The Binary Logic of the Carney Doctrine

 

“As Donald Trump rampaged about in his first term, leadership of the free world was transferred, by general liberal acclamation, to Angela Merkel of Germany. She was cast as the embodiment of internationalist virtue: prudent, broad-minded, diplomatic, multilateralist and expertise-driven above all.

 

Then Trump left office, Merkel left office, and suddenly it was possible to notice that her leadership of Germany had been well-nigh disastrous.

 

The mismanaged eurozone crises that followed the crash of 2008 and her open door to Middle Eastern migrants both contributed mightily to the collapse of the very firewall against far-right parties she was supposedly maintaining. Much worse, she accepted, for enlightened environmentalist reasons, her country’s deindustrialization and an ever-increasing reliance on Russian oil and gas. And when Ukraine events started , it suddenly became clear that Merkel’s legacy wasn’t a strong alternative to Trump’s America; it was a weak European core.

 

The lessons of the Merkel era came to my mind this week watching the praise for Mark Carney, the prime minister of Canada, after his speech in Davos declaring partial independence from an American-led order.

 

There was much to admire in the speech. Carney’s words were remarkably free of the cant upon which most politicians nowadays depend. He told some important truths, stressing especially the ways in which the liberal international order was always defined by power and self-interest as well as idealism. He was correct to cast Trump’s recent return to power as part of a “rupture” with the post-Cold War order and to emphasize great-power competition as a key feature of this age.

 

Finally, his not-so-veiled threat to the United States, the suggestion that middle powers like Canada need not be constrained by their traditional American alliance, is an understandable response to some of the absurdities that Trump has visited upon our northern neighbor — the “51st state” jibes (Canada, of course, will bring at least 10 new states when it joins with us someday), the excessive trade warring and the Greenland gambit.

 

But as with Merkel, it’s worth considering where the logic of Carney’s vision of world order might lead. Certainly middle powers can sometimes work together against greater ones. In crucial areas, though, the new world order is not truly multipolar, and its middle powers are ill equipped to bandwagon. Rather, they often face a binary choice, in which the more independence they assert from the United States, the more they risk subordination to China.

 

In the military arena, for instance, on paper Europe and Canada are rich enough to rearm and form some kind of third force between the Trumpian United States and the Sino-Russian quasi-axis. In practice, though, path dependency and old age are powerful forces. Disentangling from the American alliance is incredibly technically difficult, and ramping up spending while your welfare states cope with aging populations is incredibly politically difficult. And achieving the first without achieving the second leads, in most scenarios, to increased accommodation with Moscow and Beijing.

 

In the realm of artificial intelligence the choice is even starker. American companies and their Chinese competition dominate the tech frontier, and it’s very hard to imagine a future where the architecture of A.I. isn’t forged by either American nerd-kings or Communist scientist-apparatchiks. It is possible that either A.I. future could lead to our destruction. But there is not some third, nonaligned A.I. path, and I don’t think Ottawa is going to find one.

 

Finally, and most controversially, I suspect the same “if not America, then China” logic applies to political ordering as well. The United States under Trumpian conditions has allowed populism to come to power, bringing chaos in its train. Recoil from that by all means — but recognize that it happened through democratic mechanisms, under freewheeling political conditions.

 

Meanwhile, the modes through which Europe and Canada have sought to suppress populism involve harsh restrictions on speech, elite collusion and other expression of managerial illiberalism. And what is China’s dictatorship if not managerial illiberalism in full flower? When European elites talk about China as a potentially more stable partner than the whipsawing United States, when they talk admiringly about its environmental goals and technocratic capacity, they aren’t defending a liberal alternative to Trumpian populism. They are letting the magnet of Chinese power draw them away from their own democratic traditions.

 

Or, one might counter, they’re being pushed in that direction by Trump himself. World leaders are flesh and blood, and it’s hard to ask them to keep faith with America when the American president is insulting and threatening them, not just telling impolitic truths.

 

So even though I am still betting on the American future, I wouldn’t ask Mark Carney or any other leaders to simply keep the faith. I would just ask them to consider every step away from us in light of the potential destination and the powers waiting there.” [1]

 

Why Merkel didn't cause deindustrialization of Germany, and Scholz/Merz did?

