The US-German Economic Relationship

April 7, 2020

This paper focuses on the economic ties between the U.S. and Germany. The goal is to underscore the importance of the relationship to both sides while considering the Trump administration’s objections.

The piece begins with an analysis of German–American trade, the central element of a lopsided bilateral economic relationship that earns the US a sizeable deficit. The paper proceeds to investigate the root causes of that imbalance, beginning with Trump administration claims of an undervalued euro and discrepancies in tariffs. This paper finds that neither offers a persuasive explanation for the German trade surplus with the US. Instead, the paper argues that German manufacturing competitiveness, and its ability to satisfy niche industrial and luxury markets, sustains heavy demand for German exports (not just in the US, but around the world), while high levels of German savings, combined with domestic underinvestment, curtails German demand for imports, including those from the US.

The essay then considers the importance of foreign direct investment, an area that benefits the US. It concludes by examining how global trends towards economic nationalism could reorient the relationship as both sides may become more inward-looking at the expense of external economic ties.