Germany is feeling the pinch of China shock. But the US is on deck too. A global trade war looms.
China Shock
Eurointelligence discusses China shock in its article Technology Is Why We Are Losing.
We are not sure that the effect of high tariffs on Chinese electric cars will work quite as intended. We are also skeptical of hydraulic theories of global trade flows – of Chinese goods suddenly starting to swamp European markets.
The much bigger problem at least for German industry has nothing to do with trade policy, but with China crowding in on previously monopolistic and oligopolistic markets dominated by German firms.
Handelsblatt alerts to research just published by the economics team of Allianz that in our view comes much closer to explaining the current dynamics. Previously, the partnership between Germany and China was complementary. The Germans built the factories and the Chinese made the consumer products. Or the Germans specialized in fuel-driven cars, and the Chinese in electric cars. China is now challenging Germany in areas Germany dominated previously. These are the largest parts of the German industrial economy: machines, chemical and electrical engineering. The study says that in many segments of the market, the Chinese are more successful than the Germans. Ludovic Subran, the Allianz chief economist, predicts that the China boom will be followed by a China shock.
We see this similarly. In our own research on the shifting nature of German competitiveness, we find that the most important issue is not trade, but technology. Digital technologies are encroaching on classic engineering. Apple’s latest commercial of a large steel press crushing a whole bunch of analogue devices caused a lot of criticism. Apple apologized, but the commercial is a good visualization of what is currently happening to parts of the German economy. Apple was forced to apologize, but the commercial, which goes under the title Crush!, is still on Apple’s Youtube site. No trade policy is going to help here. The only effect on car tariffs is to move car production to Hungary or Mexico.
The Germans are now starting to talk the talk they previously associated with the losers of global competition. The head of mechanical engineering association is suddenly using geopolitics as a justification of subsidies.
What’s happened is that Germany made itself foolishly reliant on manufacturing exports, and that China is now playing the same game, only better. The German economic strategy was unsustainable on so many levels.
A good example of what has been happening at a micro level is the story that Mercedes has given up on a multi-billion investment project for a new manufacturing platform for the electric versions of its larger limousines. The goal had originally been that Mercedes would start shifting all of its production to the new platform from 2028. But since demand for luxury electric cars has collapsed, this investment is not going to pay off. So Mercedes is trying to bolster its future profits not through investments but savings and efficiency gains. This is the classic play book of industrial decline.
The issue is not only that Germany specialized on the wrong technologies, but that German companies have no incentives to move out of them. The consequence of this is that a high-tech industrial sector can only happen through new companies, not old ones. Yet European and especially German industrial policy is focused on the protection of existing commerce.
It is also interesting and telling that there is not a whiff of this in the European election campaign. We do not know of a single political party that has a strategy to address this issue.
Crushed by China
I have no idea why Apple felt the need to apologize over that video but it is irrelevant to the discussion, other than the name.
German exporters are getting crushed by China. The EU as a whole cannot compete. The US is responding with massive tariffs.
Eurointelligence says No trade policy is going to help here. The only effect on car tariffs is to move car production to Hungary or Mexico.
That’s happening now.
Made in Mexico
On May 14, I noted BYD Unveils the “Shark” a Plug-in Hybrid Pickup Truck Built in Mexico
The Chinese automaker BYD (Build Your Dreams) announces a 700-mile range PHEV that will be built in Mexico, this year.
Also see Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them
Astute readers will immediately notice the title of this post makes no sense. It’s not supposed to. But it is exactly what President Biden is doing.
The EU is too shellshocked and disorganized to do anything. The US is fighting with tariffs and sanctions.
But US sanctions on China and Russia have backfired massively. That actually a good thing because it would otherwise add to inflation.
The US is also a global leader in AI, and technology in general. Germany and the EU don’t lead on anything.
Regardless, a global trade war of mammoth proportions is coming no matter who wins the election. More accurately, Biden filed the opening salvo already.
Green Trade War Is Underway
For discussion, please see Joe Biden vs Joe Biden on Tariffs, a Green Trade War Is Underway
China will retaliate against US tariffs. One way might be to stop exports of rare earth minerals used in cell phones, EV, computers, wind turbines, and military guidance systems.
Critical Materials Risk Assessment by the US Department of Energy
Please consider a Critical Materials Risk Assessment by the US Department of Energy
Our own Department of Energy has placed some of the rare earth minerals we need for weapons systems, windmills, batteries, and aircraft on a critical materials list.
Nearly all of them are mined or refined in China. Yet Biden just blocked production in the US.
The world is on a huge collision course with China.
I think Apple was criticized on that commercial because it was suggestive of a monopoly, similar to what happened with Microsoft Windows, but on the the arts/design side.
biden – hey let’s slap huge tariffs on chinese products
XI – no problem – how about we stop exporting critical rare earths to merika
biden – no problem XI, I’m gonna stop production of critical rare earths here in merika also
see how it’s done by dumb and dumber
Sanctions don’t work. US will get the rare earths anyway.
The world is on a huge collision course with China.
‘The world’ means US and West Europe and a few vassals, They still control a big part of the worlds war machine, maybe 40% of the worlds economy but only about 15% of it’s population.
