May 27th, 2017
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: email@example.com
This is a good point. Trump wants to block German cars from coming to the USA. It doesn’t seem to occur to him that the USA and Germany might both be better off if the USA exported more cars to Germany.
A more direct, and certainly effective way to reduce imbalances is to reduce the excess surplus (deficit) of domestic demand on GDP in deficit (surplus) countries. This is where more American cars in Germany would help. I don’t think that I am saying anything new here…
I know the answer to this. “How can you force Germany to rebalance its economy, and spend more?” “That will never happen.” “Germany only cares about its interests”. I have heard all of these. I am conscious that the problem is not economic, but political. But the political difficulties of this (too long) moment, and the stubbornness of the German elites don’t make protectionism less problematic.
Norms exist in Europe, requiring external rebalancing. And Germany has been breaching them since the crisis started. It exists a narrow path to building a “coalition of the willing” among European countries, to force Germany to tackle its imbalances. Difficult? Certainly. Unlikely? Maybe. Costly? Probably. But still less than embarking the world economy into a trade war, and/or dissolving the euro.