The new protectionists: Lew's shrill criticism of Germany suggests the U.S. Treasury has been thoroughly politicized.

Author:Krauss, Melvyn

The U.S. Treasury Department's recent accusation that Germany's export surplus is beggaring euro area partners such as Greece and France is as wrong in terms of economics as it is terrible politics.

Germany makes high-quality products at competitive prices. That's why it has a current account surplus that is forecast to reach 7 percent of GDP this year, a position that the United States and other developed nations can only envy. This success is not due to some neomercantilist policy of using export subsidies and unfair trade interventions, so in what way can it be described as unfair?

If the United States, or France, or Italy could pull off such an export success story, they would. So they should: Just because a country has an export surplus doesn't mean it is stealing from its neighbors.

Underlying the arguments of Germany's critics is the assumption that Europe's periphery countries gain nothing from the German surplus. Of course they do. When auto workers in Sindelfingen and Wolfsburg take vacations in Mykonos and Tuscany, the money they spend in effect contributes to Greek and Italian exports. Tourism accounts for more than 16 percent of Greece's GDP, and the biggest number of visitors come from--Germany.

Southern workers are also coming to Germany in record numbers to work in export industries, and commonly they remit a large part of their compensation home. This represents an import of labor services by Germany that aids the periphery. And don't forget that earnings from the manufacture of goods for export are often spent on imports, some of which are from the periphery.

The Treasury report's most startling charge is that the German export surplus is responsible for "a deflationary bias for the euro area as well as for the world economy." This is a bizarre way for the United States to treat an ally. First, the National Security Agency bugs Chancellor Angela Merkel's mobile phone, then the administration accuses Germany of causing global deflation. High-handed behavior of this kind weakens U.S. influence and leadership.

Treasury argues that by exporting too much, Germans must be spending too little, acting as a black hole that sucks in demand from countries that in many cases are already suffering a catastrophic demand shortage. The assumption behind this thesis is that only domestic demand can stimulate the periphery, but that is clearly mistaken.

As Germany's export sector grows, so does the economy and its demand for goods and...

To continue reading