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Deutschland AG Versus Corporate AmericaNo other country but the United States could get away with overspending on such a monumental scale.by Melvin RhodesThe U.S. trade deficit for April 2000 was over $30 billion, a world record. In one month, the U.S. had bought $30.6 billion worth of goods and services more than it sold to other countries. This trade deficit has been rising for some time, ironically one of the consequences of the booming economy. As people have more to spend, they are spending more of it on foreign-produced goods and services, leaving a whopping deficit that is unprecedented in the history of the world. The rising price of oil has made the deficit worse but is only part of the problem. Most countries use money that cannot be used anywhere else outside their borders. These currencies are called "soft currencies." About 20 of the world's wealthier nations have "hard currencies" that can be used anywhere. American dollars can be taken almost anywhere in the world and changed into local money. So can British pounds, French francs and German marks. These nations can overspend because people will take their money. Those with soft currencies have to earn hard money before they can buy anything from the rest of the world. Before a nation in Africa can buy oil, it must sell its products to others to earn the dollars or pounds it needs to buy the oil. One month it may sell more than it buys. This is a "balance of trade surplus." If it sells less than it buys, it suffers a "balance of trade deficit." After a couple of months of trade deficits, these countries could not buy essentials from the rest of the world. The rich countries can get away with having a deficit for some time—as long as other nations will accept their money. They usually will do so indefinitely, as "hard currencies" tend to keep their value and can be used almost anywhere for almost anything. But even rich countries are concerned when they have trade deficits. Mounting trade deficits often cause panic on capital markets and stock exchanges, as they are likely to lead to increased interest rates to avert a currency falling in value. Governments may also enact legislation to create higher taxes and institute other control measures, with the intent of reducing the deficit. None of this has happened in the United States. In fact, whereas many economists, bankers and financiers in Europe are expressing concern about America's trade deficit, it is rarely mentioned in the U.S. media. There are a number of reasons for this. One is that Americans are the world's biggest consumers. The rest of the world needs America to continue to buy the goods it produces. The reason Americans are able to consume more than anyone else is partly because their wages are often higher, but mostly because credit is more readily available in the U.S. than elsewhere. A second factor is that America has had trade deficits through most of its history. The excess numbers of dollars going out of the country enabled other nations to recycle those dollars-in the form of investments in U.S. industry and services, which in turn boosted U.S. growth. In the early decades of the American Republic, Great Britain alone invested so heavily that the deficit was amply covered. The British remain the biggest investors in the U.S. So, Americans are not greatly concerned about the trade deficit, although the chairman of the Federal Reserve has expressed his concerns recently. Where does the money go? These continuing deficits raise two questions. What is happening to all those dollars going out of the U.S.? How long will the rest of the world be willing to finance America's increasing debt? The answers to both questions are connected. Many of the dollars that leave the U.S. are held by people in less stable countries with weak currencies and uncertain economies. They give the hoarders security. They know that they can always use American dollars when times get worse, as the dollar is always exchangeable for goods and services. Some smaller countries do not even have their own currency and use dollars for normal domestic business transactions. Even those engaged in illegal activities, such as the international trade in narcotics, prefer to use U.S. dollars, as people everywhere tend to know the value of the dollar. Additionally, governments hold dollars in reserve for trading purposes. It is estimated that well over half the dollars in circulation in the world are outside the United States. A sudden loss of confidence in the U.S. overseas would result in people divesting themselves of dollars on such a massive scale it would cause chaos at home in the United States. "He shall be the head, and you shall be the tail," warns Deuteronomy 28:44 of one of the punishments to befall modern-day Israel as a result of turning away from God. As in the past, a major reason the rest of the world has been content to finance the deficit is that the money received could be used to buy into the world's most successful economy. Some countries are investing far more in the United States