Joseph Stiglitz

Germany Must Lead International Opposition to Trump

  • Why it matters

    Why it matters

    Even though Europe is in a weakened state at the moment, Germany  must take the lead if the United States starts breaking the rules of the international economy, Joseph Stiglitz argues.

  • Facts

    Facts

    • Incoming U.S. President Donald Trump has made it clear he is opposed to a number of international free-trade agreements and will take a protectionist stance on economic issues.
    • Economist and former World Bank chief Joseph Stiglitz argues there is little empirical evidence behind many of Mr. Trump’s ideas.
    • Mr. Stiglitz suggests holding the U.S. accountable with the World Trade Organization.
  • Audio

    Audio

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Joseph E. Stiglitz
Economist Joseph E. Stiglitz believes Germany must take leadership, if the U.S. breaks the rules of the international economy. Source: DPA

While campaigning for the presidency, Donald Trump’s anti free-trade and protectionist message was always unlikely to go down well in Germany, which is one the most export-dependent economies in the world.

Now, as Mr. Trump makes his final preparations to take control of the White House, the renowned American economist Joseph Stiglitz warns that Mr. Trump is likely to have Germany in his sights and that the country will have to defend itself and its values vigorously, if it wants its economic model to survive.

There is little empirical evidence behind most of Mr. Trump’s economic claims, Mr. Stiglitz told Handelsblatt’s sister publication, WirtschaftsWoche, in an interview published this week.

For example, Mr. Trump’s attitude toward trade agreements is questionable. He has argued that the U.S. has lost the most from trade agreements. But the new U.S. president should ask the Mexicans how they feel about agricultural exports from over the border, Mr. Stiglitz argued.

“He might give the impression that he is an ideological purist but Mr. Trump is a dealmaker above all. In the end pragmatism is likely to win over ideology. ”

Joseph Stiglitz, Economist

As one report from Fordham University in the U.S. noted: “Perhaps the most detrimental effect NAFTA has had on Mexican workers is its impact on the agriculture industry. A flood of U.S. subsidized crops, such as corn, had devastating effects on family farmers in Mexico, who found that they could no longer support themselves selling crops at their former prices.”

Additionally, the Noble-prize winning economist said that although Mr. Trump has said the North American Free Trade Agreement, or NAFTA, is the worst deal ever, one could also ask which country has benefited the most from it: Mexico or the U.S.?

Prior to entering into NAFTA, Mexican customs duties were in the low, single digits, on average. What Mr. Trump claims is simply wrong, Mr. Stiglitz said.

Considering the fallacy behind many of Mr. Trump’s economic arguments, “you might think, there is little to fear,” he added. “But the problem is that he genuinely believes what he says.”

Mr. Stiglitz thinks that the important thing with Mr. Trump is to pay less attention to the substance of what he says and more to the manner in which he says it. While his rhetoric during the presidential election campaign might give the impression that he is an ideological purist, Mr. Trump is above all a dealmaker who sizes up his opponents before cutting a deal.

In the end, Mr. Stiglitz believes pragmatism is likely to win over ideology because free trade is not a one-way street, but a series of transactions in both directions.

“What bothers me a lot more is the way he wants to push his policy forward,” Mr. Stiglitz said. “We, the nations of the West, have spent 60 years building an international order which may not be perfect in all respects but which has brought stability and predictability.”

The concern now is that Mr. Trump could destroy what has been achieved in the past 60 years. Whether he is able to do this will come down to the reaction of the U.S. Republican party, Mr. Stiglitz said. Will they reject long-held party values and behave as opportunistic politicians, accepting Mr. Trump’s meddling because voters support him?

Everything depends on what the Republicans, many of whom have a well-known dislike for Mr. Trump, are going to do, Mr. Stiglitz noted.

However, should the Republicans decide to support their new President, other Western nations will have to react, especially Germany. And there are a number of ways this could happen, Mr. Stiglitz said.

One option might involve isolating the U.S. when it comes to international affairs. Another course of action would be to lodge a complaint with the arbitration court of the World Trade Organization, something Mr. Stiglitz believes Germany should do as soon as Mr. Trump plans anything that is not in line with the organization’s rules.

Germany must show a clear resolve and deal with any infringements by the U.S. firmly, pointing out that Germany believes in free trade, international contracts and the existing international order.

“Who else, if not the Germans?” Mr. Stiglitz asked.

Germany is bound to do this, particularly because the country knows from experience what happens when a country cuts itself off from international agreements. It was this situation that helped to start the first and second World Wars.

Having said that, Mr. Stiglitz admitted that Germany and Europe were not in “best shape” to take on Mr. Trump. The refugee crisis, the euro crisis and the rise of right-wing populism have all weakened Europe over the past few years but, the economist added, Mr. Trump should not be allowed to take advantage of that.

Mr. Stiglitz also believes that European countries are strong enough to put up a fight, warning that if they do not, international law, as we know it, is dead.

“The only purpose of international law is to be able to hold great powers accountable,” Mr. Stiglitz said.

It shouldn’t be surprising that countries that have a trade deficit with Germany might see political opposition mounting against the Germans inside that country. Trade surpluses of export-oriented countries such as China and Germany grown so high that they have become unbalanced and unsustainable, according to Mr. Stiglitz, and opposition could come from anywhere, whether the U.S. or southern Europe.

So far, southern European countries have not been strong enough collectively to force Germany to pursue an economic strategy that would benefit the entire euro area. But Mr. Trump might now do what many in the region would like to see happen.

That poses a danger. If Mr. Trump is successful, it is not the mainstream political parties of southern Europe that will benefit, but the right-wing populist movements that are trying to emulate Mr. Trump, Mr. Stiglitz warned.

Indeed, if Mr. Trump enjoys some success – even if only symbolically  – in his early days in office, it could encourage his kind of policy-making to “spread like a plague” to the other industrialized countries of the West, the economist added.

Mr. Trump’s message is likely to be popular among those suffering from any aspect of capitalism that has failed – for instance, growing inequality in all Western countries, the devastating impact of the euro currency union on many European states or the lack of political will to tackle rising unemployment as a result of digitization and automation.

In the long term, like many other economists and analysts, Mr. Stiglitz does not believe Mr. Trump will provide solutions to these problems. But that will not stop him from trying to gain a short-term advantage from them.

The only thing that can tackle that is decisive international opposition and that, Mr. Stiglitz concluded, is an area where Germany needs to play a leading role.

This article first appeared in WirtschaftsWoche. To contact the author: sven.prange@wiwo.de

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