Summary of Key Points
This discussion focuses on the strategic retreat of the United States and the dilemma faced by Europe: The U.S. has undergone three strategic withdrawals since World War II (the first was successful, the second failed, and the third's outcome is uncertain). Trump's "250th Anniversary Package" during his second term—boosting the stock market, signing major deals with China, and reshaping trade rules—is essentially a defensive strategy aimed at maintaining its dominance. Europe, on the other hand, has lost three significant benefits due to the U.S. retreat: security protection, access to cheap Russian energy, and market advantages in China. As a result, Europe is grappling with political fragmentation, economic weakness, and increased security threats, leaving it with no other choice but to compromise with the U.S., Russia, and China.
I. The Three Strategic Retreats of the United States: From "Successful Stabilization" to "Dilemma"
The U.S.'s strategic retreat is not a new phenomenon, but the outcomes of these three withdrawals have been vastly different:
- First Retreat (1970s): Successful "Soft Landing"
The Vietnam War led to twin deficits (trade and fiscal), and the oil crisis forced the U.S. to retreat: it abandoned the gold standard (the dollar was no longer tied to gold, allowing for more flexible monetary policy), eased tensions with the Soviet Union, and withdrew troops from Southeast Asia. This retreat was successful because the U.S. had a strong manufacturing base (accounting for 22% of GDP) and low debt levels, and it was able to pull together its European allies.
- Second Retreat (Obama to Biden): A Failed Attempt
Obama wanted to retreat but faced resistance from establishment forces that relied on expansion for their interests. Biden's approach was even more contradictory: he withdrew troops from Afghanistan while simultaneously trying to form alliances with the G7 and the ACTA to contain China, but this effort was ineffective. The Indo-Pacific Economic Framework was largely symbolic, and the Semiconductor Act had little impact, only strengthening China's position.
- Third Retreat (Trump's Second Term): Resolute but High-Risk
Trump explicitly rejected allies, demanding protection fees from countries like Japan and Europe, and reorganized military commands. Whether this retreat will be successful depends on three factors: whether it can stabilize relations with major powers (to prevent exploitation), whether the economy can recover (with manufacturing accounting for only 9.4% of GDP and external debt at $39 trillion), and whether the U.S. can remain independent without allies.
II. Trump's "250th Anniversary Package": Appealing but Mostly Illusory
Trump aimed to showcase achievements on the 250th anniversary of the country's founding, presenting three main initiatives, all of which are somewhat hollow:
- Stock Market Bubble: Pumped Up Prosperity
The S&P and NASDAQ reached new highs, but Wall Street's total market value of $73 trillion is 2.4 times GDP ($31 trillion), far exceeding Buffett's warning that 70%-90% of the market should be considered overvalued. Additionally, seven Silicon Valley companies account for $21 trillion in market value, more than Europe's entire GDP—this indicates a bubble on the verge of bursting.
- Major Deals with China: "Constructive Strategic Stability" as the Core
Trump's visit to China in May did not result in specific agreements, as he wanted to wait until the midterms to make the deals more politically advantageous. The underlying logic is that China and the U.S. are now equal in power, and a zero-sum game no longer applies; they need to find a way to coexist. For example, in the Iran negotiations, China convinced Iran to participate, and the U.S. restrained Israel, demonstrating a constructive approach.
- **Reshaping Trade Rules: From "Isolating China" to "Involving China in a G2 Partnership"
Trump initially sought bilateral agreements to isolate China but was thwarted. Now he aims to join forces with China to dismantle the old WTO system, as China is the largest trading nation. However, China still demands stable tariffs and financial openness, which remains subject to negotiation.
III. Europe's Loss of Three Major Benefits: From a Prosperous Period to a Critical Situation
Europe has had two prosperous periods after World War II, driven by three key benefits, all of which have now vanished:
- Security Benefit: The End of Free Protection
European defense spending used to be less than 1% of GDP, relying on U.S. military presence (for example, Germany spent $30,000 per year to station a U.S. soldier). Now that the U.S. demands protection fees and may withdraw troops, Europe must rely on its own defenses, with defense spending rising to 2% of GDP.
- Energy Benefit: Access to Cheap Natural Gas
German heavy industry relied on cheap Russian natural gas. With the disruption of the Nord Stream pipeline, Europe is forced to buy more expensive LNG from the U.S., leading to increased energy costs and a decline in industrial competitiveness.
- Market Benefit: Profiting from China
European companies like Volkswagen once sold cars for over $200,000 in China with high profits. Now, Chinese electric vehicles and smart home appliances are dominating the European market, pushing German brands back.
IV. Europe's Dilemma: Political Fragmentation, Economic Weakness, and Security Threats
Europe is facing multiple challenges:
- Political Fragmentation: Veto Power Hindering Decision-Making
The EU's eastward expansion has included countries with different systems and cultures from Western Europe, which can use the veto power to block policies (e.g., Hungary opposing aid for Ukraine), significantly reducing policy effectiveness.
- Economic Weakness: Falling Behind in AI and Chips
Europe lags far behind China and the U.S. in AI and chip technology, with only ASML in the Netherlands playing a significant role. Its manufacturing sector is under pressure from Chinese competition, and its GDP share of the global economy has dropped from 30% 17 years ago to 16%, showing a faster decline than that of the Qing Dynasty.
- Security Threat: Russia's Presence
With the U.S. withdrawal, Europe must face Russia directly. Russia has not lost in the Ukraine conflict and controls a strategic buffer zone; European attempts to negotiate with Putin have been unsuccessful.
V. Europe's Only Option: Compromise
Europe is in a difficult position with no other options but to compromise:
- Compromising with the U.S.: Paying Protection Fees and Following Instructions
Europe has no choice but to pay the fees and follow U.S. directives, as it still relies on the U.S. for security.
- Compromising with Russia: Signing a Ceasefire Treaty
Europe previously refused to negotiate with Putin but is now considering doing so, as Zelenskyy fears being abandoned. However, this does not change the reality of Russia's strength.
- Compromising with China: Cooperation as the Only Option
Industrial countries like Germany and Italy depend on the Chinese market, and EU summits avoid mentioning China. A trade war would be detrimental to Europe, as Chinese products dominate the European market.
As for relying on its own military industry for self-reliance, it is unfeasible: Europe lacks a complete military system (the U.S. does not allow its allies to develop independent capabilities), and German companies like Rheinmetall can only produce components. Cooperation in developing sixth-generation aircraft is also impossible due to incompatible systems between France and Germany.
In summary: The U.S.'s strategic retreat has changed the global landscape, leaving Europe without a support system and unable to rely on its own strength. It must compromise with the three major powers. Whether Trump's third retreat will be successful depends on whether he can maintain stable relations with China—this is the current global chess game in progress.