“The course has been set for a modern NATO alliance”

Our managing director Julia Friedlander spoke at the Berlin Banking Symposium (September 25, 2025) about America’s uncomfortable truths, new rules for global trade, and Germany’s future role in NATO.

By Julia Friedlander 

Two weeks ago I was asked on a panel whether Trump was good or bad for Europe. I took the bait and said unequivocably yes, and after the audience did its requisite heckle, all of my co-panelists, none of us by any stretch a fan of the U.S. president, fell behind me. Why? I relayed this dynamic two hours later to my father-in-law, a long-professed West Berlin pacifist, over customary Sunday afternoon coffee and cake, and his response was: so we can get off our asses!

We are on our way to a new alliance, not based on unilateral dependency—either on American defense dominance or enforcement of WTO-related trade rules, but on mutual reinforcing capabilities and opportunities in both trade and defense. I’m not saying the road there will be easy—but although I will lament a few things throughout this talk, I am going to stick to my optimism. 

 An Overdue Breakup of the Comfort Zone  

The Atlantik-Brücke wasn’t founded by a bunch of starry-eyed romantics, but by several intrepid German Jews who returned home after the war. Germany lay in ruins, and the only way back to growth and prosperity was to tie itself as closely to the occupying power, the hegemon. There was no other reasonable geopolitical choice, except risking further influence by the Soviet Union. Our founders were instrumental in convincing the Truman Administration to grant West Germany the Marshall Plan and to admit the new federal republic to NATO just a few years later. This was good Realpolitik. But after reunification, this dynamic made less and less sense. But the dynamic, where the US got to feel like the global policeman and continue to steer Europe because it felt good, and Europe could enjoy the fruits of dependence in security but independence economically, also because it felt so good, meant that no one dared break the addiction. 

As Germany rose to the third slot in the global economy and the European Union grew and consolidated its trade and regulatory power, the world was becoming multipolar, and doing so much more quickly than US politicians realized. No longer were the institutions such as the United Nations and the WTO, which we created as multilateral institutions in our image so that they acted in our image, acting in that image. But the US was still footing the bill for these institutions, buying the allegiance that was no longer there, or taking the US role as the beneficent hegemon for granted. This is why Trump says the “EU was founded to rip off the United States.”  

Most European politicians when speaking in public refer to the EU primarily as a dovish peace project or decry its bureaucracy, when in fact, especially after the Lisbon Treaty, they know very well it’s a mechanism to compete globally, including with that beneficent hegemon. Economic liberals in America like myself have always cheered the EU on—we want strong sophisticated markets everywhere and that will lead to an overall increase in citizen welfare. But the new elites in America say, not so fast, how dare they regulate our companies when we’ve kept them from being mopped up by Russia for 80 years? 

America’s Inconvenient Truths 

When the US was an unchallenged hegemon, all this didn’t matter so much, but the country is now coming to terms with its own loss of economic power, and doing this rather inelegantly. So believe me when I say this: the tariff blackmail of the Trump Administration is not a sign of American strength, it is a sign of American weakness. Because the international institutions will not render the outcomes that suit America, America will resort to the next best thing, and this is where Trump is an expert: identify points of disproportionate leverage and exploit them. But you can only do this once or twice, and after that, your dragon has blown its fire.  

Take note that although the EU caved to tariffs in its recent negotiations with the US, it held fast to its most sacred regulations where it has a strategic advantage, namely on agriculture and data. Why did the Administration rename the Department of Defense the Department of War? When I read that I honestly started laughing: wie unselbstbewusst kann man wirken? Does America really need that self-reassurance that we can fight a war? Does Pete Hesgeth have to show us all his war-fighting tattoos to prove to us he’s a warfighter? It’s like a signal to China that we feel threatened. 

This self-confidence crisis suits Trumpland well. It’s his inclination to treat the global economy like a contractor for an Atlantic City casino, but I don’t think it was inevitable that his personal tactics would gain broader appeal. There is little resistance to his “dealmaking” right now because several administrations have tried to maintain American predominance through other means—and with mixed results. When it comes to China, both the first Trump Administration, of which I was a part, and the Biden Administration tried to double down on the big American tent—near-shoring and ally-shoring of critical industries where the line between civilian and military use was undefined at best.  

“The Trump administration’s tariff blackmail is not a sign of American strength, but a sign of American weakness.”

The most prominent example was the government-wide regulatory effort through export controls and investment restrictions to slow China’s development of advance chips, which in turn would facilitate Beijing’s aggression against Taiwan. This ended in byzantine compliance problems, massive evasion through third-countries, and China doubling down on its own research and development, and all this culminated in the release of DeepSeek. Strategically, it was worth the shot, but just a few years later we see how naïve such policies might have been, or that we were just too late.  

