Editor's note: Excellent piece on the imbalances caused by Germany. Michael Stumo, CEO of CPA, met with German officials last week and they privately admit this problem. But why end the party?
HAMBURG, Germany — Most people can agree that international affairs should not be conducted by tweet — especially when the tweeter in question is Donald Trump. Among other reasons, it’s easy to dismiss the president’s mercurial rage and flagrant insults as little more than temper tantrums.
[Jochen Bittner | June 19, 2018 | NY Times]
But that’s a mistake. Mr. Trump’s anger at America’s allies embodies, however unpleasantly, a not unreasonable point of view, and one that the rest of the world ignores at its peril: The global world order is unbalanced and inequitable. And unless something is done to correct it soon, it will collapse, with or without the president’s tweets.
While the West happily built the liberal order over the past 70 years, with Europe at its center, the Americans had the continent’s back. In turn, as it unravels, America feels this loss of balance the hardest — it has always spent the most money and manpower to keep the system working.
The Europeans have basically been free riders on the voyage, spending almost nothing on defense, and instead building vast social welfare systems at home and robust, well-protected export industries abroad. Rather than lash back at Mr. Trump, they would do better to ask how we got to this place, and how to get out.
The European Union, as an institution, is one of the prime drivers of this inequity. At the Group of 7, for example, the constituent countries are described as all equals. But in reality, the union puts a thumb on the scales in its members’ favor: It is a highly integrated, well-protected free-trade area that gives a huge leg up to, say, German car manufacturers while essentially punishing American companies who want to trade in the region.
The eurozone offers a similar unfair advantage. If it were not for the euro, Germany would long ago have had to appreciate its currency in line with its enormous export surplus.
Sure, eurozone membership makes imports to Germany more expensive than they would be under the deutschemark; wage restraint has also helped maintain the competitiveness of German machinery. But how can the very same politicians and journalists who defended the euro bailout payments during the financial crisis, arguing that Germany profited disproportionately from the common currency, now go berserk when Mr. Trump makes exactly this point?
German manufacturers also have the advantage of operating in a common market with huge wage gaps. Bulgaria, one of the poorest member states, has a per capita gross domestic product roughly equal to that of Gabon, while even in Slovakia, Poland and Hungary — three relative success stories among the recent entrants to the union — that same measure is still roughly a third of what it is in Germany. Under the European Union, German manufacturers can assemble their cars in low-wage countries and export them without worrying about tariffs or other trade barriers. If your plant sits in Detroit, you might find the president’s anger over this fact persuasive.
Mr. Trump is not the first president to complain about the unfair burden sharing within NATO. He’s merely the first president not just to talk tough, but to get tough.
Indeed, while his actions are shocking, the Europeans cannot say they are surprised. The warnings from the Obama administration that America’s indulgence might eventually cease had been plenty. Yet Europeans didn’t care much. All those German politicians who oppose raising military spending from a meager 1.3 percent of gross domestic product should try to explain to American students why their European peers enjoy free universities and health care, while they leave it up to others to cover for the West’s military infrastructure.
Europe’s unfair trade advantage is not the only challenge to the liberal world order. In retrospect, allowing China into the World Trade Organization — one of that order’s crowning achievements — was a huge mistake.
When the door was opened, in 2001, many in the West believed that a growing Chinese middle class, enriched by and engaged with the world economy, would eventually claim voice and suffrage, thereby democratizing China. The opposite has happened. China, which has grown wealthy in part by stealing intellectual property from the West, is turning into an online-era dictatorship, while still denying reciprocity in investment and trade relations.
Is this how you behave as a privileged member of the world’s business club? China’s unchecked abuse of the global free-trade regime makes a mockery of the very idea that the world can operate according to a rules-based order. Again, while many in the West have talked the talk about taking on China, only Mr. Trump has actually done something about it.
Mr. Trump’s tariffs against Europe are patently illegal, and Europe should retaliate. But simply punishing the makers of motorcycles, blue jeans and bourbon whiskey doesn’t solve any of the problems festering beneath the skin of the liberal world order. Europe needs to understand what is driving Mr. Trump’s anger and cooperate with Washington to fix the imbalances in the system.
That’s easy to say in theory, but can Europe work with Mr. Trump in practice? Maybe not. But there’s no real choice. And there’s a good chance for success if Europe engages Mr. Trump by his New York tycoon soul — he needs to be convinced that he’s getting a good deal. And right now, it’s easy to see why he thinks otherwise.