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WSJ: "Germany’s famously open economy was its greatest economic asset, delivering almost 20 years of uninterrupted growth and turning it into one of the biggest winners of globalization." I think I would have framed this differently. Germany's trade competitiveness for a long time was based on its ability both to suppress household income growth relative to productivity growth (as it did, for example, after the 2003-5 Hartz reforms), and to keep its currency cheap (as it did, for example, through adoption of the euro). Under our current form of globalization, in other words, we experience an example of the Kalecki paradox, in which wage-suppression policies that allow one country to grow faster than its trade partners are actually bad for overall global growth – to the extent, anyway, that consumer demand drives investment among its trade partners. In this system, all countries are under pressure to suppress wage growth in order to expand manufacturing and retain manufacturing employment, but the "winner" is the one who is able to do it most effectively. For many years, when much of China's high saving was directed into domestic investment, Germany was one of the main winners from this system. But as Chinese investment became increasingly unproductive, Beijing began trying to rein in the debt needed to fund so much unproductive investment. This process, of course, took off after the 2021-22 property crash, and once that happened, Germany's ability to benefit from the Kalecki paradox evaporated, as it quickly became one of the main losers of the system. The point is that the problem isn't China. The real problem is a system that rewards countries for implementing policies that undermine overall global growth. The good news is that for many years, when Germany was able to exploit the global trade regime, it was also one of the greatest defenders of this system. Now that it is on the losing side, German policymakers are increasingly recognizing how damaging a system it is. There is nothing new about this. If you read the economic debates between the UK and the US in the 1920s, a period when US productivity soared even as wages remained stagnant, it was the UK that complained about the trade imbalances. The US insisted that its huge trade surplus was simply the consequence of more efficient manufacturing techniques and harder-working people. The US of course abandoned that argument in the 1970s, when it lost its trade surplus. In the economic debates of the 1980s, it was the US who complained about trade imbalances, and Japan who insisted (what else?) that its huge trade surplus was the result of more efficient manufacturing techniques and harder-working people. No one in Japan makes such a silly claim anymore. In the 2000s, of course, Germany rather patronizingly explained to the rest of Europe that if only they could become as efficient in manufacturing and as hard-working as the Germans, they too would be in just as good a shape. So much for that claim. Meanwhile our trading system continues to reward policies that depress global growth by putting downward pressure on wage growth, or that, alternatively, force the world to encourage rapid increases in debt in order to counter the impact of lower wage growth. That is why the real solution isn't a global alliance against China. While this may help defuse current tensions, it won't change a system that will continue to reward bad behavior – i.e. household income-suppressing policies – by allowing countries to externalize the costs of this bad behavior through large, persistent trade surpluses. And this means that it will continue to support increases in income inequality within countries. https://t.co/9g6zh3ET99