Is Germany a mercantilist state? The dispute over trade between Berlin and Washington under Merkel and Trump Pierre Baudry
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Pierre Baudry. Is Germany a mercantilist state? The dispute over trade between Berlin and Wash- ington under Merkel and Trump. international studies association, Apr 2019, Toronto, Canada. hal- 02105531v1
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Pierre Baudry 2019 ©
Ecole Pratique des Hautes Etudes/CNRS, PSL, France
Email: [email protected]
Pierre Baudry teaches at the University of Tours (France). He is finishing his Ph.D. at the Ecole Pratique des Hautes Etudes/CNRS, PSL. His Ph.D. is about the European policy of the Christian-democratic parties, CDU/CSU, under Angela Merkel from 1998 to 2016. He focuses Berlin’s policy during the euro and the migrant crisis and the tensions between the USA and Germany since Trump’s election. He has published articles and books reviews in ournal of Common Market Studies, Revue française de science politique, Revue d’Allemagne et des pays de langue allemande.
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 1 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
Is Germany a mercantilist state? The dispute over trade between Berlin and Washington under Merkel and Trump
Abstract: Mercantilism is certainly one of the oldest concepts of political economy. However, its use to describe pre-liberal and pre-industrial Western capitalism has been highly disputed due to the apparent vagueness of its definition. This paper tackles this issue by developing a historical vision of mercantilism, which rests on a heuristic ideal-type. My goal is to developed mercantilism as a complementary concept to Kindelberger’s of Hegemonic Stability Theory. The pro-free-trade ‘benevolent hegemon’ goes hand in hand with mercantilist states, which need high level of good export and capital import. The question is then to understand two forms of mercantilism: I call the first one ‘early capitalism’, which is typical for developing countries, while ‘late mercantilism’ is to be found among ageing and developed countries, which maintain a mercantilist policy. Empirically, I focus on Germany’s economy since 1945 to illustrate and test this conceptual distinction. I intend to show that West Germany has been an ‘early mercantilist’ power and benefited from the much-needed help by the USA after WWII, while it appears more and more as ‘late mercantilist’ power since the 2000s. This empirical case shall help illustrate my general framework and shed light on the structural reasons for the disputes over trade between Berlin and Washington under Donald Trump.
Keywords: Mercantilism; free trade; Germany; USA; Trump; Merkel; Kindelberger; Hegemonic stability theory; capitalism
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 2 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
Introduction
“We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change”, Donald Trump on Tweeter, 30th May 2017.
Since Obama’s and even more since Trump’s election, the USA is worried about the trade surplus that Germany and China generate. It is certainly not the first time in its history that the American hegemon considers with anxiety the rise of economic competitors and accuse them of undervaluing their currency, subsiding their national champion and using bribing as a method to win large tenders. The 1960s and 1970s were in that respect particularly important because they marked the peak of the recovery cycle by the West European economies, which increasingly competitors their American ally. Moreover due do the costs related to the Vietnam War and the necessity to finance war spending through money creation, the US gold reserves were decreasing in the early 1970s and a decade later Japan, an unexpected new challenger for the American economy, was able to destabilize Washington’s confidence in its economic potential and affirmed itself as a powerful industrial actor. All these factors combined led to intense negotiations between the USA and their partners, which after several rounds of international bargaining were compel to accept new the lowered exchange rate for the US dollar.1
However, in recent years, Washington increasingly showed its concerns over the rising of China as an international power and peer competitor, while it reproached to Berlin not to fulfill its duties as the economic leader power in Europe during the
1 Julian Germann, Pivotal Crisis: State Power and Social Forces in the Making of Neoliberal Capitalism, A dissertation submitted to the Faculty of Graduate Studies, 2013. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 3 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. eurocrisis and the global economic turmoil since 2007/2008.2 The economist Peter Navarro, who had defended unorthodox views on and protectionism, joined Donald Trump’s administration. He supervised a report on Beijing infringement against the rule of world trade3 and explicitly ‘accuses’ China of cheating against the American companies with illegal methods after the new Republican president repeatedly accused Germany not to contribute enough to NATO’s budget and to use the euro as an undervalued currency.
In this context, the concept of mercantilism regained popularity among scholars and political leaders alike.4 However, in spite of the inflationary use of this notion, economists and political scientists are still looking for a precise definition of mercantilism, which would be heuristically usable and meaningful in the context of global economy. My contribution in solving this puzzle consists in three points. First, I aim to overcome the traditional opposition between free trade on the one hand and protectionism on the other hand. Free-trade and protectionist do not represent two different stages in the history of the development of capitalism as Adam Smith5 famously argues, but constitute two closely related tenets of modern economy. I argue that a modern conception of mercantilism shows the close interaction between both aspects of world economy by explaining how liberal nations with relatively low trade barriers represent the necessary counterpart of export-orientated countries, which use protectionist or mercantilist policies. Second, I aim to offer an historical account of mercantilism, which is both connected to older definition of this concept coming from Friedrich List and Heckscher, but that defines its meaning in a new context, in which former developing countries are increasing able to compete with the Western economies. I thus introduce a longue durée perspective on world’s economies by connecting the former Western
2 Mark Blyth & Matthias Matthijs (2017) Black Swans, Lame Ducks, and the mystery of IPE's missing macroeconomy, Review of International Political Economy, 24:2, 203-231. 3 Peter Navarro. 4 Rodrik 5 Adam Smith “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 4 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. domination of the globe since the colonial period and the increasing power reversal at the advantage of the Global South countries. Third, my contention is to show that mercantilism is not necessarily related to unfair economic policies implemented by states that try to fool their competitors through more or less discretionary and opaque industrial policies. Mercantilism belongs to a more comprehensive framework of global imbalances, which are related to saving, portfolio decision and investment as Blanchard underlines.6 If one really wants to overcome the traditional vision opposition between the ‘mercantile system’ and liberalism, one must then assume that mercantilist is a multilayered phenomenon grounding on complex macroeconomic, ideological and demographic reasons.
To put in a nutshell the central contention of this article, I argue that one should rethink the concept of mercantilism to give him a scientifically satisfying definition based on a renewed conception of realism I propose to call post-liberal realism. Moreover, I consider that the tensions between Washington and Berlin over the US trade imbalance is one the best examples to scrutinize this question. In this article, I will then focus on Germany’s economic policy and its dispute over trade with the USA under Donald Trump.
To clarify the issues at stake, I defend in this article both a theoretical and an empirical thesis. First, my theoretical claim is that both IR theories and economics have ignored each other and are unable to integrate critical insights, methods and results from the other discipline from an interdisciplinary perspective. Such an interdisciplinary dialogue alone makes it possible to understand the new form of political and economic power that Trump’s rhetoric over protectionism and the critics against German export surpluses highlight. Almost taboo concepts such as ‘capitalism’7, ‘inequality’, ‘the richest
6 Olivier Blanchard and Gian Maria Milesi-Ferretti, Global Imbalances: In Midstream? 7 Piketty, Thomas, Le capital au XXIe siècle, Paris : Éditions du Seuil, [2013]. English translation : Piketty, Thomas, Capital au XXIe siècle. English Capital in the twenty-first “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 5 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
1%’8 or the endogenous ‘instability’9 of market economy gained unexpected traction due to the evident economic meltdown all over the world. However, we are surprised to observe that IR are still lacking not only a macro-economic framework10, but a genuine dialog with economic science at all. To try to develop such an interdisciplinary exchange between IR and economics in a heuristic manner, I offer a synthesis between recent developments on IR and especially on hegemony-centered theories on the one hand and mercantilism of economics on the other hand.
