The specialty coffee wave sweeping small-town India

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BBC A barista crafting a milk foam design on top of a freshly brewed coffee in a mugBBC

“It’s not just about brewing a good cup of coffee but connecting with customers on a deeper level.”

It was this one thought that made Harmanpreet Singh leave his family bakery to open a specialty coffee shop in the northern Indian city of Jalandhar.

It was an unexpected decision – coffee has always been popular in southern states, traditionally served strong and frothy in a steel tumbler. But it’s still not the first choice of beverage in the vast swathes of north India, where drinking tea is an intrinsic part of the culture.

For Mr Singh, the journey began in 2021 during the Covid-19 pandemic when he saw a growing demand for specialty coffee, particularly among the city’s youth and the overseas residents who returned to the country at that time.

Recognising this shift, he moved to the southern city of Bengaluru to learn brewing techniques. “I studied everything – from the way coffee is served to the role things like decor, cutlery, music and even packaging played in the overall experience,” he said.

Three months later, Mr Singh put his learnings to test and opened Buland Café in Jalandhar.

Today, the cafe has 40 outlets across the city and has become a favourite spot for the city’s youth, who come here to relax or work over piping cups of coffee.

The beans, roasted in various blends, are sourced from the famed coffee estates of Karnataka. Mr Singh says he personally trained his staff on how to brew the perfect cuppa and take care of the coffee machine.

“It’s a thriving scene,” he says.

AFP A waiter serves customers at the India Coffee House in New Delhi, India, on Thursday, Dec. 5, 2013.AFP

Mr Singh is among a crop of young entrepreneurs that are benefitting from a wave of specialty coffee consumption in small north Indian towns and cities.

India has had a vibrant cafe culture for years – but it has been largely restricted to big cities where homegrown specialty and international coffee chains dominate the market.

However, post-Covid, several tier-two cities are also seeing a boom in demand for such spaces as people embrace practices like remote working and look for new places to meet their friends and families.

Cafe owners say more Indians are now willing to pay more for coffee that’s roasted in smaller batches and customised as per their preferences.

“Clients have become more knowledgeable about the roasts and are interested in the origins of their coffee,” says Bharat Singhal, the founder of Billi Hu roasteries.

In fact, more than 44% of the Indian population now drinks coffee, a 2023 report by CRISIL, a marketing analytical company, shows.

While a lot of it comes from home consumption, the growing demand for specialty coffee in small cities plays a big part, says Bhavi Patel, a coffee consultant and dairy technologist.

Roastery owners say the growth is also evident in numbers. “Subscription based orders have surged by 50% in one year,” says Sharang Sharma, the founder of Bloom Coffee Roasters. “Customers have moved from French presses to pour-over or espresso machines, adopting more sophisticated brewing methods.”

While India is often associated with tea, it also has a long coffee-drinking history.

The culture took shape in the 1900s when Indian Coffee Houses emerged as a hangout spot for the intellectual and elite class. Housed in colonial-styled buildings, these cafes served English breakfasts with steaming hot coffee and offered a space to discuss politics and mobilise support during pivotal periods in history.

A shift occurred in the 1990s when economic reforms opened India to the world, allowing entrepreneurs to open private coffee shops frequented by young peeople, who saw it as a hip experience.

Getty Images An employee serves a customer at a Tata Starbucks Ltd. store in Mumbai, India, on Monday, Aug. 12, 2024. Getty Images

Café Coffee Day (CCD), which opened in 1996, quickly became one of India’s most popular and widespread coffee chains. At its peak, CCD boasted over 1,700 outlets, serving as a popular gathering spot for students and young adults. But mounting debt, management issues and the untimely death of its founder led to a closure of most of its outlets across India.

In 2012, the arrival of international giant Starbucks spurred the rise of homegrown specialty coffee brands like Blue Tokai Roasters, Third Wave Coffee and Subko Coffee.

Mr Singhal says that while big cities like Delhi, Jaipur, Mumbai, and Bengaluru still dominate the scene, smaller cities are quickly catching up.

However, it’s not just changing palettes that’s driving consumption. “Often it’s social media,” Mr Singh says. “People want good coffee but they also want to be in a space that’s trendy and which they can post online.”

Nishant Sinha from Lucknow city is among those who understood the trend early on.

His Roastery Coffee House offers trendy ambience, free wi-fi and cosy seating options along with an array of coffee roasts. While the beans are sourced from coffee estates in the south, the food is distinctively north Indian.

Getty Images A Hindustan Petroleum Corp. employee stands in the gas station forecourt in front of a Cafe Coffee Day store, operated by Amalgamated Bean Coffee Trading Co., in Jaipur, Rajasthan, India, on Monday, Oct. 13, 2014Getty Images

Others like Jatin Khurana in the northern city of Ludhiana are experimenting with flavours.

At his Urban Buhkkad cafe, Mr Khurana serves the “Shadi Wali Coffee [the wedding coffee]” – a wedding favourite in the 1990s, which became famous for its blend of instant coffee, milk, sugar, and a sprinkle of chocolate powder.

But instead of coffee powder, Mr Khurana uses freshly grounded beans, available in different roasts and varieties, to enhance its flavours. “The idea is to capture the essence of the beverage that many Indians grew up drinking,” he says.

It’s an exciting time to be in the business – but growth comes with its own set of challenges.

“Demand is growing, but a smaller coffee shop owners tend to cut corners, whether it’s by opting for substandard machines, serving weaker coffee shots, or hiring inexperienced baristas,” Mr Singhal says.

And running the business is not always profitable given the high price of coffee and the infrastructural costs involved in running such spaces.

When Neha Das and Nishant Ashish opened The Eden’s café in Ranchi in 2021, they wanted to create a safe and relaxed space for young students to get together in the city.

Today, their hazelnut coffee and cold brews have become a favourite of many.

“It took some time but longevity requires more than profit,” Ms Das says.

“It’s about dedication, crafting local flavours, and understanding customers, even if it means working with slim profit margins for the long haul.”

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17 loan sharks nabbed in Pattaya

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Chinese nationals did business with compatriots over WeChat, charging 5% interest a month

PUBLISHED : 29 Nov 2024 at 21:07

Police question one of the 17 suspects accused of operating an illegal loan business following a raid on two luxury houses in Pattaya on Nov 27. (Photo: FM91 Trafficpro)
Police question one of the 17 suspects accused of operating an illegal loan business following a raid on two luxury houses in Pattaya on Nov 27. (Photo: FM91 Trafficpro)

PATTAYA – Seventeen Chinese nationals have been arrested in two houses in Pattaya on charges of operating an illegal loan business, police say.

