Now they are all up in arms. Nasty Trump has made good on his threat. He has indeed imposed tariffs on products from half the world, which should ensure that US imports rise less quickly and the US current account deficit falls. Last year, this deficit of the United States exceeded 1,000 billion US dollars (1.13 trillion), which was almost four per cent of American GDP.
However, anyone who accuses the American government of mercantilism in view of the measures taken is a fool. The mercantilists are those who have had current account surpluses for years and decades and are now wondering why the world’s largest and most important deficit country can no longer bear their mercantilism, of which they are usually still proud. Germany, in particular, is rightly being criticised and is rightly being hit by the American measures.
The fact sheet published by the White House gives a clear, absolutely correct and indisputable reason for the inclusion of Germany:
“Countries including China, Germany, Japan, and South Korea have pursued policies that suppress the domestic consumption power of their own citizens to artificially boost the competitiveness of their export products. Such policies include regressive tax systems, low or unenforced penalties for environmental degradation, and policies intended to suppress worker wages relative to productivity.“
‘Germany has suppressed domestic consumption by its own citizens in order to artificially increase the competitiveness of its export products by measures aimed at suppressing workers’ wages relative to productivity’. This is exactly what the Agenda policy of the red-green coalition at the beginning of this century has been about. However, this has been systematically hushed up and swept under the carpet in Germany for a quarter of a century as a political and scientific position.
The German error
At the time, German economic policy exerted massive political pressure on the trade unions to push down unit labour costs, which led to a significant improvement in German competitiveness within the newly established European Monetary Union, because the partner countries could no longer devalue and the euro was not revalued against the rest of the world in line with the improvement in German competitiveness.
This was clearly unfair because the partner countries in the monetary union could not have known that Germany, of all countries, would not orient its wage negotiations to the jointly agreed European inflation target. As a result, Germany’s current account surplus rose to levels that not only violated global trade rules, but were also a clear violation of European guidelines within the monetary union. The German government is also violating the German Stability and Growth Act from the 1960s without blinking.
In a 2018 government report (here you will find the link to this currency report), the US has already pointed out that mercantilist German policy cannot be justified. Immediately after his appointment, Donald Trump had given the order to examine the reasons for the persistently high surpluses of some trading partners and to prepare appropriate measures. In the case of Germany, he hit the nail on the head.
The chimera of the rules-based order
There is no justification for persistent current account surpluses. No country in the world has to endure persistent current account deficits. If you want free trade, you have to be prepared from the outset to do everything to avoid the very one-sidedness of trade that has been the norm for decades.
All the ‘interpretations’ that have been put forward in Germany are laughable. Even more laughable are the attempts by some economists to explain the balances with the different savings behaviour of the countries, as shown last week on this page. The fact that the surpluses in Germany have not been discussed for many years by a conspiracy of silence in the media and politics, but have been hushed up, shows how bad a conscience the country must have, which day in and day out talks about the rules-based order but stubbornly ignores it when it comes to its economic interests.
Cooperation is called for
The new German government should quickly realise that, in view of the justified American criticism of German mercantilism, the ‘we are the good guys’ attitude is less than ever appropriate. Only a government that jumps over its social-democratic and Christian-democratic shadow (the Christian Democrats enthusiastically supported Schröder’s policies and defended them to the end) has a chance of negotiating with the US on the rapid reduction of the German surplus and on a normalisation of trade relations.
The last convulsions of the outgoing Minister for Economic Affairs are going in exactly the wrong direction. Comparing the American tariff announcement with Russia’s attack on Ukraine is both absurd and irresponsible. The ‘determination of the reaction’ that he demands is dangerous because he (once again) judges without having understood what is at stake. Anyone considering countermeasures should first know that the deficit country wins in any case and the surplus country loses in any case.
In the case of Germany, however, countermeasures are not appropriate at all because the US is in the process of exposing and correcting a mistake made by Germany. The only thing the US can be criticised for is not taking action against German mercantilism twenty years ago. But the ‘good guys’ naturally refuse to admit this. In their delusion, they can cause enormous damage. One can only hope that reason will quickly prevail over unreflected moralism.