Transcript: China Shock 2.0: This Time It's Europe, with Adam Tooze
Recorded at the World Economic Forum's Annual Meeting of the New Champions, Dalian
Transcript (courtesy of the fantastic CadreScripts) further down the page. Image by Keya Zhou. Listen in the embedded player above!
Last week in Brussels, EU leaders held their first sustained debate on China policy in three years, and were so wary of Beijing’s reaction they wouldn’t print the word “China” on the agenda. The trigger: a goods-trade deficit closing in on 360 billion euros, and, for the first time ever, all 27 member states in the red. Recorded at Summer Davos in Dalian, I sat down with economic historian Adam Tooze to ask why the panic, and why now. Polanyi, the Plaza Accord, “glut shaming,” a $1.2 trillion surplus, and what Europe and China each most need to understand about the other.
04:26 – Why the alarm now? Imbalances are decades old, so what changed—and the shift from China slotting into Western supply chains to climbing the value chain
07:04 – Karl Polanyi, the “double movement,” and how the European working-class question becomes the politics of right-wing populism
11:21 – Autos as the core of the fight—12 million jobs—and why the Ukraine alignment gives the whole thing its moral charge for von der Leyen
14:14 – “Glut shaming”: the accusation of illegitimacy baked into the Western framing, and how it lands on a Chinese ear
18:16 – Wěiqu (委屈)—the swallowed sense of being wronged and why the EU should exercise a bit of cognitive empathy
20:14 – Merz reaches for the 1985 Plaza Accord, and the empathy gap that lets a German politician miss what that signals in Beijing
22:00 – The currency-manipulation argument, Germany’s own history with the euro, and why Switzerland is the real manipulator
25:49 – The $1.2 trillion surplus—”nothing we’ve ever seen before”—and the consumption China refuses to do
26:12 – Sorting the sectors: solar, batteries, and EVs where resistance is futile, versus steel and shipbuilding as “Polanyi double-movement as cosplay”
32:04 – The Draghi report and the house of mirrors: is China the cause of Europe’s malaise or just the thing exposing a homegrown one?
36:27 – If Tooze had von der Leyen’s ear: investment-linked talks, phased protection with a clear exit, and “investment, investment, investment”
41:16 – The October clock on the U.S.–China truce, and why this autumn could get very ugly
43:09 – Closing advice: what Europe and Beijing each most need to understand if this ends in managed rebalancing rather than a trade war
Transcript
Kaiser Kuo: Welcome to this special edition of the Sinica Podcast, a weekly discussion of current affairs in China, coming to you this week from Dalian, from the Davos On Air booth at the World Economic Forum’s Annual Meeting of the New Champions, otherwise known as Summer Davos. In this program, we look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society.
Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China.
I’m Kaiser Kuo, and for over 20 years now, I’ve had the privilege of working as an official writer for the World Economic Forum, as some of you listeners will know. And this year, they’ve asked some podcasters to team up with them to bring you shows under both the WEF banner and the banner of their own shows. So, I am delighted to be able to do this with Sinica.
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Last week in Brussels, the leaders of the European Union’s 27 member states sat down to a working dinner. The single item on the menu read Global Macroeconomic Imbalances and Their Implications for Europe’s Competitiveness and Prosperity. Everyone in the room knew precisely what was actually being discussed, and that, of course, was China. As one diplomat put it, “We all know the imbalances discussion is about China. It was the first time in three years that EU leaders had held a sustained debate about China policy, and they were so wary, I guess, of Beijing’s reaction that they wouldn’t even print the word on the agenda.
The numbers behind that dinner are quite stark. In 2025, the EU’s goods trade deficit with China reached very nearly 360 billion euros. So, if you think about that, it’s close to a billion euros a day cumulative. So, the largest so far in the bloc’s history. And for the first time ever, every single one of the 27 EU member states was actually running a deficit with China. Jens Eskelund, who heads the EU Chamber of Commerce in Beijing, captured the mood with an image that stuck. The relationship, he said, is less a partnership than a giant container ship that sails to Europe stacked high and comes back to China nearly empty.
By the end of the dinner, according to reports, the leaders had handed Commission President Ursula von der Leyen a mandate to develop new and, in the words of one official, “Very powerful tools,” while carefully framing it all as resting on two pillars — European unity, of course, and dialogue with China. So that’s the mood music. Now, here’s why I wanted today’s guest in particular for the past couple of years as this overcapacity and imbalances panic has built across the West. One of the very few prominent voices willing to look at in the eye and ask, “Wait, why are we panicking and why now?”
He has been my guest many times now on Sinica. Sinica listeners will know him well, and this is what makes him, I think, the perfect person for this conversation. He is not some apologist because he’s also quite candid about the fact that there really is a China Shock 2.0, that it’s unlike anything we’ve ever seen, and that this time the principal target is not the United States, it is Europe. Adam Tooze has been on the show, as I said, a bunch of times, most recently just a couple months ago after the China Development Forum, in an episode that we rather cheekily titled, “Adam Tooze is China-maxxing.”
Adam is an economic historian at Columbia University, where he directs the European Institute. He’s the author of a shelf of indispensable books, The Wages of Destruction, Crashed, Shutdown. He is the force behind the Essential Chartbook Newsletter, the co-host of the Ones and Tooze podcast. And he’s also got a book on the energy transition on the way, which I very much want to get my hands on.
Adam, welcome back to Sinica. Great to see you again here in Dalian.
Adam Tooze: It’s a pleasure to be here.
