Excellent piece, but I suspect the analogy understates the American risk while overstating the German one.
The decline of Germany’s car industry will not simply leave an industrial vacuum. Germany retains precisely the engineering capacity it chose not to use at scale for decades: weapons. Ethically disturbing, certainly—but European rearmament provides a large, state-financed replacement market for machinery, vehicles, sensors, drones and aerospace. It is not beautiful, but it is economically real.
AI has no equivalent fallback. More importantly, “good enough” open models may not merely run cheaply in a Chinese cloud or on an American hyperscaler. They will run at home. The likely architecture is a private household AI hub: an energy-efficient box with ample shared memory, connected to personal devices through a VPN and holding the family’s documents, memories and agents. Phones and laptops become clients; only exceptional tasks are escalated to a frontier model.
If that happens, the economics change completely. There are no recurring token rents for ordinary inference, far less need for centralized data-center capacity—and, crucially, the hoped-for stream of personal data never arrives. That stream, generated by an AI continuously mediating work, purchases and private life, may be the only asset large enough to rationalize today’s valuations and infrastructure spending.
Large data centers will remain useful for frontier training, science and rare specialist tasks. But not on the scale currently being built.
The Third China Shock may therefore not consist of Chinese AI capturing the American inference market. Open Chinese weights may help abolish that market altogether. The token market does not move to China. It disappears.
Germany’s Exports: “In June 2026, calendar- and seasonally-adjusted exports from Germany totaled 139.3 billion euros, while imports into Germany totaled 123.9 billion euros. Never before have so many goods been exported in a single month — on a calendar- and seasonally-adjusted basis — as in June 2026. The previous record had been set in September 2022 (139.1 billion euros). As for imports, the last time the figure exceeded that of June 2026 was in November 2022 (126.5 billion euros). The trade balance closed in June 2026 with a surplus of 15.4 billion euros.” (Source: Destatis, August 7, 2026) https://www.destatis.de/DE/Presse/Pressemitteilungen/2026/08/PD26_278_51.html
They must have done something right. And I’m sure that future problems will be easier to solve with a stable economy, that doesn’t waste money on wars, doesn’t tolerate oligarchs and AI dreamers, and isn’t ruled by a dictatorial madman.
I doubt that future cooperations between the USA and Germany will be a walk in the park. Just look at what became of the offshore projects that RWE was supposed to build for the USA. trump turned them into a dismal flop.
Excellent piece, but I suspect the analogy understates the American risk while overstating the German one.
The decline of Germany’s car industry will not simply leave an industrial vacuum. Germany retains precisely the engineering capacity it chose not to use at scale for decades: weapons. Ethically disturbing, certainly—but European rearmament provides a large, state-financed replacement market for machinery, vehicles, sensors, drones and aerospace. It is not beautiful, but it is economically real.
AI has no equivalent fallback. More importantly, “good enough” open models may not merely run cheaply in a Chinese cloud or on an American hyperscaler. They will run at home. The likely architecture is a private household AI hub: an energy-efficient box with ample shared memory, connected to personal devices through a VPN and holding the family’s documents, memories and agents. Phones and laptops become clients; only exceptional tasks are escalated to a frontier model.
If that happens, the economics change completely. There are no recurring token rents for ordinary inference, far less need for centralized data-center capacity—and, crucially, the hoped-for stream of personal data never arrives. That stream, generated by an AI continuously mediating work, purchases and private life, may be the only asset large enough to rationalize today’s valuations and infrastructure spending.
Large data centers will remain useful for frontier training, science and rare specialist tasks. But not on the scale currently being built.
The Third China Shock may therefore not consist of Chinese AI capturing the American inference market. Open Chinese weights may help abolish that market altogether. The token market does not move to China. It disappears.
excellent
One more bursted bubble to pay for.
Germany’s Exports: “In June 2026, calendar- and seasonally-adjusted exports from Germany totaled 139.3 billion euros, while imports into Germany totaled 123.9 billion euros. Never before have so many goods been exported in a single month — on a calendar- and seasonally-adjusted basis — as in June 2026. The previous record had been set in September 2022 (139.1 billion euros). As for imports, the last time the figure exceeded that of June 2026 was in November 2022 (126.5 billion euros). The trade balance closed in June 2026 with a surplus of 15.4 billion euros.” (Source: Destatis, August 7, 2026) https://www.destatis.de/DE/Presse/Pressemitteilungen/2026/08/PD26_278_51.html
They must have done something right. And I’m sure that future problems will be easier to solve with a stable economy, that doesn’t waste money on wars, doesn’t tolerate oligarchs and AI dreamers, and isn’t ruled by a dictatorial madman.
I doubt that future cooperations between the USA and Germany will be a walk in the park. Just look at what became of the offshore projects that RWE was supposed to build for the USA. trump turned them into a dismal flop.
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