Learning From Germany

Nobody doubts the U.S. must get better at exporting. Although there is “generic” support for the concept in Congress and from the public, when it comes to specifics, the U.S. struggles. The Obama administration has offered nothing to support its goal of doubling exports in the next five years, and congressional action has made things worse.

The average American thinks the only nations benefiting from trade are those such as China that have advantages such as low wage structure, lax safety and environmental laws, and a government willing to manipulate currency, establish trade barriers and stack the deck in favor of its local companies.

Those subscribing to that view haven’t looked very closely at Germany, the export master of Europe despite having all the same disadvantages as the U.S.: high wages, generous benefits, high taxes and strict environmental and safety laws.

The German and U.S. economies have become more similar since the beginning of the recession. The biggest change is in consumer behavior. U.S. companies never had to seek foreign business because the domestic consumer was so eager to buy and spend. German companies, however, needed foreign business. Prior to the recession, the U.S. consumer accounted for 70 percent of the economy, but that number is slipping and could reach 60 percent by the end of the decade.

In Germany, the domestic consumer only accounts for about 57 percent of consumption and is notoriously cautious when it comes to buying. This has forced German companies to seek other markets, developed and developing alike.

Germany’s economy is about a quarter of the size of the U.S. economy, but it exports more manufactured goods and in more categories.

The U.S. should consider emulating Germany. Analysts are divided as to what makes the Germans effective at exports, but there are patterns, not unique to German culture, that win praise from most observers.

The first factor is strong support from the top. This may have begun in the U.S. with President Obama’s statements this year, but they must be reinforced.

A significant amount of time and energy must be spent engaging high-level leaders in trade missions. In the case of Germany, Chancellor Angela Merkel leads more than 20 trade missions a year focusing on opening markets to German companies.

The U.S. leaves too many trade missions to businesspeople who lack power to change government policies. With the chancellor engaged, Germany can force change on trade policy at the highest level. President Obama’s approach has been too distant when it comes to representing U.S. interests.

The second factor is lack of commitment to trade promotion within the government. The bulk of the U.S. economy depends on small and medium-sized businesses. These companies provide the most jobs and often are the anchors of their communities. They also are the most trade-challenged.

The rest of the world only has to figure out how to sell to the U.S. and Europe, but a U.S. company must grasp how to sell to more than 100 nations. The U.S. Commerce Department and various state agencies promoting exports do a yeoman’s job, but their budgets are paltry compared to what is spent in Germany, Japan or most other nations. Until the U.S. funds these agencies better, trade progress will be limited.

The third factor is America’s failure to back its strongest export sectors. The Germans work diligently to support the pillars of their export economy. They establish policies focusing on opening the world market to niche manufacturing companies that often dominate their unique sectors.

The U.S. economy is a powerful service-based system with huge export potential. The U.S. must better protect that industry with more attention to intellectual property support, innovation and more aggressive attempts to overcome barriers. This is also key to expanding manufacturing.

The barriers to U.S. activity in China are absurd and essentially block the vast majority of U.S. operations. However, the U.S. does little to pry open that system. The Germans have not been nearly so accommodating and know China needs what they have. If the Chinese want access to Germany, access must be granted in return.

One of the most important differences between the U.S. and Germany is the attitude toward trade. Germans unite behind the notion. The government, business community and workers all see their future in global business.

Lastly, Germans are much more focused and aggressive on trade, and they exploit their advantages. The U.S. hedges between protectionism and capitulation. Americans are angry at China over its export-centered policies and currency manipulation, but the reaction of business and the government is cautious and diffident.

The U.S. waffles and threatens, but backs down when China talks of trade restrictions.

The Germans consistently call China’s bluff and are doing it again over the currency issue. The Germans shot back and listed the hundreds of products — critical to China’s economy — they would stop sending to China if it imposed barriers against Germany. The reaction from Beijing was capitulation and a toning down of the rhetoric.

Chris Kuehl is economic analyst for the Fabricators & Manufacturers Association, International, and managing partner of Armada Corporate Intelligence. Contact him at 816-304-3017 or at chuehl@armadaco.com.
 

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