Over the last 10 years, the euro has risen against the US dollar by 5% (it was up 8% before the slide of recent days). Over the same period, each of the two main Asian currencies — the yen and the renminbi — has fallen by around 15%. This implies that over 10 years, the euro has revalued against Asian currencies by some 20%, which is a considerable move.

Now factor in the new tariffs which the US has imposed on the European Union and Japan at 15%, and which it looks likely to impose on China at a similar rate once negotiations between the two sides eventually conclude. As far as sales to the US are concerned, the new tariffs will bring the competitiveness of Japan and China back to where it was 10 years ago, before their devaluations.

But as far as the sales of European companies to the US go, the new tariffs will make Europe’s goods even less competitive than they were before. The only solution for European companies will be to close their factories and open new ones in the US.

So much for exports to the US. When it comes to exports to other countries, such as Latin America, the world’s two most efficient industrial powers have devalued their currencies by a sizeable 20% against the currency of the not-so-efficient industrial system of Europe. Manufacturers in Europe are therefore going to lose massive amounts of market share.

Logically, the adjustment will show up firstly in a fall in corporate profits for companies that manufacture in Europe, and secondly in a rise in European unemployment rates.

This suggests that some countries in the eurozone — notably France — are heading into a new recession — a recession that they cannot afford. The result could be a solvency crisis in France as soon as this autumn. History suggests we may see the first dislocations hitting as early as August.

To gauge whether a eurozone crisis is brewing, investors traditionally monitor the spread between French and German 10-year sovereign yields. But this spread is too easily manipulated. I prefer to watch the French- Danish spread, which nobody bothers with. It does not look good, with the spread currently above 60 basis points and rising.

If anyone can explain why one of the world’s least efficient industrial systems has seen its currency revalue by 20% in 10 years against the currencies of the world’s two most efficient industrial systems, I will listen with all my attention.

But frankly, I do not understand it; the euro’s 20% appreciation against the renminbi is one of the most bizarre developments I have seen in my career. And given that I’ve been in this business for more than 50 years, I have seen more than a few bizarre developments.

It seems to me that a large number of contract assets are going to take a major beating. But the world is carrying on as if their overvaluation were normal.

As John Maynard Keynes quipped, the markets can remain irrational longer than I can stay solvent. So when I do not understand, I do not play.

China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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