The return of the spectre?

„The question to be asked – the danger to be recognised – is how inflation, however caused, affects a nation: its government, its people, its officials, and its society. The more materialist a society, possibly, the more cruelly it hurts.”

– Adam Fergusson in ‘When Money Dies’

Besides the occasional coverage on (hyper-) inflation in Venezuela, Western spectators have been largely spared the phenomenon in recent years. Globalisation and technology have come to be seen as deflationary laws of nature. This led some to even ponder whether inflation is dead.

Yet after more than a decade of ultra-loose monetary policies and a pandemic later, has the spectre of inflation risen from the dead? Recent developments in the US seem to suggest so. The US consumer price index (CPI) showed a 5.4% annual jump, marking the fastest uptick since August 2008.

The latest developments have opened an interesting debate on the nature of inflation. Is it merely “transitory”, driven by short-term factors that will soon abate, as the FED continues to proclaim? Or, will it prove to be more “enduring” due to structural factors at play?

Jerome Powell, the Fed’s chair, continues to assure observers that the Fed is carefully monitoring inflation and that there is no need to worry. Joe Biden recently came to his side:

“The reality is you can’t flip the global economic light back on and not expect inflation to happen”

Powell continues to assert that the recent inflation increases can be attributed to a pretty narrow group of thingsthat will soon fade away. This group of things includes supply-chain shortages (wood, steel), price normalisations in COVID-hit domains (tourism, flights) and pent-up demand (now being unleashed).

The development of the price of lumber seems to favour Powell’s hypothesis – at least for now.

As a result, Powell’s modus operandi is “wait-and-see”. The rationale behind this approach is COVID-19. More specifically, the Delta variant. The Fed is cautious in managing the balancing act of the recovery: if it slams the brakes too early, it could it jeopardise the recovery at a critical stage. If it’s too late, inflation could spiral out of control. For now, Delta trumps inflation.

However, given the noisy nature of the debate, it’s crucial to look at what the other side of the argument is saying. Their hypothesis rests on the belief that inflation will prove to be more enduring due to “structural factors” at play.

Some point to the inherent gap between demand and supply, which we currently witness. As a result of the unprecedented stimuli and rapid growth in broad money supply, consumers have more money to spend. Mohamed El-Erian, Chief Economic Advisor to Allianz, warns that the production of certain goods may remain constrained far longer than expected.

Others note that the reopening of the US-economy has outpaced the capacity of companies to hire new people. Corporations ranging from Amazon over BlackRock to Chipotle have already increased wages. What’s more, a labour mismatch of skills might arise. As the economy continues to become more tech-savvy, not all people may come back to their old-jobs. Some jobs may have become ‘rationalised’, while others may require more technical qualifications. Parts of the workforce might find out they don’t have the right skills anymore, causing the overall labour force to shrink. In the short-term (with a lower supply of skilled labour), this could cause further upward wage pressure.

Last but not least, Warren Buffet alluded to third structural factor during Berkshire Hathaway’s recent AGM:

“We are raising prices. People are raising prices to us and it’s being accepted.”

Since the last financial crisis, whenever there were higher input costs, companies shrank their margins. Yet today companies with pricing power (e.g., from the tobacco, software, food retail and luxury goods sector) pass the higher input costs on to the consumers, which in turn gets reflected in the CPI.

So, what to expect in this noisy and at times ambivalent environment?

An interesting development could be witnessed on the other side of Atlantic. The ECB recently adjusted its inflation target to 2% over the medium-term giving it more room to keep rates “lower for longer”. The FT was quick to notice that this marks “an important break with the conservative monetary doctrine of Germany’s Bundesbank that formed the bedrock of the euro’s creation.”

In the US, the Fed’s dual mandate of full employment and stable prices provides insights. During last week’s Congressional hearings, Powell was adamant to notice that “there is still a long way to go” in the labour market. It’s still 7.5 million jobs away from its pre-pandemic level. Thus, expect the Fed’s monetary policy to remain in place for now.

What’s next for Bitcoin in an era of ‘helicopter money’, negative interest & big debt?

Searching for the roots of Bitcoin’s narrative

If we are to understand Bitcoin’s meteoric rise, we must return to 2008. After all, the world’s largest cryptocurrency is a child of the global financial crisis (GFC).  

Once Lehman Brothers went into bankruptcy, many banks and financial institutions across the globe followed. Governments all over the world soon stepped in, bailing them out.

Three days after Lehman went bust, Hank Paulson, Treasury Secretary, and Ben Bernanke, Head of the Fed, went to George W. Bush. They told him:

We need a trillion dollars in cash, and we need it by five o’clock.’

After Bush shrugged them away, Paulson and Bernanke went to Congress, where they repeated their plea:

If we don’t have a trillion dollars by today, the American financial system will melt down in 72 hours. The world financial system will melt down in two weeks, and there will be global anarchy.

