The battle-lines are drawn. When the world’s big trading nations convene this week at a G20 summit in Hamburg, the stage is set for a clash between a protectionist America and a free-trading Germany.
President Donald Trump has already pulled out of one trade pact, the Trans-Pacific Partnership, and demanded the renegotiation (पुनः मध्यस्थता) of another, the North American Free-Trade Agreement. He is weighing whether to impose tariffs on steel imports into America, a move that would almost certainly provoke retaliation. The threat of a trade war has hung over the Trump presidency since January. In contrast, Angela Merkel, Germany’s chancellor and the summit’s host, will bang the drum for free trade. In a thinly veiled (अप्रत्यक्ष) attack on Mr Trump, she delivered a speech on June 29th condemning the forces of protectionism and isolationism. An imminent free-trade deal between Japan and the European Union will add substance to her rhetoric.
There is no question who has the better of this argument. Mr Trump’s doctrine that trade must be balanced to be fair is economically illiterate. His belief that tariffs will level the playing field is naive and dangerous: they would shrink prosperity for all. But in one respect, at least, Mr Trump has grasped an inconvenient truth. He has admonished Germany for its trade surplus, which stood at almost $300bn last year, the world’s largest (China’s hoard was a mere $200bn). His threatened solution—to put a stop to sales of German cars—may be self-defeating, but the fact is that Germany saves too much and spends too little. And the size and persistence of Germany’s savings hoard makes it an awkward defender of free trade.
At bottom, a trade surplus is an excess of national saving over domestic investment. In Germany’s case, this is not the result of a mercantilist government policy, as some foreigners complain. Nor, as German officials often insist, does it reflect the urgent need for an ageing society to save more. The rate of household saving has been stable, if high, for years; the increase in national saving has come from firms and the government.
Underlying Germany’s surplus is a decades-old accord between business and unions in favour of wage restraint to keep export industries competitive (see article). Such moderation served Germany’s export-led economy well through its postwar recovery and beyond. It is an instinct that helps explain Germany’s transformation since the late 1990s from Europe’s sick man to today’s muscle-bound champion.
There is much to envy in Germany’s model. Harmony between firms and workers has been one of the main reasons for the economy’s outperformance. Firms could invest free from the worry that unions would hold them to ransom. The state played its part by sponsoring a system of vocational training that is rightly admired. In America the prospects for men without college degrees have worsened along with a decline in manufacturing jobs—a cause of the economic nationalism espoused by Mr Trump. Germany has not entirely escaped this, but it has held on to more of the sorts of blue-collar jobs that America grieves for. This is one reason why the populist AfD party remains on the fringes of German politics.
But the adverse side-effects of the model are increasingly evident. It has left the German economy and global trade perilously (खतरनाक) unbalanced. Pay restraint means less domestic spending and fewer imports. Consumer spending has dropped to just 54% of GDP, compared with 69% in America and 65% in Britain. Exporters do not invest their windfall profits at home. And Germany is not alone; Sweden, Switzerland, Denmark and the Netherlands have been piling up big surpluses, too.
For a large economy at full employment to run a current-account surplus in excess of 8% of GDP puts unreasonable strain on the global trading system. To offset such surpluses and sustain enough aggregate demand to keep people in work, the rest of the world must borrow and spend with equal abandon. In some countries, notably Italy, Greece and Spain, persistent deficits eventually led to crises. Their subsequent shift towards surplus came at a heavy cost. The enduring savings glut in northern Europe has made the adjustment needlessly painful. In the high-inflation 1970s and 1980s Germany’s penchant for high saving was a stabilising force. Now it is a drag on global growth and a target for protectionists such as Mr Trump.
The shift from thrift
Can the problem be fixed? Perhaps Germany’s bumper trade surplus will be eroded (नष्ट करना) as China’s was, by a surge in wages. Unemployment is below 4% and the working-age population will shrink, despite strong immigration. After decades of decline, the cost of housing is rising, meaning that pay does not stretch as far as it used to. The institutions behind wage restraint are losing influence. The euro may surge. Yet the German instinct for caution is deeply rooted. Pay rose by just 2.3% last year, more slowly than in the previous two years. Left to adjust, the surplus might take many years to fall to a sensible level.