The Biden Administration even tried to host a “summit of democracies” with whom we would ideally “ally-shore” our economy. This turned into a spectacular failure because the US had to invite our steadfast NATO-Ally but imperfect democracy–Kaczynski’s Poland, but didn’t invite Hungary. I think that will have been the last time the US got to decide who made the cut. Last week, a group of DC think tankers gave a presentation to my team, showing that we are “losing” South Africa to the China, Russia, Iran nexus. They were certainly correct in identifying disturbing political trends in the country but did so through the traditional lens of good and bad. It supposes that these countries see the world in such a dichotomy, and also that the US has the authority to determine what that is in the first place. 

New “Rules” 

Against this backdrop, there is a strange relief in American transactionalism. American rhetoric, from the justification for military intervention in the name of democracy to words about the exceptionalism of our own political experiment, has become hollow, almost eyeroll-inducing rhetoric. If you are a millennial, as I am, chances are you will point to the financial crises that set back the earnings and savings potential of a generation and foreclosed on millions of family homes while the banks were bailed out, or that your generation fought two endless wars that ended with American retreat.  

As the gap between rich and poor becomes painfully acute, as inflation and interest rates alternatively hit the working and middle class, many ask: is this what you’re calling exceptional? In that context, it’s only being honest if America says I’ll shown you mine if you show me yours. Donald Trump’s dealmaking, blackmailing America, may unfortunately be a more genuine impression of how the country has come to function than the words we may or may not have used to cloak the reality that America is a transactional place.  

We have to remain cautious but open-minded about America’s drift to state-driven capitalism. Here, European firms can find strange comfort in the fact that Trump’s extortionary tactics are not reserved for foreign partners. There are many transactional domestic deals to be made as well. It is unprecedented for an American president to demand “golden shares” to approve a foreign acquisition or maintain a government subsidy, such as in the case of Nippon steel and Intel, or a share of profits in order to approve NVIDIA’s export license to China. The administration is also threatening firms that shutter mid-West factories with various penalties. The bi-partisan Chips and Science act passed under the Biden Administration offered tax incentives and loans to chip manufacturers who produced in the United States and created jobs. That was a carrot. Trump is trying the stick.   

In Trump-land, businesses risk descending into cronyism and an economy of fealty. Trump’s definition of legal and illegal is what he can get away with and what he can’t, and whoever combines a request with praise, usually gets a green light. If we are trying out a brand of, forgive me, European-style nationalization, by taking shares in troubled industries of choice, then I absolutely wish we had a better ringleader. I never thought there would be all that much overlap between Trump and Biden, but this is a perfect example of the political horseshoe theory. Some of Biden’s left leaning trade advisors are welcoming Trump’s actions. Why? Trump is invoking state-driven capitalism to account for shortcomings in strategic sectors where market-driven decisionmaking has produced outcomes that are not aligned with employment targets or national security. I have long argued that the lines between national security and economic policy were falsely divided. Chancellor Merz also noted in his speech opening this year’s ambassador’s conference that there is no line between foreign and domestic policy.  

“Global trade is proving surprisingly resilient, demand is robust, and customers are willing to accept a certain price premium.”

While we grapple with the Western world’s new embrace of industrial policy,  trade economists are trying to determine whether the tsunami of market disruptions (war in Ukraine, corona, Chinese dumping, Trump) will have medium or long-term impacts on supply chains. Some friends of mine are developing artificial intelligence tools just for this purpose, because the multitude of factors extend beyond the capabilities of excel spreadsheets. In some respects, global trade is proving surprisingly resilient, demand is robust and customers are, generally speaking, willing to accept a certain price premium. But that doesn’t mean there has been no adaptation. Security of supply, political disruptions and shipping concerns have forced a regionalization of markets. Limited ad-hoc trade arrangements are sprouting up along the shores of the Indian Ocean, in Southeast Asia, and the Middle East. Presumably none of these mini-deals fall under the rubric of the most-favored-nation standard of the WTO. More like those of the Silk Road.  

Is this a new blueprint for global trade rules? It is plausible, that a new set of concentric circles of aligned economic interests that extend beyond geopolitical tensions—such as the recent rapprochement between China, Japan, and South Korea—are the amoebic breeding ground for new trade standards. The positive spin would that, over time, a new version of the “most favored nation” principle develops, not based on price maximization but models that allow countries to protect certain domestic markets. And perhaps these new marriages of convenience will help mitigate physical conflict.  

 There are certainly areas where the laws of the jungle and ad hoc deals will dominate the market until new, non-governmental exchanges are established to regulate global prices. For example, a scramble for critical minerals will lead to one off deals with China or firm-based deals with mining countries such as Congo and South Africa, unless resource-rich democracies such as Canada and Australia, alongside the United States, develop a sophisticated market and pricing mechanism. Such mechanisms of course exist for the diamond industry and the oil, and grain. It’s important to look for positive outcomes and not only problems in the current environment. 