My second claim, which is empirical, is related to the analysis of the normative and economic power of Germany since the end of Cold War. Germany’s power is typical for what I propose to call post-liberal realism. By post-liberal realism, I mean a specific power distribution that allows states and nations to pursue selfish goals through multilateral structures and regimes. In that context, states follow a non-cooperative strategy in a liberal context and try to use to their own advantage supranational infrastructure such as international trade agreement, NATO and monetary agreements. This means in the case of contemporary German that it increasingly follows a typical realist strategy since the reunification of both Germany. In a situation of collective competition and potential threat, Berlin follows its own economic and political interest through – and not in spite of – the international and supranational regimes and institutions created by the US liberal policy since 1945.
To sustain this double hypothesis – that a dialogue between economics and IR is necessary more than ever and furthermore that only such a dialogue makes it possible to understand new forms of mercantilism – I will in section 1 of this article focus on the
century ; translated by Arthur Goldhammer. Cambridge Massachusetts : The Belknap Press of Harvard University Press, 2014. viii, 685 pages. 8 Joseph E. Stiglitz, The price of inequality, New York : W. W. Norton & Company, 2013. lxiv, 523 pages. 9 Minsky, Hyman P. Stabilizing an unstable economy. New Haven : Yale University Press, 1986, xiv, 353 p. 10 Mark Blyth & Matthias Matthijs (2017) Black Swans, Lame Ducks, and the mystery of IPE's missing macroeconomy, Review of International Political Economy, 24:2, 203-231. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 6 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. lessons from Keynesian and heterodox economics to understand to what extent the Western middle class is threatened by globalization and increasing inequalities. In section 2, I illustrate this new form of internal threat for the Western countries through the example of the German economy since 2000. I aim to show that Berlin’s economic policy actually represents a new form of mercantilism threatening both the other European countries and the USA and the potential limits of its mercantilist strategy. In the final section 3, I confront my central hypothesis about Germany’s mercantilism with two possible objections: to what extent is this policy mercantilist intentional? And to what extent does is really benefit to Berlin in the long run? Regarding the sources, regular reference is then made to theoretical analysis from economic theories and from my original conceptualization on mercantilism throughout Section 1. In Section 2, I draw on historical evidence drawn from economic database, secondary grey and historical literature on Germany’s economy.
Section I: Question of method: plea for a dialogue between economics and IPE
I.1. The contribution of Keynesian and unorthodox economics to IPE
A dialogue between economics and IR is necessary as both disciplines underwent severe evolutions on the impact of the end of the Cold war, 9/11 and the financial crisis of 2007. Internal crisis of the liberal hegemonic project11 and the turmoil inside the international since the war on Iraq represent a few examples of the tremendous debates underpinning IR for almost thirty years. Regarding economics, this discipline experienced dramatic changes since the financial and economic crisis in 2007 often compared to the 1929 world depression.12 To some extent, one could argue that the international order based on neo-liberal policy recommendations, the US military superiority and the very concept of
11 Ikenberry, G. John. After victory : institutions, strategic restraint, and the rebuilding of order after major wars / G. John Ikenberry. Princeton : Princeton University Press, 2001. xiii, 293 p. 12 Eichengreen, Barry J. Hall of mirrors : the Great Depression, the great recession, and the uses-and misuses-of history. New York, NY : Oxford University Press, [2015], vi, 512 pages. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 7 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
‘liberal hegemony’ experiences a moment of severe internal crisis. The optimistic views about self-regulation of capitalism and the diffusion of liberal values under the American leadership belong to time, which seems to be remotely distant. A fresh regard on free- trade and the concept of globalization is needed in this new post-crisis context. In that perspective, Keynesian and heterodox economics ideas can help escape, what Kathleen R. McNamara calls the monoculture of International political economy (IPE).13 Since the groundbreaking works by Keohane and Nye on complex interdependence14 and the following stream of research called Open economy politics (OPE), most researchers were implicitly following liberal and free trade patterns to analyze the interplay between global governance and world markets. To avoid this limitation, my goal in the first part of this paper is to explain the theoretical gains we can earn to integrate Keynesians and heterodox theories into IPE. I intend to show what these economic paradigms teach us about the internal crisis of capitalism and how the Western middle class, which used to win from economic and technological progress, is threatened by globalization.
Since the 2007 debt crisis, critics of neo-liberal policy gained legitimacy in the public debate they did not possess due to the apparent triumph of capitalism over the soviet economic in 1991. One can indeed notice the worldwide contestation of capitalism and neo-liberalism both on a theoretical level and on a political level. To focus only on the scientific resurgence of Keynesianism and unorthodox economics, Joseph Stiglitz, Paul Krugman15 or James Galbraith16, Hyman Minsky17 in the USA, Thomas Piketty,
13 Kathleen R. McNamara (2009) Of intellectual monocultures and the study of IPE, Review of International Political Economy, 16:1, 72-84 14 Keohane and Nye 15 Krugman, Paul R. The return of depression economics and the crisis of 2008. New York : W.W. Norton, 2009, 191 p. 16 James Galbraith, The Predator State: how conservatives abandoned the free market and why liberals should too. 17 Minsky Stabilizing an Unstable Economy. McGraw-Hill Professional, New York. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 8 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
Michel Aglietta18, Pierre-Noël Giraud19 in France or Wolfgang Streeck20 in Germany all contributed to question the very principles of neo-liberalism.
Broadly speaking, the liberal credo both in its classical and neo-liberal conception rested indeed on three central assumptions: first, global progress is open to everyone, who accepts to play the rules of the game based on competition and capitalism. Free market is the most favorable way toward development for the individuals and societies alike. Inequalities are a regrettable element, but inescapable moment of global economic development. The second central tenet of liberalism is about collective progress for Western countries, which should be the first to beneficiate from open trade and economic exchanges. This belief appears increasingly as an illusion, as I intend to show by drawing on works by Angus Deaton. Eventually, the liberal narrative is about progress through free trade, entrepreneurial spirit and individual efforts toward economic success during the modern age as a whole. Western countries, according to this narrative, were able to develop dramatically since the beginning of modern time thanks to liberalism. But unorthodox economic thinkers such as Ha-Joon Chang put in question this collective story. We will analyze each of these beliefs and show their limits.
