President Trump took to Twitter Tuesday morning to amplify comments he made during the European leg of his overseas trip. He controversially, and indelicately, invoked one of his key issues — trade policies that put America first, or fail to — in a meeting of E.U. leaders last Thursday, during which he reportedly said, “The Germans are very bad, very bad.” (White House economic adviser Gary Cohn later clarified Trump was talking about trade policy.) At a campaign event in Munich on Sunday, German Chancellor Angela Merkel, who is running for reelection, acknowledged a new distance between Germany and the United States.
Trump then repeated his criticism of German macroeconomic policy Tuesday morning, on his own terms. The President wrote, at 6:40 AM, “We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change.” All-caps and adjectival emphasis notwithstanding, Trump’s complaints stand on clear factual merit:
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The trade gap the United States. has with Germany ($67.8 billion) is second only to its 2016 trade gap with China, a deal with whom has long been Trump’s top target.
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Using NATO guidelines, the objective measure of what Germany “should” spend—2% of GDP, per a 2006 agreement—there is no denying that Germany shortchanges its military budget. (Last spring, Merkel announced a plan to increase Germany’s defense budget in the coming years to reach that goal.)
Trump’s focus, however, and his means of making his point are flawed for reasons Gary Hufbauer, a trade expert at the Peterson Institute, was kind enough to explain to TWS Fact Checker.
For one thing, Germany’s trade surplus is bad for the United States, but is worse for Germany’s European neighbors. For another, in a world of multilateral trade, Trump’s view that Germany’s bilateral deficit with the U.S. is unfair to American interests, while not exactly wrong, makes little sense. Because, Hufbauer said, in focusing on trade policy, “he’s asking Germany to do things which are not in Germany’s power to do.”
“Germany has surrendered its monetary power over the Deutsch Mark to the European Central Bank and surrendered its power over trade policy, treaties, and all other kinds of trade restrictions, to the European Commission.” What Germany can do to increase spending and decrease its surplus, however. And—this Trump should like—Germany can spend more on infrastructure and defense. Or dramatically cut taxes. Or ask its fairly-centralized labor unions to raise workers’ wages, Hufbauer says.
Germany’s global trade surplus hit $250 billion in 2016. What Trump might have done in Europe was remind some of Germany’s neighbors—France, Italy, Greece, Spain, Portugal—how the German surplus has done them wrong. “While the U.S. does have a legitimate complaint about German macroeconomic policy,” Hufbauer said, “The way Trump has phrased the complaint, he’s managed to unify Europeans who are more hurt by Germany’s policies than we are on the side of Berlin.” And as a bonus, he’s given a boost to Chancellor Merkel’s reelection effort by giving her a message with which to rally voters.
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