To me, it’s obvious from history that free trade is the best option. On the other hand, if your country is absolutely dependent on something that comes from another country you’re eventually screwed. The UK in WWII is a good example of this. Free trade lowered the price of wheat and beef, etc., but when the Uboats showed up the UK was facing starvation/extinction. Real bad idea to put themselves into that position, although, I’ll admit, considering the ratio of population to arable land perhaps they had no realistic choice. But there’s no doubt they could have minimized their vulnerability prior to the war. I think the same applies to the US as regards hi-tech and heavy industry. Even at higher cost, strategically important aspects of the economy have to be protected. Or, if that’s not convincing, look at the EU importing a shia ton of natural gas from Russia. They’re lucky there haven’t been any severe winters lately.
Meanwhile China keeps on pumping out EVs that nobody wants and parking them… marking them as sold…
Reminiscent of the Ghost Cities… and look how that chapter is ending.
BTW – WTF is Temu? My wife has been ordering junk off of that site… incredibly cheap… wanna bet the CCP set that site up and are subsidizing sales from that site to dump their manufactured goods on the world?
Some years ago we had a business manufacturing and selling air purification machines primarily in the China market … whatever we exported we were PAID a subsidy by the gov’t….
The Chinese do not report false data and there are no ghost cities. Those are conspiracy theories
Unmentioned is the role of energy in the EU’s waning competitiveness.
The idea that Germany should have pivoted away from manufactures, like the US, doesn’t make sense. It’s time for the EU to realize that the US is not its friend but its enemy.
The digital economy has not brought the great productivity gains expected.
When push comes to shove, people need food and manufactures, and free digital surveillance services will not substitute.
OK, Chen
I told my friend in Italy in October during a visit that until EU citizens (because their politicians are in on the grift and don’t give a flip) realize that the USA is not their friend, things will never get better for the EU, and in fact will continue to deteriorate.
The West (both western Europe and the USA) have diverted resources away from infrastructure to feed a bloated public sector. We let roads, bridges and train networks decay while perpetually increasing welfare and public sector headcounts (not to mention each public sector employee gets paid more than the population average despite being less productive).
Germany cannot support a bloated public sector and an obscene welfare system. They were able to when they were burning cheap Russian natural gas and when foreign competitors had second, third and fourth rate technology.
its one thing to say people who fall down should be given a hand to get back on their feet — the original idea behind welfare. Its quite another thing for them to be a permanent burden on society.
Meanwhile software has made a lot of technology cheaper – its easier for emerging economies to catch up with western manufacturing systems. The difference between a lathe or drill press in Germany (or Japan or USA) and a lathe / drill press in Kuala Lampur or Guangzou is not very significant. A cell phone in Africa and a cell phone in the USA are the same phone, and Africa’s cell network doesn’t have the legacy costs.
There is no way the G7 can maintain its bloated inefficient public sector. The G7 electorate will slash its public sector, or the G7 standard of living will be slashed.
China is merely a symptom; Washington DC and Brussels are the disease
For a good time, check out the airports in Singapore, Dubai and Shanghai.
Then check out the cesspool airports like London Heathrow, Paris DeGaul, Laguardia (NYC), JFK (also NYC), Chicago OHare, Los Angeles. We are way past embarrassing. Way past national disgrace.
Check out the high speed trains all over Asia, and then look at Amtrak in the USA. Which one is supposedly the global economic power?
Long Beach California is operated by slow moving union dolts and even slower moving government inspectors. Truck drivers wait for hours (sometimes days) to get cargo.
Compare Long Beach efficiency to that of ports like Singapore or Mumbai or more recently Djibouti. How can US businesses compete when all the economic value added goes to inefficient “overhead”?
My wife was in the Hong Kong airport a few weeks ago — it was dead.
Well, considering the size of the US I don’t think high speed rail outside the eastern seaboard makes sense. And, yes, I take Amtrak from DC to NYC or Boston six times a year, an infinitely more civilized way to travel.
Having said that, I think nearly all US airports remind me of uncleaned restrooms. Really a disgrace.
Do you like getting stuck in Baltimore or is the Hudson River Tunnel more your preferred place for an unscheduled stop?
Is your idea of a high speed train one that rarely goes above 75mph (125kph) compared to the rest of the world hitting 120mph/200kph ? There are many trains in France and Japan that are faster than that. Quite civilized to eat cold cheese sandwiches while traveling at half the speed of other parts of the world.
The US tried to build a high speed train in California – but its California. They build homeless camps. They also tried to build a high speed train from LA to Vegas, but they had Gavin Newsome helping so it didn’t work. Decades ago the US built the Hoover dam and the rivers / aquaducts from Vegas out to LA, so it was done in the past. Admittedly Newsome is a dingbat, but if there was better leadership and fewer enviro-terrorists, a high speed train could be done in CA.
Not sure why you can’t build a high speed train except on the US east coast. Again, other countries have tackled more difficult terrain. Maybe you mean the British can’t do it?
As China production moves up the value chain, all that is left is luxury goods, aviation, space, and military gear.
Comac is moving into aviation. A dozen Chinese companies are racing to catch up with SpaceX. Luxury goods seem to be mostly a branding problem.
What does it mean if the only naturally profitable manufacturing in a nation is making weapons?
You assume everyone else is standing still.
…and that China won’t slide back down the value chain as it’s economy implodes. Demographics is not the only economic stressor going on in China.
The US space program (NASA) that put a man on the moon (50 years ago) was made by Werner von Braun, a scientist who developed rocket technology for nazi Germany. Since the end of the Apollo missions in the early 1970s, NASA has basically just sat on its laurels and milked US taxpayers. Decades of sloth.