Regarding inequalities, the French economist Thomas Piketty in his bestseller, Capital in the 21th century, assumes that the growth of capital is superior to the growth of economy as a whole. Capital – understood in a very broad manner by Piketty as production capital, income on financial placement, real estate capital – brings more than any form of economic activity, which leads to the equation r > g (r stands for revenue from capital and g for growth). This book provoked heated debates, but it brings important comparative and historical insights with the explicit intention to allow a broader dialogue between historical, economic and social sciences. Furthermore, it tend
18 Aglietta, Michel. Régulation et crises du capitalisme. English A theory of capitalist regulation : the US experience ; translated [from the French] by David Fernbach. London : NLB, 1979, 390 p. 19 Pierre-Noël Giraud, L'Inégalité du monde. Économie du monde contemporain, Gallimard, coll. « Folio essais », 1996. 20 Wolfgang Streeck, Re-Forming Capitalism, Institutional Change in the German Political Economy “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington 9 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. to show that rising inequalities are plaguing modern capitalism and democracy. Heritage plays a central role according to Piketty in spite of the conventional liberal narrative on progress through personal commitment, strong work ethics and openness to industrial innovation. Joseph Stiglitz, who won the ‘Nobel prize’ for economics highlighted too ‘the price of inequality’21 and the cost of ‘greed’ from the financial system, while another Nobel prize winner, Paul Krugman dared to challenge the conventional austerity and neoliberal policy.
Moreover, thanks to economists such as Angus Deaton, we can make a second step toward a fine-tuned understanding of why globalization is now a threat for the Western middle class especially in the USA. Deaton and Anne Case helps us understand not only inequalities, but stresses the impact of globalization on health, suicide rate or personal development, while heterodox views on free trade earned more visibility on the public stage.22 They help us understand the new forms of alienation that now plague the white middle class. According to him, the non-hispanic white class is now the social class, which suffer the most in the American of morbidity and suicide.23 By morbidity, Deaton and Case mean the situation of death by suicide, opioids and alcohol-related mortality correlated to deteriorating working condition:
« The cohorts born between 1940 and 1988 show a decline in real wages that has become more pronounced with each successive birth cohort. This temporal decline matches the decline in attachment to the labor force. Here we also emphasize the cascading effects on marriage, health, and morbidity—and, ultimately, on deaths of despair. »
The former blue-collar, which beneficiated from post-War Welfare state, generous public policies and redistribution on both shores of the Atlantic are now more threatened by morbidity than Black and Hispanic people in the USA. This leads us to question the
21 The Price of Inequality: How Today's Divided Society Endangers Our Future : price of inequality. 22 Ha-Joon Chang, op. cit. 23 Deaton and Case, Mortality and Morbidity in the 21st Century. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington10 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. very principle of open markets and neo-liberalism in a historical perspective to approach a fundamental problem: to what extent should we consider that the USA, who initiated globalization since 1991 are now victims of the globalization of economy? And what is the role of Germany in the global trade imbalances?
In spite of the importance of the economic reviewed above, conventional Keynesian theories do not go far enough to understand long-term evolutions of capitalism. We need to rely on heterodox theories to conceptualize profound historical tendencies of world economics. I aim at developing a historical approach toward capitalism history that traditional concept such as ‘cycle’ fail at grasping in an adequate manner. Economic theories – especially in Germany – used in the 19th century to focus on long-term evolutions of capitalism. One the leading thinkers of ‘national economy’ (Nationalökonomie), Friedrich List24 and the historical school of economics (Historiche Schule), Marxist theory and its offspring, the imperialist theory25 nourished the ambition to shed light on historical heavy trends in economic development. Ha-Joon Chang endeavoured to develop analysis on economic ‘infancy’ and the legitimacy of protectionism and public policies.26 In France, the historian and anthropologist Emmanuel Todd aimed to renew historical approach toward economic divergence.27
The concept of infant economy argument, which was developed by Alexander Hamilton28 and later on by Friedrich List consists in assuming that an ‘infant economy’ must protects its industry and domestic market through trade barriers, public subsidies, offensive industrial policies21 and political initiatives to improve the productivity and
24 List, Friedrich, 1789-1846. Nationale System der politischen Oekonomie. English National system of political economy. With an introd. for the Garland ed. by Michael Hudson. New York, Garland Pub., 1974, 22, lxxxiv, 61-497 p. 25 Rosa Luxemburg. Joan Robinson, Accumulation of Capital, 1956. 26 Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem; 2002. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury; 2008). 23 Things They Don't Tell You About Capitalism (Penguin Books Ltd; 2010). 27 Todd, Emmanuel, 1951- L'illusion économique : essai sur la stagnation des sociétés développées, Gallimard, c1998, 321 p. 28 Alexander Hamilton, Report on the Subject of Manufactures, 1791. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington11 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. performance of domestic companies in spite of all liberal arguments. The South Korean economist Han-Joon Chang offers a critical vision of the history of political development in third world countries, which substantially differs from conventional liberal narratives29 because he assumes that most Western and developed countries did not follow neoliberal prescription about free trade and small government, but that they on the contrary implemented a protectionist policy. The Western countries tend to forget their own protectionist history and their former high trade tariffs. The open trade and liberalization measures that the World Bank and IMF advocate are more suitable according to Chang to developed countries than to emerging nations.
But how can we mobilize these different insights into a genuine framework suitable for IPE? To answer that puzzle, I therefore introduce a new notion closely related to the concept of mature economy. In what follows, I intend to clarify this new notion I propose to call post-liberal realism.
I.2. Why realism better grasp globalization than neo-liberal and Marxian paradigms
The analysis of Keynesian and heterodox theories pave the way toward a better and critical understanding the crisis of contemporary capitalism in Western countries. But we still lack a broader framework to shed light on general political and hegemonic-centric phenomena present in contemporary world economy. In what follows, I defend the thesis that a renewed vision of realism represents the most powerful and consistent paradigm to understand the role of mercantilism. This claim is partially paradoxical as realists traditionally focus rather on phenomenon such as defense spending, foreign policy, alliances and competition over military superiority. In addition, “realism, as it currently
29 Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem; 2002. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury; 2008). 23 Things They Don't Tell You About Capitalism (Penguin Books Ltd; 2010). “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington12 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. stands, is an underspecified theory in the global political economy”.30 However, since the works by Robert Gilpin, realism has been able to integrate economic variables in its analytical framework.31 To contribute in a critical way to a renewed theorization of realism, I shall offer a discussion with the two dominating IPE paradigms, liberal institutionalism and Gramscian hegemonic-centric theories, to explain both the singularity and the conceptual superiority of what I call post-liberal realism.
To develop a broader understanding of international political economy, I develop the ideal type of post-liberal realism to analyze new forms of economic and political power. I define post-liberal realism as the selfish competition between states in globalization, which use international infrastructures and regimes to defend their economic interests at the expense of precarious people in developed countries (blue collar, women, jobless, temporary workers).32 Post-liberal realism then denotes both a specific structural condition related to power distribution and a particular historical moment in the history of capitalism and of the modern states I shall unpack.
Structurally, post-liberal realism differs from conventional realism because in the postliberal paradigm military action represents a potential threat that shape asymmetric power distribution that underlies diplomatic negotiations and international policy. In very specific cases, this virtual violence, which military power represents, becomes effective even if long-term trends toward decreasing military conflicts appear.33 The central difference between military power, which is both potential and exceptional, and economic power resides in the fact economic power is daily effective and belongs to the common business of economic private actors, diplomats and international negotiators and international organizations.
