:format(webp)/cdn.vox-cdn.com/uploads/chorus_image/image/54970459/GettyImages_688656552.0.jpg)
During a meeting with European Union leaders in Brussels on Thursday, President Trump delivered what’s quickly becoming his classic diplomatic maneuver: harsh criticism of an ally that doesn’t make sense.
“The Germans are bad, very bad," he said during the meeting, according to a Der Spiegel report. "See the millions of cars they are selling to the U.S. Terrible. We will stop this.”
There’s a lot to unpack here.
First, it’s worth noting that the language Trump reportedly used in the meeting is yet another example of his total lack of nuance or finesse. Trump likes to cast the world in black and white and use superlative language. Things are “terrific,” or they are “terrible.”
Trump speaks this way on domestic issues as well, but in international affairs his vulgarity as a speaker is amplified. Diplomacy requires gentle touches and subtle signaling that simultaneously maintains stable relationships while having the power to pressure or persuade. Slamming the Germans, a vital US ally, as “very bad” and saying you need to “stop” them from selling cars to the US is, well, the opposite of that.
But even more importantly, the substance of Trump’s comment misses the mark entirely. One big reason for that is, as Daniel Gross notes at Slate, Germany already builds plenty of cars in the US. BMW’s single largest facility in the world is a plant in Spartanburg, South Carolina. In fact, BMW exports some cars from the US, which helps bring down the US’s trade deficit with the world. Meanwhile, Daimler has multiple manufacturing and research locations in the US. Volkswagen has a plant in Tennessee. Mercedes-Benz “produces roughly as many cars in the U.S. as it sells here,” according to Gross.
So if Trump wanted to do something like put a tariff on German cars — which would mean getting into a negotiation with the EU, the trading bloc that Germany is a part of — that wouldn’t have an effect on any of the German cars that are made here. If Trump attempted to shut down BMW factories in the US, he’d be putting a lot of Americans out of work — undermining the very point of his protectionist rhetoric.
There’s also a bigger issue here, which is that Trump has an intuitive distrust of trade deficits. He thinks that when the US is importing more from a country than it’s exporting to it, it’s evidence of some kind of foul play or, at the very least, an indication that relatively free trade with that country is a bad deal for the US. The US has a roughly $65 billion goods trade deficit with Germany, and Trump thinks this needs to change.
Moderate trade deficits are not inherently bad for the economy, and countries on both sides of a trade imbalance still benefit in some way from trade. But if you want trade to be more balanced, then “targeting a trade deficit with trade policy isn’t really the right tool,” explains Caroline Freund, a senior fellow at the Peterson Institute for International Economics. The reason? Trade deficits are primarily a function of an economy’s macroeconomic policies, which affect how much it saves versus how much it invests, and movements in its currency's exchange rate. Using trade policy measures like tariffs to clamp down on deficits can end up being a game of whack-a-mole.
“Say we put some punitive tariff on German cars, and we closed the deficit with Germany. Savings and investment in the US are unlikely to change markedly because of the tariff, so the overall deficit will shift somewhere else,” Freund says. “The money originally spent on German cars might be spent on more Korean cars.”
Freund argues that the Trump administration would be better served by pointing out in more nuanced terms what Germany could be doing to make its huge trade surplus with the world a bit more balanced. If Berlin were willing, for example, to increase demand in its economy by doing something like cutting taxes, more Germans would have money in their pockets, prices in the country would go up, and that would make global demand for German goods decline. Germany would be exporting less, and importing more, and would thereby help stimulate the global economy.
Pressuring Germany to pursue that course of action would require Trump to have a more rigorous understanding of the complexities of trade. If he ever managed that, that would be good, very good, for the US.
