Definition of Kafir: someone who conceals (rejects) the truth – kufr is the opposite of Imaan.
Definition of Najis: something or someone who is impure. Najasah is the opposite of Tahara.
Racism by definition entails discrimination and unjust behaviour towards a certain individual or groups of individuals.
A kafir is termed is impure because they tend to reject the existence of A God despite all the rational proof that is available to him.
By terming a kafir as najis, this is not similar to racism, because the kafir under the framework of an Islamic government system enjoys full freedom – they are not resticted from owning private property, or worship their own gods, or engage in trade, etc. They are not forced to pay additional taxes nor are they denied any government aid based on their faith system. They may not be insulted or humiliated for their beliefs. In short, the kafir enjoys all the freedoms, rights and benefits that a muslim enjoys when it comes social, political and economic issues. Hence saying they are najis is similar to racialism is incorrect.
Having said this, when we say a kafir is najis (I.e. impure due to his rejection of the right path) all it means is that if the kafir touches a muslim or a muslim`s belongings or food items with wet hands such that the wetness is transferred, the muslim must wash that part of his body or item with water. Why? the reason is that the kafir is not obliged to abide by Islamic codes of conduct during his everyday life and hence may come into contact with prohibited articles such as alcohol, pork, etc. Hence, to ensure muslims don’t carry the remnants of these items, we wash our hands (make tahir) if we shook a hindus hand which was also wet. Hence, no offense should be taken. All that is being done, is that guidelines are being set for co-existence such that no party through their interactions compromise the others faith system. It is essential we do not carry traces of these impure objects especially while in a state of worship.
It should also be noted that many times a muslim may be in a state of najasah as well – like the time after janabah but before taking ghusl such that at this time, even a believer is prohibited from entering masjidul haram – for example – hence the kafir should not feel that he has been singled out.
In regards to food cooked by the kafir, the fiqh ruling is that so long as you are sure that they have touched the food with wet hands, then you may not eat – for the reason stated above.
Secondly, Islmamic research has shown that there is a deep connection between the food we consume and our level of spirituality. Our flesh and bones are built through the food we consume, and we use this same flesh and blood to worship the Almighty – Allah has willed for us to be pure in our flesh and blood (i.e. body) as well as soul. Hence the person preparing the food as well affects the eater`s spirituality – which is in Islam we have numerous traditions that recommend a mother saying Bismillah and being in wudhoo before she feeds her child.
In my opinion, man is always transmitting energy – positive and negative – these are defined through his faith system, and Allah through his wisdom would like to protect us from negative energy which may be transmitted to the muslims.
Apart from this, there is no restriction in interacting with the kafir.