SpaceX, whatever warts its media adversaries mention, has done 100% of all space innovations in the USA over the last 50 years. Not to take away from SpaceX’s hard work, its just that NASA has done next to nothing.
India’s space program costs about the same as SpaceX — both programs cost a fraction of what France’s Ariennes (ESA) or USA’s NASA charge. For the last decade or so, NASA has relied on Russian rockets (and SpaceX) to service the international space station. NASA simply isn’t up to the task.
The Chinese space program is shrouded behind Chinese state secrecy, so we don’t know much about its cost effectiveness. China has put probes on the moon and launched Sino-nauts into orbit.
For $7 trillion per year, the US government needs to deliver more value and less bullsh!t.
its not that China (or Japan or anyone else) is so great, its that the US public sector is such a f#cking disaster. it is insane for anyone to suggest throwing more money at it.
I have to very strongly object. I don’t mean to be impolite here but I really have to speak up.
I worked at NASA for eight years, knew a couple of astronauts well and even a few old guys from the Mercury days who had some amazing stories about those Right Stuff days. The problem is that funding for everything NASA does has been insanely unstable. Once a project is half way completed Congress cancels its funding and everything goes down the toilet. Or, sometimes NASA is required to do work that sends $$$ to a congressional district that a waste. Etc. Rinse and repeat. In the past 40 years I’ve worked for (or at) half a dozen govt “highly regarded” agencies (yeah, I know, but some are better than others), two national labs, and four putatively top notch corporations, and NASA has literally ten times the brains and work ethic. Sloth? Ineffectiveness? Absolute nonsense. Is bureaucracy mandated by Congress a problem? Yes, but NASA is pretty good at giving such people a corner office and ignoring them, bless their hearts.
If you’ll pardon me for saying so, to say NASA has done no technical advances in 50 years is complete insanity, although I’ll admit you don’t see too much of it in the media since it’s pretty complicated stuff not easily explained, so in some ways that’s an easy mistake to make.
Even with the constant jerking around from Congress NASA has done truly amazing things at a very reasonable cost to taxpayers with an immense return to the general economy on their (taxpayers) investment. One minor example: digital cameras. Those were developed solely for space based telescopes and as a result you can takes literally thousands or millions of high quality photos on a cell phone the size of a deck of cards.Impossible without the basic research done by NASA.
Do you think those Mars rovers, which have lasted 100s of times longer than what was hoped for, were bought on Amazon? Or the Hubble or Webb telescopes? They’re the most technically advanced things built by the human race and have profoundly changed our understanding of the basic nature of the universe, which believe me, which pay off big time in a few decades.
Military (spy) applications: even in 1965 LBJ said, and I can confirm without exaggeration, that the advantage spy satellites gave would have been justified at ten times the cost. I developed a methodology for better cancer diagnosis that saves about 5000 lives a year based on worked I’d done at NASA, never would have been able to do that, or even imagined how it could be done, without my time there.
Want to go to Mars or Jupiter in 10 years? Write a $30 billion dollar check to NASA each year for the next decade (chump change) and leave them alone.
You worked at NASA…. you owe the US taxpayer a refund, not excuses
@MI6 – “Want to go to Mars or Jupiter in 10 years? Write a $30 billion dollar check to NASA each year for the next decade (chump change)”
**OR** we could write two checks for $3 billion apiece to SpaceX and the India space program, have TWO colonies on Mars and still have a spare $24 billion for Uncle Sam to start pointless and unnecessary wars back here on Earth. Gotta have some wars to justify your spy satellites.
Not sure if they covered this bit in NASA school: Jupiter is a gas planet. Might be able to put a colony on one of its moons, but only an ex NASA employee would try to build on a clump of gas / vapor.
You can’t really want to give up a tactical and technological advantage to a totalitarian-cultish communist-fascist police state like China or Iran?
Writing cheques for developing world space programmes that also receive aid, is not equivalent to hiring a domestic company like SpaceX.
Big engineering projects are what make people want to become engineers, and be available as a national resource to keep civilization operational, the fact they have multiple different applications is a bonus.
“What’s happened is that Germany made itself foolishly reliant on manufacturing exports..”
Complete hogwash. And, as always, trivially so.
Germany, the entity, never “made itself reliant on manufacturing.” Instead, all that happened was that German firms and people, competitively made better stuff than others could. Hence people around the world chose to buy German stuff.
What do these two-bit, illiterate morons think should be the alternative? Build shittier stuff which noone wants, in order to be “less dependent on exports?”
Instead, “what’s happened” is that Germany got suckered into ECB dependency. With the, entirely predictable, result that the capital required to continue making better stuff than others, was then; as is always the case with central banking; redistributed. Again, as always: Away from productive German people and enterprises. And to deadweight German and non-German leeches “making money” “off their home”, “real estate”, “investments” blah, blah. Just as happened to once “dependent on manufacturing exports” US, and prior to that just as dependent on manufacturing exports UK. In all three cases; the capital required to build stuff good enough to afford one becoming “dependent on manufacturing exports”, was taken from exporters, and handed to the rankest and most useless of idiot “investors”, ambulance chasers and other worthless, pure and utter untermensch.
There is no possible way to simultaneously be competitive at anything productive; while at the same time handing untold billions to completely nonproductive deadweights, just so that those idiots can sit around and believe they are “making money off their home” nor the random numbers they picked after watching idiots monkey dancing on CNBC. Money handed out to the latter will, per the simplest of arithmetic, always and everywhere have to be taken directly from potentially productive uses.
