The German Finance Minister, Peer Steinbrück, recently had an interview with the BBC during which he said that Germany “must decrease its dependence on foreign trade”.
He goes on to say: “We have to strengthen our internal, our domestic demand in Germany… to reduce this dependency on foreign trade,”
Of course, Germany is the top exporter of the world, with $ 1.530 Trillion in exports last year. This is more than China or the US. If Germany were to reduce its dependence on foreign trade, its exports and its imports would have to be reduced. There is no way for the German consumer to pick up that much slack in exports, which means Germany would have to produce fewer goods, and therefore many German workers would have to be fired. Foreign companies would not be particularly eager to open new factories in Germany (they already are losing eagerness over Germany’s union participation laws and increasing costs) because of the limited market for its products there (if it can only sell to Germans). This would raise unemployment, decrease revenues, increase debt, and send Germany tumbling into a recession far worse than what it might be experiencing now.
Of course, we believe Mr. Steinbrück knows this, so why would he make a statement like that, to the BBC no less? Well, let us look at what he said. He said “We have to strengthen our internal, our domestic demand in Germany…”. This can be achieved in many ways. An easy one is a tax rebate, similar to what Americans received last year, although it can be as simple as a marketing campaign as well. What would this accomplish? There would be a minor spike in domestic demand, which would reduce Germany’s export levels as a proportion of demand temporarily, thereby “reducing dependence on foreign trade”.
Notice how this would not involve decreasing exports, nor would it involve creating barriers to entry, both of which would be against EU and WTO regulations and could start costly trade wars. All he said was that the government is trying to find new ways of countering the 6% drop in exports due to the worldwide recession. Of course, saying Germany is “reducing its dependence on foreign trade” has the added benefit of appealing to a growing number of consumers, which is another problem. Unfortunately it looks like this problem will not be dealt with, at least until exports start picking up.
Intersting article. The question of what he means by “decrease dependence on foreign trade,” goes a bit deeper when we consider the differences in language. What does he mean by decrease. or dependence, or foriegn. A fascinating article in Edge (http://www.edge.org/3rd_culture/boroditsky09/boroditsky09_index.html)talks about recent research in how language shapes our world views. Since Ocean is one of my favorite linguists, I wonder how he sees this functioning, if at all, in the field of Economics? (Instead of the market going up and down, it could be going back and forth, in and out or east and west!)
Just musing. Thanks for the good work— BJG
One means of increasing domestic consumption – lowering interest rates and reducing savings – is closed to the German government, since the European Central Bank manages the money supply and rates. Using fiscal policy, as you suggest, can have an inflationary effect, working against the ECB’s monetary policy. But the Germans would rather see slower economic growth than run a risk of higher inflation.
“Dependence on foreign trade” actually means “dependence on the trade surplus.” This surplus could also be reduced by increasing imports. This would have a negative impact on German production, and in any case is also foreclosed to the German government by having ceded control of exchange rate management to the ECB.
Any way you look at it, Germany needs increase exports if they are to stimulate their economy.
Hi Uncle Bear,
Yes, actually the risk is pronounced (although probably more so in public diplomacy and affairs than numbers-based economics) that public statements are misunderstood. Also, different people will view events and happenings in different ways, most famously in the way the Chinese use the same word for crisis and opportunity (which isn’t 100% true, but anyway).
Unfortunately it’s also extremely difficult to separate language from other country factors – Do Polish people have a different view of free trade because it has different associations in the polish language or because of their past experience with communism, or due to their government policies, or something else?
Of course, this is a fascinating subject to itself, which has given English speakers words like Schadenfreude and other speakers plenty of English words. These, in turn, will also change peoples’ mentality as time goes by (look at how different a South Korean and North Korean can be, albeit technically speaking the same language).
I shall leave this study to others, however, and just enjoy reading their findings.