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Germany

Trump v German Auto Industry, Bad Lessons In Basic Economics

A BMW plant in Spartanburg, U.S.A.
A BMW plant in Spartanburg, U.S.A.
Chris Bryant

-Analysis-

BERLIN — 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 $65 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).

Nowadays, cars are often made where they're sold.

Despite investments in local production German automakers still import quite a lot of cars. 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.

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Geopolitics

How Ukraine Keeps Getting The West To Flip On Arms Supplies

The open debate on weapon deliveries to Ukraine is highly unusual, but Kyiv has figured out how to use the public moral suasion — and patience — to repeatedly shift the question in its favor. But will it work now for fighter jets?

Photo of a sunset over the USS Nimitz with a man guiding fighter jets ready for takeoff

U.S fighter jets ready for takeoff on the USS Nimitz

Pierre Haski

-Analysis-

PARIS — In what other war have arms deliveries been negotiated so openly in the public sphere?

On Monday, a journalist asked Joe Biden if he plans on supplying F-16 fighter jets to Ukraine. He answered “No”. A few hours later, the same question was asked to Emmanuel Macron, about French fighter jets. Macron did not rule it out.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

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Visiting Paris on Tuesday, Ukrainian Defense Minister Oleksïï Reznikov recalled that a year ago, the United States had refused him ground-air Stinger missiles deliveries. Eleven months later, Washington is delivering heavy tanks, in addition to everything else. The 'no' of yesterday is the green light of tomorrow: this is the lesson that the very pragmatic minister seemed to learn.

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