For a long time, the Bundesbank did a decent job of keeping the purely value destroying, childbrains only, Anglo pathologies of “money center finance” and “making money from my home” safely offshore. German housing, as well as both residential and commercial rents, were an oasis of stability in a post ’71 world bent on full throttle theft of all previously productive capital in order to hand it to produce-nothing rank idiots. Which is why German companies, for a while, remained competitive enough to export; while the rest of the West decayed into 3rd world status.
But alas: 2008 arrived. ECB’s zero interest, did even Germany in. Now Germany as well, is full of idiots dumb enough to have “made money off their home.” And trivially stupid enough to sit there and “invest in startups”, “daytrade”, or whatever else it is dumb people refer to picking lottery numbers as. With Every.Single.Penny of all the money the idiots have “made”, having been taken directly out of the capital stock and competitiveness of erstwhile productive industry. Just as happened in earlier decades to the Anglo basket cases. And prior to that, to that precocious Canary-in-the-coalmine, Peronistan.
So now, Germany can no longer export anything. Since erstwhile exporters do not have the capital, nor the cost structures, enabling them to compete anymore. Since; just as in the Anglo world; 1)that capital has been handed to retards sitting on the couch too dumb to produce anything at all.And 2)The costs that once-were-productives are being saddled with, in order to keep those complete wastes of space in splendor, ensures that otherwise productive Germans have not even the tiniest hope of ever being competitive with people from less purely kleptocratic and totalitarian societies anymore. Just as has been the case in the Anglo world for decades.
Just as is now the case with much more capitalistic and freer China, Germany was “dependent on exports” because they could.
Now, like the rest of The West, they can’t.
That’s it.
That is a nice analysis of the end result, but what has led to it?
Total brainwashing into Anglo-American business culture, or business and culture. The once independent thinkers are all dead.
What can be worse? The marriage of that, and Germanic follow-the-approved-authority genotype.
“Build shittier stuff which noone wants, in order to be “less dependent on exports?””
Didn’t really work for China.
The US is the leader in Diversity Equity and Inclusion. Once black math becomes main stay, we’ll race ahead in economic competitiveness. U-S-A!. U-S-A! Think I’ll go out a drive my pickup truck around with a huge American flag flapping in the wind!
Are they using non-binary numbers?
“The US is also a global leader in AI, and technology in general. Germany and the EU don’t lead on anything.”
Other than silicon foundries and process, primarily from the Netherlands, there is nothing of technological merit, that the US leads in that cannot be overcome within a year. Technology is global in nature. Anyone can do it.
Chinese college students and tech workers are like salmon at sea that suck up leading edge IP nutrients from around the world. Once stuffed full, they again cross the ocean and deliver the nourishing intellectual nutrients back to China.
With our remaining advantage vaporized, there are zero chances the US will ever recover its former position in the world. All we can do is tax rape the citizens and their descendents, to inflict our vile militarism on the world. It’s all we have left.
Even worse! The US has lost all credibility.
Levis, David Hasselhof and Baywatch brought down the iron curtain.
The tranny’s, Middle East annihilations and moral filth were selling now lacks the same appeal. Europeans who travel here are appalled by what they see and how far we have fallen.
Murderous, corrupt, immoral, duplicitous, passive aggressive and painfully stupid is how the world sees us. US illiteracy is near 50%.
All we offer the poor and downtrodden immigrants plodding here is Welfare and eventually Commie blocks.
Germany was slated for economic destruction the minute its industries began playing nice with Russia. This was predicted in 1942 by Chinese Lin Yutang. It’s no accident.
Germany and Russia would never be allowed to cooperate which is why there are a dozen US military bases there. Oh what a tangled web these PIGS weave
China has established an vast AI research center which, to Biden’c credit, he’s recently done (at least on paper) for the US. I’m a scientist. I’ve made alot of money in the past decade explaining to corporations why the problems they’re trying to solve with AI can’t be done. Sorry, no substitute for a human brain, not yet, anyway.
I’m afraid that the main thing might be quantum computers, in that whoever makes one of those first wins literally all the marbles. AI the equivalent of a fairly dumb human would likely be one of the minor possibilities. I *think* the US is somewhat ahead in that area although anything the Chinese are doing is likely hidden from view so that’s more a guess on my part than anything else.
Anyway, quantum computing is the real game.
I don’t think “AI” really is “AI” in the true sense, it’s more like advanced autocomplete, or an evolution of the MicroSoft Word paperclip. Mandarin would manifest a little differently from English, due the flexibility of Hanzi.
Maybe with Quantum computing they could get really start, I heard there are quantum effects in the human brain, like wave function collapse, and superradiance, that might explain the magic of consciousness.
If you think America’s bad, you’ve no idea how much worse China is: they are screwed.
When I started seeing more US-born people with engineering degrees going into finance, that was the handwriting on the wall for the West. Parents of this generation effectively told their children to stop competing and go into finance, real estate and insurance. The FIRE economy eventually burns itself into the ground but takes the competitiveness of the country with it.
Prepare for a lower standard of living b/c of trade barriers and sheer desire for nothing but short term thinking.
