Donald Trump’s “America First” foreign policy has been the subject to much controversy in global politics and trade making European powers, particularly Germany, nervous about the stability of their alliances with the United States. At a recent campaign rally in Munich German Chancellor Angela Merkel stated, “the times we can completely rely on others are somewhat over.” This statement came shortly after Trump’s harsh criticism of trade practices between the US and Germany. While Merkel did not refer to Trump directly it is no secret that the two leaders have been at odds with each other.
One of the core issues of this dispute arises from Germany’s trade surplus with the US, which amounts to 49 billion euros ($55 billion). In 2016 German companies sold nearly twice as many goods to US customers than US companies to Germany.
So why do German companies have such a strong foothold in the US economy? Germans claim their products are just better and consumers want to buy them. Germany’s export success depends on targeted niche markets, often highly technical industrial equipment. Many US politicians see this perceived German advantage as detrimental to American interests, however, there are significant benefits to businesses and workers in both countries as a result of these close and longstanding business ties. Germany is the sixth-largest export market for the US.
Also, German companies often invest, hire and sell in US rather than export there. According to the German American Chamber of Commerce in New York, around 600,000 people in the US work for German companies with big names such as BASF, T-Mobile USA, and Trader Joe’s. In Charlotte alone there are 194 German-owned companies including 59 U.S. headquarters making Germany the largest foreign company represented in the region.
One particular issue arises out of the concern that Germany manipulates its currency in order to make its products cheaper and gain an unfair advantage. However, Germany does nothave a currency it can manipulate since it belongs to the euro currency union, which the independent European Central Bank (ECB) regulates.
That said, Germany does benefit from a recently weakened euro arising from monetary stimulus by the ECB. As a result, the Euro has dropped from $1.40 in May 2014 to $1.12 in May 2017. Ironically, Germans are among the leading critics of the ECB’s stimulus plan since it bails out countries with weak finances, disorganized economies and lots of debt incurred through lower borrowing costs.
Germany’s emphasis on exports is in part a result of broader government and economic policies over the years. The country has also rolled back many of its welfare programs cutting many employment benefits and loosening regulations governing the employer-employee relationship. Policies that prioritize budget surpluses rather than borrowing and spending have suppressed spending by German consumers. Such policies are a source of pride and jobs, which chancellor Merkel and other conservatives consider a victory especially since it’s an election year.
President Trump is not alone in his criticism of Germany’s trade surplus and bargaining position within the global economy, nor is he the first person to speak out against it. Last year, Former Premier of Italy, Matteo Renzi, publicly spoke out against Germany’s trade surplus and its harm on the Eurozone. Former Federal Reserve Chairman Ben Bernanke wrote in 2015 that German policies that lead to less consumer spending impede economic growth not just in Germany, but other Eurozone countries as well.
Strategies he suggested included more spending on domestic infrastructure and reduced regulations on mid-level professions like lawyers, accountants, architects and engineers lowering the costs of the services they provide. However, the question that still remains is what this new attitude of the Trump administration will mean for the future of the US-German trade partnership.