30 Kirshner (2009:38), http://oxfordre.com/internationalstudies/view/10.1093/acrefore/9780190846626.001.0001/acre fore-9780190846626-e-260#acrefore-9780190846626-e-260-bibItem-112 31 Robert Gilpin 32 Guy Standing, The Precariat. London: Bloomsbury Academic, 2011. 33 Oslo peace project.
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington13 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
Besides, unlike conventional realism, post-liberal realism is not intended as theory excluding liberal intergovernmentalism (LI), but rather as a mature and to some extent post-paradigmatic approach that draws on liberal insights to explain how international regimes opens opportunities for power-seeking states. The economy in my understanding does not express ‘neutral’ material interests, which leads then state to generate international laws, trade agreements and supranational organizations to lower dilemmas and free-riding behavior. My critical stance toward the concept of regimes is the central aspect of my reception of LI. What post-liberal realism brings in comparison toward LI is a clear hegemonic-centric and stratified conception of the international system based on the existence of ‘a stabilizer, one stabilizer’.34 For LI theorists, the need of regime rests on the assumption that state are rational actors and that are oriented by their material interests and that are looking for interstate agreements to escape zero-sum competition. Regimes are then horizontal and law-based common procedures between states, which avoid prisoners’ dilemmas by cooperating through multilateral principles.
I challenge this opinion due to an enlarged vision of the Hegemonic stability theory (HST). The central tenet of this renewed conception of HST consist principally in assuming that military power albeit exceptional and potential represents the essential condition and the backbone of this international system. The benign hegemon has then not only a financial and economic function has Kindelberger assumes, but a military one. The world that LI describes is not opposite to Waltzian realist world, but as consequence of it. The US hegemonic power has created a kind of international polity or cosmopolitan state-organization after 1945 both in Europe and in Asia with Japan and South Korea. But this hegemonic power then let emerged a stratified international order whose very fundament rests upon the American military power. The freedom of navigation that the United Kingdom and the USA both enforced respectively against China and Japan marks much more the beginning of the international liberal order that ‘regimes on ocean and
34 Kindelberger.
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington14 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. money’ as Keohane and Nye assume.35 The force of the European and of the US army opened the way toward the West’s imperialism, which was then able to create a global area of negotiations and rules.
In my view, HST needs integrating three kinds of regimes and infrastructures than are not solely related to international agreements and economic policies. Only a clear perception of this complex set of infrastructures help understand how mercantilist nations benefit from the international system. These infrastructures are first the dollar as the international currency and the euro, which makes trade easier in the EU, the first free- market zone in the world; the second central international regimes are trade agreements such as WTO or the European single market; the third category of infrastructures are international organizations such as the European Union, the IMF, the World Bank and UNO, who are the agency part of the international system.
The key difference between both Colbert’s and 19th like mercantilism and contemporary mercantilism lies in the fact that the latter rests on infrastructures that the US led globalization created. The puzzle to clarify the new forms of mercantilism is not about the selfish policy by a single state, but about world’s manifold imbalances in trade, investment, currency hoarding and portfolio decisions.36 Only by focusing on the global economic imbalances and their negative externalities for the Western countries, we can penetrate the reasons why the US hegemon feels increasingly insecure within the post- 1945 order it significantly contributed to shape.
This question leads us to the second central feature of post-liberal realism related to its historical nature. More specifically, post-liberal realism is at odds both with LI narrative about international stability through regimes and the Marxian imperialist theories that assume that oversee expansion if the expression of Western domination to
35 K and N, Power and interdependence,
36 Blanchard, op. cit.
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington15 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. save capitalism from a self-cause collapse. Post-liberal realism describes a historical moment, which I describe through the concept of mature economy. Through this ideal- type, I mean three central elements.
First, from a social and demographic perspective the concept of mature economy realism describes the situation of countries with an ageing population gradually more pessimistic about its future. Migrations play an important role, while experts and politicians consider it as necessary to compensate failing demographics. Tensions over ethnicity, gender and economics inequalities are growing in a context where political meditations such as political parties and labor union are in crisis. From a cultural point of view, deception with liberal and progressive narratives appears and fear of technological disruption gains traction. People fear global warming, new bacterial threats and artificial intelligence, which could destroy millions of jobs for the middle class.
Moreover, in a mature economy deindustrialization is growing, while expanding money quantity and floating currencies underpinned global economy. The competition between states over economy takes two forms. Strong exporting countries are able to impose their interests on the international stage through deflationary politics, wage deflation, currency manipulation. But they do that at the expense of other developed countries, which former developing countries (China) or countries that USA has sustained after WWII (Japan, Germany) now contribute to destabilize it economically and socially.
Finally, in a mature economy, tensions appear over regional integration structures, which become less meaningful because they answered to post-War problems (NATO, EU). More flexible and pragmatic global cooperation is needed at the expense of structural and permanent cooperation structure. States think it is more advantageous to cooperate in an intergouvernemental framework than through bureaucratic international structures.
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To illustrate this post-liberal ideal-type, I shall focus on Germany’s economy since 1945 to explain how new forms of national interest plays override traditional international liberal constraints.
Section II: Application of the neo-mercantilist model on Germany’s economy
II.1. Conceptual distinction between early mercantilism and late mercantilism
The goal I pursue in the second section of this article is to illustrate the concept of post-liberal realism and mature economy through the example of Germany’s economic policy. But before starting a closer discussion on Germany’s mercantilist policy, I shall remind the central tenets of the conceptual history of mercantilism. Adam Smith disputed the advantages of mercantilism and labeled the pre-existing set of trade restriction policy as the “Mercantile System”.37 In classical texts, however, Alexander Hamilton, Friedrich List, Gustav Schmoller contested this negative perception of mercantilism by focusing on the role of mercantilism in protecting the interests of infant industry and in contributing to the construction of modern and unified states.38 During the Great Depression, Eli Heckscher wrote a two-volume study of mercantilist thought and Viner conceptualizes preindrustrial mercantilism.39 The central tenets of the concept of mature economy intends at drawing on insights by the 19th thinkers of mercantilism. However, I want to offer a paradigmatic opposition between early industrial mercantilism and the late industrial version of it.
37 Book IV of The Wealth of Nations. (1976 [1776]:159)
38 Alexander Hamilton, Friedrich List, Gustav Schmoller.
39 For historical reviews on mercantilism, see Magnusson (1994, 1993) and Perrotta (1988). The
classics of the 1930s were Heckscher (1955) Viner (1937) and see Coleman (1969).
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington17 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
My hypothesis is that contemporary Germany is not a mercantilist country in the classical meaning of the word, but rather a neo-mercantilist, post-modern mercantilist or globalized mercantilist state. By these different, but complementary concepts, I mean that a new form of mercantilism emerged since the 1970s (‘neo-mercantilism’), that it corresponds to new flexible and decentralized economic strategies more comparable to an octopus with tentacles than to a rigid highly hierarchal premodern state (‘post-modern mercantlism’). This economic policy, however, is strictly related to the international public goods and to globalized: in this context, Berlin’s economy is throughout globalized. Germany’s role in the EU and in globalization rests indeed on the use of liberalism and free-market as a power factor, that a new mercantilist paradigm can help us understand. It rests on the complex institutional setting that enables it to defend its interests in the multilevel global governance and through the complex economic interplay between outsourcing, offshoring and internal European migration toward Germany from the periphery countries.