No it wasn’t for that. Finance was paying more at the time so people went into it. It was long-term thinking that worked. Now the opposite is happening for the same reasons. China on the other hand decided to limit births to one per family as a long-term government-decreed policy. In the US individuals decided to change careers based on prospects while in China top-down decided to commit to a policy that will end up almost halving their population without a corresponding increase in wealth.
The fact that nothing is made in the US is a big reason for people in my field, physics, to go into finance, no other real jobs, basically. Looking back, I should have done that….
Vast numbers of engineers are under or unemployed because so much work is shipped to India and (until recently) China. Most of the work done in India for US corps was/is complete crap, had to be redone with immense unpaid overtime in the US. Which is not a reflection on Indians in the US who are generally pretty good people, but is an assessment on the quality of work that has often been done in India. Guess what, management, you get what you pay for, even if the labor costs are 1/4th of those in the US.
Absolutely. At my engineering uni, several just went straight into banks after graduation. Engineering professional bodies always complain about the shortage of engineers, whilst refusing to put the wages up to a fair value.
Edwards Deming invented the “Toyota System”. Ford and GM were killed in a frog cooking. China dismantled Europe and the US in a frog cooking, without firing a shot.
They didn’t steal machines, chemicals, seeds, and pharma from Germany and other European countries. They bought them when the ECB had negative rates and during Dr Merkel who put down this wall and built a bridge to world.
You seem to think that it is all over. No, it is just starting and who wins is far from determined.
Checkmate.
Agree !
Demographics is Destiny. Growth rates above replacement are mostly in the Near East and Africa. Of the developed world, Australia and Ireland fare the best. Eastern Europe and Japan the worst, along with warzones like Syria and Venezuela.
Eurointelligence in a former article gave link to a study done by the EU called
“Reforming innovation policy to help the EU escape the middle-technology trap”.
I am sure Mish read it because he is well aware of Europe’s lag in technology and that lag is above all in software and the companies that make them. The US has features that are very difficult for other countries to emulate although China is trying. Europe wants to desperately but is held back not by lack of government spending on R&D but by the established companies not seeing the need to invest more than they do now.
Europe does have some top-notch companies, especially in the pharmaceutical sector but new company formation in the tech sector remains stunted. Many times those who want to start a company move to the US to do it because the money is available, the market is there and they don’t have to worry much about being taken over while they are still in the developmental stage. That happens very often in promising start-ups in Europe.
The middle technology trap article is good and worth the read:
Reforming innovation policy to help the EU escape the middle-technology trap | CEPR
The state in these countries, and the tax burden to support it (and the EU organisations) is too big.
Plus the US, through “Project Ukraine,” is going to force them all to spend even more on weapons, which will come at the expense of everything else in Europe.
In 10 years the EU will be nothing more than a museum.
Taiwan is a tiny island with no natural resources. Korea is small, heavily fortified and with a very tough people, the same with Vietnam. The only big track of land China can conquer is… Russia. Good luck to both countries in the next war.
The rest of the world can relax and enjoy.
You think like a Yank. Not every country has forever wars and world domination in their mission statement
“What’s happened is that Germany made itself foolishly reliant on manufacturing exports, and that China is now playing the same game, only better. The German economic strategy was unsustainable on so many levels.
The issue is not only that Germany specialized on the wrong technologies, but that German companies have no incentives to move out of them. The consequence of this is that a high-tech industrial sector can only happen through new companies, not old ones. Yet European and especially German industrial policy is focused on the protection of existing commerce.”
If you replaced the word Germany with USA you’d exactly describe what happened in America in the 1970s with Automotive, Steel and plenty of other old world industries. In the US’s case it was Japan and then later Germany and finally China that did them in. Germany is roughly now in the same place that the US was in the mid 70s when it switched from being a net exporter to importer. Ironically in both cases it was energy costs (oil shock of the 70s for the US when it became a net importer, gas shock from the Russian embargo and the silly push to Green energy from Nuclear).
What happened in America shows there is no way back once you become noncompetitive. You must move forward in a different area/way as the US did by switching to technology as the primary driver of the economy.
The change came later around the year 2000.
Top three R&D spenders and their industries compared over time
gros19aprtable1.png (1492×726) (cepr.org)
The US grew Silicon Valley and that changed everything compared to the others.
I’m sure the destruction of the Nordstream pipeline played a role in German business losing their competitiveness. Thank the neocon, Israel firsters.
Nordstream had nothing to do with it. The price Germans pay for electricity is determined by the taxes on energy. Now raw energy prices without taxes is what it was before Russia invaded Ukraine. Russian energy was not particularly cheap compared to world prices. Removing it did not cause German industrial problems. The problems come from losing markets in key areas to the Chinese and the US.
The stupidity of the America/China trade war can be perfectly summarized by the situation with the F-35 fighter:
The CEO of Lockheed-Martin, builders of the wildly over-priced flying piano (the description given by pilots who have flown it) was interviewed last November. Asked about sourcing of parts from China, he stated that about 2,350 parts for the F-35 are made in China. Asked if those parts could be manufactured in America, he stated they have been working on it, but not getting far. About 850 of those parts could be made in the USA, but he said it will take up to 10 years to get that done, as supply chains for that which don’t involve China do not exist and have to be created from scratch in most cases. The other 1,500 parts he said could never likely be made in the USA ,as China is the only country capable of making them and they have a lock on the supply chain for those parts. Probably most of those would require “rare earths” which are not produced in the West at all.