While the global financial system didn’t slide into abyss, trust had been lost in a monetary system that ran on trust. Robert Shiller, Nobel Laureate in 2013, points out that the experiences surrounding the financial crisis wove the narrative for Bitcoin:

I think narrative is very important to the popularity of Bitcoin and other crypto-currency. Part of the reason that Bitcoin succeeded is that it fed into an anarchism narrative that government is unnecessary and untrustworthy. It fostered a narrative that young people have created a financial institution that is out of the government’s reach. That’s a powerful narrative.

what is Genesis Block and why Genesis Block is needed? | by TecraCoin |  Medium

Bitcoin’s Genesis Block’s Secret Message

Fast forward a decade – Welcome to a world of ‘helicopter money’, negative interest & big debt

Albeit the US & EU economies had been out of the woods for a while, neither the Fed nor the ECB could stop their addiction of expansionary monetary policies.

Then COVID-19 came, piling pressure on the Fed & ECB to open the financial floodgates another time. As the US government distributed $1,200 stimulus checks to its citizens, Milton Friedman’s “Helicopter Money” became reality.

Yet Friedman was prescient enough to know that „there ain’t no such thing as a free lunch“. In 2020, the US debt-to-GDP ratio skyrocketed to unprecedented levels.

Deflating national debt through inflation

With Modern Monetary Theory (MMT) en vogue, many economists believe that huge government debt is not a problem. Yet at some point the day of reckoning arrives. As of now, there are three main ways for governments to deal with debt:  

They can choose to (i) not pay some portion of their debt (i.e., “hard default”), (ii) adopt austerity measures in hopes of running a budget surplus, or (iii) reduce the value of the debt they owe through inflation (i.e., “soft default”).

With more than a fifth of all dollars in circulation being printed in 2020, the US government picked the path of a “soft default”. Cynics may point out that COVID-19 even provided the US government with a noble excuse for printing money; and thus, reducing their debt burden.

While we’ve witnessed inflation in various areas (incl. equity prices & real estate), the real inflation rate (measured by the CPI) remains low. Yet inflation doesn’t simply happen whenever more money is pumped into the system. The velocity of money matters.

For the velocity of money to rise, people need to stop hoarding money and spend it. This could either happen voluntarily or through a collapse in trust. The former scenario might happen when the virus is defeated, while the latter could happen if the people’s confidence in both the government and the future collapses – akin to what went down in the Weimar Republic.

The Pandora’s Box of Central Bank Digital Currencies

However, there is a third way that masquerades under the acronym of CBDC. The abbreviation conceals the ECB’s panacea: Central Bank Digital Currencies in the form of a digital euro.

The digital euro is nothing less than immaterial cash. Instead of carrying it in your purse, you have your own account at the ECB. Given the digital euro’s proposed use of blockchain technology, this might sound tempting.

Yet on the way are several red flags. One of them was pointed out by Jörg Krämer, Chief Economist of Commerzbank, who noted that it would unnecessarily “make the state more powerful at the expense of its citizens”. The heightened potential for citizen surveillance explains the allure for China’s government to experiment with a digital yuan. Any transaction could be tracked via the blockchain ledger.

Further, Bill Campbell, highlights another troubling aspect:

With CBDCs, the central banks would possess the necessary plumbing to directly deliver a digital currency to individuals’ bank accounts, ready to be spent via debit cards. Such a mechanism could open veritable floodgates of liquidity into the consumer economy and accelerate the rate of inflation.

But perhaps a hypothesis illustrates the most troubling aspect of a digital euro. Assuming that the digital euro gradually replaces cash, it would be impossible to evade negative interest rates.

Not willing to see their deposits deflate, people would stop hoarding money, looking for safe harbors, but also increase consumption. This would inevitably raise the velocity of money, pushing the rate of inflation higher.

The allure of digital gold: scarcity in an age of superabundance

When confronted with such scenarios in the past, people searched for safe harbors. They usually found them in gold. Yet with everything becoming digitized, it was only a matter of time until gold found its digital equivalent.

And Bitcoin wants to be that – or at least, that’s what the crypto community hopes for.

The brilliant Niall Ferguson succinctly captured Bitcoin’s allure:

Bitcoin is the only digital asset or token that has scarcity built in. Everything in the internet is defined by a superabundance; Bitcoin is the exception.

While gold’s supply continuously increased as demand rose over the years, Bitcoin’s supply is capped by default at 21 million bitcoins.

Towards Hayek’s ‘Denationalisation of Money’

As Bitcoin’s price reached record heights in recent weeks, some believe we are finally destined to witness Hayek’s “Denationalisation of Money”. In 1976, Hayek wrote:

I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.

He also wrote:

I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.

