospects lie in conflicts elsewhere, and in climate breakdown.
