Wednesday, September 30, 2009

Devalunistas and Germany

It has become standard faire to blame the United States' trade deficit on low wages in the developing world, and Asian currency manipulation. The argument then goes - the U.S. must find ways to devalue its currency.

But even with a devalued currency, a nation needs something to sell. It means an industrial policy, and government support for industry. This does not happen on a consistent basis in the United States, except in a few sectors. The most obvious sector of American global export dominance, backed by government support, is in military hardware and weaponry.

Germany's success as an exporter is a fairly strong refutation of the devalunista strategy of reviving U.S manufacturing. It's not all about wages; it's also about skill and making quality products. Germany managed to be the world's top exporter (though soon to be replaced by China) despite a steadily strengthening Euro from 2002-2008. In many industries, it is Germany that has the high-end niche brands ; for instance, in the highly visible automotive industry, no American product has the reputation of a BMW or Mercedes Benz.

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1 "Berlin's warning: only exports can save Germany" - The Economist
2 "NYT Gets U.S. Imbalances Wrong" - Dean Baker
3 "On the G-20 Agenda" - Economist's View

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