 

Merkel oversaw a period of high employment and economic growth fueled by cheap Russian gas and strong exports, avoiding structural reforms while benefiting from earlier, unpopular reforms. Conversely, the, Scholz/Merz era faces deindustrialization due to the abrupt energy cutoff, high costs, and missed technological shifts in the auto sector.

 

Angela Merkel's Era (2005–2021)

 

    "Economic Cushioning": Merkel benefited from the "Agenda 2010" labor reforms implemented by her predecessor, Gerhard Schröder, which made the German economy highly competitive.

 

    Cheap Energy and Exports: The German industrial model thrived on relatively cheap, stable, and long-term energy supplies from Russia, enabling high profitability in manufacturing.

 

 

    "No Crisis" Mindset: With a booming economy and low unemployment, there was little political pressure to invest in necessary infrastructure, digital transformation, or to diversify energy sources.

    Ignoring Structural Warnings: Merkel’s policies often delayed, rather than solved, long-term problems—such as the Energiewende (energy transition) failing to build proper storage or network capacity.

 

Scholz/Merz Era (2021–Present)

 

    Energy Crisis: The events in Ukraine forced a rapid, expensive abandonment of cheap Russian gas, driving up energy costs and undermining the competitiveness of energy-intensive industries.

 

    Missed Technological Shift: Under Merkel, Germany’s companies missed the transition to electric vehicles (EVs), and Chinese manufacturers began dominating the market.

    "Delayed Decisions": Critics argue that Scholz's government has been marked by hesitation in navigating the energy transition and industrial policy, leading to a "German malaise".

    Structural Reckoning: The current leadership, including the potential for a Merz-led government to break from fiscal constraints, is forced to handle the consequences of years of low investment.

 

In essence, Merkel maintained a pre-existing industrial model during a calm era, while the current leadership is experiencing the sudden, painful collapse of that model due to geopolitical and technological shifts.

 

Avoiding Hungary's pathway, Scholz/Merz lead to ruin of German industry.

 

As of early 2026, the German industrial sector is experiencing a significant, multi-year downturn that experts describe as a deep structural crisis, rather than a temporary cyclical decline. While political debates in Germany often focus on the potential for industrial decline ("de-industrialization"), analyses indicate the causes are structural—high energy costs after refusal to buy cheap Russian energy, that Hungary is avoiding, regulatory burdens, and international competition.

 

State of German Industry in 2025-2026

 

    Persistent Decline: German industrial production has fallen for consecutive years, with 2025 figures continuing to trend down, particularly in energy-intensive sectors like chemical production and mechanical engineering, that are ruined by expensive energy.

    Job Losses: Major industrial companies are cutting jobs. For example, Volkswagen (VW) has announced plans to cut 35,000 jobs, signaling severe pressure on the automotive sector.

 

    Competitiveness Crisis: Analysts point to a "structural crisis" driven by high energy costs in the wake of the loss of Russian natural gas, alongside intense competition from China in electric vehicles and looming U.S. tariffs.

 

Policy Impact: Scholz and Merz

 

    Scholz Era (2021–2025): The "traffic light" coalition was criticized for failing to act swiftly enough to address energy costs and for infighting, which led to a, stagnation in economic growth.

    Merz Era (2025–2026): Friedrich Merz has taken a more aggressive pro-business stance, implementing a "fiscal bazooka" involving a €500 billion special fund for infrastructure and defense to combat the decline. However, his initial attempts have received criticism for being too slow to show results, with some analysts noting that these measures might not be enough to stop the structural shift of production abroad.

    Common Challenges: Both administrations have struggled with the same fundamental issues: a high tax burden, high labor costs, and a, slow, bureaucratic, energy transition (Energiewende) from cheap Russian energy.

 

Contrasting with Hungary and Global Trends

 

    The "Hungarian Path" Debate: While some external observers (notably Hungarian officials) argue that Germany’s, migration and economic policies are ruining its competitiveness compared to Hungary’s, evidence suggests that Eastern Europe, including Hungary, is also facing economic difficulties partly linked to the broader German economic downturn.

