Open Questions | Why US economist Nicholas Lardy thinks the ‘peak China’ theory has peaked
The veteran China watcher talks Beijing’s need for financial reform and how US-China economic convergence could still be on the horizon
Nicholas Lardy is a non-resident senior fellow at the Peterson Institute for International Economics and a member of the Council on Foreign Relations, both Washington-based think tanks. He has studied the Chinese economy extensively, publishing several books on its growth and development since the late 1970s. His most recent, 2019’s The State Strikes Back, posits a rollback of Beijing’s economic reforms via renewed government intervention into the market.
Opinion | Europe must make the US feel the cost of coercion
Instead of outsourcing its defence capacity to Washington and limiting economic ties with Beijing, the EU should focus on building leverage
Europe’s survival as an independent political power depends on its readiness to impose costs on the United States while reopening a sustained channel with China.
The Arthashastra counsels that the enemy of one’s enemy is one’s friend. Europe has ignored this principle, absorbing repeated American bullying while refusing to leverage relations with China as a counterweight.
After limited military exercises by several European Nato members, Trump threatened a 10 per cent tariff that would increase to 25 per cent unless an agreement was reached. These were elements of a coercive bargaining strategy aimed at extracting concessions.
The central failure lies less with Washington than with European leaders who respond to pressure with appeasement. The US applies coercion because it expects tolerance of systematic exploitation. EU leverage has been abandoned across trade, technology, energy, politics and diplomacy. This is not a dispute over abstract values but a refusal to use influence.
Europe still holds substantial power as the world’s largest single market and core financial hub. The US military in Europe relies on European territory, infrastructure and consent. US firms rely on European market access for revenue and scale.
Europe’s decline is therefore chosen. Leaders refuse to deploy leverage because they lack stature. But continued acquiescence guarantees worse outcomes than confrontation: permanent wealth extraction, geopolitical dependency and global irrelevance. Every acceptance of subordinate status invites another demand.
The first requirement is to impose costs on Washington. European defence spending exceeds that of any country except the US, yet procurement continues to entrench American dominance of European rearmament. We must stop outsourcing industrial capacity.
European defence industries can scale production if demand is guaranteed. When the White House threatens, dependence becomes exposure, turning Nato interoperability into political vulnerability. To solve it, European governments should mandate that 90 per cent of defence procurement be sourced domestically within two years.
Deterrence reveals the same flaw. Reliance on US nuclear guarantees assumes political reliability that recent conduct contradicts. Non-proliferation has always reflected power hierarchies rather than universal restraint; treating it as doctrine leaves Europe dependent on assurances that can be withdrawn without warning. France retains a force built for national survival, and coordination with the United Kingdom is already expanding. This provides a base for a deterrent anchored in European interests.
Energy remains another pressure point. Partially replacing Russian exports with American liquefied natural gas altered the source but preserved the vulnerability, at far higher cost. Nuclear investment and diversified imports remove a lever of external influence. A power unable to secure energy resources cannot claim independence of action.
Economic coercion requires economic retaliation. Regulatory penalties on US tech firms fail because they are absorbed as operating costs. Asset seizure, by contrast, produces immediate consequences. If tariffs and threats continue, US corporate presence must be treated as leverage, not sacred infrastructure.
The second requirement follows logically. To alter American calculations, Europe must prove that alternatives exist. This calls for structured engagement with China. It implies neither ideological convergence nor approval of governance models, but the use of balance-of-power logic to constrain coercion.
These measures are conditional and reversible. Their purpose is to end the assumption in Washington that Europe lacks options and resolve. Leverage functions only when it is visible and credible.
Retaliation should be expected; intelligence cooperation may be reduced, tariffs may expand and political pressure will intensify. Engagement with China will prompt accusations of disloyalty to a non-operational democratic alliance. These costs are real but finite: the cost of continued obedience is cumulative and never ends; it locks Europe into extraction, dependence and subordination.
Europe’s choices will determine whether it remains an independent actor or a permanent subject. After the damage inflicted on relations with China, the final question is unforgiving: does Brussels still matter enough for Beijing to engage at all?