Before starting my analysis of mercantilism, I propose to define it by using an ideal type that should help us grasp the structural feature of this specific form of political economy.
In what follows, I therefore mean by late mercantilism a twofold set of goal: first, a mercantilist strategy intend to increase the overall living standard of the population by importing capital and money and second the global power of a nation, which corresponds to some of the most conventional definitions of mercantilism.40 Neo-mercantilist policies, however, differ from the prior mercantilist ones. Mercantilism is often associated with anti-liberal measures such high tariff and non-tariff barriers, public subsidies, currency undervalued currencies. But the WTO dispute settlement system, the clause of the most favoured nation (MFN) and the strict anti-cartel policy of the EU all participate at enforcing transparent and anti-protectionist practices. Moreover, the general decline of
40 Sources “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington18 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. vertical industrial policies41 and the market-bound volatility of international currencies make the accusation of economic cheating less likely.
The real questions with Berlin’s neo-mercantilist strategy rest rather on the discrepancy between the size of the German domestic market and the level of domestic consumption. The trouble from the point of global imbalances is not the high level of exportation per capita in Germany, but much more the fact that its internal market is large enough to absorb more consumption on goods and service that it is presently the case. Peter Katzenstein in classical books on small European states, showed the dynamics underlying the economics of Switzerland, Austria and Scandinavian countries highly integrated in world’s export competition. However, this strong orientation of their economy toward foreign markets rests on the relative small size of their population and the limited possibilities of growth for their companies at home.42
In classical analyses, Susan Strange argues that four forms of power shape international relations.43 But we could introduce a fifth type by introducing the concept of exporting power, which consists in relying on export-based growth in order that a third country consumes at the place of the neo-mercantilist nation. To bring a more detailed definition of mercantilism, we can then distinguish two historical forms of mercantilism.44
1) Early industrial mercantilism, which typical for infant industries in the 19th century and 20th century, aims at attracting capital and money from abroad to invest and to enter into economic development. The domestic market is narrow because the population is abundant, but poor, but export opportunities are important and global growth high. The developmental state follows a strong vertical industrial policy (public subsidies,
41 Rodrik 42 Peter J. Katzenstein: Small States in World Markets. Industrial Policy in Europe 43 Susan Strange 44 On mercantilism, https://academic.oup.com/ereh/pages/protectionism. On the history and on the concept of mercantilism : Jérôme Blanc, Ludovic Desmedt; In search of a ‘crude fancy of childhood’: deconstructing mercantilism, Cambridge Journal of Economics, Volume 38, Issue 3, 1 May 2014, Pages 585–604. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington19 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. nationalization, economic planning by the state) to compete with more developed nations and it can be very hierarchical and even authoritarian. The industry focuses on catching up with more advanced countries through state interventionism. The national currency is protected against inflation through price control. Foreign markets are open through free trade agreements or the creation of genuine international free trade zones. The state provides public goods such as money, transportation, communication technologies, and education. Inflation can be high due to significant growth rate, but the exchange rate on the international markets is protected through policy coordination and pegged rates. Example of this early capitalism are numerous even if by principle concrete examples do not fit exactly into abstract schemes: United Kingdom and Germany in 19th century; post-war South Korea and post-war France; China since the 1980s.
2) Late industrial mercantilism aims at exporting its consumption to attract capital and money because the domestic population is ageing and declining, while the domestic international markets are saturated. The state follows horizontal industrial policy and is both democratic and open to international integration to be able to export its goods and services. The companies sell cutting-edge products and services and follow a mix pattern between neoliberal and Schumpetarian to remain competitive unlike early mercantilist countries that specialize in low-costs and labor-intensive products. This a central feature for any national economy in 21st century, and it represents difference between early and late mercantilism. Regarding the exchange rate of their currency, the ideal type of late mercantilism does not entail by itself currency undervaluation. The fact that the euro is undervalued for German exportation as many studies prove it45, does not involve that this has to do with an intentional policy from Germany. This is all the less likely as it is the European Central Bank and the not the Bundesbank, which sets the key interest rate. In late mercantilist state, the national currency is under strong monetarist deflationary control and strict budget limitation. Examples of late mercantilist power since the 1970s
45 Source
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington20 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. that fulfill the most part of these features are Germany, Japan, Sweden, Switzerland, Austria, Israel.46
Early mercantilism Late mercantilism
Stage of industrial Infant industry Mature industry development
Competitive advantage Low wages for labor- High wages for high-skilled intensive production and innovation-intensive production
Economic policy High trade tariff, vertical Low trade tariff, horizontal industrial policy, public industrial policy, policy subsidies, Keynesian mix between stimulus and state planning, Schumpetarian economics inflation and devaluation and neo-liberalism, deflation and strong currency
Mercantilist goals Attracting capital because Attracting capital because domestic demand is too the population is ageing, narrow or population too pressures on wages, poor intentional underconsumption
One the most salient features of Germany’s economy is that it underwent different stages of economic development from precapitalist stage until 1870s to mature industrial stage
46 Figures on export per capita https://www.nationmaster.com/country-
info/stats/Economy/Exports-per-capita
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington21 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed. since the 2000s. This country is a rare case of an economy was able to go through from the stage of infant industry and protected economy in the 19th century to the stage of globalized and powerful economic power in 21st century. In that context, Berlin was able to renew and modernize its industry in contrary to the USA, France, and the United Kingdom, whose economy relies increasingly on import, service, finance or tourism. However, the crucial fact to highlight here is that Germany still behaves like an early mercantilist power in the different stations of its economic development from late 19th century until today. Berlin’s economic growth was indeed driven by strong exportation in different phases of its economic history since the 1870’s accelerated industrialization. To illustrate this systemic discrepancy between the real stage of economic development of Germany and its actual behavior, I will focus on the phase of its history: the post-War time in West Germany until the oil crisis (1949-1973) and the post-reunification era since the introduction of the euro (2000-2015).
II.2 Germany’s semi-protectionist era (1949-1973)
In what follows, I will focus on the two fundamental stages of the German economy in 20th century. This historical approach is necessary to distinguish fundamental types of economic development: the post-WWII stage characterized by protectionist and ordoliberal features (1949-1973) and Germany’s economic role in globalization (2000- 2015). After WWII, West Germany was not an infant industry anymore since the takeoff in the 1870s and 1880s. However, the significant destruction that Germany experienced after Hitler’s defeat made it dependent from Washington. This fact makes it possible to understand the place of West Germany’s economy in the US global liberal policy. This liberalism was a multilayered system resting on integration on the financial, economic and military level. This system included the Bretton Woods Agreements, NATO, the UNO Charta and a set of Keynesian or ordoliberal public policies on both sides of the Atlantic. According to our framework on early and late mercantilism, West Germany was not an infant industry after 1945, but it benefited from a special treatment from the
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington22 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
USA.47 One can identify in the case of post-war West Germany several features typical for an early mercantilist power.
