Surprisingly clear-headed FT article about an equally surprising display of strategic thinking from Europe.

Rather than follow the US in its hysterical policy of banning Chinese technology, Europe seems to be crafting a more pragmatic solution: allowing Chinese companies in, provided they build local factories and transfer some of their technological expertise.

This ensures that Europe:
a) learns from China where it can, and
b) in cases where it's simply impossible to catch up at least Europe still benefits from the products and technology, made at home

The article illustrates this with the example of EV batteries, where Europe's homegrown efforts have largely failed (e.g. Northvolt's recent bankruptcy). So what should Europe do: have no EV batteries at all? Shoot itself in the foot with tariffs which mean it'll have to pay much more for its EV batteries than the rest of the world?

No, the smart play here is obviously to leverage China's advanced position in this field while ensuring Europe captures some of the value and builds domestic capabilities. By requiring local production and technology transfers, Europe gets:
- Immediate access to China's world-leading battery technology 
- Local manufacturing jobs and expertise
- A chance to develop its own capabilities over time with the knowledge transfer
- Competitive prices for its own EV industry 

This is, by the way, exactly the way China developed: they recognized the obvious, which was that the West had built a lot of know-how and advantages that couldn't easily be replicated. Rather than pretend otherwise or foolishly try to reinvent the wheel, they made themselves fully open to foreign firms on the condition they'd produce locally and agree to share some of the technology. That's how they caught up and how, in many industries, they have now overtaken the West; which is exactly why we're today in the opposite situation.

Historian and Columbia University professor Adam Tooze recently, and very astutely, remarked that "the first China shock was when China was incorporating into our supply chains. The second China shock is when we beg to be incorporated into theirs." (https://t.co/r6ioVlHDhj) It's true, that's where we are, and if we don't we'll stay behind in the same way China would have stayed behind had it not integrated into our supply chains.

Some will say "but this is admitting weakness". Damn right it is! Because, increasingly, we are weak... And when you are weak, there's nothing more destructive (and frankly pathetic) than thinking yourself strong: that's how you make yourself even weaker. Much better to be humble and realistic, admitting weaknesses and working on correcting them.

Now of course, there are other factors at play, it's not only about a technology catchup. China succeeded at becoming a manufacturing behemoth also because of its massive scale, lower labor costs (at least initially), tight integration between the state and the economy, and an extremely sophisticated ecosystem of suppliers, skills, and infrastructure built over decades. Advantages that Europe largely cannot replicate.

But the core principle remains valid: no major economy has ever successfully developed by cutting itself off from the most advanced technologies of its time. Imagine for the sake of argument that China was even more advanced, with say fusion power and warp drive technology that enabled it to travel anywhere in the universe. Would we then refuse to engage with them and insist on developing our own fusion and warp drive technology from scratch, just to avoid any dependency on China? Of course not - that would be absurd. We'd want to benefit from these revolutionary technologies while working to understand and eventually master them ourselves.

The situation with EV batteries and other technologies where China is ahead isn't fundamentally different. Yes, the technological gap is smaller, but the principle is the same: when someone has developed superior technology, the smart move isn't to isolate yourself from it but to find ways to use it yourself and learn from it.

The US approach of trying to completely block Chinese technology seems driven more by pride and politics than economic logic. The irony is striking: they go to extraordinary lengths to block China's access to technologies where the West leads, like advanced semiconductors - clearly recognizing that access to superior technology is a crucial advantage. Yet they simultaneously deprive themselves of the technologies where China is ahead. This contradiction exposes the fundamental lack of logic in their strategy.

Anyhow, in conclusion we seem to have stumbled into some bizarre parallel universe where Europe is, as strange as it sounds, pursuing their own interests with a dash of common sense. I don't know what the hell is going on in Brussels but this sort of rational decision-making is most out of character. Let's all savor this brief moment of lucidity before the normal madness resumes...

Link to the FT piece: https://t.co/4bksqNHdmo