Kaiser: So let’s start with exactly where you started in, I think it was Chartbook 1,442,000. But it was the question hanging over the whole Brussels dinner of why now? The IMF and the World Bank gathered in April. The word on every macroeconomic analyst’s lips was imbalances. But you point out that imbalances are hardly anything new. The U.S. and the U.K. have run deficits for decades.
China, Germany, and Japan ran surpluses for decades. And by the IMF’s own data through 2024, things aren’t dramatically worse, really, than they were in any past moment. So I’ll put your own question back to you. Why the alarm at this particular moment?
Adam: Well, I think there is a general concern about this phase of China’s development because it moves from, shall we say, the convenient phase of Chinese development, which was inserting China in a relatively subordinate position into Western-led supply chains. That’s the story of the 2000s. And unsurprisingly, there could be trade hawks in the U.S. that would make an issue out of this. But what’s happened in the 2010s is China moves up the value chain. I mean, most notoriously, the 2015 program made in China 2025, that date’s obviously passed.
That itself, in fact, it turns out, ironically, was a borrowing from a German industrial initiative, in fact, closely associated with WEF, which was Industry 4.0, which was launched at the Hanover Trade Fair, I think, in 2011. A bunch of Chinese engineers were there, thought that sounded like a pretty good idea, and kind of went ahead and actually did it. And the consequences of that now are really very dramatic across the middle to top tier of manufacturing, where China is emerging as a key competitor. And here’s the crunch point for Germany.
And because they emerge as a key competitor for Germany, that changes the European conversation. Because up to this moment, there was really a German roadblock on any tough talk about China trade, because Germany actually ran a trade surplus or balanced trade with China, and key industrial interests in Germany, the Siemenses, the BMWs, the Mercedes, the VWs of this world, were deeply invested in the China market, and so, tough talk about China trade is still extremely sensitive for them, but it’s a sign of the times that this is shifting.
The other key component is what’s at stake here are industrial jobs. And so, with the industrial jobs question comes the European working class question, and with the European working class question comes the politics of populism and right-wing populism in particular.
Kaiser: And in discussing that idea, you reach for Karl Polanyi, the author of The Great Transformation and this idea that, well, globalization without political and social embedding eventually produces a backlash, what he calls this “double movement.” Can you explain who Karl Polanyi was and why he’s relevant at this moment? Unpack for us this idea of the double movement and why it’s relevant to the EU trade impasse with China right now.
Adam: So, I mean, he’s an Austrian emigre. He’s one of that group. But unlike, say, the Hayek’s of this world, more from the center left, the social democratic left, a kind of Marxism figure, though never really explicitly identified with Marxism, leaves Austria in the 1930s, has a sojourn in the UK like so many, ends up, in fact, at Columbia, could never fully situate in the U.S. because his wife had a Communist Party past, and so she was stuck in Canada.
He used to commute from Canada to Columbia to teach, famous later in his career for his deep anthropologies of the economy and fundamental work on the emergence of trade and production organized around money in the classical period, in classical antiquity, but relevant in this context because in the ‘30s and ‘40s, he began thinking very hard about crises of capitalism, and in ‘44 published one of the great books of the 1940s, Hayek’s Road to Serfdom, on the one hand, The Great Transformation, on the other by Polanyi is one of the great products.
And it’s a book which argues essentially that economic liberalism of the 19th century form, and this is where his anthropology kind of mindset comes in, shouldn’t be taken as a natural condition. It shouldn’t be taken as the obvious reality. In fact, it should be viewed as the rather strange, shall we say, fetishistic superstition of the 19th-century bourgeoisie who set about creating an essentially unreal world.
He talks about fictitious commodities in which they took land and labor, and money and turned them into abstract entities that functioned according to their own rules. All of this, of course, the artifice of a certain quasi-theological kind of construction. And this always ran up against the reality that work is people’s lives and people’s livelihoods and the gold is not necessarily the foundation of money, which is really a social artifact, and so on, and so forth. And so those tensions explode for Polanyi and unload for Polanyi in the mass mobilizations for various types of protectionism in the early 20th century.
People will be filling in, if not with Polanyi, then people like Barry Eichengreen or O’Rourke and Williamson, who, in a very mainstream mode, from the early 2000s onwards, were arguing that the glory days of globalization might actually have a ticking time bomb hidden within them, which would be the blueback about against globalization that then finally came really on the large scale in the 2010s. so, Polanyi, since the advent of Brexit and Trump, has become a key figure for thinking about this phase of backlash.
And one would have to say that in the current moment, the effort by the Europeans to craft a response to the success of China’s industrialization has about it the feeling of this kind of protective double movement defense. And I think that’s something to take seriously and not just to dismiss. The key area here is not aluminum and steel or cement or any of those old things which feature quite large in American debates about Chinese trade, but cars, autos, whatever you call them, motor vehicles.
Kaiser: Right.
Adam: Because that is the core of the European manufacturing sector. It’s 12 million plus jobs. And to lose those to the Chinese EV “invasion” would, I think, undisputably be a huge challenge for the stability of the European political economy as we know it.
Kaiser: European leaders aren’t coy about this either. They talk directly about the jobs — von der Leyen says flat out she won’t let unfair competition gut Europe’s industrial base. Cheaper EVs and all these good things that come of trade, supposedly, they are cold comfort to a laid-off autoworker in Saxony, who then goes on to vote for AFD.
Adam: That’s the narrative. And it’s indisputable, I think, that China subsidized its EV sector. I mean, the most comprehensive assessment I know in the West, which