First, through an offensive free trade policy that the USA ignited, West Germany was able to export toward the USA and to go beyond its prewar economic performances. However, through the creation of the European community (Treaty of Rome, 1957), the six founding countries agreed on protectionism against foreign importation and subsidies massively the European agriculture, while they paved the way for creating a single European market. Through these two dynamics – open transatlantic markets, protection of the European market – West Germany beneficiated from favorable trade conditions, which one can usually find in infant industry. Germany relied indeed on the American market because its population was still too poor in the early 1950s to absorb its own production and was compelled to sell its industrial goods abroad. Secondly regarding foreign investment, West Germany profited from the Marshall plan, which helped it to reconstitute its capital stock and improved the investment capacity of Bonn’s economy. Eventually regarding public policies, West Germany appears as a liberal and non- interventionist states, which was against vertical horizontal industrial policy. Ordoliberalism is an economic doctrine rejecting massive state intervention, favorable to regulation through law and norms and defended the idea of a third way between Manchester capitalism and Keynesianism. However, this picture does not correspond exactly to the truth. Due to the economic boom of West Germany after 1949, the government led by Konrad Adenauer increased public spending and the role of welfare state. As the USA were ready to guarantee a favorable exchange trade between the dollar and the Mark, Washington subsidies indirectly West Germany’s economy. Moreover, some Länder such as Bavaria conducted a conventional vertical industrial policy in order
47 Werner Abelshauser, Wirtschaft in Westdeutschland 1945–1948. Rekonstruktion und Wachstumsbedingungen in der amerikanischen und britischen Zone. (= Schriftenreihe der Vierteljahrshefte für Zeitgeschichte, Band 30). DVA, Stuttgart 1975. Abelshauser, Deutsche Wirtschaftsgeschichte Von 1945 bis in die Gegenwart. 2. Auflage. C.H. Beck Verlag, München 2011. Werner Abelshauser, Stefan Fisch, Dierk Hoffmann, Carl-Ludwig Holtfrerich, Albrecht Ritschl, Wirtschaftspolitik in Deutschland 1917-1990, 4 Bände, Verlag de Gruyter, Berlin / Boston, MA 2016. “Is Germany a mercantilist state? The dispute over trade between Berlin and Washington23 under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s agreement is allowed.
to help this agrarian region to catch up with the more industrial parts of Germany. Finally, West Germany followed a rigorous monetary policy based on price stability, low inflation and the independence of the German central bank, the Bundesbank: all these economic policies are typical for a mercantilist country, that aims at protecting the value of its currency. One can represent the differences between the American hegemon and its allies through the following chart. We use the example of West Germany and South Korea to show how both countries were integrated inside the US-based hegemonic system. States involved in Center of the Western world: Allied to the USA: Developing country allied to the hegemonic USA West Germany the USA: the example of system South Korea
Type of integratio n inside the hegemonic system Political role inside the Shape international institutions that Profit from the Profit from this stabilize world economy stabilization that the stabilization hegemonic system USA created Ideological commitment Ideological commitment to Ideological Ideological commitment to liberalism and fear of commitment to liberalism and fear of communism liberalism and fearcommunism of communism Economic position Global lender and exports Borrow money from Borrow money from inside the hegemonic capital foreign lenders and foreign lenders and system import capital import capital Level of trade barriers Low trade barriers High trade barriers High trade barriers Type of trade activity Imports and exports Exports more than it Exports more than it imports imports
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington24
under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s
agreement is allowed.
Evolution in the long run Maintain its position atop the Evolution from Evolution from infancy international system, but relies more needing help after economy to rich country and more on import and cannot WWII to country exporting goods, services guarantee the international exporting goods, and capital public goods anymore (international services and capital country currency, freedom of navigation and military hegemony).
“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington25
under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s
agreement is allowed.
II.3. Germany as a global mercantilist power (2000-2015) But this liberal framework stands in sharp contrast to the post-liberal situation characterized by new forms of power and asymmetries. The central tenet of post-liberal realism is that rich and developed countries are now threatened by economic globalization and free trade. The former poor, developing countries or all states, which needed the American help after WWII are now in a position where they are competitors for the US hegemonic power. The postliberal international system shows two features: the first deals with the hegemonic power and the second with its allies.
Regarding the hegemonic state, it is increasingly less and less able to stabilize the world economy. Broadly speaking, one can tell first that the hegemonic power is not able anymore to finance the global infrastructures it has created and second that it doesn’t see anymore the interests it can draw from them. The dollar is an interesting example for such an international public good: until the Jamaica Accords (1976), it was the international reserve asset convertible to gold. However since the end of the Bretton Woods Agreements, dollar became increasingly an asymmetrical tool power for the USA. I do not mean what the French head-of-state Charles de Gaulle called the ‘exorbitant privilege’ of the dollar48, which is a positive advantage for the American power that its national currency works as the international reserve currency. I mean the fact the US dollar becomes more and more an unilateral tool of Washington’s policy abroad: this implies concretely that the USA used an international public good such as the USD for their own national policy and in some cases to solve homemade domestic issues. One could mention the enforcement of the American outside the US territory through new forms of non-territorial sovereignty whose force relies on the power of the US dollar. The best examples for such a policy are the so-called extraterritorial sanctions against European companies such as the French Bank Société Générale49. In addition, the retreat by the USA under President Trump from the international nuclear agreement with Iran and the threats against European companies that want to
48 Eichengreen, Barry J. Exorbitant privilege : the rise and fall of the dollar and the future of the international monetary system. First issued as an Oxford Univeristy Press paperback. Oxford ; New York Oxford University Press, 2012, 226 pages. 49 Harry L. Clark, Dealing with U.S. Extraterritorial Sanctions and Foreign Countermeasures, 20 U. Pa. J. Int’l L. 61 (1999). Sascha Lohmann , Extraterritorial U.S. Sanctions Only Domestic Courts Could Effectively Curb the Enforcement of U.S. Law Abroad, SWP Comment 2019/C 05, February 2019.
26 conclude contracts with Teheran is another example for such an extraterritorial policy, that the domination of the US makes possible.
Regarding the allies of the USA, the situation is different from the Bretton Woods model and the early mercantilist stage. If we focus on the German case, it is less and less interested in costly international organizations and structures such as the Euro or the European Union and is still reluctant to contribute to the international system by a full-fledged policy. Such a policy affords indeed military commitment that Berlin is unable to deliver by itself due to its recent history and the potential skepticism from its direct neighbors toward Germany if it should try to improve its military capabilities. However, it is not simply about the fact Germany’s past makes it complicate to show more offensive military goals, but about a new mercantilist strategy that Berlin follows at the expense of the other nations.
