Trump may be more focused on China, but the economic and political implications of Germany’s trade imbalance pose more serious long-term challenges. Trump may be more focused on China, but the economic and political implications of Germany’s trade imbalance pose more serious long-term challenges.
B erlin may be hoping that President Trump didn’t read the Wall Street Journal this weekend—because if he did, he might conclude that the greatest threat to U. S. trade interests comes not from China but from Germany:
The WSJ makes the important point that Germany is abusing the world trade system in a way that China and Mexico are not. Whatever may have been the case in the past, China is not depending on an undervalued renminbi to prop up its exports; if anything, China is worried that its currency will fall too low. And globally, Mexico is running a trade deficit—though like most countries, it has a surplus with the United States. By contrast, Germany’s policies in Europe contribute to a massive undervaluing of the euro, and German exporters are therefore able to enjoy huge international sales that, without the currency distortion, they could not achieve.
The core problem here is that Germany is more deeply rooted in the old blue model system—a stable national economy in which mass manufacturing and clerical jobs undergird a system of safe, lifetime employment—than even some of its European neighbors. German culture strongly values stability, social justice, and adherence to the rules of the system. German politicians fear that an upheaval in the economy, like the transformations that have shaken the political order in the English-speaking world and Southern Europe, would unleash a new wave of German nationalist populism with dire consequences. A German Le Pen or a German Trump terrifies the German establishment as much as the prospect would terrify some of Germany’s smaller neighbors.
The euro crisis and the subsequent lost decade of growth in Club Med and weaker European economies was good for Germany. The troubles of countries like Italy, Spain, and Greece kept the value of the euro low, boosting German exports. Meanwhile, the weakness of their economies and banking sectors meant that lenders were willing to accept extremely low yields on corporate and government debt in Germany even as bank capital almost dried up in the south. Cheap capital and easy exports: this combination has insulated the Germans from the transformative pressures reshaping the social order in much of the world.
The cost has been high, but so far it is more political than economic, at least for the Germans. The European Union has been weakened and Germany’s popularity has collapsed. Europe is a weaker entity than it was in 2007, but Germany is a stronger country.
The German establishment has a hard time understanding this. It continues to see itself as a model of pro-European policy, unfairly beset by ingrates like France and cheats like Greece. It perceives its battle against Russian revisionism as one of values, with Germany standing up for the rule of law and human rights against Russia’s piratical authoritarianism and ruthless lawbreaking. It compares its own sane and moderate policies (as it sees them) with the irresponsibility of U.