Hayek believed that people – if given the opportunity – would punish producers of inflationary money by abandoning it. As governments would no longer be able to reduce their debt burdens through inflation, it would also enforce fiscal discipline. Thus, currency competition would serve as an effective debt brake.

Until the advent of the Internet, governments didn’t have to worry about competing currencies that were out of their reach. Yet with the decentralized structure of cryptocurrencies, currency competition in the spirit of Hayek has arrived.

Will Leviathan retaliate?

Looking ahead, the crucial question will be if governments decide to reign in on Bitcoin. Christine Lagarde’s comments last week served as a warning shot:

There has to be regulation. This has to be applied and agreed upon … at a global level because if there is an escape that escape will be used

A look at history provides another bleak reminder. During the Great Depression, Franklin D. Roosevelt enacted Executive Order 6102, banning gold ownership. The ban lasted for 41 years until 1974.                                               

As the crypto community experiences peerless euphoria, it might be worthwhile to revisit history. The time of governments as bystanders will come to an end – rather sooner than later.

China’s Chernobyl – To Be Continued

For a regime as paranoid about not repeating the mistakes of the Soviet Union, the CCP came shockingly close earlier this year. The parallels to Chernobyl (1986) are unmissable. In both scenarios:

  • local officials belatedly alerted the central government for fear of retaliation
  • authorities lied and covered up numbers of people affected
  • the central government punished scientists that issued warnings

The initial cover-up of the outbreak undoubtedly exacerbated the spread of the pandemic. With the epicentre of the virus having continuously shifted westwards, Xi may have found time to catch a breath. Yet the CCP’s early mishandling of the crisis laid open once again a fatal weakness of ‚Totalitarianism with Chinese characteristics‘.

The increasing Xi-sation of the CCP is increasingly built on the pillars of opacity and lies. Flexible and decentralised decision-making processes – once the secret ingredient of China’s rise – have become largely absent. An empire as big as the Middle Kingdom demands flexibility, debates (‚loyal dissent‘) and decentralised agency. However, Xi’s demands for loyalty have perturbed the complex balance.

As Niall Ferguson argued: „The history of civilisations is arrhythmic“. The current tranquility in the Forbidden City shouldn’t delude us. The fates of the Roman Empire, the Ancien Régime, and the USSR have accentuated that the history of civilisations is capable of violent accelerations.

With the dilemma of Hong-Kong, Taiwan, Xinjiang & Tibet – not to speak of the many problems revolving around the shadow-banking system or the OBOR initiative – all being far from resolved, more problems requiring flexibility and constructive debates loom on the horizon.

© Photo:

Who Will Get It Done?



The great value in predictions doesn’t lie in their predictive power, but in making people ponder about scenarios they previously hadn’t considered.

So, if you’re looking for a blog-post to confirm your belief that…

  • Either Biden is the favourite, keep browsing the New York Times.
  • Or Sanders is the favourite, keep scrolling down your Twitter feed.

As of January 26th, the field of Democratic candidates is still rather crowded, with Biden and Sanders being the realistic frontrunners. It can be expected that the outcomes in the first states will be rather murky (especially with Iowa being a weak-spot for Biden, the current favourite). This will further reinforce the notion that Democrats appear divided in their quest to dethrone Trump.

But perhaps most importantly, the candidates themselves are rather unconvincing, with no one having put together a winning coalition of voters.



One of the fundamental flaws of Biden is that to him 2016 represented an aberration. His whole strategy revolves around returning to the old ‘normal’ before Trump got elected. This reflects a belief that Trump is the cause of America’s problems, instead of him being merely a symptom.

Yet Biden’s ‘normal’ – or let’s call it fantasy-land – no longer exists. Maybe he should read J.D. Vance’s ‘Hillbilly-Elegie’. Or for a start, spend more time campaigning in Iowa.

Wage growth has been stagnant since the 1970s in the US. The manufacturing decline has eroded the backbone of the US society: its middle class. Whole swathes of land are plagued by opioids. American life expectancy declined for three consecutive years, largely due to drug overdoses and a sharply rising suicide rate. There’s a hardly a back to ‘normal’.

More so, his public persona differs little from Hillary Clinton’s. If there’s a Democratic candidate embodying the establishment, it’s Biden, having been in the Senate since 1973 before becoming VP. Yet the similarities to Clinton don’t stop there. In a similar vein to the Presidential Candidate of 2016, Biden carries liabilities from the past. His son Hunter Biden’s dealings in Ukraine and China have rightfully been scrutinised. Whether Hunter Biden’s involvement has been wrong per se is secondary to it being an easy target for Trump, akin to Clinton’s e-Mail gate.

Lastly, questions remain about Biden’s professionalism. There have been various instances, where Biden showed little composure. If he struggles to keep his cool when a retired voter confronts him about his son’s involvement in Ukraine, it’s doubtful that he can cope with Trump during TV debates.