According to the liberal narrative, German people should accept to import more with time and to export capital to help other countries develop economically. Ricardo’s argument on the international value-creation and the competitive advantages should lead Berlin to accept the role as a hegemonic or semi-hegemonic benevolent power, which implies that it helps other countries to reach its economic development. But this did not happen. The neo- mercantilist system is not simply a transitory stage between economic underdevelopment and development for infant industry, but a stable and intentional strategy to protect the German economic interest through a mercantilist economic policy.50
One can describe the new mercantilist system by stating that it implies that the countries, which the former more powerful countries have helped, do not want to share the burden of the international organizations and become a threat for the declining American working class. That the USA experiences deindustrialization, while Germany and Japan have been able to maintain their industry and China to become the world’s first exporter led Washington to doubt over its own hegemonic system.
The relative industrial decline of the USA was followed by a new financial and economic dependency from Washington toward the world.51 The reason for that is that is imports increasingly goods and capital not only to finance foreign investment, but the daily
50 Matthijs
51 Todd, fin de l’Empire
27 consumption of its households. Instead of being both an exporting and an importing nation, the USA was compelled to import more and more. To that end, the USA had to use a very atypical policy, which proved to be highly dangerous for world economy after 2007/2008: printing money at very high level after 9/11 to maintain its economic growth and world stability.
My central contention is that international capitalism is not only about finance and production, but fundamentally about consumption as well. This last function, which is ultimately more important than lending or production, because these both process would be meaningless without customers and clients, underpin central economic and political processes.
What appears from the remarks above is that neither the liberal vision of economic history nor Marxist imperialist theories hold true. The central reason is that the former developing countries are not willing to import more, to export capital toward new developing countries and to play a more important role inside the international public infrastructures. In that context, the liberal and progressive narrative optimism was false. However, conventional Marxist theories on imperialism are not convincing because the capitalist countries are not looking for new markets in the third world, but now threaten the Western middle-class through massive export and non-cooperative policies as the examples of Germany and China prove it.52
The chart below represents the key dynamics between the US hegemon, Germany and China, which I take as the most important examples for a revisionist power that benefit from the international system based on the US power.
52 Rosa Luxemburg, op. cit., Lenin, op. cit.
28
States involved in the Heart of the system: The State helped by the USA: Developing hegemonic system USA West Germany country/BRICS: China
Type of integration inside the hegemonic system
Political role inside the Shape international Profit from the Profit from this hegemonic system institutions that stabilize stabilization that the USA stabilization, but world economy, but uses created, but is reluctant to challenges the Western increasingly for national contribute more to them international organizations policies (e.g. Silk road).
Ideological commitment Ideological commitment to Claimed commitment to Commitment to state liberalism and tensions with liberalism, but follows a capitalism and economic revisionist states (Russia, realist strategy and military nationalism China, Iran).
Economic position inside the Borrow capital from the rest Attract foreign money Attract money through hegemonic system of the world for its daily through trade, but is reluctant trade, but lends it to consumption and export to invest it in countries hegemon (e.g. US treasury unsound money. needing help (e.g. Southern bonds). European countries).
Level of trade barriers Low trade barriers Low trade barriers Low trade barriers
Type of trade activity Import and consume more Export very much, but import Export very much, but and more, but exports less very few import very few and less
Stance toward world’s Potentially stabilize world’s Profit from this stabilization Profit from this stability stability by its selfish use of and is reluctant to contribute stabilization, creates an international public goods to it (e.g. Germany’s stance alternative international toward the eurozone crisis) system
Evolution in the long run Maintain its position atop the Evolution from country Leaving the stage of international system, but needing help after WWII to underdeveloped country, relies more and more on country, which still follows a but still follows a import and cannot finance the mercantilist policy mercantilist policy international public goods
29
Section III: Discussion of questions about Germany’s mercantilism The hypothesis that Germany is pursuing a mercantilist policy is widely spread in the USA, in Southern European countries and in international organizations.53 However, it is legitimate to ask ourselves two questions about this claim. First, to what extent does correspond Germany’s trade surplus to an intentional policy? And can we find evidence showing that this country intend to manipulate its currency or to use unfair economic measures to gain unjust competitive advantages? The second puzzle to solve is related to the real causes of the German export records. Is it essentially provoked by Berlin’s economic policy or should we consider that the profound reason for global economic imbalances rests upon the US economy? This question then aims at explaining Washington’s ambivalence vis-à-vis trade deficit that Donald Trump protectionist rhetoric tends to dissimulate. States rarely claim that they follow a mercantilist strategy. One of the only exceptions is the USA that between the end of the 18th century and the 1950s publicly affirmed its allegiance to a high tariff policy since Hamilton’s historical defense of mercantilism.54 The significant watershed for Berlin’s economic policy took place in 2000 when the financial pressure caused by Germany’s reunification became to heavy and almost 5 millions people were unemployed. A large portion of the economic and political elite felt the need for extensive structural reforms to help the economy recover a sustainable growth level. Political declarations by the Christian-Democratic opposition and the left-wing government expressed the consensus regarding the imperative to introduce dramatic reforms of the Welfare state and of the labor market. Gerhard Schröder calls in an important speech pronounced in 2005 for initiatives toward a more flexible and service-oriented economy to be able to compete in the global arena.55 The period initiated the Hartz-reforms that according to observers provoke Germany’s economic recovery, which become visible already in 2006. However, it is almost impossible to find any evidence for a mercantilist program in the political speeches of the leading politicians. Even the introduction of the euro
53 imf
54 On the manufacture
55 Source
30 was not seen as a way to allow an undervaluation of Germany’s economy, but rather as a necessary step toward an ever closer union. The neoliberal turn under Schröder’s government represents a global adaptation to a new context of international competition and race for attracting human and financial capital. A broad spectrum of the political landscape then thought structural reforms were imperative to help Germany leave its critical situation of being the “sick man of Europe”.56 Like the United Kingdom in the 1980’s and Sweden and Canada in the 1990’s, Germany had to implement measures to reduce its public debt and make its labor market more flexible. However, Germany followed a mercantilist policy characterized by three features: low domestic investment; internal deflation through pressures on wage; reluctance to participate to the global stimulus policy, which was imperative after the 2007/2008 economic meltdown and to help Greece and Southern European countries finance their public debt at the expense of the eurozone stability.57 Moreover, this deflationist policy oriented toward cost-competitiveness has decentralized aspects. It rests on the traditional monetarist policy of the Bundesbank that the European central Bank applied until Mario Draghi’s policy of quantitative easing.58 Labor unions and conservative, liberal, social- democratic and green parties all agreed on central ideas regarding the much-needed improvement of Germany’s economy when the Hartz reform have been implemented. This decentralization has therefore institutional aspects, but was related to a strategy of outsourcing and produce offshore in Central European countries.59 These different aspects show the new forms that mercantilism take, which differ substantially from vertical and sometime authoritarian early stage mercantilism. But we still face a second objection. Even if one admits that Berlin applies a mercantilist policy approximately since 2000, to what extent is it sure that it makes sense and corresponds to the national interests of the country?
56 Sinn, Hans-Werner (2007). Can Germany Be Saved? The Malaise of the World's First Welfare
State. Cambridge, Massachusetts: MIT Press.