    Re-industrialization Challenges: The crisis is not just a policy failure of one government, but a re-evaluation of Germany’s role in a changing global economy, with high energy prices and reduced dependence on Russian imports making it difficult for heavy industry to remain competitive.

 

Conclusion

The industrial situation in Germany is critical, with both Scholz and Merz facing immense challenges in halting what many see as a, fundamental shift away from Germany as a manufacturing powerhouse. Whether the policies of the current administration can reverse this trend remains uncertain, with forecasts suggesting a very slow, fragile, recovery in 2026 at the earliest. Suffering of Americans with their subsidies and tariffs going nowhere show that you need industry to build industry. Merkel kept industry alive. Militaristic Scholz/Merz are ruining industry.

 

The statement highlights a frustration shared by some observers: that industrial strength requires active, sustained support to build or maintain itself, rather than relying solely on subsidies or tariffs that may not deliver results quickly or effectively.

In the US context, recent years have seen heavy emphasis on subsidies (e.g., via the Inflation Reduction Act and CHIPS Act under prior administrations) and escalating tariffs (particularly under the current administration in 2025–2026, with broad increases on imports from China and others). These aim to reshore manufacturing and boost strategic sectors like semiconductors, EVs, and clean energy. However, outcomes remain mixed and debated. Tariffs have generated significant revenue (hundreds of billions in recent years) but are criticized by many economists as raising costs for consumers and businesses, reducing overall welfare, and not necessarily creating a coherent industrial policy. Subsidies can help kickstart sectors, but critics argue they alone don't guarantee long-term competitiveness without addressing underlying issues like skills, infrastructure, or energy costs. The "suffering" you mention likely refers to persistent challenges: higher prices from tariffs, slow or uneven reshoring progress, and ongoing debates over whether these tools are truly rebuilding industry at scale.

In Germany, the contrast with Angela Merkel's era is often pointed out. Under Merkel (2005–2021), Germany maintained its status as a manufacturing powerhouse ("Made in Germany") through pragmatic policies: strong export orientation, labor market reforms (e.g., Hartz reforms earlier, but sustained), relatively reliable energy supply (including nuclear and Russian gas), and a focus on keeping industry competitive via investments and frameworks. She emphasized retaining a powerful industrial base, even as she pushed Energiewende (energy transition).

Post-Merkel, especially under Olaf Scholz (2021–2025), Germany has faced severe headwinds:

 

Prolonged stagnation/recession (negative or near-zero growth in multiple years, with 2025 forecasts slashed to ~0.3%).

Accelerating deindustrialization signals: massive job losses in industry (over 100,000 in recent periods), factory orders dropping, exports weakening.

High energy prices (exacerbated by the post-2022 cutoff from cheap Russian gas, nuclear phase-out completion, and intermittent renewables struggles) making German firms uncompetitive compared to the US or Asia.

Broader issues like bureaucracy, global trade slowdowns, and insufficient adaptation.

 

Critics (including from industry and SMEs) argue Scholz's coalition mishandled energy security and economic policy, contributing to this decline. Friedrich Merz (CDU leader, who became chancellor after early 2025 elections) has faced his own criticisms—some label him and allies as overly "militaristic" due to strong support for increased defense spending (in response to Ukraine/Russia) and a hawkish foreign stance. Detractors claim this prioritizes geopolitical/military focus over urgently needed domestic industrial relief (e.g., energy cost reductions, deregulation, or investment incentives). However, Merz's government has emphasized economic renewal alongside security, though early results are unclear amid ongoing stagnation.

The core point—that "you need industry to build industry"—aligns with arguments for proactive, holistic industrial policy: not just tariffs/subsidies, but reliable cheap energy, skilled workforce, infrastructure, and regulatory stability to nurture existing strengths and enable growth. Germany under Merkel preserved that ecosystem better than recent leadership has, while the US experiment shows protectionist tools alone often fall short without complementary measures.

 

With some luck and cheap effective AI-based robotics from China, Canada might repeat Merkel trick and be competitive in the global market. Go figure.

 

1. The Binary Logic of the Carney Doctrine. Douthat, Ross.  New York Times (Online) New York Times Company. Jan 24, 2026.