The government should help by spending more. Germany’s structural budget balance has gone from a deficit of over 3% of GDP in 2010 to a small surplus. Officials call this prudence but, given high private-sector savings, it is hard to defend. Germany has plenty of worthwhile projects to spend money on. Its school buildings and roads are crumbling, because of the squeeze on public investment required to meet its own misguided fiscal rules. The economy lags behind in its readiness for digitalisation, ranking 25th in the world in average download speeds. Greater provision of after-school care by the state would let more mothers work full-time, in an economy where women’s participation is low. Some say such expansion is impossible, because of full employment. Yet in a market economy, there is a tried and trusted way to bid for scarce resources: pay more.
Above all, it is long past time for Germany to recognise that its excessive saving is a weakness. Mrs Merkel is absolutely right to proclaim the message of free trade. But she and her compatriots need to understand that Germany’s surpluses are themselves a threat to free trade’s legitimacy.
- Convene (verb ) आयोजित करना/ बुलाना : Come or bring together for a meeting or activity; assemble.
Synonyms: Assemble, gather, meet, come together, congregate.
Example: The leaders of three religions A, B and C decided to convene a meeting to bring about peace.
- Retaliation (noun) प्रतिशोध:The action of returning a military attack; counterattack.
Synonyms: Revenge, vengeance, reprisal, retribution, requital, recrimination, repayment.
Example: The soldiers who spoke to the newspaper chose to remain anonymous, fearing retaliation from the Pentagon.
- Isolationism (noun ) अलगाववाद : A policy of remaining apart from the affairs or interests of other groups, especially the political affairs of other countries.
Synonyms: indifferentist, isolationism, neutralism.
Example: Older traditions of internationalism and isolationism have been revived and adapted to post-cold war conditions.
- Imminent (adjective) निकटस्थ/ आसन्न:About to happen or overhanging.
Synonyms: Expected, anticipated, brewing, looming, threatening, menacing.
Example: An imminent merger means that his colleagues are all threatened with redundancy.
- Rhetoric (noun) वक्रपटुता / भाषण कला: The art of effective or persuasive speaking or writing, especially the use of figures of speech and other compositional techniques.
Synonyms: Ornateness, grandiosity, magniloquence, grandiloquence, oratory, eloquence, command of language.
Example: As a result, his promises have raised the art of empty rhetoric to new heights.
- Doctrine (noun) सिद्धांत / मत: A belief or set of beliefs held and taught by a church, political party, or other group.
Synonyms: Creed, credo, dogma, belief, teaching, ideology, tenet, maxim, canon, principle, precept.
Example: In this book, he rejects the doctrine of original sin and replaces it with original goodness.
- Shrink (verb) कम करना: Become or make smaller in size or amount; contract or cause to contract.
Synonyms: Get smaller, become/grow smaller, contract, diminish, lessen, reduce, decrease, dwindle.
Example: I encouraged people not to shrink in fear and self-protection, but be unusually visionary and ethical.
- Inconvenient (adjective) असुविधाजनक:Causing trouble, difficulties, or discomfort.
Synonyms: Awkward, difficult, inopportune, untimely, ill-timed, unsuitable, inappropriate, unfortunate.
Example: His tactics to crush inconvenient questions, though, displayed the thug in him.
- Admonished (verb) चेताया/चेताना : Warn or reprimand someone firmly.
Synonyms: Reprimand, rebuke, scold, reprove, reproach, upbraid, chastise, chide, berate, criticize.
Example: She admonished me for appearing at breakfast unshaven.
- Persistence (noun) अटलता / हठ/ दृढ़ता:Firm or obstinate continuance in a course of action in spite of difficulty or opposition.
Synonyms: Pertinacity, perseverance, tenacity, tenaciousness, doggedness.
Example: There are a few strategies that can lead to success, but persistence and patience are key.
- Grieve (verb) शोक मानना/ पीड़ा देना: Suffer grief.
Synonyms: Mourn, lament, sorrow, be sorrowful, cry, sob, weep, shed tears, weep and wail, beat one’s breast.
Example: Many people find they cannot grieve properly until this process has been completed.
- Compatriot (noun) देश-भाई/ स्वदेशवासी:A fellow citizen or national of a country.
Synonyms: Fellow countryman, fellow countrywoman, countryman, countrywoman, fellow citizen.
Example: One of my compatriots is working on a plan to get us back to the level of protection before Hurricane Katrina.