Sanders, on the other hand, offers bold systemic change. He advocates a minimum wage, a Green New Deal, universal health care and free tertiary education, caressing the Millennial’ Zeitgeist.

However, Sanders’s age (78) remains the elephant in the room. The fact that he had a heart attack last autumn doesn’t help his case. More so, while Sanders would be considered a ‘social democrat’ in Europe, he still remains persona non-grata for a vast chunk of people in the country with an innate allergy towards ‘socialism’. Or as Scott Galloway has eloquently put it: ‘A sociopath beats a socialist seven days a week and twice on Sunday.’


Thus, the upcoming primaries will reveal who the Democratic base trusts most in removing Trump from the White House – which is after all their overall goal. It will be especially interesting to see how the Democratic candidates fare in the first few primaries.

Especially Iowa has been a tough haul for Biden, who quit two previous Presidential campaigns (1988 and 2008) after failing to catch on there. While Biden is the clear frontrunner, he certainly won’t drop out this time. Yet a Sanders win could push the momentum further on his side.

That’s a scenario, big Democratic donors have been worried about for a while, particularly after the lacklustre funding performance of Biden (only coming in fifth place in Q4 fundraising after Sanders, Buttigieg, Steyer and Bloomberg).

With Sanders gaining momentum and Biden weakened in the centre, it would open a vacuum to be filled.

This would introduce Mike Bloomberg into the equation.

Bloomberg’s whole strategy is dependent on events that have yet to materialise.


He hopes for the first primaries to produce murky outcomes, preferably with an upside for Sanders. In the meantime, he is spending massively on advertisements in the Super-Tuesday states, where he wants to officially commence his campaign. So far, he just spent an eighth of the USD 2 Billion, which he is prepared to commit. His proxy ad-war with Trump during next week’s Superbowl will most certainly move him further into the limelight.

But what could Bloomberg bring to the table? Decades of executive experience building the world’s financial data powerhouse Bloomberg. While in 2016 technology influenced elections, it will most certainly decide elections in 2020. Bloomberg’s campaign team can be expected to benefit from state-of-the art polling data. Secondly, Bloomberg has experience in uniting a populace after times of hardship. He became three-time mayor of New York shortly after the 9/11 trauma. Finally, his biggest weakness could prove an advantage in the long-run. His lack of charme and rather ‘boring’ appearance have often been criticised. Yet in TV debates, ‘Mini Mike’, as Trump dubbed him, would offer little target for Trump. Maybe after four years, ‘boring beats vulgar’.

Is this scenario unlikely? No. Did it seem plausible that Obama would become Democratic frontrunner, let alone win the Presidency in January 2008? No. Did it seem realistic that Trump …? Certainly not.

After all Bloomberg’s strategy is so unconventional that even Nate Silver, FiveThirtyEight’s polling expert and data guru, claimed it is incredibly difficult to predict.

Either way, Bloomberg’s announcement to back the Democratic frontrunner – in case of his own drop-out – with funds and data-expertise has already altered this year’s election.

Popper’s Paradox of Tolerance with Chinese Characteristics


Europe finds itself in an ambivalent position. On the one hand, repelled by Trump’s style of politics. On the other, fearful of Kissinger’s scenario materialising: Europe’s decline towards an appendix of a Chinese Eurasia.

From Kuka’s industrial robots over Silex’s micro-electrical systems to Krauss-Maffei’s machines: European craftsmanship, creativity, and innovation are the envy of the world. The many European hidden champions are embedded into a deep web of suppliers and partners extending into the smallest corners of Europe. Their operations not only safeguard the old continent’s prosperity, but also form the backbone of its societies.

While open markets have benefitted both China and Europe since the PRC’s opening in 1978, the playing field has become increasingly uneven. Or rather, the playing field has never been even. But Europe was too greedy to see it.

Although there have recently been announcements about an easing in joint venture constraints for car manufacturers in China, forced technology transfer is still happening en masse. A recent study by the EU Chamber of Commerce in China found that ‘unfair technology transfers continue despite government assurances.’ 19% of the 532 respondent chamber members reported that they were affected by forced technology transfer. The number of unreported cases is probably even higher due to retaliatory concerns.

Most policymakers have (or should have) woken up to the fact that elites at Zhongnanhai have chosen ‘Perestroika without Glasnost’. China’s system depends upon the symbiosis of the state and the economy. The trade negotiations of the US administration with China (while dubious in style) show that China does not intend to change its economic system any time soon.

Now what might a European response look like? The great Karl Popper might provide some insights:

  • ‘Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them.’

It would be naïve to wait until the sell-off of European companies to China is over. After all economic policy is a means to an end – and not an end in itself. Policy should be guided by reason and providence. The time for dogmata and ivory tower theories is up.

© Photo:




Strange, Strained Ties


Germany wouldn’t be the Germany it is today without the US.

