Tech Cold War, Industrial Policy & the new Geoeconomics: Ansgar Baums in an interview
A conversation about geoeconomics, industrial policy and the new role of the state in technology policy.
One aspect of my dissertation that I particularly enjoyed was talking to experts about industrial policy. I have therefore decided to simply continue this form of exchange.
It starts with a conversation with Ansgar Baums, whose book “Tech Cold War” was recently published. I first spoke to Ansgar Baums in 2023 in the middle of research for my dissertation on the political economy of autonomous driving in Germany and France. At the time, I asked myself a key question: how exactly do governments intervene geo-economically in software and hardware markets?
Ansgar's book “The Tech Cold War” had not yet been published, but our exchange helped me to understand how governments intervene in technology markets. Today, almost two years later, my dissertation is nearing completion. “The Tech Cold War” has long been published and the world has become more geopolitical and interventionist. What follows is a conversation about the role of technology in the global architecture of power and what this means for Europe's industrial policy.
Further interviews with experts will follow in the near future.
Frederik Theiling (FT): Let's talk about your latest book, The Tech Cold War. Perhaps you could tell us again what inspired you to write it and how it came about.
Ansgar Baums (AB): The impetus was basically the time Nic, my co-author Nicholas Butts, and I spent together at HP. Shortly before Trump was first elected president, we started discussing whether to set up a team to deal with geopolitical risks. I was part of the Government Relations organization, but it was clear that a regionally based GR organization was not the right structure.
The main contacts for geopolitical risk management are internal stakeholders: supply chain management, corporate strategy, product development, CFO, and so on. We then set up this internal unit, the Global Strategy Program, which I headed, and brought Nicc, who had expertise in China, onto the team, among others.
We lived through the Trump era, focusing primarily on tariffs at the beginning and trying to make HP more geopolitically resilient. I think we were a little ahead of many other tech companies in this regard. We found that many companies asked themselves the same questions later on, but dealt with them in a relatively unsystematic way.
On the political side, we found that many regulatory ideas aimed at achieving geopolitical goals through control of tech value chains are based on problematic assumptions. Particularly serious, in our view, was the fact that neither the reactions of companies to this “geotech statecraft” nor how technology and innovation are developing in the tech sector are really understood. And thirdly, we felt that China and the tech sector in China were not really well understood either.
These three points of criticism prompted us to write everything down systematically – also because there was simply no literature on the subject. It was uncharted territory.
Another biographical background is that Nic and I both studied political science with a focus on international relations. For a long time, questions of international politics did not play a major role in tech companies. Many tech companies simply assumed that we would now live in a globalized, frictionless world, and that international politics would therefore become increasingly unimportant.
This is basically a belief system based on the paradigms “The world is flat,” “End of history,” and “Unipolar moment.” Well, and at one point, IR was relevant to business. For us, this was interesting simply because we could finally apply the IR tools we had brought with us from our studies systematically to the tech sector—and perhaps even find an interested audience.
Me: You already hinted at this: a lot has happened in recent years when it comes to tech and geopolitics. How do you perceive the latest developments in the US, especially against the backdrop of the new US administration? Palantir is a good example, and there's also the new book by Alex Karp. Palantir is now positioning itself much more politically. How do you perceive this – also from your perspective at HP and in connection with your book?
AB: That's very relevant. Ultimately, we're seeing a new type of company emerging in Silicon Valley. I like to call them the “shadow companies of Dark Valley.” These are companies that deliberately position themselves differently and say from the outset: Our mission is geopolitical. We are here to support the geopolitical supremacy of the US, and we develop products that do exactly that.
This is actually a new trend in Silicon Valley, a new type of company that wants to profit from geopolitical friction. This hasn't been the case for a long time. Almost all of the tech companies in Silicon Valley have benefited from the absence of geopolitical friction. They have therefore always advocated for more free trade and fewer barriers to market access – classic market liberalism.
That has changed somewhat now. But it is still not the majority. Most tech companies in the US are not at all happy with the direction politics is taking. Many are not saying anything about it at the moment – especially if they are not sure how things will develop. Because if you take a stand in this context, you run the risk of being brutally punished for it. There is a risk of being perceived as an unpatriotic company. And the risk of direct measures being taken against your company is very real at the moment – it's no longer a fantasy.
FT: What interests me particularly is that you write in your book about the “weaponization” of tech value chains. I myself have a background in the German automotive industry and wrote my dissertation on autonomous driving in Germany and France. Against this backdrop, how do you see things developing – specifically in relation to autonomous driving, but also more generally with regard to software and data issues in the automotive industry? How do you think the industry is positioning itself in this geopolitical landscape?
