When they want Donald Trump to grasp a topic, his advisers have learned to keep things simple. Visual aids help.
Unfortunately, global economic imbalances – the massive trade deficits of the U.S. and U.K. and surpluses of Germany and China – are complicated and intractable. No matter, Trump has found a simplistic way to frame the problem: Americans buy lots of German cars, whereas mean Germans don’t buy many from the U.S. Ergo, the overall U.S. trade deficit with Germany was about USD65 billion last year. And deficits are bad.
Germany’s auto industry makes an odd target for several reasons, as I’ll explain below. Regardless, on Thursday Trump warmed to his theme: ‘“Look at the millions of cars that they sell in the U.S. Terrible. We’re going to stop that,” he said, according to German media. “The Germans are bad, very bad.”
Let’s leave aside basic economics for a second, which is pretty clear about the advantages for a country in specializing in an industry. If selling lots of cars is somehow a hallmark of low morals, the Germans are unquestionably evil. Last year German manufacturers sold 1.3 million cars in the U.S., whereas U.S. brands sold about half a million in Germany (the latter is of course a much smaller market).
Trump’s Manichean view of global auto sales doesn’t withstand much further probing though. Nowadays, cars are often made where they’re sold. German carmakers have quadrupled yearly production in the U.S. to 850,000 units since 2009. About 40 percent are sold locally.
Similarly, many American vehicles sold in Germany are built there by Ford and General Motors Co’s Opel brand. So a more pertinent question might be to ask GM’s CEO Mary Barra why she’s having to retreat from Europe by selling Opel.
GM has suffered about $9 billion in losses in Europe in just seven years. So an American manufacturer has had unfettered access to Germany’s car market, and failed. As the German foreign minister says, U.S. carmakers should “build better cars”.
Trump’s own buying choices have reflected this reality. His timing is also odd. Volkswagen AG’s U.S. sales plummeted 8 percent last year after the dieselgate scandal. BMW AG is doing even worse. Its U.S. sales fell 10 percent last year, as consumers stopped buying sedans and started buying trucks and SUVs.
Plus BMW is a net exporter of cars from the U.S. If Trump were consistent, he would be a BMW fan. Mercedes and VW remain net importers to the U.S., according to Barclays, but both are investing heavily in American production.
Which brings me to my final point. You can’t have a big trade surplus unless you’re a net exporter of capital. Years of wage restraint, coupled with an aging society, have led to a huge surplus of German savings, some of which flow to the U.S.
Rather than targeting German autos with tariffs, Trump would have a far stronger case in urging the miserly Germans to cut taxes and boost investment. That might encourage more domestic purchases of U.S. goods.
There are limits, though. Even if you gave Germans a raise, it’s doubtful many would rush out to buy a Ford, Jeep or Buick. Like trade deficits, buying habits die hard. Chris Bryant