It was the US that rebuilt Germany after the Second World through the Marshall Plan. It was the US that reunified Germany through the vision of George H. W. Bush. It was the US that constructed today’s international economic order, of which Germany’s export-oriented economy is the main beneficiary. And it was the US that formed NATO, extending its security umbrella over Europe and enabling Germany to rise from the dead without fearing a Soviet invasion.

Yet fast forward to 2019, and:

“A majority of Germans trust Russia and China more than the US” 

This is the Russia that annexed Crimea in 2014. The Russia that launched cyber-attacks against the German government. The Russia whose associated proxies shot down a passenger airplane in 2014 killing all 298 passengers. And the Russia who is regularly being linked to interfering in exterritorial elections.

Back in 2000, 78% of Germans had a favourable opinion of the US. In 2018, it was a mere 30%.

What has happened since then? And what accounts for the estrangement of both countries?

Since the turn of the millennium, German-American relations have become increasingly volatile. One proxy measure quantifying the alienation is Pew Research Center’s ‘Favorable View’ survey.  Looking at German perception of the US over the past two decades provides interesting insights.

The Bush administration managed to halve German’s favourable view of the US to 30% by 2007. While Obama’s charme-offensive managed to regain ground; (the score jumped to 64% in 2011), this wouldn’t last long either. After the NSA revelations, a meagre 51% had a favourable view of the US.

Thus, while the relationship experienced its ups and downs over the past two decades, the trend is clear.

German-American relations have gone increasingly bad.

It is impossible to find a single causal factor explaining the deterioration of a phenomenon as complex as German-American relations.

Yet two factors stand out:

On the one hand, the past three US administrations have been largely unpopular in Germany.

The Bush administration’s ‘War on Terror’, the lies about WMDs in Iraq, and the pictures from the two prisons associated with the administration (Abu-Ghraib and Guantanamo) broadcasted into the living rooms of Germany caused lasting damage.

When Obama was inaugurated in January 2009, Germans were hopeful. Obama received plenty of premature praise. However, in the end he failed to live up to the high expectations. The NSA revelations and his failed Syrian red-line policy made him appear devious and weak in the eyes of many Germans.

Appalled by the US election campaign in 2016, many Germans already made their final judgment about Trump even before he became President. Torn between disbelief and inflated curiosity, German news outlets report on a daily basis about Trump’s recent antics. Trump’s henchman in Germany Richard Grenell, US ambassador to Germany, even trumps his boss in his defiance of diplomatic norms. He regularly has to be reminded that he is not a ‘colonial officer’ (Schulz).  His critique of the North Stream II pipeline is emblematic of the status of the bilateral relationship. While his points are valid, the delivery of his message prevent a serious (and well-needed) engagement with his critique.

On the other hand, Germans seem to have had a bad awakening in recent years. For years, the Germans perception about the US has suffered from dissonance.

Exposed to American culture in its various forms, Germans have admired the ‘American Way of Life’ and the ‘American Dream’ for a long time. German post-War generations have carried on their gratefulness for US generosity in the aftermath of the Second World War through their story-telling. However, with these generations passing away and the proliferation of social media, new realities have emerged and the German illusion has been shattered.

To many the US resembles these days a dystopian opera of capitalist excesses. On the one hand, the few Silicon Valley billionaires, on the other the many left behind ‘deplorables’ (Clinton) suffering from deficient social security nets.

Thus, one might wonder what explains the difference in perception between the US and Russia?

Cialdini famously showed how humans face the personal and interpersonal pressure to act consistently with previous commitments. Deviating from earlier commitments or proclamations is seen as harming credibility. Festinger went further with his term ‘cognitive dissonance’. People have an inner need to ensure their beliefs and behaviours are in harmony. Inconsistency between the two leads to disharmony.

What can the consistency bias and cognitive dissonance tell us by analogy about the differences in perception about the US and Russia?

It seems that with Russia, Germans know what they got. They are fully aware that the country is not a democracy. It’s run by kleptocrats. The economy is ruled by oligarchs. Regime-critics are poisoned or locked away. The cases of Khodorkovsky, Navalny, Skripal, and Litvinenko have been closely monitored in Germany.

As a result of the German perception of Russia, the room for disappointment with Russian actions is relatively low. Russia, unlike the US, doesn’t claim for itself the moral high-ground in international affairs. Its actions are limited towards protecting its national interests. Russia explains its motives in a relatively frank manner.

This led to a widespread indifference of the annexation of Crimea in Germany. Albeit a breach of international law, the Russian historical explanation was largely given a pass by the population. It went along the lines: ‘At least there is a historical explanation for their move’. Or rather any explanation that didn’t hide behind feigned moral motives.

Towards the US, German suspicion is way greater. Too often have moral arguments been used for policy measures intended to further national interests. It seems that selfishly pursuing national interests gets a pass, as long as one is transparent about it.

