Hello from Brussels, where everything feels quite a bit more normal than it did before the summer break, possibly because a big surge in Covid-19 vaccinations in June and July in Belgium has meant restrictions on masks and gatherings has been relaxed.
To make sure it stays that way, there are plans afoot in Brussels to copy Emmanuel Macron’s tactic in France and require Covid passes to enter bars and restaurants. Anything but force people to drink at home again.
Today’s main piece looks ahead to the German elections on September 26, while Charted waters covers an OECD report out tomorrow on the logistics industry in ASEAN countries.
‘Merkantilism’ likely to survive Merkel’s departure
Any one of an entertainingly broad range of possible ruling coalitions might emerge from the German federal elections on September 26: the chart of possibilities colour-coded by party looks like a series of particularly garish design schemes for a Bundesliga change kit.
But even if the leading role shifts from Merkel’s centre-right Christian Democrats (CDU) to the centre-left Social Democrats (SPD), there’s likely to be a lot of continuity in Germany’s trade policy. Good news? We’d say no. Germany may be an outward-oriented export economy, but under Merkel its influence on EU trade and international economic policy has too often been strategically short-sighted, politically destructive and economically illiterate.
For a broader account of Merkel’s ambiguous legacy within the EU, we heartily recommend this Foreign Policy piece, co-authored by loyal Trade Secrets reader Matthias Matthijs at the Johns Hopkins graduate school in Washington DC. It employs (perhaps coins) the term “Merkantilism” to refer to the outgoing chancellor’s narrow obsession with German commercial and geoeconomic interests.
This might have made sense when commerce was largely about manufactured goods, trade policy mainly concerned tariffs and Europe was trading with other democracies or countries on the way to becoming one. But when trade policy is supposed to be woven into a fabric involving national security, human rights, the environment, corporate responsibility and European values generally — as EU trade policy explicitly now is, like it or not — it undermines the endeavour.
The most salient recent episode: the embarrassing fiasco of the EU’s Comprehensive Agreement on Investment (CAI) with China, driven through by Berlin in the dying days of Germany’s European Council presidency last December. Set to benefit only a small number of big EU companies (half of which are probably German) invested in China, CAI’s supposed mechanisms to enforce labour standards and human rights were deeply unconvincing, and the European Parliament has slung it indefinitely into the deep freeze.
The cynicism of the deal is not entirely surprising given the habitual disregard in the German corporate establishment, historically mired in corruption overseas, for the ethics of their foreign operations, not to mention their intimate relationship with China. The chief executive of Volkswagen, which has a plant in the province of Xinjiang, as recently as 2019 literally denied any knowledge of “re-education” camps for Uyghurs there. Germany has dithered and equivocated about allowing “untrustworthy” Chinese companies, that is Huawei, into its 5G network, eventually producing a complicated approval process dependent on political will, during which time Huawei has created facts on the ground by investing in existing networks.
As Matthijs and his co-author R Daniel Kelemen point out, the German obsession with helping their manufacturers has also weakened EU political solidarity and strategic coherence by building the Nord Stream 2 pipeline, giving Russian president Vladimir Putin another source of leverage against the EU, for the sake of cheap energy.
It’s also caused the EU to stray from its commitment to multilateralism. In 2018, to avoid US president Donald Trump imposing car tariffs, Germany pushed an expedient, some would say sordid, EU-US fix offering a trade deal which fairly clearly violated World Trade Organization rules.
There’s a similar story at the macro level. For more than a decade Germany has contributed to an unbalanced global economy and international tension. Careful to preserve its own trade surplus, it aligned with China against the US government’s sustained campaign to get Beijing to reduce its current-account excess.
Berlin’s solution to the eurozone sovereign debt crisis was for stricken countries such as Greece to grind down costs to achieve internal devaluation at unnecessary economic pain. It’s an exaggeration to say that Germany’s export growth over the past decade has been filched from the rest of Europe, but not a ludicrous one. The old cliché about Germany remains true: it’s a big country that acts like a small one. Not every EU country can be a net exporter, especially since so much of their trade is with each other.
Merkel has also consistently undermined the attempt to expand the euro’s international role by resisting, until very recently, the large-scale creation of bloc-wide euro-denominated safe assets. This parochial attitude towards rivalling the dollar as a global currency reaches right back to the Bundesbank explicitly deterring the international use of the Deutsche Mark in the 1970s.
Is there any chance trade policy will radically change after the election? Not much. True, China’s actions in Xinjiang and on other issues have shifted German public opinion against Beijing, and German businesses are becoming increasingly irritated by being excluded from the Chinese market or ripped off once they are there. But it seems unlikely we are on the edge of a more radical shift. The SPD is also embedded in the export-industrial complex: it has, after all, been in coalition with the CDU for a long time. The best chance of change is a big role for the Greens, suspicious of traditional trade policy, much more critical of Russia and China, and opposed to Nord Stream 2.
The old idea of Wandel durch Handel (change through trade) — that the likes of China would democratise because of commerce with democracies — clearly hasn’t worked. At some point the German centre of political gravity, and particularly that of German industry, may shift to reflect that. But we don’t seem to be there yet. In trade policy terms, it’s still the case that whomever you vote for, the car industry always gets in.
Charted waters
The OECD will tomorrow publish two reports on the logistics industry in ASEAN countries. It’s a region that in recent years has become substantially more important for world trade, supplying not only much of the expertise, but also many of the workers that ensure exports arrive safely at their final destination. So it’s worth taking a look at them.
Ahead of their release, here’s a sneak peek at some of the charts that feature. Claire Jones
Trade links
The chief financial officer of the Shanghai-based New Development Bank has a column out arguing that multilateral development banks should take a more pragmatic view of their own credit rating to enable them to triple their lending capacity.
Reuters reports there will be some (strictly limited) in-person attendance allowed at the World Trade Organization ministerial meeting later this year.
UK regulators have said that wastewater plants can discharge sewage effluent that has not been given the usual full chemical treatment because of supply chain issues caused by Brexit or Covid.
Reluctant to approve sales of sensitive industries to foreign entities, Myanmar’s military government is holding up (Nikkei, $) Norwegian telecoms provider Telenor’s sale of its local business to a Lebanese investment group.
The coup in Guinea, meanwhile, has upset China’s plans to replace aluminium ore imports from Australia, triggering a rare condemnation (Nikkei, $) from Beijing.
Xeneta, a data company focusing on shipping rates, has hired Peter Sand from BIMCO as its chief analyst. Alan Beattie, Francesca Regalado and Claire Jones
Source: Economy - ft.com