AB: From our perspective, the car is naturally part of the Internet of Things, i.e., a connected device. And it is precisely these connected devices that are at the heart of the whole geotech statecraft debate. At the regulatory level, we are seeing new barriers to market entry being created – some of them very harsh.
One example of this is ICTS Connected Vehicles in the US. This is effectively an import ban on Chinese connected vehicles. The market is practically lost in this area – it's a tough barrier to market entry.
In China, we are also seeing a development on many levels that will require connected vehicles to be based on a split IT stack. Cars that are allowed to drive in China must comply with Chinese data localization requirements, use Chinese encryption technologies and cartography, and so on. It is foreseeable that these vehicles will have to be produced specifically for the Chinese market – based on Chinese IT infrastructure.
This means that connected vehicles will be shaped by geopolitics. There will be no globally uniform connected vehicle, period. IT stacks will remain divided, and even car manufacturers cannot escape this reality. Especially when it comes to topics such as real-time analytics or vehicle training, this only works within the infrastructure prescribed in the respective country.
Connected cars are at the forefront of this whole discussion. But in principle, the same rules will apply sooner or later to all connected devices – whether it's drones, charging infrastructure, the example of charging cranes in the US, or Huawei. You can go through the entire IoT world and you'll come across the same principles everywhere. And these principles cannot be circumvented in the short or long term.
That is the real dilemma for all companies that manufacture connected devices: you have to decide whether you want to serve two stacks or not. So: do I want to be a two-stack company or do I want to remain a one-stack company?
This is a real strategic decision with massive implications. If you serve two stacks, you have the maximum possible total addressable market, but you have to divide your resources. If you have one dollar for R&D, you can only spend it once. If you have to split that dollar to serve two stacks, you're likely to be less competitive than those who can put their R&D dollar into just one stack.
Many companies are currently facing this dilemma. And hopefully they're managing it consciously – and not by muddling through. I would say that Volkswagen is in the middle of this process. When I look at how Volkswagen is performing in China, at the developments there – such as the new partnerships with Xpeng or other New Horizons projects – it is very clear that the Volkswagen China car is a Chinese development. It basically has little overlap with the technologies that play a role at Volkswagen in the rest of the world.
And that has consequences. The money that used to be earned in China flowed into other regions – for example, to subsidize expensive production in Germany. This cash flow no longer works. The money earned in China now has to be reinvested locally. In my view, there is a direct link to the plant closures in Germany: subsidizing German production with revenue from China is coming to an end, and the money in China now has to stay in China.
FT: Looking at the recent debates in Germany, particularly the discussions on industrial policy, how do you think a new federal government should respond to this geopolitical situation? Especially in the area of technology: software, autonomous driving, semiconductors. The whole issue of batteries and decarbonization is certainly a separate field, but how do you specifically assess the current debates surrounding digital technologies?
AB: I'm not sure if the full implications of this have really sunk in yet. If they had, keeping market access to the US and within Europe open would have to be a top priority. It's simply inconceivable that we would only build and sell cars for Europe, plus maybe a little bit of Africa or Latin America. That's simply not enough as a total addressable market.
Market access to the US therefore remains absolutely essential – and with it, uniform technologies and standards across the Atlantic. I think it's illusory to believe that Europe can develop its own complete IT stack. By that I don't just mean its own computer architectures or independent chips, but the entire ecosystem. It's not going to work.
That is why we have a central interest in maintaining and prioritizing the transatlantic economic area. That is one point.
The other point is that a lot is happening in the US right now that is putting Europe under enormous pressure. I think that is also one of the reasons why the debate about China is shifting somewhat here at the moment. It is becoming increasingly clear that it is in Europe's strategic interest to at least stabilize access to the Chinese market. If both sides – the US and China – break away as markets, then we have a real problem.
From a tactical point of view, it would therefore be wise not to seek escalation with China at the moment. On the contrary, it would be important to promote the continued role of European companies in China. That should be in the common European interest.
In this respect, I believe that we are currently seeing a reassessment of the risks in both directions. In the long term, China will go its own way with its own IT infrastructure. That is inevitable after the Huawei debacle and other incidents. Europe should be very aware that we do not have the assets to build our own complete stack. We need the markets – and we should act accordingly in our politics. As difficult as that may be at the moment, especially when you think of Trump.
FT: I have another more general question. In your book, you talk about corporate strategy and geoeconomics. Where do you see the line between traditional corporate strategy and what you call geopolitical enterprise strategy? Where is the boundary?
AB: I don't think that boundary really exists anymore. That's exactly the point. From a cybernetic perspective, there are five systems within a company. System one is sales. System two is coordination between the various sales teams and resource allocation. System three is classic management of the here and now. System four looks further ahead – this is “then and there” management, which takes a broader view and observes strategic developments. And system five is at the top, responsible for a company's culture, mission, and vision.