Or along the lines of Festinger: As there is no gap between perception and behaviour.


© Photo:


As insoluble as water and oil:

Bildergebnis für us china trade liu he lighthizer

One of the few areas in which Donald Trump, US President, enjoys bipartisan support these days is his criticism of China’s economic practices.

Even abroad, there seems to be an overlap with certain positions of the Trump administration.

For instance, in Germany there are widespread concerns about a ‘sell-out’ of German industrial know-how. These fears have been exacerbated by recent take-overs – Kuka, the robotics company, being the most prominent one. More so, German companies have become increasingly frustrated about unfulfilled Chinese promises about the creation of a ‘level playing field’.

In that sense, there is potential for confronting China through a unified Western coalition.

However, Trump wouldn’t be Trump if it were that easy.

Instead he:

  • claims that ‘the EU treats (the US) as badly as China’.
  • slapped tariffs on European steel exports for ‘national security’ reasons, thereby, circumventing de jure WTO violations, but de facto violating WTO rules.

The Trump administration demands nothing less than a systemic change of China’s economy. Amongst other things, Trump wants the Chinese regime to put an end to:

  • Forced technology transfer
  • IP theft
  • Subsidies to Chinese companies

In a way, Trump wants China to abandon the mechanisms that propelled the country to become the world’s largest economy (GDP / PPP).

It should come as no surprise that China is not fond of doing so – especially given Washington’s tone.

More so, the team around Robert Lighthizer, US trade representative, wants China to write these changes into law and to create a verification system that enables the US to monitor progress.

After years of lofty promises, it seems reasonable for the US to push for it.

At the same time, it remains doubtful whether the CCP is fond of an American judicial dictum.

China is playing for time. Its strategy is twofold.

  • In current negotiations, China’s target price seems to be getting tariffs lifted by making another set of bold and unenforceable promises.
  • In the medium-term – having 2020 in mind – it gambles to sit this out; hoping for a less hostile Democrat to become President.

The aspect of ‘saving face’ further complicates negotiations.

Both, Trump and Xi, will have to prove their domestic constituencies that the pains endured are worth the gains.

Especially vis-à-vis Trump, it will be interesting to see how he can withstand two pressures – having 2020 in mind:

  1. The farmers that helped elect Trump in 2016 have been battling Chinese tariffs for a year now. How much longer are they willing to stick by Trump?
  2. The US President considers the stock market to be a proxy for the success of his economic policies. Continuously falling stock markets as a result of further trade tensions will certainly make Trump re-consider his next steps.

Trump’s recent antics have:

  1. Re-iterated the importance of self-reliance for China:

Last May, China got a taste of what a dependency on American companies in the supply-chain might lead to – with the quasi-collapse of ZTE, a Chinese phone-manufacturer. The company violated US sanctions by exporting to Iran and North Korea. As a result, the US banned American companies from selling essential components to ZTE.

The recent spats revolving around Huawei will most certainly accelerate China’s efforts to decouple its economy from the US. China can be expected to double-down on import substitution efforts and on production relocation.

  1. Hurt American businesses:

China has been dubbed by Boeing as ‘the world’s first $1 trillion market for jets.’ It is expected that until 2037, China will need more than 7,000 new commercial jets to meet its travel demands. This is without a doubt not something Boeing would like to miss out on. Yet considering the tit-for-tat protectionist jabs between the countries, Boeing might find itself caught in the whirlwind sooner than later.

Last week showed again that it’s difficult to predict progress on resolving the ‘trade-war’ (US-version), respectively the ‘trade-dispute’ (Chinese version).

However, it has become clear that the differences won’t be resolved any time soon. Too much is at stake.

After all it really is a ‘fundamental clash between two radically different economic models’ that are ‘as insoluble as oil and water’ (Bannon; Shell).


© Photo:

‘Made in … 2030’

Bildergebnis für german industry

Impressed and alarmed by China’s recent initiatives, Peter Altmaier, German Minister of Economics, published his ‘National Industrial Strategy 2030’, a white-paper on German and European industrial politics.

The paper mentions German firms, such as Siemens or Deutsche Bank, whose survival is of ‘national political and economic interest’. It also hints at the creation of a ‘Beteiligungsfazilität’, a state-investment fund stepping in to prevent foreign take-overs of critical companies.

However, in recent weeks Altmaier has come under fire. Representatives of the Mittelstand (small and medium-sized companies forming the backbone of the German economy) have been most vocal in their criticism.

A feeling of neglect best summarises their sentiment.

There is indeed a need for a new ‘Mittelstandsstrategie’. Various issues need to be addressed. Many companies suffer from higher energy prices on a European scale. There is also the need for a discussion revolving around corporate taxes.

