America’s massive trade deficits with its commercial partners have rightly come under focus from the Trump administration. Indeed, the trade imbalances with Asia and especially Japan in the 1980s became the subject of a bipartisan political backlash. Now the administration in Washington has doubled down on the widening gap between China’s exports to the United States and its imports. But so too has this ire turned to America’s lucrative commerce with Germany.
During both the Group of Seven summit in Italy in May and the recent Group of 20 meeting in Hamburg, Germany, US President Donald Trump was quick to chastise German Chancellor Angela Merkel for her country’s yawning trade deficit with the United States. In 2016, two-way trade stood at US$163 billion; the deficit from German imports reached $65 billion.
Yet in both previous years 2014 and 2015, US bilateral trade with Germany averaged $175 billion, with a larger deficit of $75 billion.
As a matter of comparison, US trade with China in 2016 stood at $578 billion, with a deficit chasm of $347 billion.
ttipTrump’s talk of a trade war with key trans-Atlantic partners such as Germany has so far caused more political angst than actually hurting the flow of German-made Audi and Mercedes autos into US ports. Still, the scrapping to the Trans-Pacific Partnership (TPP) and the shadow over the Transatlantic Trade and Investment Partnership (TTIP) have concentrated the attention of businesspeople in both Asia and Europe concerning the future of free and unfettered commerce with the US.
Though Merkel sings the praises of free trade while reviling protectionism and isolationism, she speaks from the mercantile pulpit of a country whose global trade surplus reached $300 billion last year, larger even than China’s $200 billion.
But looking at business through the lens of imports, exports and trade deficits is only part of a much larger commercial relationship between the United States and Germany.
Largely absent from the debate is the growing standing of German investment in the US. Germany is the fourth-largest investor in the country, with more than 3,000 companies having invested $320 billion on American soil.
German companies collectively are the second-largest foreign employer in the US manufacturing sector, just behind Japan. Why? Think of all those popular German auto marques. BMW and Mercedes produce sport-utility vehicles in South Carolina and Alabama respectively. Volkswagen also operates a large production plant in Tennessee.
Back in the 1980s when America’s sentiments were building over the flood of Japanese cars into the country, the Ronald Reagan administration worked out a deal with Japanese automakers to co-produce some vehicles in the US. By 1983 the first Nissan truck built in Tennessee came off the assembly line in a move that would open an extraordinary chapter in industrial relations between two trans-Pacific trading partners that were facing large imbalances. In 1987 the US trade deficit with Japan was $56 billion.
BMW began producing vehicles at its Spartanburg, South Carolina, facility in 1994; since that time more than 3.7 million SUVs and crossovers have been produced in the plant. Last year alone, the plant produced more than 400,000 vehicles. Fully 70% of its production was shipped to markets overseas. BMW North America chief executive officer Knudt Flor stated: “Customers from 140 countries around the world are eagerly awaiting our vehicles.”
Currently the factory is undergoing a $600 million expansion and modernization program that will create 1,000 jobs.
German companies employ nearly 700,000 American workers in both the manufacturing and high-tech industries.
Research and development efforts are a vital investment for companies to stay ahead and competitive in any market. Significantly, German firms are the largest overseas R&D employers in the US.
According to Dietmar Rieg, president of the German American Chamber of Commerce in New York, “German companies have spent $7.1 billion in R&D, employing 26,400 people, including scientists, mostly near university and start-up centers in the Northeast and California.” The GACC coordinates business and access to 3,700 German firms across the US.
For example, the tech giant Siemens invests more than $1 billion annually in R&D in the US. The company is currently constructing a new $300 million R&D facility in Massachusetts for laboratory diagnostics.
Thus despite the political posturing, commerce proves to be a two-way street. Tariffs are simply counterproductive quick fixes and feel-good measures that invite retaliation and, as significantly, erode trust. Free but fair trade is clearly beneficial for both sides.