Germany thrived in the first China Shock. But the next one could prove catastrophic. NPR’s Planet Money
Very long and detailed article but here’s a short excerpt:
However, European Union tariffs will only protect German companies within Europe. A crucial problem for Germany is that its economy has been incredibly dependent on exports. According to data from the World Bank, in 2024, German exports accounted for more than 42 percent of its GDP. Compare that to the United States, where exports accounted for less than 11 percent of GDP. How will Germany compete with China in export markets outside the EU?
This gets to why the second China Shock in Germany could prove much more devastating than the first one proved to be in the United States. For one thing, the first China Shock centered on the imports of low-end manufacturing goods. Even then, it killed more than a million manufacturing jobs in the US and workers and communities struggled to adapt.
And the US has long been less reliant on manufacturing than Germany. When the China Shock was hitting the US economy in the early 2000s, manufacturing (value-added) accounted for about 13 percent of US GDP. Today it accounts for only about 10 percent of U.S. GDP. Manufacturing accounts for about 18 percent of Germany's GDP, according to the World Bank.
The export-led industrial model that Germany has pursued for decades is now at a crossroads. In addition to the China Shock, there's the retreat of the United States behind a tariff wall. That means Germany is struggling to sell products in what were long its two biggest export markets.
And, Tordoir says, high U.S. tariffs against Chinese goods are hurting Germany through another channel: "Chinese products are bouncing off the U.S. tariff wall and are being rerouted." So, Tordoir says, Chinese exporters are looking to sell more in Europe, where there are much lower tariffs.
Tordoir says one core issue in all of this is that Chinese consumers don't consume enough, and he hopes that one win-win solution for everyone will be convincing China to pursue policy reforms that increase their domestic consumption and stop their export onslaught.
Germany — which itself long pursued an export-led growth model and ran huge trade surpluses, sometimes to the chagrin of other nations — has recently begun working to increase domestic spending. The country, under Chancellor Friedrich Merz, has passed constitutional reforms that allow the government to spend more, and the government has begun to do so on things like defense and infrastructure.
"The only way out that I can see is that we need to rely on internal demand, demand from the European Union really," Südekum says. He thinks that Germany's recent spending reforms, which he was involved in, are an important first step. As a next step, he and Tordoir both expressed support for the idea that the European Union should develop incentive schemes to encourage European consumers to "Buy European."
Nobody could survive China’s vast industrial capacity about to be unleashed on to the world. Five years ago, nobody would have thought of buying a Chinese EV. Now, it is top of the line, surpassing even the finest Western made car.
Unfortunately that means Europe is ripe for harvest by American finance capital unless something dramatically changes.
Come to think of it, American capitalism must have gotten unbelievably lucky with the Covid pandemic 5 years ago - which stalled China’s growing infrastructure and property sector, decimated its local finances and is now going through a phase of deep consumption slump.
This was followed by Biden’s Ukraine war and the cutting off of Europe’s cheap energy supply, that destroyed the EU industrial competitiveness and prevented the formation of a consumer market that could rival and even replace the role of the US market.
So we end up with Trump’s global tariffs, at a point where the US consumer market gets to completely dictate the fate of the global exporting economy. If China fails to transform into a domestic consumption economy in time (which will require abandoning the neoliberal model), then it will have no choice but to unleash its exports on to the rest of the world and kill off their domestic industries through mercantilism.
The real question is whether the US finance capital will end up as the winner by harvesting the failing export industries all over the world? Calculated plans don’t always pan out - reality will always surprise us in ways we could not imagine.
I have been reading up a lot of Japan’s economic history lately. The irony is that Japan extensively studied the potential effects of the 1985 Plaza Accord and calculated that they would be supplanting the US as the world’s dominant economy, being overconfident that yen appreciation as a consequence would be beneficial not just to their economy, but also their geopolitical influence on the international stage (a fierce ambition that Japan had sorely missed after their defeat in WWII).
Reality slapped both Japan and the US in the face, for the latter also failed to re-industrialize under the Plaza Accord and even marked the permanent decline of US industrial capital in the 1990s. Turns out, the US finance capital became the unexpected winner in the wake of the intense US-Japan economic rivalry that had been going since the 1960s, one that ended up killing off both the US and Japanese industrial capital.
to kill the Colombian crew members of Sumud as retaliation for Petro.
