1/8 Bloomberg: "All his decisions will be guided by whether or not...
Michael Pettis@michaelxpettis
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Feb 26, 2025
~2 min read
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1/8
Bloomberg: "All his decisions will be guided by whether or not they strengthen the competitiveness of German industry, Merz has said."
It seems that Merz wants to double down on the very policies that got Germany into trouble.
bloomberg.com/opinion/articl… via @opinion
Bloomberg: "All his decisions will be guided by whether or not they strengthen the competitiveness of German industry, Merz has said."
It seems that Merz wants to double down on the very policies that got Germany into trouble.
bloomberg.com/opinion/articl… via @opinion
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2/8
In fact Germany doesn't need an economic miracle. It needs to shift away from an export-oriented model that is based on weak domestic demand to make Germany competitive, and on large trade surpluses to externalize the cost of that weak domestic demand.
In fact Germany doesn't need an economic miracle. It needs to shift away from an export-oriented model that is based on weak domestic demand to make Germany competitive, and on large trade surpluses to externalize the cost of that weak domestic demand.
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3/8
The fact that the world is no longer willing to absorb large beggar-thy-neighbor trade surpluses is what has made the model obsolete, and China's aggressive doubling down on its own version of this model has forced Germany to take on the brunt of the adjustment.
The fact that the world is no longer willing to absorb large beggar-thy-neighbor trade surpluses is what has made the model obsolete, and China's aggressive doubling down on its own version of this model has forced Germany to take on the brunt of the adjustment.
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4/8
That is why I'd argue that rather than make its industry more "competitive" (which mainly means lowering wages relative to productivity), Germany would be better off in the long term by doing the opposite.
That is why I'd argue that rather than make its industry more "competitive" (which mainly means lowering wages relative to productivity), Germany would be better off in the long term by doing the opposite.
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5/8
It should raise wages domestically to boost its reliance on domestic demand, and it should mitigate the short-term cost to its global "competitiveness" by investing in improving its tattered transportation and logistic infrastructure.
It should raise wages domestically to boost its reliance on domestic demand, and it should mitigate the short-term cost to its global "competitiveness" by investing in improving its tattered transportation and logistic infrastructure.
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6/8
Of course that means income redistribution and more debt in the short term, but if the US begins to take serious steps to resolve its role in absorbing global savings imbalances (and so far, for all its huffing and puffing, it is making the imbalances worse), and if...
Of course that means income redistribution and more debt in the short term, but if the US begins to take serious steps to resolve its role in absorbing global savings imbalances (and so far, for all its huffing and puffing, it is making the imbalances worse), and if...
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7/8
the UK and Canada were to follow suit, as they must, it will be mathematically impossible for large economies like Germany to rely on trade surpluses to resolve weak domestic demand. The US, the UK and Canada account for roughly two-thirds of all global deficits.
the UK and Canada were to follow suit, as they must, it will be mathematically impossible for large economies like Germany to rely on trade surpluses to resolve weak domestic demand. The US, the UK and Canada account for roughly two-thirds of all global deficits.
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8/8
The global trading system is changing, in ways that may be as dramatic as in the 1930s and the 1970s. The temptation to go back to what used to work in the past may be a strong one, but it's not a sustainable one.
The global trading system is changing, in ways that may be as dramatic as in the 1930s and the 1970s. The temptation to go back to what used to work in the past may be a strong one, but it's not a sustainable one.