The arrests followed raids on Wednesday at two luxury houses rented in the Khao Phra Tamnak area of South Pattaya, said Pol Lt Gen Yingyos Thepjamnong, acting commander of Provincial Police Region 2.

Police arrested 17 suspects and seized laptops, mobile phones and a list of more than 2,000 customers, with a turnover of more than 400 million baht.

Police had been monitoring the group’s activities for more than two weeks before taking the action, Pol Lt Gen Yingyos said.

Investigators found that the suspects invited other Chinese customers to borrow money by advertising and chatting via WeChat.

They made loan contracts online and lent money by transferring it through a Chinese bank. The interest rate was 5% per month.

If a customer did not pay off their loan on time, another group of Chinese people would act as debt collectors to threaten the debtors, police said.

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Will China pay up to take the climate change lead? – Asia Times

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The 2024 UN climate talks ended in Baku, Azerbaijan, on November 24 after two weeks of arguments, agreements and side deals involving 106 heads of states and over 50,000 business leaders, activists and government representatives of almost every country.

Few say the conference was a resounding success. But neither was it a failure. The central task of the conference, known as COP29, was to come up with funding to help developing countries become more resilient to the effects of climate change and to transition to more sustainable economic growth.

The biggest challenge was agreeing on who should pay, and the results say a lot about the shifting international dynamics and offer some insight into China’s role. As a political science professor who has worked on clean tech policy involving Asia, I followed the talks with interest.

Slow global progress

Over three decades of global climate talks, the world’s countries have agreed to cut their emissions, phase out fossil fuels, end inefficient fossil-fuel subsidies and stop deforestation, among many other landmark deals.

They have acknowledged since the Rio Earth Summit in 1992, when they agreed to the UN Framework Convention on Climate Change, that greenhouse gas emissions produced by human activities, including the burning of fossil fuels, would harm the climate and ecosystems, and that the governments of the world must work together to solve the crisis.

But progress has been slow. Greenhouse gas emissions were at record highs in 2024. Governments are still subsidizing fossil fuels, encouraging their use. And the world is failing to keep warming under 1.5 degrees Celsius compared with preindustrial times – a target established under the 2015 Paris Agreement to avoid the worst effects of climate change.

Extreme weather, from lethal heat waves to devastating tropical cyclones and floods, has become more intense as temperatures have risen. And the poorest countries have faced some of the worst damage from climate change, while doing the least cause it.

Money for the poorest countries

Developing countries argue that they need US$1.3 trillion a year in financial support and investment by 2035 from the wealthiest nations – historically the largest greenhouse gas emitters – to adapt to climate change and develop sustainably as they grow.

That matters to countries everywhere because how these fast-growing populations build out energy systems and transportation in the coming decades will affect the future for the entire planet.

Four people work at a table.
Negotiators at the COP29 climate talks. Less developed countries were unhappy with the outcome. Photo:Kiara Worth / UN Climate Change via Flickr

At the Baku conference, member nations agreed to triple their existing pledge of $100 billion a year to at least $300 billion a year by 2035 to help developing countries. But that was far short of what economists have estimated those countries will need to develop clean energy economies.

The money can also come from a variety of sources. Developing countries wanted grants, rather than loans that would increase what for many is already crushing debt. Under the new agreement, countries can count funding that comes from private investments and loans from the World Bank and other development banks, as well as public funds.

Groups have proposed raising some of those funds with additional taxes on international shipping and aviation. A UN study projects that if levies were set somewhere between $150 and $300 for each ton of carbon pollution, the fund could generate as much as $127 billion per year.

Other proposals have included taxing fossil fuels, cryptocurrencies and plastics, which all contribute to climate change, as well as financial transactions and carbon trading.

China’s expanding role

How much of a leadership role China takes in global climate efforts is an important question going forward, particularly with US President-elect Donald Trump expected to throttle back US support for climate policies and international funding.

China is now the world’s largest emitter of greenhouse gases and the second-largest economy. China also stands to gain as provider of the market majority of green technologies, including solar panels, wind turbines, batteries and electric vehicles.

Whether or not China should be expected to contribute funding at a level comparable to the other major emitters was so hotly contested at COP29 that it almost shut down the entire conference.

Previously, only those countries listed by the UN as “developed countries” – a list that doesn’t include China – were expected to provide funds. The COP29 agreement expands that by calling on “all actors to work together to enable the scaling up of financing.”

In the end, a compromise was reached. The final agreement “encourages developing countries to make contributions on a voluntary basis,” excluding China from the heavier expectations placed on richer nations.

In a conference fraught with deep division and threatened with collapse, some bright spots of climate progress emerged from the side events.

In one declaration, 25 nations plus the European Union agreed to no new coal power developments. There were also agreements on ocean protection and deforestation. Other declarations marked efforts to reenergize hydrogen energy production and expanded ambitious plans to reduce methane emissions.

Future of UN climate talks

However, after two weeks of bickering and a final resolution that doesn’t go far enough, the UN climate talks process itself is in question.

In a letter on November 15, 2024, former UN Secretary-General Ban Ki-moon and a group of global climate leaders called for “a fundamental overhaul to the COP” and a “shift from negotiation to implementation.”

After back-to-back climate conferences hosted by oil-producing states, where fossil-fuel companies used the gathering to make deals for more fossil fuels on the side, the letter also calls for strict eligibility requirements for conference hosts “to exclude countries who do not support the phase-out/transition away from fossil energy.”

With Trump promising to again withdraw the US from the Paris Agreement, it is possible the climate leadership will fall to China, which may bring a new style of climate solutions to the table.

Lucia Green-Weiskel is visiting assistant professor of political science, Trinity College

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Hunger-striking fraud suspect Samart falls ill

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Investigators find ‘fabricated’ document claiming loan from iCon boss was repaid

PUBLISHED : 28 Nov 2024 at 18:20

Samart Janechaijittawanich (black jacket) brings victims of pyramid schemes to the Department of Special Investigation in Bangkok in August 2016. (Photo: Tawatchai Kemgumnerd)
Samart Janechaijittawanich (black jacket) brings victims of pyramid schemes to the Department of Special Investigation in Bangkok in August 2016. (Photo: Tawatchai Kemgumnerd)

Politician Samart Janechaijittawanich, a suspect in a money laundering case linked to The iCon Group fraud and money-laundering scandal, has been rushed to the Department of Corrections Hospital after almost four days on hunger strike in prison.

Mr Samart, who was apprehended in Chiang Rai on Monday, was transferred to the hospital late Wednesday afternoon, Department of Corrections spokeswoman Kanokwan Jiewcheauphan said on Thursday.

He experienced fatigue and weakness after almost four days without food, which was coupled with high levels of stress, she said, adding that he did not experience any abdominal pain.

Despite not eating, Mr Samart drank water throughout, she said.

In a related development, the Department of Special Investigation team handling the iCon Group case on Monday searched Mr Samart’s home in Taling Chan district and his mother’s home in Ratchathewi district of Bangkok, according to a source familiar with the investigation.

At the latter, the DSI found a document that they believe was fabricated with the goal of helping to get Mr Samart off the hook over allegations that he received around 100 million baht from iCon CEO Warathaphon “Boss Paul” Waratyaworrakul, said the source.

Dated Nov 12, the document was signed by Mr Warathaphon while he was in jail, said the source. In it, Mr Warathaphon reportedly confirmed that he had lent Mr Samart the money traced by the DSI.

The document also contained what was claimed to be Mr Warathaphon’s acknowledgement that Mr Samart had already repaid all the loans he received, said the source.

According to the source, the document indicated that the loans were transferred to the bank account of Mr Samart’s mother on 12 occasions for a total of 2.2 million baht, but the debt was later paid off in cash. The DSI remains unconvinced that this is a genuine document, the source added.

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Delivery rider jailed for bomb hoax that triggered police sweep of DBS’ headquarters

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SINGAPORE: A 34-year-old man was jailed for 15 months on Thursday (Nov 28) for making false bomb threats involving the headquarters of DBS in May.

Ang Cheng Shin, also named as Hong Zhenxun in court documents, pleaded guilty to an amalgamated charge of communicating false information about a harmful thing.

Another amalgamated charge of using vulgarities against the bank’s customer service operators was considered for sentencing.

The court heard that Ang, who was working as a delivery rider, had credit card debt with DBS that amounted to about S$11,500 (US$8,550) at the end of 2023.

This was after interest accumulated on a debt of about S$650 that he incurred on his card in 2011. Payments that Ang made towards this debt were insufficient.

In December 2023, Ang agreed to a repayment plan with DBS, but failed to make any repayments between January and May this year.

DBS activated an automatic dial-up system that would call him once or twice every few days and redirect the call to a customer service operator if he picked up.

On May 27, over a span of about 10 minutes from 1.44pm, Ang answered nine calls made by DBS through the automated system.

On each occasion, the call was transferred to a different customer service operator at DBS Asia Hub.

Ang told each operator that he would plant a bomb at the bank’s headquarters at Marina Bay Financial Centre despite knowing that this was false, Deputy Public Prosecutor Hidayat Amin said.

This alarmed the operators, and some of them alerted DBS’ senior management. A bank employee reported the bomb threats to the police at around 2.10pm.

After this, a total of 67 people, including 19 police officers, were dispatched to deal with what turned out to be a bomb hoax.

The police traced the phone number used to communicate with the customer service operators and tracked Ang’s location to the Paya Lebar and Ubi area, where he was making deliveries.

Nine police officers were dispatched there, and two officers were dispatched to Ang’s home.

Four police officers went to Marina Bay Financial Centre to conduct a bomb sweep. This included examining flower pots and rubbish bins.

DBS alerted its headquarters, and 12 bank employees and 20 security officers joined the police officers in the bomb sweep.

At DBS Asia Hub at Changi Business Park, 10 bank employees and six security officers also conducted a bomb sweep.

When Ang’s location was later detected at SingPost Centre, another four police officers went there to arrest him at about 5.20pm.

Mr Hidayat, who said prosecutions of this offence were rare, asked for 15 to 18 months’ imprisonment for Ang.

He said deterrence was the main sentencing consideration as bomb hoaxes are particularly harmful “in an age where the spectre of terrorism is both ubiquitous and real”.

It is impossible to immediately determine the veracity of the threats, he said, and officers must balance the need to verify them with the importance of not creating undue panic.

“Catastrophic consequences may follow from the slightest miscalculation,” the prosecutor said.

Bomb hoaxes are also a considerable drain on essential services and could take them away from actual emergencies, he added.

Ang, who did not have a lawyer after his application to the Public Defender’s Office was unsuccessful, asked for a sentence of three to four months, saying that he had to support his elderly father.

For an amalgamated charge of communicating false information about a harmful thing, Ang could have been jailed for up to 14 years, fined up to S$100,000, or both.

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A best-case scenario for Trump 2.0 – Asia Times

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“God has a special providence for fools, drunkards, and the United States of America.” — Otto von Bismarck

Happy Thanksgiving, folks! A friend asked me to write an optimistic post about the best-case scenario for the upcoming Trump presidency. So here is that post.

Regular Noahpinion readers will know that I’m not very excited about a second Trump term. I don’t think the next four years are going to be hell on Earth or that they’ll lead to the collapse of the nation, but I do think Trump is probably going to degrade our institutions, foment chaos, appease our enemies overseas and appoint a lot of very unqualified people.

But, I also do have to admit that Trump’s first term turned out much better than I expected! Trump did foment social and political chaos, but consider the following:

  • The economy demonstrated strong growth, with workers at the bottom of the distribution reaping especially large wage gains.
  • Thanks to Trump’s rhetoric, the US belatedly woke up to the various threats posed by China, and realized that unilateral free trade has many drawbacks.
  • Trump did not lock Hillary Clinton up, or persecute his political enemies in general.
  • Trump did great on Covid relief spending, carrying American households through the pandemic and propelling a rapid economic recovery after the pandemic.
  • Trump’s Operation Warp Speed was the best Covid vaccine development effort in the world, creating new and highly effective vaccines in a very short period of time, and saving a very large number of lives.
  • Very few US government institutions suffered long-lasting damage as a result of Trump.

That’s not the best-case scenario for how Trump’s first term could have turned out, but it’s very far from the worst. All in all, if you told me in November 2016 that this is how Trump’s term would go, I would have breathed a sigh of relief (well, except for learning that we were going to have a giant pandemic, but that was hardly Trump’s fault).

So best-case scenarios are not pie-in-the-sky magical thinking. The second Trump presidency hasn’t been a disaster yet, and there’s a chance it won’t be one. Here are ten pieces of what I see as the most optimistic plausible scenario.

The economy continues to do well

There’s no evidence that economic expansions “die of old age.” Other than the brief weird interruption of Covid in 2020, the US economy has been in perpetual expansion for the last 12 years or more. There’s a decent chance this will continue.

The biggest threat to any economic expansion — a financial crisis — just doesn’t seem to be in the offing. There has been no big buildup of household debt in the US financial system. The rate hikes of 2022-24 caused no more than a few modestly sized bank failures that were cleaned up quickly and easily.

That means the main threat to the economy is inflation. People really hate inflation for its own sake, and also if it rises too much, the Fed could have to raise rates to levels that would choke off the economic expansion. But although inflation did tick up a bit this month, overall inflation expectations remain low and stable:

In the best-case scenario, Trump does nothing to upset this apple cart. He will raise tariffs, but much of the effect could be cancelled out by changes in exchange rates.

His threats to curb or end Fed independence — forcing interest rates lower, which would be very inflationary — could turn out to be just a bluff. And Trump’s advisors, like Elon Musk, could prevail upon him to cut deficits, removing another inflationary pressure.

In this scenario, inflation will remain low all on its own, and the economic expansion will likely continue uninterrupted, bringing further wage gains for Americans across the economic spectrum.

Unrest continues to fall

Unrest was the worst thing about Trump’s first term, but there are some signs that this history won’t repeat itself in the second. Trump’s victory in 2024 hasn’t been followed so far by any giant outpouring of anger in the streets, as happened in 2016. Nor have rightists triumphantly marched through the streets as they did in Charlottesville in 2017.

In general, the left-right street battles that characterized Trump’s first term have not reappeared. Two people did try to assassinate Trump during his campaign, but these were lone-wolf individuals without a clear political ideology. There has been no recent outbreak of hate crimes, mass shootings, or stochastic terrorism, as there was in 2016-17.

It’s possible that America has simply become exhausted with the constant talk of civil war, coups, and so on. The Palestine protesters are still marching, but they’re small in number and the country has tuned them out.

Meanwhile, anger over racism, sexism, etc. seems to be ebbing from newspapers, TV, the internet, and scientific papers. And on the right, the big shift in nonwhite voters toward the Republicans over the past two election cycles may have lessened fears of “replacement”. In other words, the fundamental drivers of the unrest of 2014-2021 may be ebbing fast.

Trump might not do much to revive unrest. He will do mass deportations, but Hispanic voters know this and shifted strongly toward Trump anyway — so it might not make any significant segment of the American electorate very mad. Anger over “migrants” in blue cities may cause even many progressives to turn the other way as Trump gives a bunch of asylum seekers and illegal immigrants the boot.

Trump’s rhetoric will continue to be fiery and chaotic, but Americans may simply have gotten used to tuning it out. Users are leaving X, the most divisive and shouty social media platform, and it’s unlikely that alternatives like Bluesky will replace it.

The era when arguing about politics on social media was America’s national pastime may be drawing to a close, with public discussions replaced by small group chats. With the decline of public argument platforms will come the waning of “cancel culture.”

In other words, Trump or no Trump, America may be headed for an era of social quiescence — a grumpy, bitter, quiescence, perhaps, but nothing like the turmoil of the previous decade.

Tariffs on allies are a bluff

Trump has threatened to slap big tariffs on US allies like Mexico and Canada. That would be bad because it would hurt American manufacturing by making it harder to get parts and materials.

But it’s possible that this is a bluff. For example, Trump recently threatened 25% tariffs on Mexico unless Mexico stopped migration (which it has been trying to do anyway). Then shortly afterward, he declared that he had had a productive conversation with Mexico’s president, and seemed to say that they had worked things out:

In Trump’s first term he did enact steel and aluminum tariffs on U.S. allies (which Biden sensibly repealed), but a lot of his other threats of tariffs against allies never materialized. It’s possible this term will go much the same way, and American manufacturers will be able to get the parts and materials they need.

Trump’s deregulatory effort helps the US grow faster

During the Biden years, it became painfully apparent that certain types of regulation — especially land-use permitting — were strangling American industry. Some Democrats tried to reform permitting in order to facilitate the transition to green energy, but were largely foiled by progressive factions of their coalition.

Trump and his people will not be hamstrung by having pro-regulation members of their own governing coalition. Trump will follow the typical Republican pattern of appointing anti-regulation people to the civil service, and fighting regulations in court.

Having the deregulation-minded Elon Musk on his side may make Trump pay more attention to the issue than he did during his first term. Some Dems in Congress might even team up with the GOP to do bipartisan permitting reform.

Deregulation of land use in America could accelerate reindustrialization and supercharge economic growth.

Trump keeps Biden’s industrial policy but removes the “everything bagel” contracting requirements

Worryingly, Trump has threatened to cancel Biden’s signature policies — the CHIPS Act and the Inflation Reduction Act. That would be a tragedy, since these laws have been more effective at reindustrializing America than any other policy tried thus far.

But it’s possible Trump could be bluffing! Instead, he might decide to keep the policies in place, but make just enough changes to slap his name on them and take credit for them. This would obviously make Democrats mad, but it would preserve these very important policies.

And in fact, some of the changes Trump might make could be positive ones! Onerous contracting requirements — for example, requirements to use a large percent of union labor for government-supported projects even in states without many unions — have proven to be one of the main things holding industrial policy back in America.

If Trump simply stripped those requirements from the CHIPS Act and IRA and then left them otherwise alone — or added his own initiatives on top — it would give a big boost to American industry.

Trump’s wacky nominees are replaced by regular conservative types

One of my big worries about Trump’s second term is that he’ll appoint wacky, incompetent people like RFK Jr. to positions of power. But it’s possible that some of these kooky appointments won’t make it through Congress, and others will quickly resign or be pushed out after performing badly at their jobs for a while. And it’s possible that Trump will replace these wacky appointees with competent conservatives.

For example, Trump just nominated Jim O’Neill, former CEO of the Thiel Foundation, to be deputy head of HHS, right under RFK Jr. If RFK resigns, O’Neill would be the most likely person to take the top spot, and would probably do an infinitely better job. And it’s possible that this could become a pattern throughout the entire administration.

Elon or others restrain Trump from fiscal profligacy

The biggest economic danger of Trump’s second term is inflation. Government deficits are one driver of inflation, for two reasons. First, they stimulate aggregate demand by putting money into consumers’ hands. Second, they pressure the Fed to keep rates low in order to help sustain government borrowing, and low rates are inflationary.

Trump has promised huge amounts of tax cuts, without concomitant spending increases. If carried out, this would add huge amounts to the deficit and to the national debt, increasing the risk of inflation and setting Trump up for a showdown with the Fed.

However, some of Trump’s associates — most importantly, Elon Musk — are extremely concerned about the deficit and the debt. Musk correctly identifies deficits as a driver of inflation:

If this attitude prevails in the Trump camp, fiscal hawkishness may thus return to the Republican party under Trump, after a 44-year absence. It would probably involve cutting benefits for the poor, but it would be more fiscally responsible than Trump’s plan for vast tax cuts for the rich.

Trump takes no federal action on abortion

Perhaps the most consequential change to American society that happened as a result of Trump’s first term was that abortion became illegal in some states (thanks to Supreme Court judges that Trump appointed).

Some in the GOP now want to enact a federal abortion ban, that would make it illegal throughout the country. However, Trump has promised to veto such a bill. He probably realizes how unpopular it would be. The best-case scenario is that he follows through on this promise, and continues his record of being moderate on abortion rights.

Trump forces an end to the Ukraine war in which Ukraine is not conquered

One of Trump’s major campaign promises was to end the Ukraine war quickly. This is a difficult thing to do, since the US is not a combatant in that war. One option would be to simply withdraw all aid from Ukraine, presumably resulting in Russia conquering the whole country (assuming the hapless, helpless Europeans are unable to step into the gap left by the withdrawal of US aid). That would certainly end the war!

But there are reasons for Trump not to go this route. MAGA rhetoric on this issue has always claimed (falsely) that America is at war in Ukraine. But if that were true, it would mean that if Ukraine were overrun, America would have “lost” a war. That would make Trump look weak — it would be like the Afghanistan withdrawal that started the downward slide of Biden’s popularity, except even worse. All the headlines would declare “America just lost another war!”, and Trump would take the blame.

In fact, Trump seems to be appointing at least a few hawkish people who would be very unhappy with the feeling that America had lost a war to Russia. General Keith Kellogg, whom Trump just named as special to Ukraine and Russia, and Sebastian Gorka, whom Trump just appointed as a counter-terrorism advisor, have both talked about possibly escalating US aid to Ukraine.

Trump’s plan to end the war might therefore be to offer both Ukraine and Russia carrots and sticks. If Russia insists on continuing the war, Trump could threaten to surge aid to Ukraine. If the Ukrainians refuse to cede territory to Russia, Trump could threaten to withdraw aid completely. Thus, he might be able to force a resolution in which Ukraine cedes some territory to Russia but survives mostly intact as a nation.

This would represent a technical loss for Ukraine in the war, but in the long-term strategic sense, it would be a nation-defining victory. Just like Finland in the Winter War, Ukraine would lose territory but ultimately guarantee its independence as a nation.

Russia, meanwhile, might agree to this in order to save face, preserve and reconstitute its military forces, and bolster its flagging economy. And European countries would gain time to sort out their dysfunctional domestic politics and build up their defenses against the Russian threat.

In fact, this outcome would probably be the best for all concerned at this point, and if Trump can actually manage to bring it about, it will be a major success.

Trump stands up to China

I saved this one for last, because Trump’s policy toward China will probably be the most consequential thing in his entire second term.

Although known as a China hawk from his first term, Trump has recently shown some signs of wanting to appease the Chinese, opposing the TikTok divestment bill and threatening to cancel the CHIPS Act. Elon Musk, Trump’s most important ally, has extensive business interests in the country, and has declared Taiwan to be an “integral part” of China.

On the other hand, Trump has nominated a number of people who are hawkish on China — Marco Rubio for Secretary of State, Mike Waltz for National Security Advisor, Alex Wong for Deputy National Security Advisor, and others. And of course Trump plans to be very confrontational toward China on trade issues, which is likely to make a general rapprochement more difficult.

In the best-case scenario, Trump follows the path of peace through strength, committing to a strong defense of Taiwan, working with allies in the region, and bolstering America’s military deterrent. Trump is also more likely to raise defense spending than Biden was.

And there’s even an outside possibility that Musk and other people at the new Department of Government Efficiency will be able to make the notoriously dysfunctional defense procurement process more efficient, allowing the US to get more bang for its buck.

On top of that, Trump might effectively employ the “madman theory” to deter a Chinese invasion of Taiwan. This is the idea that if America’s rivals think the President is a bit crazy, they will be reluctant to start a war, out of the fear that the US would respond with nukes.

If any President can act like a loose cannon, it’s Trump; Kamala Harris would probably not have been able to pull this off. In fact, it’s possible Trump already put “madman theory” to use in his first term — there’s a report that in a 2020 meeting with Xi Jinping, Trump threatened to “bomb the shit” out of China if it invaded Taiwan.

If that kind of thing can keep China from launching a major war for the next four years, the whole world will be much better off.

Stay optimistic!

It’s incredibly unlikely that all of these rosy scenarios will pan out. But it’s very possible that some of them will. The next Trump term could be an unending cavalcade of disasters, and we need to both prepare for that and fight to stop it.

But at the same time, it’s possible that the outcomes of Trump’s second term end up being just as benign as in his first four years — or more so. So even if you agree with me about all the dangers Trump poses, don’t despair!

America has pulled through tough challenges with surprising resilience many times in the past. We should never discount the possibility that we’ll manage to do it again. Have a great Thanksgiving.

This article was first published on Noah Smith’s Noahpinion Substack and is republished with kind permission. Become a Noahopinion subscriber here.

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Japan braces for a Trump trade war it can ill afford – Asia Times

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Tokyo – Shigeru Ishiba, the prime minister, is dreading 2025 because of the wave of panic that is permeating the ceos of Toyota, Honda, Nissan, and other Japanese Inc. images.

Ishiba has been trying to establish himself as the head of Japan since October 1. The Liberal Democratic Party‘s burgeoning group, which has seen its approval ratings dip into the lower 30s, was made even more difficult by Donald Trump’s resounding victory about a fortnight afterwards.

The challenges are only intensifying as more information about Trump’s plan to launch his next trade conflict comes to mind. The Bank of Japan’s 2025 economic growth will already be affected by that, as well.

Until lately, Governor Kazuo Ueda argued the BOJ may become hiking rates once– perhaps at the December 18-19 table meeting. The” Trump business” arriving shortly could change that mathematics, and fast.

Trump’s subsequent trade war may be “very harmful to the earth economy”, predicts analyst Gary Hufbauer at the Peterson Institute of International Economics, a Washington-based consider tank.

Ishiba’s state was roiling to complete a new US$ 250 billion monetary stimulus package even before Trump made his announcement on November 26 that he would impose taxes on Canada and Mexico in addition to China. At a time when inflation is comfortably above the BOJ’s target of 2 %, the plan aims to increase revenues.

As Trump’s future trade war harms Ishiba’s economy and further destabilizes China’s fragile economy, there will likely be much more stimulus there.

In Beijing, President Xi Jinping’s efforts to boost growth are n’t gaining traction as hoped. In October, China‘s business revenue fell 10 % year-over-year. That was after a 27.1 % decline in September, the sharpest drop since early 2020.

The problems faced by Japan’s leading trading partner are a growing concern for Ishiba’s market as the Trump 2.0 wind techniques.

At his Mar-a-Lago in Florida, Ishiba had been attempting to arrange a conference with Trump. The desire was to repeat Shinzo Abe’s ways from 2016, when the then-prime secretary became the first foreign leader to love President-elect Trump’s band.

Trump World, though, is rebuffing Ishiba’s overtures. And in embarrassing fashion. The Logan Act, a 1799 law prohibiting private citizens from speaking with foreign governments, was invoked by Trump’s supporters.

Trump, however, was unconcerned about a meeting earlier this year with Israeli Prime Minister Benjamin Netanyahu, Hungary’s right-wing leader Viktor Orban, and other world leaders.

Ishiba and Trump seem to have a very slim chance of settling things. Trump still harbors a lingering nostalgia for the days when Abe would propose his nominee for the Nobel Peace Prize. ( Unrelated, Abe was assassinated in 2022 ).

” It may be difficult to expect serious engagement by Ishiba or a successor in personal diplomacy with the next US president, for example, or with the Chinese or South Korean governments”, says Tobias Harris, founder of advisory Japan Foresight.

Analysts believe the odds are high that Trump will expand the 100 % tariffs he plans for Mexican-made vehicles, at least in some measure, to Japan and Korea.

Hence the panic at Toyota, Honda, Nissan and the headquarters of other Japanese automakers. Executives at Hyundai, Kia, and other leading South Korean automakers are also looking ahead to a Trumpian onslaught in the future.

Trump might not find China, Japan, or Korea to be as compliant as he would like. Since 2017, Asia has become less dependent on the US than it did when it was there. Due to their respective domestic dynamics, Trump might find Yoon and Korea President Yoon Yeol less eager to follow his demands.

From 2017 to 2021, Trump 1.0 tried to browbeat Abe’s government into a bilateral trade deal that few in Tokyo saw in Japan’s best interest. Trump also made an effort to reduce Tokyo’s annual protection payments by$ 8 billion in order to keep US troop levels in Japan. Yoon’s predecessor, Moon Jae-in, faced a similar set of Trump demands.

It’s not clear, however, that Ishiba’s LDP will be as eager to bow out to Trump now that approval ratings are set to drop into the 20s as they were in Abe’s day.

Abe’s efforts to placate Trump are given too much credit, according to popular opinion. Abe ran to Trump Tower in New York in November 2016 for an audience with the incoming president. Abe also supported many of Donald Trump’s eccentricities abroad.

Yet Trump’s first big decision was to leave the US-led Trans-Pacific Partnership trade deal, a cornerstone of Abe’s efforts to contain China. Nor did Abe’s acquiescence win Tokyo a pass on Trump 1.0 tariffs, which slammed the Japanese economy.

Moreover, Trump’s odd bromance with Kim Jong Un shocked the Tokyo establishment. Abe’s pal in the White House hurts Japan’s overall national security interests by allowing the North Korean leader to accelerate his nuclear program. And Trump humiliated Abe by revealing the haughty letter Abe wrote to the Nobel Committee.

His policy team will assess how few deliverables, if any, Abe secured by prostrating his government before Trump World as Ishiba considers whether to do so.

Any calculation also must include how the Trump 2.0 trade war will wreck Ishiba’s plans for Asia’s second-biggest economy.

Arthur Kroeber, an analyst at Gavekal Dragonomics, notes there are too many imponderables for leaders from Tokyo to Frankfurt to know what’s really coming.

It’s difficult to predict the future, especially if Donald Trump is involved, Kroeber says, and the economic policy whipsaw of the past few days confirms what Yogi Berra might have said.

He continues,” no sooner had Trump calmed markets by appointing Wall Street veteran Scott Bessent as his treasury secretary than he riled them up again by threatening to impose immediate tariffs of 25 % on Mexico and Canada, as well as a 10 % hike on China,” quickly contradicting Bessent’s numerous assurances that tariffs would be layered on gradually and for clearly defined purposes, rather than unleashed all at once.”

The lesson here, Kroeber notes, “is that the range of possible trade policies in Trump’s second term is wide, and bets on any particular outcome right now are speculative”.

What’s not speculative is that Japan’s economy is n’t exiting 2024 on sound footing. Ishiba’s party, for example, is almost linearly focused on raising the minimum wage to a level that would still be too low to boost demand: 1, 500 yen ($ 9.8 ) per hour.

Business groups are clamoring that this hourly rate is too high, despite this low average hourly wage.

According to Ken Kobayashi, the head of the Japan Chamber of Commerce and Industry,” small business owners in rural areas cannot make money if the wage increases are too rapid.” Adds Masakazu Tokura, head of the business federation or Keidanren:” It takes time for management to make improvement efforts”.

Along with slamming economic confidence and global supply chains, Trump’s tariffs will boost global inflation. That would make it difficult for the Federal Reserve to keep cutting rates, as the world’s markets are accustomed to.

Additionally, it places a strain on the BOJ. On the one hand, higher consumer prices would give Team Ueda more latitude to normalize rates that have been close to zero for 25 years. On the other hand, the yen might experience a yen-topping decline that would hurt the Tokyo stock market.

Currency analysts are worried about unintended consequences from Trump playing Canada off Mexico.

According to Kelvin Wong, an analyst at currency broker Oanda,” Canada is one of the largest trading partners with the US, where its exports are primarily energy-related.” Therefore, it’s likely that Canada’s export revenues will suffer significantly if these tariff measures are implemented by the incoming Trump administration, which will result in a negative feedback loop on the Canadian dollar.

Most of Trump’s taxes on North America tariffs would be passed along to consumers. According to C J Finn, an analyst in the auto sector at PwC, the chances of automakers suddenly increasing productivity to offset tariffs are not encouraging.

Daniel Roeska, an analyst at Bernstein thinks Volkswagen, General Motors, Ford and Stellantis would be hardest hit. ” A 25 % tariff on Mexico and Canada would severely cripple the US auto industry”, he says. That, Roeska adds, would cause such a significant decline in US industrial production that” we expect this to be unavoidable in practice.”

According to Jeong Min Pak, an analyst at Fitch Ratings, the tariffs Trump has already described” could impact the profitability of Korean and Japanese automakers with imports from domestic facilities or Mexico.”

The EU’s high import duties against Chinese battery electric vehicles, Pak says, “are also likely to temper China’s exports. Fitch anticipates that the shifting of the focus to “developing markets” will encourage competition and have the potential to accelerate electrification of these markets.

Additionally, there are other ways BOJ policy and Trump’s stated desire to devalue the dollar could conflict, including by having direct control over Fed rate decisions. The ways that could trash the dollar’s credibility are hard to calculate.

Then there’s the China factor. It’s fantastic to think that Xi Jinping, the leader of China, wo n’t retaliate as Trump continues to impose trade restrictions and meddle in the currency, is. A sharply weaker yuan might be developed by China. A wider descent across Asia would result from that.

Xi wants to avoid doing so for a variety of reasons. It might stifle efforts to establish international respect for the Yuan. Additionally, it might increase the risk of default for large property developers who work offshore.

But with Trump nominating China hardliner Jamieson Greer as the next US trade representative, it’s hard to see trade tensions easing. Greer is a protege of Robert&nbsp, Lighthizer, Trump’s former and likely one of his future top trade advisers. Lighthizer is a major proponent of dollar devaluation.

Greer calls for a significant decoupling from China and sees it as a “generational challenge.” This view of Trump as a world ignores China’s potential retaliation, including steps to weaken the yuan.

As Japan finds itself caught directly in the crossfire, the nation’s debt load seems poised to increase markedly. This might force Ishiba, a long-time fiscal hawk, to accept a debt-to-GDP ratio far higher than today’s more than 260 %.

Indeed, Ishiba seems to be embracing increased borrowing at a rapid clip, pivoting to the policies of predecessor Fumio Kishida, who championed “wealth redistribution”.

When Ishiba was asked about his upcoming economic package, Ishiba told the parliament last week that” we will take comprehensive steps by giving cash handouts to low-income families that are most severely impacted by rising prices and providing subsidies to local governments based on their needs.

Ueda’s plight at the BOJ is only made worse by this reality. Tokyo’s debt burden could get worse every time the BOJ raises rates beyond the current 0. 25 % level. As of the end of 2023, Tokyo’s national debt was about$ 9.2 trillion, or 2.4 times bigger than Germany’s GDP.

Tokyo would likely face a mini-crisis if the yields of Japan rose, which would be combined with a trade war that Asia has never witnessed. If global investors take a fresh, hard look at Japan’s demographic crisis, which is brought on by a rapidly aging population, falling birthrate, and rampant government debt, that risk could grow even worse.

All of this explains why Ishiba and Ueda are undoubtedly depressed by Trump 2.0. And they’re surely not alone across trade-dependent Asia.

Follow William Pesek on X at @WilliamPesek

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Germany closing factories at home, opening them in China – Asia Times

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Germany’s biggest technological people are moving away from home to more positive circumstances in China as a result of its domestic energy guidelines and economic environment. Germany’s environment is increasingly hostile to business growth due to rising energy costs, high green energy subsidies, and strict regulations.

As a result, some of Germany’s most established companies are downsizing at house, shedding tens of work, while investing heavily in China. This change underlines the tremendous impact of existing policies on Germany’s professional scenery, with long-term implications for the local market and employment.

Here, Asia Times examines the main aspects and the businesses that are changing their business models worldwide.

Higher energy costs in Germany: The result of ideological laws

Germany’s energy policies have caused business energy prices to rise to amounts that are among the highest in the world, behind only the UK and the UK. Actually this high cost level, which has already reached unparalleled levels, cannot be sustained because the average cost for industrial users may have reached about US$ 250 per MWh by 2023.

Germany’s rely on renewable energy sources such as wind and solar, combined with the pulling out of nuclear energy, has increased the government’s reliance on imports and caused significant price fluctuation, eventually putting stress on both business and citizens. Due to rising costs, some businesses are considering reducing their businesses in Germany and starting new ones, especially in China.

Consumption of industrial strength has decreased by more than 16 % in the last two decades.

In 2023, power consumption in Germany’s business sector fell to 3, 282 petajoules, a decrease of 7.8 % compared to 2022. This drop followed an already significant reduction in 2022, when industrial energy use fell by 9.1 % year-on-year to 3, 558 petajoules. Taken together, these cuts represent an overall increases in industrial energy usage of about 16.3 % over the two-year time.

Graphic: Asia Times

Energy source in Germany: Increased trade dependence

German domestic energy production has also changed, with renewable energy sources generating a record 61 % of the country’s energy mix in the first half of 2024. In the first quarter of 2024, Germany’s reliance on foreign energy sources to complement its varying renewable production has increased by 23 % in this period.

Businesses that require steady, affordable electricity are at risk because of the variability of the supply of renewable energy, combined with rising home prices. Germany’s continued emphasis on solar is also expected to increase buy dependency, more discouraging companies from expanding internally.

Large subsidies for solar

In 2024 only, Germany will deliver 20 billion dollars in subsidies to alternative energy producers. Despite quickly falling market prices, these payments guarantee that solar energy suppliers receive set-assigned minimum prices.

The state budget has been burdened greatly by this centrally planned program, which allows the government to pay clean energy suppliers when wholesale prices drop.

In fact, the original budget for subsidies in 2024 was 10.6 billion euros ( US$ 21 billion ), but as energy prices have fallen, the projected need has doubled. Given the government’s commitment to follow the debt brake, these increasing subsidies are putting more pressure on the budget and making negotiations more difficult.

The Nord Stream pipelines and lost Russian gas played a significant role in Germany’s professional decrease.

Germany’s power landscape has been severely affected by the withdrawal of Russian gas imports, which has severely impacted its industrial base and increased energy costs. Russian natural gas was a core of Germany’s power source, providing reliable and affordable energy for years. However, this crucial strength link was cut short by the political effects of the Ukraine war and the Nord Stream pipeline sabotage in September 2022.

The problems rendered Nord Stream 1 entirely useless, and one of the two pipes of Nord Stream 2 was even damaged. Just one part of Nord Stream 2 is still in use and functional. If Germany was willing to engage with Russia politically and economically, President Vladimir Putin just reaffirmed that this operational pipeline was resume sales right away.

Putin and German Chancellor Olaf Scholz recently spoke in conversation, emphasizing that restarting oil travels through Nord Stream 2 was” a matter of pressing a box,” indicating that Russia was willing to provide fuel if Germany cooperated.

German gas had to be replaced by much more expensive liquefied natural gas ( LNG ) imports, primarily from the United States, after Russia’s abrupt loss of oil. These raised prices have undermined Germany’s international business competitiveness.

Putin’s suggestion to restart the last Nord Stream 2 pipeline highlights the corporate sway Russia also has over Europe’s energy source. By offering a possible crutch to Germany’s ailing business, Putin aims to control Germany’s social position on the Ukraine conflict. Germany has abstained from responding to the proposal despite the potential economic benefits of a resumed gas imports.

Falling domestic investment in Germany

Domestic investment has decreased significantly as a result of rising energy costs and regulatory challenges. Private gross fixed capital formation is about 10 % below pre-covid levels.

The situation is even worse for industrial production: Since 2021, Germany’s production level has fallen by more than 9 %. The decline has been even sharper in energy-intensive industries. In those areas, production levels have fallen by more than 18 % in less than two years, which indicates serious issues in industries that are heavily reliant on affordable energy.

Graphic: Asia Times

This decline may have had an impact on the cost structure of these industries because of rising energy costs and the ongoing shift toward renewable energy sources. The trend suggests potential deindustrialization pressures, particularly in sectors that are unable to adjust to rising operating costs.

Many businesses are cutting jobs at home while expanding in China as a result of Germany’s unsustainable cost environment.

The biggest German businesses are investing in China instead of reducing their workforce there.

    Volkswagen: Facing potential job cuts of up to 30, 000 in Germany, Volkswagen has made significant investments in China, including 2.5 billion euros ($ 2.6 billion ) to expand EV production in Hefei and a further 700 million euros in EV technology partnership with Xpeng.
  • Bosch: Announced plans to cut 7, 000 jobs in Germany as it increases investment in China’s e-mobility and automated driving sectors.
  • SAP: &nbsp, Plans to cut 9, 000 to 10, 000 jobs in Germany while reallocating resources to high-growth markets abroad.

As German businesses are putting more and more money under the belt, these cuts are a part of a wider trend. The Association of the Bavarian Economy (vbw ) estimates that the automotive sector in Bavaria alone could lose 106, 000 jobs by 2040, highlighting the far-reaching consequences of Germany’s industrial challenges.

Hildegard Müller, president of the German Association of the Automotive Industry (VDA ), warns that up to 190, 000 jobs across the sector could be at risk by 2035, reflecting the risks associated with Germany’s deindustrialization.

In response to these developments, Scholz’s government has initiated urgent talks with industry leaders. Industry experts contend that these discussions lack the long-term strategic vision required to address fundamental issues like high costs, regulatory pressures, and labor costs. Without significant structural reforms, the German automotive sector risks a further decline in global competitiveness.

Soaring German investment in China: Record levels

German companies continue to place record levels of investment in the nation despite pressure from German government officials and the EU to reduce their dependence on China. In recent years, German investment in China has increased to unheard levels, primarily in the chemicals and automotive industries.

In the first half of 2024 alone, German foreign direct investment ( FDI) in China reached 7.3 billion euros, surpassing the 6.5 billion euro total for the whole of 2023. German automakers and Germany are increasingly influencing Chinese foreign direct investment, accounting for 57 % of total EU investment in China in the first half of 2024, 62 % in 2023, and a record 71 % in 2022.

Key investment projects:

  • Volkswagen: In addition to its 2.5 billion euro investment in Hefei, Volkswagen has increased its joint venture stake in JAC Motor from 50 % to 75 %. This move underlines Volkswagen’s long-term commitment to local vehicle production in China, a market crucial to its growth in electric vehicles.
  • BMW: BMW’s investment in Shenyang not only expands its production, but also its research and development capabilities, aligning with local demand and avoiding the high energy costs in Germany.
  • BASF: The chemical company’s 10 billion euro plant in Guangdong is another example of large-scale localization. By operating in China, BASF lowers German regulations and energy costs while satisfying China’s growing demand for advanced chemical products, particularly in the automotive industry.

These initiatives are based on a localized production approach that helps businesses avoid the difficulties and costs of exporting from Germany and meet Chinese market demands.

Germany’s lead in expanding greenfield investments in the EU

The second quarter of 2024 saw the highest quarterly level to date for greenfield investment by the EU reach a record 3. 6 billion euros. German automakers have been a significant contributor to this growth, accounting for roughly half of all EU investments in China since 2022.

While average quarterly M&amp, A activity declines by 30 % between 2022 and the first half of 2024, greenfield investments by EU firms have steadily increased, with Germany’s automotive and chemicals sectors leading this trend.

Between 2022 and the first half of 2024, 65 % of all EU FDI in China will come from Germany, up from 48 % between 2019 and 2021. The top five European investors in China in 2023 were German companies, underlining Germany’s key role in EU-China investment.

Countries like France, the Netherlands, and Denmark, for example, will contribute only 7-8 % of EU FDI during this time, while the remaining 23 EU Member States will contribute only 12 % of that percentage.

Localizing supply chains and reducing geopolitical risks

German businesses are also restructuring their supply chains to reduce risk as a result of rising energy prices and regulatory uncertainty. Companies have been prompted to localize their operations in key markets as a result of events like the Covid-19 pandemic and the Suez Canal disruption, which have highlighted the fragility of global supply chains. German businesses are responding by increasing direct production in China, which reduces both the cost and the risk of global supply chain disruptions.

According to Friedolin Strack of the Federation of German Industries ( BDI), businesses in China are increasingly “reorganizing their supply chains regionally.” In a world where Chinese EV manufacturers are gaining market share, German automakers like Volkswagen and BMW are focusing on localizing their EV supply chains to stay competitive. German businesses are reducing costs by investing in localized production as well as protecting themselves from global uncertainties.

reducing German exports to China through local production

In the first seven months of 2024, Germany and China’s bilateral trade decreased by 5.7 % as a result of the transition to localized production. German exports to China fell by 11.7 % year-on-year, as companies increasingly serve Chinese consumers directly through local production.

German automakers, which are producing cars directly in China rather than exporting them, are especially attracted to this decline in exports. As less of German-made goods are exported abroad while localized production in China is growing, this could have an impact on Germany’s trade balance.

China’s unique advantages for German companies

While the German government and the European Commission advocate diversification away from China, alternative markets lack China’s infrastructure, market scale and cost efficiency. Countries such as Vietnam and Thailand, while considered as diversification options, cannot match China’s industrial networks, skilled workforce and market size.

Since 2022, more than 50 % of all EU investment in China has come from German companies, mainly in the automotive and chemical sectors. Major projects, such as Volkswagen’s partnership with Xpeng and BASF’s production facility, underline Germany’s strategic focus on China as a key market for long-term growth and competitiveness.

Domestic policy and global competition fueled a strategic reorientation

German companies ‘ decision to restrict domestic investment and expand in China is a stark reflection of Germany’s current energy policy and regulatory pressures. High costs, variable energy supply and regulatory challenges have made Germany a difficult environment for large-scale industrial investment, while China offers stability, cost-efficiency and market growth potential.

These trends suggest that domestic structural issues must be addressed as Germany attempts to maintain its industrial base. Without reforms to lower energy costs and reduce regulatory burdens, the shift of German investment to China is likely to continue, with long-term implications for Germany’s trade balance, industrial output and economic resilience. Even the EU tariffs wo n’t play a significant role.

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