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The Art of the Deal
Trump Wants Bilateral Trade Talks with Berlin

President Trump’s top trade adviser Peter Navarro, no stranger to criticism of Germany, yesterday called for bilateral talks with Berlin to address its trade imbalance. Reuters

Trump administration trade adviser Peter Navarro said on Monday the $65 billion U.S. trade deficit with Germany was “one of the most difficult” trade issues, and bilateral discussions were needed to reduce it outside of European Union restrictions.

Navarro, the director of the new White House National Trade Council, said that Germany has used the argument that the EU dictates its trade policy and that it does not control the value of the euro.

“I think that it would be useful to have candid discussions with Germany about ways that we could possibly get that deficit reduced outside the boundaries and restrictions that they claim that they are under,” Navarro told a National Association for Business Economics conference in Washington.

As WRM noted in his essay yesterday, Germany’s trade policies are not just a matter of concern for Trump’s protectionists, but pose serious long-term challenges for the Western order. Germany’s sustained growth and high trade surplus were built on the backs of weaker economies like Greece, Portugal, Italy, and Spain, whose economic woes have kept the Euro weak and in turn have given German exports a further advantage. The result has been prosperity within Germany but impoverishment elsewhere, along with a fraying of solidarity across the EU.

The Trump Administration is clearly concerned about German trade trends as they concern the United States. Nine of Germany’s top export industries overlap with the top American export industries, meaning the two countries engage in more direct trade competition than, say, the U.S. and China.

It remains to be seen how Germany will respond to the proposal. Berlin has little economic or political incentive to cave to Trump’s demands, especially ahead of a crucial election this year, and it prefers to work within the EU constraints that have helped German industries thrive. Still, a United States mobilized into a trade war has to send shivers down some spines in Berlin. At the moment they must be thinking, “Are these guys for real?” We’ll probably soon find out.

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  • Whew. That moment your friend gets called to the office when you expected it would be you.
    I really hope Trump doesn’t correct the unfair trade with us in the Communist Party of China too much. We have A LOT of problems to deal with including Capital flight. Social problems (requiring more censorship to protect the regime). Demographic problems. Health problems. And foreign policy blunders.

  • rheddles

    The rest of EUrope will thank us privately.

    • f1b0nacc1

      This is an extremely important observation, really two observations: 1) The rest of Europe (which has been victimized by the German manipulation of the Euro to favor their exports at the expense of the souther tier of the EU) will be grateful that someone has stood up to the Germans; and 2) That they will do this privately, or more likely silently. After all European solidarity is a value held near and dear to the hearts of the EUnicks…

  • Andrew Allison

    The fact that these guys are, in fact, for real has been a source of surprise to many since the day that President Trump announced his candidacy.

  • Fat_Man

    The usual complaint about trade is that foreigners using cheap labor and having no constraints on environmental issues or labor protection under price US manufactured goods and destroy American industry.

    Germany’s labor costs are through the roof. Their environmental and labor laws are so strict they are demented. Their energy costs are four times US levels. And yet they own several immensely profitable markets. The German Porsche has the high end sports car market to itself. The nearest US built competitor is the Corvette, that is quite a bit less expensive. Mercedes and BMW destroyed Cadillac and Lincoln. Imposing substantial tariffs will not affect the market for many German goods.

    • rheddles

      Mercedes and BMW did not destroy Cadillac and Lincoln. General Motors, Ford Motor Company and the United Auto Workers did.

      • Fat_Man

        My point is that they never under priced American cars.

        • Kevin

          Agreed, but BMW and Mercedes might think investments in US plants might be a good idea.

          • rpabate

            BMW and Mercedes both have plants in the U.S. BMW’s US headquarters is in Greenville, SC.

        • f1b0nacc1

          True enough, but given luxury (and high performance luxury) cars tend to be products with very low price elasticity, price isn’t typically a big issue for their purchasers. Quality, on the other hand, often is a big factor and the toxic combination of the UAW and American auto bureaucracies does tend to depress quality…

    • Fat_Man

      Now that I have had time to actually read the whole article above and the linked articles. Something I cannot do while seated in front of a monitor, I should apologize for going off on what is really a tangent.

      The response is in another comment.

    • Boritz

      The Corvettes’ main advantage is that people pronounce its name correctly while a lot of well educated people say Porschhhhhh.

    • Okonkwo Nonso Chizoba

      The point is that weak euro is making them sell bmws and porsche at a very competitive price, if they were using deutsche mark, the mark will keep rising year after year, BMWs keeps getting more and more expensive, more and more consumers exploring the opportunity cost, and might be forced to switch brands because of cost constraints. American cars are not the best but they aren’t bad either, in fact if it was using the mark, BMW would be forced to build plants in Greece because of cheaper labor, their incountry manufacturing jobs model will collapse. Stop calling American overconsumption habit bad, the Global Economy needs the USA to overconsume, and when developed countries like Germany still insists on Trade surplus fetish, USA is forced to overconsume to balance the Global Economy. It’s the the American consumer that consumes the World’s production and grew the global economy, supplying the vital aggregrate demand (Dollar is the Reserve Currency) needed to match the World’s production output, Developing Countries need to export their way into developed country status( West Germany, Japan, and now China), running trade surpluses year upon year, tell me who will run the trade deficits to match their required surpluses, who will stand in as Consumer as last Resort, the USA, if the USA runs a trade surplus like Germany, the Global Economy will collapse

  • Kevin

    WRM’s article yesterday is looking prescient.

    I wonder how this will play out in European elections. Will Marine Le Pen’s demands for rethinking the Euro and EU rules get a boost. Will other French politicians start moving this way. How will it play out in Italy and Greece?

    The problem is what the rest of the EU needs (a cheaper) Euro would exacerbate Germany’s competitive v advantage vs. the US. A stronger Euro to rebalance Germany’s trade would crush France and Club Med. Changing the value of the German Euro relative to France, Italy, etc.’s Eu seems nearly impossible inside the Euro. If the Germans or Club Med leave the Euro the debts of the latter will become a long running major crisis.

  • Fat_Man

    If you read the articles, the real problem is subtle and cannot be resolved by bilateral trade talks. The problem is that Germany has a strong export oriented economy and population with a high propensity to save. But, they do not have their own currency. They are part of the Euro. The European Central bank has been forced to run a loose policy to keep the PIIGS afloat. That has caused German products to be under priced and Germany to accumulate excessive reserves.

    How to get out of this corner. The PIIGS could quit the Euro and let it rise. But, the only thing keeping them afloat is their ability to borrow in Euros. They won’t quit.

    One alternative would be for Germany to quit the Euro and go back to the Mark. The mark would appreciate and solve the currency problem. But, it would probably spell the end of the Euro and the EU. The Germans don’t want to do that. The EU and the Euro are their proof that they are now a civilized country.

    Germans will not start being wasteful consumers like Americans. They just don’t have it in them. But, one thing they could do, is to ramp their defense spending up to American levels — 4% of GDP. Of course, they would have to have a reason, like a guarantee of the security of Poland and the Baltic States.

    If I were the Administration, that is the direction I would push them in. Ramp up their commitment to NATO and the defense of Europe, and we, the US, will stay in.

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