Should the EU impose trade barriers against China to protect its economy?
Trade barriers will slow European innovation more than they protect strategic industries.
Schmidt anchors in the 1973 oil shock: economic dependence becomes political vulnerability when authoritarian states control supply chains. Mahathir counters with Malaysia's 1983 automotive policy: temporary protection can build capabilities that pure markets cannot create. Friedman and Hayek converge on the price mechanism: tariffs block the consumer signals and competitive pressure that drive innovation.
The split turns on timing. Schmidt and Mahathir accept short-term costs to build long-term capacity. Friedman and Hayek argue protection creates the industrial weakness it claims to prevent.
Confidence summary: Strong agreement on the risks of Chinese state subsidies, but sharp division on whether European protection builds strength or creates dependency.
The core argument
The EU's 35.3% tariffs on Chinese electric vehicles force a choice between two competing theories of industrial strength. Schmidt grounds the debate in Germany's 1973 oil crisis: when economic dependence meets authoritarian control, trade becomes coercion. China subsidizes its electric vehicle champions while Germany exports €107 billion in machinery that could vanish with Beijing's next strategic pivot. But Friedman counters with America's 1971 steel tariffs: protection meant higher costs for every steel-using industry, from cars to construction. European consumers will pay more while European automakers lose the competitive pressure that drives innovation. The question is not whether Chinese subsidies distort markets, but whether European tariffs create strength or amplify weakness.
How each member frames it
Helmut Schmidt sees this as a replay of 1973, when oil dependency became political leverage overnight. The €856 billion in EU-China trade masks asymmetric vulnerability: China controls supply chains while Europe provides markets. Unlike energy, industrial capacity can be rebuilt, but only behind temporary shields. Schmidt would accept higher consumer costs now to avoid strategic dependence later, but he acknowledges the gamble: protection must build capability, not just preserve incumbents.
Milton Friedman reframes Chinese subsidies as China's problem, not Europe's opportunity for retaliation. American steel tariffs in 1971 raised costs for every downstream industry while steelmakers grew complacent behind protection. European electric vehicle tariffs will trigger Chinese retaliation against German machinery exports, shrinking both economies. Friedman would let Chinese subsidies exhaust Beijing's treasury while European firms learn to compete on efficiency, not political favor.
Mahathir Mohamad draws from Malaysia's 1983 Proton launch, when every economist predicted disaster but automotive capability emerged behind protection. The EU faces the same sequencing problem: markets reward current efficiency, but states must build future capacity. His 1998 capital controls during the Asian financial crisis proved temporary shields could work, but he warns European tariffs must include clear performance targets and sunset clauses to avoid permanent dependency on protection.
Friedrich Hayek focuses on the knowledge problem: no central authority can replicate the information that prices carry about consumer preferences and production possibilities. Chinese subsidies distort Beijing's resource allocation, but European tariffs destroy the market signals that guide European innovation. He would let Chinese state capitalism exhaust itself against European market discovery, trusting spontaneous order over political direction.
Where the council agrees
All members recognize that Chinese state subsidies create unfair competition, but none disputes that European consumers benefit from lower prices in the short term. They agree that €107 billion in German-China trade creates genuine economic value, not just political vulnerability. The council also concurs that any protection mechanism must include performance metrics and clear exit strategies to prevent permanent industrial dependency. Most surprisingly, even Hayek accepts that Chinese state intervention represents a market failure requiring some response, though he prefers regulatory clarity to trade barriers.
Where the council splits
The fundamental divide is temporal: Schmidt and Mahathir argue temporary protection can build permanent capability, while Friedman and Hayek contend protection creates permanent vulnerability disguised as strength. Schmidt and Mahathir accept higher consumer costs as the price of strategic autonomy. Friedman and Hayek see those costs as evidence that protection misallocates resources away from European comparative advantages. Neither side disputes the other's historical examples, but they draw opposite lessons about whether government direction or market discovery better serves long-term European competitiveness.
For a policymaker to decide on
Whether to maintain the 35.3% electric vehicle tariffs through 2027 or phase them out by year-end. The trade-off is stark: keep protection to build European battery and vehicle capacity at the cost of higher consumer prices and potential Chinese retaliation against German machinery exports, or remove tariffs to restore price competition and consumer choice while risking permanent loss of European electric vehicle manufacturing to Chinese state-subsidized competitors.