THe “rare earth” problem will likely prove to be insurmountable for the West. “Rare earths” are not that rare, really, they can be found lying on the ground in remote ares of Canada and many other countries, and huge amounts have been found on the seal floor off Japan too. The problem is the refining and purfication required to process them, which results in mountains of highly radioactive toxic waste.
No country seems willing to do this and bear that environmental cost, except China. If a company attempted to build such a facility in the West, strict environmental laws and oppositon from local residents would make building such a processing plant a decades long struggle, if you can find a community willing to host it, which is doubtful. Do you want such a facility in your area, near your house? I think not.
There used to be a comp[any called “Great Lakes Minerals” who was working on producing rare earths products in North America – until they were sold to Chinese intersts,a nd production was moved to China. But they were a small early-stage company anyway, who would take decades to produce large volumes of refined rare earths ready for industrial production.
“Always go to war with your key supplier, before you arrange alternate supplies” – Joe Tzu
The situation is about the same with titanium and Russia, another example. All Western military equipment requires volumes of titanium, which is not mined, refined or manufactured in the West. If Russia stopped supplying the West with titanium, Boeing and Airbus go out of business, and military equipment cannot be made, whcih is why titanium trade with Russia is not subject to sanctions. Another example: 1 M-777 howitzer requires several hundred kilos of titainium, mostly for the support legs, to make it lighter and able to be moved around by infanry or light vehicles.
All true. I would just add another tiny angle: the most glorious property bubble.
Sure, mines can be found and operated in remote locations, but not always. Manufacturing plants have to be build in populated areas, and they all compete for the same land. You can attract manufacturing by giving away land for free or tax free, but that only transfers the burden on somebody else.
I don’t want to use the f. word and “the elites” together.
They did an audit and found a few parts made by suppliers made in China so they resourced them from US of friendly countries. That’s very old information and you haven’t updated it. As for titanium, it makes up 0.6% of the world’s crust and many countries have significant reserves and all lof them are not Russia. The M777 howitzer uses titanium because it is a metal that is freely available so there are few supply contraints. For some strange reason Russia and its supporters believe that only Russia contains and can mine these minerals when they are found in many areas of the world. That fallacy probably accounts for why they thought that they could invade whoever they wanted and everyone would kowtow down. Grave error.
L OL Doug – what part of interview from last November (6 months ago) did you not understand? You think the situation has changed much in 6 months? Is the CEO of the company unknowing of his own supply chain situation?
Your entire comment is fact free as usual. Stop watching CNN
And the titanium situation is exactly as I described. Facts are hard things
Wasn’t he talking about the processing of minerals, not the mining of them?
Holy crap you really have no idea what is going on.
bainite is forged from iron, and is stronger than titanium. But it does rust.
A really great article. Keep it up, this blog is going places….I’ll read it several times and recommend to my friends.
You’re forgetting India.
India is far away for now. It’s way behind China.
Not from where I’m sitting.
What was China Shock I?
From the opening of China in the 1970’s to 2008.
I’m good with turning back the clock like Kunstler predicts, as long as there still is indoor plumbing.
I was forced to leave for the developing world, so I’ve had time to get used to dystopia.
Mish . . . What you didn’t Say is . . . The U.S. and Europe are SCREWED . . . in the short term and possibly the long term as well . . . because of stupid Politicians . . .
Elected by stupid Americans …
In the EU’s case, selected by stupid Americans.
China and Russia are screwed. Two counties with plunging demographics and economies.
Quite a few countries have worse demographics – Eastern Europe and Japan.
Hannity told him this…
“The consequence of this is that a high-tech industrial sector can only happen through new companies, not old ones.”
Best comment in the article. ALL organizations slowly become bureaucratic wastelands, protecting turf through seeking monopolistic control. Whether it is the head of payroll, and entire corporation, or the federal government.
The worst possible situation is to let any organization have a market share greater than 5%, or not require complete reorganizations of governments every 25 years.
What part of the Clean Air and Water Acts do you have a problem with?
The devil is in the detail as to how “clean” is defined… American standards are lower than British or European standards.
Downtown Chicago air is a lot cleaner than the 1970s. You think corporations would have done that on their own? We all hate government .. till we need it.
In the UK, corporations built the railway network, then the state took it over and ran into the ground before reprivatising it in a really silly structure. When do we need government? Are these the best among us? Really?
They were definitely good acts. I grew up in an era where the rivers, lakes and air were very polluted and getting worse. Now our environment is so much better and I do not want to go back just to save a bit on steel or some other bullshit.
Excellent comments.
Vlada and Shi clogged our capillaries and veins in the ME and Ukraine.
China should retaliate by demanding payment for goods in only in yuan. I think they haven’t done that yet because they are wisely forebearent…..at least, at the moment.
Yuan is not a free floating currency.
Net exporters can’t demand payment in their own currency. There isn’t enough of it in international markets to make payment.
I am the People’s Republic of Laos, and I demand you pay me in Kip for my precious produce!
I have dollars. Will they do?
Ask China how their selling is going if they were to insist on only Yuan.
Exporters can do whatever in a trade war. And they can make it available somehow in forex markets or elsewhere. Start with ‘strategic’ goods such as rare earths – or demand payment in gold.
Rare earths aren’t rare so it doesn’t work.
You are persistent but that’s a liability for someone who has zero knowledge of anything technical. Just because it’s present in the earth’s crust somewhere doesn’t mean it’s available.
