The Germans Are More Nationalistic Than They Think

Over at the Wall Street Journal, Greg Ip carefully explains why President Trump’s beef with Germany over trade, met with howls of indignation by the trans-Atlantic establishment, actually isn’t so far off the mark: Germany really has made policy choices that magnify its trade surplus at the expense of the United States and smaller European economies.

Since adopting the euro in 1999, [Germany] hasn’t controlled its own currency. However, it did win competitive advantage over its neighbors in the currency union. Labor-market reforms restrained domestic wages. In 2007, a payroll tax cut, which made German labor more competitive, was financed with an increase in the value-added tax, which exempted exports.

In previous eras, those reforms would have pushed the deutsche mark higher, squeezing Germany’s trade surplus. Inside the euro, though, the burden has fallen on Germany’s neighbors, including France, to compete by grinding down domestic wages and prices through high unemployment and fiscal austerity. That has kept the entire region’s economy weak, forcing the European Central Bank to hold down interest rates and thus the euro.

The core issue, as Walter Russell Mead has noted before, is that the Germans actually are looking out for their own national self-interest. Even as it makes paeans to a post-nationalist, cosmopolitan Europe, Berlin is pursuing a neo-mercantilist economic policy that, in the context of the Eurozone, deflates the euro and makes the Germans import less and export more. That has a measurable economic impact on its trading partners.

It’s entirely understandable that the Germans would design an economic policy that favors Germans over other countries. That’s what nations do; when the Berlin Wall came down, the Germans spent a trillion dollars rebuilding the Eastern half of the country, but not other countries behind the Iron Curtain. But it also means that they are legitimately subject to pressure and criticism from other nations when their interests do not align.

Whether Trump can effectively nudge the Germans to adopt an economic policy that is more conducive to political stability in Europe and the United States remains to be seen (the signs from his first Brussels trip are bleak). But he is correct to try to advocate for U.S. interests against a peer power that is jealously looking out for its own.