Trump Is Right About One Thing

by Louis A. Ferleger and Jonathan R. Zatlin

Louis A. Ferleger is Chair and Professor of History at Boston University. Jonathan R. Zatlin is Associate Professor of History at BU.

When Angela Merkel met President Trump in DC, she brought along CEO’s of major German firms, including Siemens and BMW. Why? Lost in all the hype and missing handshake was Merkel’s message to the US President that German companies have a stake in the US economy’s openness because they manufacture goods here. And, of course, Germans rightly understand protectionism as a threat to their livelihood, since they, as the third largest exporter of goods in the world, need open borders to sell their goods.

Commentators here and abroad have focused on Trump’s illiberal approach to the exchange of people and goods. In response to Trump’s protectionism and xenophobia, some in the US have lionized Merkel as the last hope of liberal approaches to political and economic problems. They savor the irony of a politician from Germany, which gave rise to that rightwing scourge of liberalism, Nazism, upholding the values that made the United States the most powerful nation on earth.

In fact, however, Merkel is hardly a liberal – at least by any American understanding of the term. While the word has come to mean “left of center” in the US, the fact is that most Democrats and Republicans in the US participate in a tradition of political liberalism that is perhaps best summed up by the British reformer Jeremy Bentham’s famous claim: “That government governs best which governs least.” In contrast, Merkel believes that the state has a significant role to play in the economy, like many conservatives on the European continent.

What is more important, however, is the way in which state power has been consistently used in German history, even after the western occupation formally ended in 1952, to protect the German economy. While Germans rely on free trade to sell their goods, the German government and businesses work together in ways that Americans would never call “free.”

Simply put, Germany’s wealth is built on free markets abroad but protectionism at home. The German government has actively lobbied for German industry abroad, even supporting specific business deals for German corporations. For example, the newly unified German state provided loans to eastern European states to rebuild their telecommunications networks after 1989, even though German equipment was far inferior in quality to Dutch and Japanese alternatives and customer care nonexistent compared to American vendors. More recently, it has supported German manufacturers in places like China with a variety of political and financial carrots.

Perhaps more important and less well understood, however, Germany itself is a closed and protected market. On the one hand, it is a senior partner in the European Union, which is a trading bloc aimed less at opening European markets than in consolidating them internally and protecting them against competition from outside actors. That’s particularly true for American corporations. Whether it is Google’s services, Boeing’s airplanes, Detroit’s automobiles, or the Midwest’s grain and poultry, European regulators have proven adept at erecting obstacles to American goods.

On the other hand, Germans do not import at levels anything like their European trading partners. In fact, there is a long history of austerity in German consumption patterns, which some scholars attribute to cultural traditions and others to institutional arrangements. Whatever the case, it is hard to know how to stimulate larger imports – short of asking the German state to act illiberally.

Nor is it easy for non-German corporations to invest directly in German companies. Purchasing large stakes in German companies is tough, and taking a controlling stake nearly impossible. German officials and bankers say that this has more to do with the structure of capital markets in Germany than protectionist behavior. Unlike the US, where companies initially finance their operations through the stock market, German corporations look to the bond market. As a result, few shares of German companies are publicly traded. Instead, large blocks of shares sit at big banks and other corporations, who are content to collect dividends. As with consumer patterns, it is hard to know how to change the preferences of German investors, whether private or institutional, without state intervention.

Thus, a Daimler can purchase a Chrysler or a Bayer a Monsanto, but the reverse is seldom true. Trump is misguided about many things. But he is right about one thing: German wealth is built on protectionism. Or rather, the prosperity of today’s Germany is founded on the willingness of its trading partners to open their borders to German goods, yet Germany’s own reluctance to permit open markets in their own country, either by using the state to protect domestic industry or through cultural traditions and institutional arrangements.