57 Source
58 Note center Max Weber
59 Sinn, Hans-Werner (2005). Die Basar–Ökonomie. Berlin: Econ.
31 This is a pressing question that both economists60 and the populist party, Alternative für Deutschland, asks. The public opinion raised important questions about the exact utility of Germany’s trade surplus since 2010. Hans-Werner Sinn played a significant role in highlighting the potential risks related to the target balances and payment imbalances inside the eurozone between Germany and Southern European states.61 These issues are relatively technical, but they show a central element of international political economy, which is totally absent from earlier stage of mercantilism. Early mercantilism is about attracting gold and precious metals through an aggressive export policy. But the new mercantilist system is different from old-style mercantilism typical for infant industries. It rests on a systemic asymmetry with a consumer with an important debt on the one hand and a producing worker with many unsound debt securities. These unsound debt securities (banknotes, bonds, debentures) are printed for example in dollar or in euro from Southern countries. This system of unsound printing of ‘bad money’ makes the German public opinion increasingly skeptic toward the EU and even the USA. The reason is that post-2007 capitalism relies more and more on dubious money creation and debt securities. One of the central issues is the huge credit that the Bundesbank accepted from Southern countries, which bought German goods and services. The Target- balances show indeed that private consumption of German products in countries such as Greece and Italy relies on money creation by the national banks of these states. On the one hand, German companies are able to export toward other European countries, but on the other hand the Bundesbank possess vast amount of unsound debt securities from foreign national banks from South Europe.62 All these evidence show that Germany may follow an increasingly selfish policy, but that it potentially creates future problem for Berlin itself. The credit function, which can exist at this level only in a financial economy, is the exact mirror of the consumption function I have stressed above. The central problem of capitalism internal instability reappears here and compels us to ask a second question. What is the exact role in Berlin and Washington in contemporary economic imbalances? Historically, the USA still operates as the lender in last resort as the massive stimulus policy launched by Barack Obama in 2007 proved. But such a policy rests ultimately on
60 Sinn, Hans-Werner (2014). The Euro Trap. On Bursting Bubbles, Budgets, and Beliefs. Oxford: Oxford University Press. p. 416. 61 Article Sinn on target balances. 62 Hans-Werner Sinn (2014). The Euro Trap. On Bursting Bubbles, Budgets, and Beliefs. Oxford: Oxford University Press. p. 416.
32 liquidity creation through the Fed, which is both a national actor that sustains domestic demands and an international one that stimulates world’s demand. It is a national actor as the lender in last resort inside a domestic credit market, but it holds an international function because it introduces liquidity that the international economic system needs to consume distressed goods. Here, Kindelbergers’s thesis seems to be confirmed. But this massive money creation leads to two central issues: first, it generates further deindustrialization because the USA is able to have a negative current account balance, without paying the price of it. Besides, it creates an unsound credit and price system by introducing dramatic amount of money to lead private bank to loan to households and companies. This leads to false perception of the true price of money and cause bubbles on asset markets. This is certainly not the only cause of international crisis as monetarist economists assume, but this participates to the endogenous instability of capitalism that Hyman Minsky’s theories describe.
Concluding remarks
The central theoretical contention of this article consists in rethinking the concept of mercantilism to give him a scientific definition. To reach this goal, I study more specifically the tensions between Washington and Berlin over international trade.
Covering recent development from Keynesian macroeconomics and unorthodox economic history, I explain that the 2007 crisis constrain us to rethink some fundamental tenets of IPE and especially its historical dependency toward liberal economics. I draw on works by Piketty, Stiglitz, Deaton, Chang to highlight the limits of the conventional liberal narrative about progress through free-trade and liberalization. I especially claim that a new IPE paradigm is necessary, which I propose to call post-liberal realism. Post-liberal realism correspond to the project to renew realism to integrate economic policies and more specifically self-help strategies in a global world of mutual interdependence. Post-liberal realism does not aim at rejecting LI, but rather at using its most important results on transnational dependency and multilevel governance to explain the new forms of economic power. A post-liberal policy is then characterized by its integration inside the international world order, but in order to use at its narrow national interests. This new definition of realism shall help us maintain the classical hierarchy of power – whose highest form remain the military one – but which allows non-coercitive power relations based on international law and global governance under the US leadership.
33 I then introduce a distinction between two forms of mercantilism to illuminate the close interaction between global interdependence on the one hand and selfish national competition on the other hand. I distinguish indeed early mercantilism from late mercantilism. While the former corresponds to the well-known ‘infant industry’ that Alexander Milton and Friedrich List theorized, the latter is an original concept that aims at describing the economic policy of mature economies in a global context. A late mercantilist or a mature economic power is one, whose population is well educated, ageing, has strong export records and whose state is well integrated inside the international governance. A late mercantilist differs therefore from an infant industry country, whose comparative advantage rests on cheap labor force, growing population and a strong vertical industry policy that helps developing nations to catch up with more advanced ones. Late mercantilist, furthermore, represents the ideal type of an economy, which does not foul in any form its competitors through hidden public subsidies or intentional currency manipulation. The reproach of being mercantilist toward countries whose domestic market is large enough to absorb important level of importation stems rather from their preference for trade surplus at level very unusual levels for economies of their size.
I apply this conceptual distinction on Germany at two stages of its economic development: on post-WWII West Germany (1945-1973) and reunified Germany since the euro’s introduction (2000-2015). After WWII, Bonn’s republic went through a period of semi-protectionism that makes it comparable to an early stage mercantilist nation. She was characterized through favorable exchange rate with the USA, which left up tariffs after 1945, increasing Welfare spending, relatively cheap labor force and external European trade barriers thanks to the Treaty of Rome (1957). In that perspective, West Germany was certainly not a developing country, but needed heavy financial support from the USA (Marshall plan) after the disastrous outcome of Nazism.
In the time span between 2000 and 2015, the economic situation changed dramatically in comparison of the post-War era. Germany has still impressive export records, but it is accused now of being mercantilist. The USA, Southern European countries and international organizations accuse Berlin of having an undervalued currency, to push down wages, and to have one of the lowest investment rate among the OECD countries. Even if my goal is not to endorse all these sometimes politically oriented critics, they however make sense through the concept of late mercantilism. The central issue of Germany’s policy consists does not consist in the fact that the euro is undervalued as the common currency lies in the hand of the ECB
34 and not of Berlin, but in the disproportion between the size of its domestic market – the largest in Europe – and its status as the world’s export leader per head. But the critical question is then about the exact benefits that Germany draws from its neo-mercantilist. Germany pursues a policy, which endangers its very position inside the European and the international order. The German European policy during and after the eurozone crisis famously created strong anti-Germany feelings throughout Europe and especially in Greece, Italy and Spain. Besides, Donald’s Trump anti-liberal and anti-NATO rhetoric shows that Germany has still no plan to overcome its military dependency toward Washington. In that context, Berlin needs the liberal order, benefits from it, but still behave has the European reluctant begin reluctant hegemon.
This paper has been presented at the ISA conference in Toronto in April 2019. I would to thank Carina, Pascale Moussot, April for their useful comments on the first version of this article. I thank the Institut Convergence Migration (Collège de France) for their financial help that made this article possible.
References:
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