Europe’s Gearshift 

If they remain in their current form, Europe could stand to gain from America’s tariffs, but this will entail major internal reforms and not just new trade agreements. Germany has “discovered” Canada, as if the country’s vast natural resources and advanced manufacturing sectors just popped up like magic mushrooms since January. Still, the bloc cannot pretend that regionalization isn’t happening. Every time I see a minister jumping in an airplane to initiative trade negotiations with another corner of the globe, I shake my head a little. Mercosur is great, and so is a deepened partnership with Indonesia, but it cannot be easier to conclude a trade agreement with a country on the other side of the world than unwind barriers within the single market of the European Union. You cannot just look for other customers, hoping that external demand with be upheld. This is a palliative, a postponement of an inevitable restructuring of the European economy, and of the European institutions that were set up to deal with another set of global circumstances. 

This is a banking symposium, so let me stop the capital markets beat once more. What is the tipping point on capital markets, when a compromise can be reached? At this point, it is almost willful negligence. Capital markets integration is not only a growth driver for businesses and finance institutions that will allow the immense wealth in Germany to contribute directly to economic growth. Can we really say that due to discrepancy in insolvency rules, European leaders willing to sell out their start-ups to America, or perpetuate an unsustainable reliance on tax revenues to uphold citizens’ welfare as they age?  

“The arms industry is rapidly becoming the new flagship of European industry and a lifeline for deindustrialization.”

In the end, it’s not only the “elite” topic as often made out to be. Given the debate raging right now over pension reform, politicians have the opportunity to reframe as a matter of consumer choice. If you’re listening to podcasts these days, you may often be interrupted by an ad for stock trading platforms, which offers access to US markets via a license at the Lithuanian or Irish central bank. The demand is obviously there—why do we need to rely on these kinds of workarounds? Insurance providers describe how customers are rushing through the door to open market-based retirement accounts. There have to be more alternatives for long-term savings.  

The defense industry is rapidly becoming the new posterchild for European industry and rescue mechanism for deindustrializiation. We’ve all read the headlines about Rheinmetall taking over automobile plants. But when building a military-industrial complex essentially from scratch, there are opportunities to avoid pitfalls that mire the US defense industry inefficiency—endless levels of contractors and subcontractors and consultants, long waiting times and price explosions that derive from an oligopoly of providers and monopsony consumer, namely, the state.   

The finance industry has heard the call and is rapidly developing investment portfolios targeting defense and infrastructure. Given the interest of family offices and private equity in new technologies such as drones and artificial intelligence, private actors can hopefully provide incentives to avoid cost and production overruns. Poland just used eyewateringly expensive materiel to shoot down the inexpensive drones that Russia provocatively flew into NATO airspace, proving that the Alliance has prepared well for conventional war of yesterday and not today. And the European defense market is still a scrambled web of national interests and lack of coordination—which country can provide which capability and which company will do it? How do we build new military consortia? My hope is that the finance industry, which is inherently transnational, can provide a rubric to help consolidate politicians and contractors, because ministries by their very nature live in silos and cannot see out of them.   

Conclusion: the New Alliance 

We are at the beginning of the modern NATO Alliance, and a new Germany. This isn’t an easy moment. Two founding principles of the Federal Republic are being shaken to the bone. The first is the hegemony of the United States, and the second is the allegiance to the Israeli State. How will this country react to the scrappy, deal-making America that does not act in a normative universe or pay it forward to maintain an “international rules-based order” in its image? And how will Germany truly react when, as now seems highly probable, Israel formally annexes the West Bank, and plausibly shortly thereafter, Gaza? Friedrich Merz isn’t attending the UN General Assembly this week to tackle domestic issues. But his European compatriots are there, recognizing a Palestinian State, while the two pillars of Germany’s post-war foreign policy identity stand together, fiercely opposed.  

Germany is the crux of this equation. This country can longer be populated by happy vassals. In the post-war period, and even after reunification, the US and other NATO Allies remained apprehensive of German strength, and that apprehension and lessons of history understandably pervaded the education system and public perception of the country’s role in the world. But at some point, that assessment flipped for Germany’s partners. I think the point may, ironically, have been after Germany’s abstention at the UN Security Council in March 2011 over the military operation in Libya against the Qaddafi regime. That was the beginning of my professional lifetime, and since then I cannot recall any conversations within the US government to keep Germany small—it was the opposite Through American disappointment came American expectations, when Germany’s abdication of responsibility became its greatest liability in the greater transatlantic theater. But Germany clung to the original narrative, perhaps because it was self-serving, or perhaps no one ever laid it out just so clearly as Russia now has.  

If we can firmly pull back from these old dependencies, we may also lose some of the resentment with America and experience less anti-Americanism, even with Trump’s America. America is not a phenomenon, it’s a country, and it’s in trouble. I hope that, in helping to establish a new balance in the multipolar world we now inhabit, Europe can also help rescue American from its confusion.  

 Thank you for your time and I look forward to discussing this further with you.