Much has justifiably been made of President Trump’s blustering, bullying approach to trade policy, which has already had catastrophic effects on many American farmers. Now, Trump’s trade war with China is having similarly disastrous repercussions internationally. One need look no further than longtime US ally Germany, a prosperous country now facing its first major recession since Chancellor Angela Merkel took power 13 years ago.
A bit of context: Germans value stability above all else. That the German word for debt – Schuld – is also the word for guilt, is a linguistic testament to a deep cultural truth. Debt is considered so shameful that Germans don’t have real credit cards, will rent for decades instead of buying property, and are comfortable living with a rapidly decaying infrastructure that simply would not fly in other wealthy European countries.
Part of the reason behind Merkel’s record-tying four electoral victories is that Germans are not prone to asking questions when everything seems to be working fine, and their economy — built on excessive exports and domestic austerity — has, thus far, served them well. The 2008 financial crisis hit German businesses hard, but unemployment barely increased. For nearly two decades now, Germany has survived by capitalizing on other countries’ spending and exporting job cuts to its trade partners.
Indeed, Germany’s trade surplus in 2018 was the largest in the world for the third year running, reaching $299 billion and accounting for over 8 percent of GDP.
This practice has become increasingly dangerous both at home — where a lack of funds for investment has resulted in a stagnant corporate culture lacking innovation or fertile ground for start-ups — and abroad, where big trading partners like the United States have become fed up with buying so much and being able to sell so little in return.
President Trump is not wrong to point out the toxic trade imbalance with Germany, but by refusing to negotiate on a level playing field, as allies do, and imposing drastic measures usually reserved for a perceived enemy, he has not made Berlin change course, but rather driven it further into the arms of Beijing.
With the US-China spat driving the cost of materials up and the number of orders for exported goods down, the key German sectors of manufacturing, trade, services, and construction have contracted so quickly and sharply that business leaders could hardly believe the numbers were true.
Yet, according to Germany’s highly-regarded IFO Institute’s Business Climate Index, there is good reason to believe these sectors have “not a single ray of light” for the immediate future.
Despite Washington’s justifiable concerns over data security, Merkel’s government has invited Huawei to build up Germany’s woeful digital infrastructure and is planning a massive EU-China summit for when Berlin takes over the rotating European presidency in 2020.
The chancellor made her 12th official visit to China, on Sept. 6, bringing with her a large retinue from the business world and paying only the most tepid lip service with regards to human rights abuses. The pleas sent to her by protest organizers in Hong Kong were met with a promise that she had asked the government to “safeguard” the city’s freedoms.
Despite warnings from German industrial leaders that China should be considered as a serious economic rival, and a domestic economy badly in need of innovation, Merkel has chosen to address neither problem head on, showing uncharacteristically weak leadership by opting instead to tread water. Her lack of courage is disappointing, not only for Germany but for many in the international community who see her as the new leader of the free world.
Trump, who has displayed a complete lack of understanding of how inextricably linked economies have become through globalization, is unlikely to be moved by a sinking Germany, even though a recession in the world’s fourth-largest economy is going to pull the rest of the developed world down with it.
Elizabeth Schumacher is an American journalist living in Germany.