Valid points, but a polemical outcry:

1. Altmaier explicitly mentions the issue of energy prices and corporate taxes in his paper. An accusation of neglect in this context is simply wrong.

2. Various circles act as if Altmaier’s white-paper is the final outcome. He clearly states the opposite. It ought to serve as a basis for discussion.

3. The accusation that the state is inept of identifying crucial economic sectors by drawing analogies to operative state-led blunders is cheap. The German state certainly didn’t excel with projects it had to conduct on its own, such as the BER airport. Yet the analogy is misplaced. Within the context of industrial politics, the state should identify crucial economic sectors (1) and direct investment to them in their infant stages (2). The track-record of China and the Tiger economies speaks volumes.

4. Moral handwringing without providing tangible recommendations is too easy. Accusing Altmaier of ‘centrally planned economics’, like the FDP does, is ludicrous. Even if it’s hard to admit and might taste bitter: Chinese subsidies helped the country become a leader in crucial sectors.

5. Critics would be well-advised to (re-) read Ha-Joon Chan’s book ‘Kicking Away the Ladder’ to learn about the origins of Western wealth. Hint: it has to do with industrial politics.

Time to wake-up:

Given what’s at stake for the German economy, its politicians should leave their dogmatism behind. They should take up Altmaier’s invitation for shaping Germany’s economic future.

The argument that the German economy has been doing well without industrial politics is naive. With the emergence of the e-Mobility and the A.I. revolution, an entire ecosystem is at stake.

1.8 million German jobs depend upon its automotive industry.

In the same vein, many Mittelstand suppliers depend upon the bigger fish in the pond. The SMEs would be at risk if the big fish were no longer in Germany, but in China.

In that sense, industrial politics isn’t a zero-sum game.

A more active state:

In her book ‘The Entrepreneurial State’ Mariana Mazzucato highlights the crucial role of the state in technological breakthroughs.

The iPhone wouldn’t be the iPhone if it were not for the state. The Internet, GPS, battery and voice recognition were all pioneered by researchers on a government pay-roll.

The government ought to correct market failures, by facilitating investments into sectors deemed too risky for private investors. Certain investments require a planning horizon that exceeds the patience of shareholders. In that sense, the government should support crucial technological fields early on.

The trust in the country’s creative forces of the free-market vis-à-vis technological progress has taken a hit. For a long time, German energy companies were reluctant to invest into renewable energy.

Instead they kept focusing on the cash-cows of nuclear energy and coal. They perceived renewable energy as a hobby, as Peter Bofinger, member of the German Council of Economic Experts, remarks. It was the German government with its ‘Erneuerbare Energien Gesetz’ (Renewable Energy Sources Act) that laid the foundation for wind-energy and photovoltaics.

Looking at the German automotive industry with its recent track-record (including the Diesel emissions scandal and its lagging position in e-Mobility), it seems as if the private sector of Germany’s most important economic branch could need more than a little nudge by the state.


© Photo:







Behind the smoke and mirrors of German-American tensions:


Der amerikanische Botschafer Richard Grenell am 14. Januar 2019 bei Bundespräsident Frank-Walter Steinmeier

Germany’s dilemma is that its security is dependent upon the US while its economy increasingly is not.

  • In 2017, China was Germany’s principal trading partner for a second consecutive year. (Nienaber, Michael (2018). Reuters)

More so, the US is becoming increasingly less popular in Germany. Richard Grenell, US ambassador to Germany, seems to be spurred on by this very fact.

Some even refer to him as the ‘most undiplomatic diplomat in Berlin’.

Three issues strain the current German-American relationship:

  1. The Nord Stream 2 pipeline
  2. The nature of German-Iranian trade relations
  3. The development of 5G infrastructure by Huawei

Certain issues (such as the heightened energy dependence on Russia & the close relationship between Huawei and the Communist Party of China) rightly deserve attention.

However, what many people take issue with are:

  1. The blatant US foreign policy double standards
  2. Its dominion-esque top-down communication
  3. Its flagrant hypocrisy

Nord Stream 2:

The rationale against the pipeline-project is that Germany risks becoming too dependent upon Russian energy. In that line of thought, Germany would be exposed to Putin’s mood swings.

Yet unless Putin decides to go on a Kamikaze mission, it seems rather unlikely that Putin will decide to turn off the gas pipeline.

  • Russia has become ever more reliant on the cash generated by oil and gas exports, which account for 44% of all government revenues. (Butler, Nick (2019). Financial Times)

It’s safe to assume that Putin knows about the linkage between the energy cash-flows and the stability of his regime – especially whilst monitoring what’s happening in Venezuela.

Yet what’s really behind the smoke and mirrors?

As the EU’s demand for gas continues to rise, its own supplies begin to run out. The EU is now faced with a bifurcation.