The problem is that system four, i.e., looking beyond the horizon, has been greatly reduced in most companies during the unipolar moment. It is often limited to perceiving only the signals sent out by the market mechanism itself. This means that our corporate strategy departments today are often primarily Excel sheet managers who deal with market analyses, total addressable market, and topics like that. They are very good at that.
But that is precisely why it is so difficult to talk about geopolitics with a traditional corporate strategy department. Geopolitics simply does not appear in their Excel spreadsheets.
This system four is therefore a consequence of the unipolar moment. It has been trimmed down to the point where it relies almost exclusively on market signals. That's a problem because this system should actually be able to pick up on external signals that aren't yet reflected in market mechanisms – like geopolitical friction.
That's why I think the idea of a clear separation between corporate strategy and geopolitical strategy is a relic of the unipolar moment. Back then, you could maybe get away with it. But in the future, that won't be possible anymore.
That is precisely what our book is about: companies need to fundamentally reorient themselves. They need to build up geopolitical muscle mass. And that includes a fourth system that can process these geopolitical signals. But that also means structural adjustments.
If I want to be a two-stack company—that is, one that wants to be successful in both the US and China—then I have to isolate my operations in China geopolitically. The company will inevitably become more “bipolar,” reflecting the geopolitical metastructure in its own organizational structure.
This starts at the IT level: separate systems for China. This is extremely difficult – especially when we're talking about connected devices. How do you process real-time data streams when the data is no longer allowed to leave China? This also affects HR strategies, cash flow operations, product development, and R&D.
The entire company has to realign itself across all business capabilities. And that naturally entails additional costs. The margins we had in the unipolar moment are under massive attack. These margins probably cannot be maintained – unless you make a clear decision in favor of one stack and reduce the market accordingly. That is the one-stack option. But that is precisely the dilemma: you can't have both at the same time. You have to commit to a strategy. And I think that's precisely the point where many companies are already having discussions, but often lack the bigger picture to really understand the need for a clear decision. With our book, we are trying to help explain and contextualize this dilemma.
FT: I have two last questions for you. The first one: You are currently writing a new book. What will this new book be about?
AB: The new book is a sequel, in a sense. The Tech Cold War had a very strong academic focus. We published it through an academic publisher, primarily for the US market. The new book, which will be titled Das Graue Nashorn (The Gray Rhino), is aimed much more at entrepreneurs and managers. It is intended as a practical handbook—especially for German managers—to help them find their way in this new world. The book is very hands-on.
FT: Last question: What book would you recommend at the moment—apart from your own, of course? What was the last book you read that inspired or impressed you? It can be about industrial policy or geoeconomics, but it doesn't have to be.
AB: There are actually two books that are best read together: Nixonland and Reaganland. These are two works that trace the political changes in the US during the Nixon and Reagan administrations in great detail. Absolute blockbusters. There are really pages that you can just take out and think as you read: That's exactly what's happening in the US today.
These books show how new methods of voter mobilization were introduced, what strategies of radicalization played a role in this, and how strongly the culture war dominates US politics. And none of this is new—it has happened several times before in the US. This historical context helps us to better understand what is happening today and to remain somewhat calm: all is not lost; there have been phases like this before.
A second book I highly recommend is The Avoidable War by Kevin Rudd, the former Australian prime minister. It is, in a sense, a response to Graham Allison's Thucydides Trap. Rudd is one of the world's foremost experts on China. He describes very clearly and succinctly how China works under Xi Jinping, what the weaknesses of the Xi China model are and, above all, he provides a very good framework for analyzing the relationship between the US and China.
He distinguishes between three levels: First, there are the red lines – areas where there is a risk of military conflict, especially around Taiwan.
Second, there is the geo-economic competition in which we find ourselves.
And third, there are areas of global cooperation where the US and China must work together, for example on climate change or pandemics.
The big question is: How can competition and cooperation be pursued at the same time? Rudd does not provide all the answers, but he does present a very good analytical framework.
A third book I would like to recommend is The Inevitability of Tragedy. It is a collection of biographies of European migrants who came to the US – people like Kissinger, Hans Morgenthau, and Hannah Arendt. It is about how these people brought their experiences from Europe, especially their experiences of World War II and Nazism, with them to the US, where they became influential intellectuals.
Particularly fascinating is the tension between the “old-world” realism shaped by the experience of war and the American idealism that assumes democracy and freedom can be spread throughout the world. This tension has a lot to do with the fundamental strategic misjudgments made by the US—think Afghanistan or Iraq. The book shows very well that realism also means recognizing that you can't prevent every tragedy, that there are limits to what a state can do and achieve. And that the idea that you can bring democracy to every corner of the world is often a mistake.