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To fuel U.S. exports, use Germany as model

 

Most Americans oppose free trade and are convinced that isolating the economy behind massive walls of protectionism makes sense. The average citizen thinks that the only nations that benefit from trade are those like China, which has advantages such as a 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.

People making this assumption have not looked very closely at a nation that is far more like the United States than any of the developing nations: Germany. The Germans are now the export masters of Europe and keep that position despite having all the same disadvantages as the United States. They have high wages, a generous system of benefits, high taxes and strict environmental and safety laws. In most respects, the Germans have more inhibitions than we do when it comes to competing on the global stage.

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 really had the need to seek out foreign business because domestic consumers were eager to purchase what was offered. German companies, however, did need foreign business. Prior to the recession, the U.S. consumer accounted for 70 percent of the action in the economy, but that number is slipping. It may drop to 65 percent or even 60 percent by the end of the decade.

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

The German economy is roughly a quarter of the size of the U.S. economy, but it exports more in the way of manufactured goods and in more categories. The demand for high-value German machine tools and technology is well known, yet the Germans export consumer goods as well. It is not generally appreciated in this country that Germany produces inexpensive goods that sell well in markets such as China, India, Brazil and elsewhere.

We 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. Other nations can replicate these patterns, but it takes commitment from both political leaders and the general population.

The first factor is strong support from the top. A significant amount of time and energy must be spent engaging high-level leaders in trade missions. German Chancellor Angela Merkel leads as many as two dozen trade missions a year focused on opening markets to German companies. The U.S. leaves too many trade missions to collections of businesspeople who lack power to change government policies.

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

The rest of the world only has to figure out how to sell to the United States and Europe, but a U.S. company needs to grasp how to sell to more than 100 nations. The U.S. Department of Commerce and the 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.

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 that focus on opening up the world market to the niche manufacturing companies that often dominate their unique sectors.

The U.S. economy is a powerful service-based system, and the export potential is huge. We 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 very little to pry open that system. The Germans have not been nearly so accommodating and know that 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 United States and Germany is the attitude that exists toward trade. The Germans unite behind the notion of export and import. The government, business community and workers all see their future in global business, and they work for a common purpose more often than not.

The U.S. attitude is deeply divided, as evidenced by the polls showing that fully 70 percent of Americans think trade has been bad for the U.S. economy. The Germans know their future lies in the world market and cooperate in reaching their common goals. The U.S., on the other hand, rips itself apart over the issue and leaves everybody poorer in the process.

Chris Kuehl is economic analyst for the Fabricators & Manufacturers Association International in Illinois and managing partner of Armada Corporate Intelligence.

12/10/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

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