The real trade challenge is Germany, not China

The WSJ makes the important point that Germany is abusing the world trade system in a way that China and Mexico are not. Whatever may have been the case in the past, China is not depending on an undervalued renminbi to prop up its exports; if anything, China is worried that its currency will fall too low. And globally, Mexico is running a trade deficit—though like most countries, it has a surplus with the United States. By contrast, Germany’s policies in Europe contribute to a massive undervaluing of the euro, and German exporters are therefore able to enjoy huge international sales that, without the currency distortion, they could not achieve.

The core problem here is that Germany is more deeply rooted in the old blue model system—a stable national economy in which mass manufacturing and clerical jobs undergird a system of safe, lifetime employment—than even some of its European neighbors. German culture strongly values stability, social justice, and adherence to the rules of the system. German politicians fear that an upheaval in the economy, like the transformations that have shaken the political order in the English-speaking world and Southern Europe, would unleash a new wave of German nationalist populism with dire consequences. A German Le Pen or a German Trump terrifies the German establishment as much as the prospect would terrify some of Germany’s smaller neighbors.