Learn from, don’t bash, Germany’s industrial policy
France, it would seem, is no longer the chief villain among America’s so-called European allies. That honor now goes to Germany.
At least that is the message President Trump sent last week by blasting Germany for its perennial trade surpluses and its reluctance to spend more on defense, prompting German Chancellor Angela Merkel to declare that Europe can no longer rely on others and “really must take our fate into our own hands.”
Picking a needless fight with a key European partner has serious downsides. German intelligence is important in fighting terror. German support is vital in containing Russia, a key objective of the now-weakened NATO alliance. And European-wide backing for the United States could play a key role in the Middle East and the Korean peninsula.
While Trump does have a point that Germany underspends on defense and consistently maintains a trade surplus with the United States ($65 billion last year), his griping — followed by his wrong-headed decision to pull out of the Paris climate change accord — accomplishes little.
This is particularly true in the economic arena, where Germany is one of the few advanced nations that has maintained much of its manufacturing base. In fact, a strong case can be made that the United States should learn from Germany, not complain about it. Germany’s success has two key components:
A tax code that encourages savings and investment, in contrast to a United States code that encourages borrowing and consumption. Germany’s corporate income tax, for instance is just 15%, compared to the 35% in the United States. To make up for the lost revenue of a low corporate tax, Germany has a national consumption tax that runs as high as 19% on some consumer items. Trump has endorsed slashing the U.S. corporate tax rate but hasn’t come up with a credible way to pay for it.
A national commitment to manufacturing. This includes massive public support for job training and retraining, and penalties on companies for laying off workers. The German unemployment system is less generous to those who don’t have a job while giving more incentive for those willing and able to work. For example, unemployed workers who take a job that doesn’t pay very well can continue to receive part of their jobless benefits.
As the result of its access to capital and the many incentives it has to keep jobs at home, manufacturing makes up a quarter of the German economy. It is just 12% in the United States.
If Trump wants to keep his promises to Rust Belt voters who helped put him in office, he’d be better off studying Germany’s economic policies rather than lashing out at them.