Brains are necessary for thinking. However, untrained brains seldom produce any value added product.
They can demand all they want, but if nobody has any, they are limiting their customers.
Where would China’s clients find enough yuan? If they have to buy it on the market, the price would skyrocket and Chinese exports would become uncompetitive unless of course they had a monopoly but they don’t and won’t.
China has been bleeding us since COVID. China is splitting us with tiktok (along with Meta and Utube) making us angry at each other and hateful. China starts new fads, in which we have no chance to compete. We produced bad items, sapping our capital, bc we fomo China. China is doing a great job dismantling us without firing a shot.
China is run by a dictator and shouldnt be “cheered” for anything. China hasnt had one original thought in 1000 years. They just copy.
you used to say that about Japan, 50 years ago. Then came Toyota……
And 30 years after 1990 (Japans peak), Japan is sliding into the ocean.
How many km of high speed train has China built in the last 20 years v the US?
The USA is falling behind in all areas other than death machines. It can’t even convert to metric and meanwhile half the population can’t divide by 12.
Well… let’s have a look at that claim… 1024AD, China is mostly under the Northern Song dynasty, who promoted schools and not long after printing of books began to spread… that’s about 400 years before Caxton’s printing press in England. They also invented gunpowder around that time, before the west. They invented the compass about a 100 years later, and began exporting silk, porcelain, art, and dye. So your comment looks like bollocks.
https://www.metmuseum.org/toah/ht/07/eac.html
The mandarin for bollocks is “fei hua” btw, and if you can’t speak basic Chinese, you should consider yourself a troglodyte.
What ya done for me lately? …
Boomers are brainwashed in two flavors:
Dems hate Putin
Republicans generically hate China
Of course you’ve never been to China?
Don’t know any Chinese nationals here.
Never worked with the Chinese in China?
No argument can sway them
Western companies willingly moved production to China, closing production plants here, to “enhance shareholder value”.
That’s not China’s fault, that is the West’s fault for being short-term thinking “quarterly profit” fixated morons, with no strategic long-term planning.
Another prime example of “enhancing shareholder value” is stock buybacks. If the Trillions wasted on stock buybacks had instead been spent on research and development and new production facilities, there wouldn’t be any of these problems, and Western economies and consumers would be fare beter off than they are now.
All of these idiotic concepts are a result of low-IQ Western mis-leadership, encouraged by Globalist WEF types who have never seen a Western economy they didn’t want to destroy in the name of “maximizing profit”.
Insanity
Victim Speak
Are you in Israel?
Tik Tok?
opinions unfiltered by the MIND CONTROL COMPLEX CANNOT BE ALLOWED
Reality is not the illusion spin misters spew.
All speech in the west is disintermediated
EXCEPT TIK TOK
Pettis : artificial cost of capital and gross imbalances between production and consumption in the Chinese economy. Just starting with that, not sure what “competition” really means. Consumption shifted to real estate has worked out well. What a mess. China has little to do with a free market economy. Cherished illusions while you’re turning a profit.
They are definitely having a bad time, playing financial whack-a-mole… a real credit crunch.
My opinion is that EV’s are DOA as they always should have been. All the green energy is a scam for control of everyone except the 1% who are getting even richer off of taxpayer and borrowed government money while promoting the death of 90% of the world’s population. All green energy projects are highly destructive to the planet and all life on the planet. It is all a mirage. Now drink you nice kool-aid!
If and only if motor fuels start increasing in price per gallon, you’ll be waiting in line to buy an electric too. Gasoline and diesel are supercheap for the moment — lucky.
I think EVs have a market share, not a huge one, but there are definitely several sound use cases. The notion that they should or could replace ICE is technically illiterate – most engineers are aware of the impracticalities of creating charging grids that roll out nationwide. Big cities, and enclosed sites like factories, ports, airports, military bases, historical centres, seem like reasonable uses. In the UK we had electric milk floats for decades delivering milk in the early hours, and it’s a very tried and tested usage.
If the price per gallon for whatever reason rises in a country as indebted as this one, we will be 90% EVs.
…and where’s all that spendy money going to appear from to buy those EVs?
Are you talking off the top of your head or do you actually know anything about the offerings and their prices?
Maybe when they become as practical for use as gas powered vehicles.
Do you believe that the worlds reserves of fossil fuels is unlimited?
Only 150 years of usage and we already have to drill in deep ocean and the Arctic
At some point they will become scarce and too valuable to be wasted on personal transport.
So it would seem to be a good idea to transition to another fuel source as soon as we can.
If you want to see a liberal free trade economist get obliterated, look up the 1994 Laura Tyson, Sir James Goldsmith debates on Youtube. History has proven Sir James to be correct. UC Berkeley produces quite a few loonies, including the current head of Treasury.
I voted for him in 1992. He did a lot of the groundwork for Brexit.
Chinese EVs, Mexican EVs, German EVs, it’s all so complicated. The uncomplicated part is no matter who wins, these cars will all need insurance and it’s gonna be expensive.
Got insurance stocks?
I dunno… some of those Chinese cars are 15k, and probably not covered with expensive instrumentation like the higher dollar ones. Probably pretty cheap to fix.
Is that before the 200% tariff Biden and Trump want to impose?
No, I bought an elephant, it’s cheaper than an EV, and biodegradable, unlike EV batteries.
Some of us remember the Japan-is-winning panic of the 80s – they were ahead of their time on their demographic crisis/bubble blowing. This doesn’t look much different to me, to be honest.