  1. Increasingly rely on Russian natural gas
  2. Lean towards liquified natural gas (LNG)

The US is (surprisingly) the biggest producer of the latter, and now keen to become the biggest exporter, too.

However, shipping LNG across the Atlantic is expensive and the required terminals to unload LNG in Europe are not in place yet, which makes option 1 (see above) more attractive.

One might sense economic interests masked behind security concerns.

But would the US really …?

Never mind…

German-Iranian trade relations:

Speaking about US concerns of using one’s leverage in one domain to exert power in another (i.e. Russia’s energy geopolitics), let’s travel 3000km south-eastward towards Teheran.

  • Convinced of an existential threat from competitors, America is weaponizing the dollar to preserve its global economic and geopolitical position. (Das, Satyajit (2018). Bloomberg)

Foreign-policy and trade hawks in D.C. have discovered the power of the US’ global financial might (derived by the USD being the world’s reserve currency).

If that’s not enough, the US increasingly threatens traditionally close allies with secondary sanctions.

In this specific instance, the US intends to nudge Germany away from conducting business with Iran, and thereby providing funds to the ‘leading state sponsor of terror’.

Iran is by far not a saint. It supports militias in different places ranging from Lebanon to Syria. Its track-record on human rights issues is appalling.

Yet it is irritating to see how Iran is being demonised and bashed, while Saudi Arabia seems to get a blank cheque for close to anything (ignoring the fake US outcry about the Khashoggi murder).

US hawks, such as National Security Advisor John Bolton, openly advocate Iranian regime change for the sake of ‘liberating’ the Iranian society.

It seems like Mr. Bolton should attend a ‘History 101’ session on the Middle East. Wasn’t there a link between the overthrow of Mossadegh by the US in 1953 (‘Operation Ajax’) and the Iranian revolution in 1979 …?

Again, never mind.

At the same time, the US turns a blind eye on Saudi Arabia.

A country where women cannot leave their houses without their husband’s permission. A country where transgenders get tortured to death. A country where human-rights activists get locked up. A country that kills its own journalists abroad. A country that bombed Yemen, one of the poorest countries, to the brink of starvation.

While this doesn’t acquit Iran of any of its human-rights violations, it puts a lot of things about US foreign policy into perspective:

  • Power Politics & Interests > Morality

Something the public fortunately increasingly acknowledges:

Huawei’s 5G infrastructure:

Last but not least, let’s turn to the latest friction point between Germany and the US:

  • Huawei’s 5G infrastructure.

Last week, Mr. Grenell advised Peter Altmaier, Germany’s Minister of Economic Affairs, to cut ties with Huawei. If Germany were not to follow order, it would risk losing access to US intelligence.

An allied diplomat threatening a German minister.  So much for the state of the transatlantic alliance.

The US’ recommendation is rooted in the fear that Huawei’s infrastructure could become a Trojan horse for the CCP’s spying activities.

There has neither been proof for the US suspicions (1) nor for the technical feasibility of the accusations (2).

More so, it’s a rather bold move by the US to warn about the dangers of spying – merely six years after the NSA’s spying excesses in Germany have been uncovered.

In reality, leading US public officials have realised that the 21st Century great power struggle will be decided within the realm of technology – especially A.I. and 5G.

Losing to a competitor, that embodies to some an alternative model, would fundamentally question the appeal of the US’ model.

Yet it seems that some on Capitol Hill are afraid about the competition of systems.

Meanwhile Germany got an amuse-gueule of what it will feel like to be caught up in this century’s great-power struggle.


© Photo:




The Fate of Pan-European Industrial Politics in the 21st Century


Last Wednesday Margarethe Vestager, European Commissioner for Competition, blocked the proposed Siemens-Alstom rail-merger. While Vestager’s rejection didn’t come as a surprise, it raises various interesting issues.

The rationale behind the prohibition of the fusion was the preservation of intra-european competition within the rail-mobility sector. This foreshadows the tale of an increasingly important trade-off EU competition lawyers will have to make: namely, the trade-off between European ambitions for the world stage and the preservation of healthy competition within Europe (e.g. Spain’s Talgo)

In Germany decisions by anti-trust authorities can be overruled by ministers (e.g. the Edeka-Tengelmann merger by Sigmar Gabriel in 2016). In instances like these, politicians are meant to balance ‚Gemeinwohleffekte‘ (effects for the common good) against competitive repercussions. Yet there is no equivalent at EU-level for this.

Joe Kaeser, Siemens CEO, called the decision ‚technically right‘ but ‚wrong for Europe‘. This hints at the root of the problem. The rules of the game have changed.  Liberal and multilateral trade policies have come increasingly under threat from mercantilist policies with their epicentres in Washington D.C. and Beijing. Within such an environment calls for a ‚European Champion‘ (tantamount to Airbus) will only intensify.

As the saying goes: Tempora mutantur, nos et mutamur in illis

© Photo: