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Reposted by Andrei Sterescu

Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

EU countries have been toughening their stance on China for a while now now and the Franco-German paper takes it a lot further. short thread on Europe's Japan shock in the 70s and 80s and why China is a bigger problem 🧵 outsample.substack.com/p/european-i...

outsample.substack.com

European Industry Between Crisis and Global Competition

France and Germany have proposed a trade instrument that could, in the most serious cases, restrict a country's access to the Single Market. The problem it responds to is not new.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

The Japan panic badly overrated Japan and China's workforce is shrinking and productivity growth has slowed. but it has far more room to catch up and a much bigger industrial base, so that's cold comfort for European industry now.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

Japan was also an ally that relied on US protection, so at worst it argued about GATT rules. China has no such constraint, and the US, which did most of the heavy lifting with Tokyo, is now squeezing European industry itself.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

China is also a different kind of problem. nothing Europeans bought from Japan was as hard to replace as Chinese rare earths and magnets are now. Japan competed in a handful of industries governments could fence off, China competes almost everywhere

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

Japan eventually accepted export restraints, let the yen appreciate and moved production to US and Europe. China has shown less willingness so far. demand at home is weak, capacity keeps growing and Chinese firms are replacing European suppliers inside China and third countries.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

Similar solutions have been proposed for China. The EU already has duties on Chinese EVs and talks with Beijing included a voluntary cap on hybrid exports. China said no, so a temporary safeguard with a quota is now being discussed.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

The Japan shock faded in the 90s, partly for reasons that had little to do with the deal. the yen roughly doubled against the dollar by end 1987 and kept rising until 1995, and Japan's economy stalled after the late 80s boom collapsed.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

The fears behind the deal proved overdone. Direct imports from Japan decreased and stayed below agreed levels, Japanese-owned plants in Europe made about 719,000 cars in 1999 against the 1.2 million assumed during the talks.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

Direct exports from Japan would still be restrained until the end of 1999 with separate limits retained for the countries that had already restricted them, including Britain. After that, the market was supposed to be fully opened.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

In 1991 the EC and Japan agreed the "Elements of Consensus". national quotas went at the end of 1992 and Japan kept restraining direct car exports until the end of 1999, with separate limits for the markets that had restricted them. after that it was meant to be fully open

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

What forced a common line was the 1985 Single Market White Paper. it set end 1992 for removing internal barriers, but France, Italy, Spain and Portugal all had quotas on Japanese cars and Britain a restraint deal. separate national regimes couldn't survive open borders.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

In 1981 Mitterrand said the response to Japan increasingly had to be taken at Community level, but stayed largely national. France called Japanese cars to ~3% of its market and Britain to ~11% while courting Nissan, Honda and Toyota. West Germany was far more open.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

It didn't work out as planned. The yen appreciated far more against the dollar than European currencies, so Japanese exporters squeezed in the US were looking to European markets.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

She also warned that European countries might eventually have to erect barriers against Japanese goods if Japan remained unwilling to open its own market. A few months later came the Plaza Accord.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

After the European Council in Milan in 1985 Margaret Thatcher told the House of Commons that leaders had discussed asking Japan to adopt a specific import target and revalue the yen as part of an effort to reduce its trade surplus.

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

The Japan shock built up over two decades. EC deficit w Japan went from ~$0.5bn in 1970 to $11 bn in 1980, and by the 80s it was a full on panic, from Ezra Vogel's Japan as Number One to Theodore White in NYT in 1985 warning the Japanese might have won the war after all

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Andrei Sterescu @andreisterescu.bsky.social · 08/10/2026

outsample.substack.com

European Industry Between Crisis and Global Competition

France and Germany have proposed a trade instrument that could, in the most serious cases, restrict a country's access to the Single Market. The problem it responds to is not new.

194

Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

16/ For a while, the AI investment boom could hide some of this. But if the investment boom eventually slows and gains fail to materialise fast enough, growth would have to come from somewhere else.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

15/ The danger is that AI might automate existing tasks faster than new ones appear, so workers can lose jobs and bargaining power as firms become more productive. Some will move elsewhere, others may take lower paid work or spend long periods out of employment.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

14/ But higher productivity by itself did not guarantee higher wages or better jobs. Acemoglu and Johnson argue that workers benefited when new tasks raised their productivity or when complementary sectors expanded enough to hire more of them. www.annualreviews.org/content/jour...

annualreviews.org

Learning From Ricardo and Thompson: Machinery and Labor in the Early Industrial Revolution and in the Age of Artificial Intelligence

David Ricardo initially believed machinery would help workers but revised his opinion, likely based on the impact of automation in the textile industry. Despite cotton textiles becoming one of the lar...

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

13/ Historically, labour-saving technologies allowed factories to produce more with les, so labour demand fell in the activities directly affected. Lower costs can then help firms expand, while new tasks and new industries create work elsewhere.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

12/ Governments can also support demand by spending more, but weaker tax receipts and higher public spending would strain the budget. Foreign demand could also support domestic output, but exports cannot offset weak domestic demand in every country simultaneously.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

11/ Higher investment can pick up part of the slack by building data centres, chips, cloud infrastructure, software, and hardware. But whether investment continues to increase depends on expected returns and financing conditions.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

10/ Falling income in the occupations exposed to AI could weaken the demand needed to support employment and earnings elsewhere. A fall in private consumption would then need to be offset either by higher investment, public spending or exports.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

9/ But more potential demand for care, construction or personal services only translates into jobs if someone is willing and able to pay for them. If displaced workers cut spending, businesses in those sectors would face weaker demand.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

8/ In the model, tasks complement one another, so making cognitive work cheaper increases demand for the work AI cannot perform. That provides an alternative destination for displaced labour, although labour market matching takes time.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

7/ If higher profits lead to larger dividends, shareholders receive more income, while higher expected profits may increase share prices and encourage spending from wealth effects. The problem is that richer households usually spend a smaller share of their income.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

6/ But the effect on consumption and demand depends on which households gain and which lose. Part of the spending lost through unemployment and lower wages could be offset by higher capital income and wealth.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

5/ In the most extreme scenario, total earnings from cognitive jobs would be 31% below the no-AI path due to job losses and lower wages. Workers in other occupations would see their incomes rise, which would offset most of that loss.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

4/ The authors acknowledge that the analysis doesn't include a feedback loop through which disruption depresses demand and causes further employment losses. Household saving and spending decisions are also largely outside the analysis.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

3/ Across the three scenarios, GDP ends up being between 1.6% and 32.4% above its no-AI path. In the most extreme case, labour’s share of income falls from 60% to 45%. But it’s harder to reconcile enormous gains in growth with equally large job losses and falling income share.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

2/ The basic idea is that AI can assist or replace workers in cognitive occupations. As cognitive work becomes cheaper, firms can expand production and demand more of the work AI cannot perform, while new tasks can restore some demand for displaced labour.

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Andrei Sterescu @andreisterescu.bsky.social · 10/09/2026

1/ Anthropic’s Economics team has published an interesting paper on how AI could affect US growth, jobs and wages through 2030. In the most extreme scenario, they project GDP growth ay 15% a year and unemployment close to 12%. A few thought below 🧵. outsample.substack.com/p/the-ai-boo...

outsample.substack.com

The AI Boom May Have a Demand Problem

Whether the gains translate into stronger growth may depend on who gets them and how quickly displaced workers find new work.

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Andrei Sterescu @andreisterescu.bsky.social · 23/08/2026

And politically it seems to be working. He did not simply win office. He has maintained a positive approval ratings at home while becoming a considerably more prominent voice internationally.

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Andrei Sterescu @andreisterescu.bsky.social · 23/08/2026

The critics of liberalism may have confused its restraint with weakness. Carney is showing what a more muscular liberal politics can look like without abandoning democratic institutions.

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Andrei Sterescu @andreisterescu.bsky.social · 23/08/2026

Carney has recast liberal governance in more pragmatic terms, remaining firmly institutionally liberal while being far more comfortable talking about power, sovereignty, and national capacity.

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Andrei Sterescu @andreisterescu.bsky.social · 23/08/2026

I think when people say they want strong leaders, they do not necessarily mean heavy-handed authoritarians or a less free political system. Often, they may simply mean leaders willing to exercise power and stand up for their country and defend its interests.

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Andrei Sterescu @andreisterescu.bsky.social · 23/08/2026

The EU has something to learn from Canada, a smaller economy that is far more dependent on the US. The threat of tariffs or even a trade war would be costly but would hardly spell the end of European industry. If anything, the EU could emerge stronger if it learned to stand more firmly on its own.

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Reposted by Andrei Sterescu

Andrew Watt @andrewwatteu.bsky.social · 02/08/2026

Useful overview of interventionist economic policies in western Europe after 1945. #TakeBackControl

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

The integrated European market creates a functional case for centralising some of these functions at EU level. Long-term industrial strategies require substantial financial resources and coordination across policies whose effects extend beyond national borders.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

In some cases, governments may also need to use procurement to shape markets, attach conditions to public support, take equity stakes where this strengthens strategic influence.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

Ideally, this would be backed by a leading institution with a clear mandate, a permanent staff, and the technical capacity to build sector-specific knowledge and bring together the European and national bodies responsible for implementation. It would also need real authority.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

The postwar European state shows that governments need institutions with the authority and technical expertise to develop sector-specific knowledge, coordinate action across ministries and agencies, and work continuously with firms and stakeholders.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

Europe's current industrial ambitions increasingly exceed the institutional capacity available to implement them. Industrial policy remains fragmented across funding programmes, regulatory initiatives and national strategies.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

Sweden combined solidaristic wage bargaining, active labour market policies, credit policies and disciplined macroeconomic management to promote full employment, productivity growth and structural transformation.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

West Germany placed greater emphasis on markets, but the social market economy remained a mixed system with significant public ownership and extensive coordination among employers, trade unions and public authorities.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

Italy relied more heavily on state-owned enterprises to guide industrial development and investment. Although several large projects in the Mezzogiorno became “cathedrals in the desert”, creating industrial capacity but little wider economic development.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

There was no single European model. France sought to build competitive advantage through planning commissions, credit controls and close coordination between the state and industry.

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Andrei Sterescu @andreisterescu.bsky.social · 31/07/2026

Governments then generally possessed far more machinery for planning and coordinating economic activity than they do today, even if those institutions were not always equally effective.

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