Japan was not communist and bent on taking over the world in the 1980’s
Fair enough. The pearl clutching was the same, at least. Then the wave of old people and the real estate bubble (sound familiar?) put an end to it.
exactly.
China is NOT a practical threat… certainly not RE: the USA.
USA is the most geopolitically secure nation on the planet. Even IF Chinese policy sought a conflict vs. USA, they are 50-100 years from any practical ability to initiate/fulfill such a confrontation, period. Of course, China is NOT seeking military conflict vs. USA, so the entire discussion is purely hypothetical… fiction for fearmongers.
I am getting really tired of neoCon bedwetters spreading irrational fear… as if we don’t have REAL problems to deal with here & now, FFS.
Insanity?
Wars are drones, artillery, troops and industrial capacity.
Us cannot compete on any of these.
Furthermore China and Russia are in an alliance. Russian AA and electronic RF denial systems smoke the US.
??
100 years
Geopolitically stable
yeah… we had better whip-up a pre-emptive strike, asap… before those evil chinese & russians start stealing the coupons out of your mailbox.
Precise and concise. But this is a political readership with little actual engineering, manufacturing or technical knowledge (eg “rare earths are not rare”).
Looking for evidence per this ridiculous & hyperbolic statement…
…can’t find any.
China has NEVER initiated a war.
China lacks a Blue Water Navy.
China has never built practical ICBM capacity.
The notion that China is “bent on taking over the world” is beyond idiotic.
How do you square decades of ‘One Child Policy’ w/ world domination? OCP is diametrically counter to confrontation/conflict of ANY scale.
Please stop spreading insane neoCon propaganda. Keep your IRRATIONAL fears to yourself… PLEASE.
All those antics in the China sea are just water ballet?
“antics in the China Sea”
I’ll let you think about that statement awhile…
Don’t hold your breath – he’s not likely to figure out his own folly any time this decade…
Across history China has been very bellicose with millions upon millions of deaths. Civil wars, expansions, etc. They had a blue water navy before that was a thing and they are building another. The Liaoning was supposed to be a floating casino, lulz. It’s their first aircraft carrier. Now they are on their third. American consumers paid for it all. American oligarchs got profoundly richer. Both the consumer and the oligarchs support our own misguided MIC / Natsec State. But to say CCP is happy happy love love is turn a blind eye.
I think you also need to give the Chinese people a little credit for accepting poverty as a stepping stone to building a decent foundation. Too bad the dictators and unskilled politicians took that foundation and created millions of empty apartments and environmental wastelands. Theyll learn someday.
The Chinese people remain in a pickle. Sad. We’ve got our own to deal with here concerning our so called politicians.
Read a book on Chinas technology when European albino devils were Germanic tribes living in hovels.
Visit China
Work with the Chinese
Get back to me?
Albino devils are we?
You can’t visit China without any funds and you’re not going to do business in China without serious capabilities.
I think you missed history class.
https://en.wikipedia.org/wiki/List_of_Chinese_wars_and_battles
Wikipedia? Really?
China is not the CCP; the CCP has initiated war and skirmishes with many of its neighbours.
Guess, you forgot about the wars that China initiated against India and Vietnam.
CCP is not China. Period.
Certainly do not trust any great power. But lets look at that. Who has China attacked that wasn’t a border state. Re India there have been border skirmishes and a major but temporary and limited invasion VN.
Care to compare that to US war on Viet Nam?
The US attacks countries across the globe
Iraq, Afghanistan, Syria, Libya etc.
It’s just not in the same league.
China is 12 times bigger than Japan and the US will go down before it can happen to China.
Nah, we let in 3 million people last year, so we’re staving off the demographic disaster for the time being. We might still end up stupid enough to stop people from coming in the future, but 1-2% growth beats the holy hell out of -1 or -2.
5 million. Each uses ~30 kWh / year. That’s only 150,000 GWh / year. But we can just build a few more nuke plants or coal plants to handle that. Oh, wait… The EPA just put a rule to force closure of coal plants if the emissions don’t reduce by 90%. And immigrants are a net drain on GDP for the first few years.
Several years. Some more, some less. Those aren’t skilled people coming through TX.
China has been a lot more aggressive world wide than Japan ever was. They have massive investments in undeveloped markets in Africa and Asia. Japan never had anything close to that in the 80s as their market focus was on the US.
Also China is orders of magnitude bigger than Japan (more than 10x as big in terms of population and land mass). It’s equal in size to the US in terms of land and has more than 3x the population.
So their influence on the world wide market is much greater than Japan’s ever was or could be.
Will have a lot more land when they expand north. Hitler called it Lebensraum. I wonder what Vlad will call it …
Scare monger shill.
They’re showing their colors today.
Boomer China hate or dis info agent
What is it?
Oh you mean like what China’s communists did to Tibet and are doing to Mongolia.
Or perhaps you think India is not going to go to War with China when China diverts the head-water river flows which now supply India’s major Rivers.
You mean that kind of distrust?
“…more aggresive…than Japan ever was…”
utter horsesh!t.
Presumably you mean in the trade/economic space and are ignoring the whole invasion of China, SE Asia and the Pacific thing with the 10’s millions of victims.
Disappointing — but surprising — to find someone who doesn’t know the basics about the Asian theatre in World War II. What were the Chinese thinking of invading Japan and performing vivisection on the natives?