than the U.S. is investing in those nations. Britain and the Netherlands are two big investors. But now another investor is buying into America in a big way. That country is Germany. Germany, Inc. In a new book titled Germany, Inc., Werner Meyer-Larsen, a former editor and columnist on business and economic affairs for Germany's leading news magazine Der Speigel, takes readers on "a penetrating, fact-filled exploration of a development of paramount commercial, geopolitical, and cultural importance." Two years ago Detroit's newspapers carried banner headline news of a merger between American auto giant Chrysler and the German Daimler Benz. I remember standing in line at an airport one year ago overhearing a conversation between a Chrysler executive and a friend he had just encountered. His comments, expressed in strong language, conveyed considerable frustration. In his opinion, the merger was a hostile takeover and everybody was now taking orders from the new German management, which had a very different style from the former American management. Meyer-Larsen writes: "Thus, Daimler Chrysler represents the model of a new challenge raised by Germany and confronting the U.S. Economically, it is just as extraordinary as was Kaiser Wilhelm II's vast expansion of Germany's naval force to Great Britain's military strategists 100 years earlier." This is the third wave of rivalry with the Anglo-Saxon powers in one hundred years. At the beginning of the 20th century, the challenge was economic and military. In the 1930s, the challenge was again both economic and military as Adolf Hitler rapidly developed Germany into a major power. "These American cars are junk compared to a Mercedes," were Hitler's dismissive words on the American car industry, quoted on page 43 of the book. Now comes the third wave, a major economic challenge to U.S. economic supremacy around the world. Ironically, the U.S. is making it easier for Germany through its trade deficit and misguided foreign policy toward Europe. U.S. sees Germany as key to EU Meyer-Larsen writes: "With England's impact on the continent waning, the U.S. can exert its influence on the EU's economic style only via Germany." He adds: "The U.S. wants to be Europe's partner in many respects, without necessarily playing the lead…. The principal power on the other side of the Atlantic is once again Germany, now transformed by NATO and the EU from its role as troublemaker into the great integrator." He continues to show that Washington's policy is for the closest possible relationship with Germany and the German-dominated European Union. "[The] U.S. wants to nip in the bud any hints of a closed European economic fortress. For the U.S., it is a matter of course that the more fully German-American and American-German concepts and values develop the better it is for both sides. All of this understood, Washington simply could not oppose the Daimler Chrysler deal. The times of a tough 'buy American' cross-country movement (with Chrysler being one of its main inspirations!) are over. So are the days of open or even subliminal antipathy toward Germany and the Germans." It should be emphasized "that nothing like a systematic plan exists for an offensive by Deutschland AG on Corporate America" as there was by Japan, Inc. in the 1980s. As the blurb on the book's jacket puts it: "As Japan's sun sinks slowly in the West, a formidable new competitor has risen to replace her as America's chief rival in the battle for global business leadership. Emboldened by reunification and its role as leader of the European Union, Germany is flexing its muscles. For the first time in history, a transatlantic global conglomerate is rapidly taking shape, its policies defined by a small band of German business elites." The new Daimler Chrysler may have seemed like a sudden dramatic change in the fortunes of one of America's leading companies, but it was, in reality, a major turning point in a German offensive that has been gaining ground for some years. In the last 10 years "a handful of Germany's most powerful industrial concerns has been steadily chipping away at America's lead in a range of sectors, including publishing, air travel, steel, insurance, and cars." It's difficult for the average American to keep up with details of reported mergers and acquisitions in the business world. "Every month I get a list of several dozen companies we have purchased," says the head of a foreign branch of Mannesmann, "and most of them are in the United States." Germans have less debt One reason German companies are doing so well is that they take a long-term view. Whereas American companies have to post a profit every three months and aim for a 100 percent return on investment in five years, German companies look ahead 20 years. A quarterly profit and big dividends to shareholders are not as big a priority. American companies still dominate. On page 112, Meyer-Larsen writes: "Clearly, the Americans are the market leaders, but they also have exorbitant debts and few resources." A sudden major decline on Wall Street could finish off some American companies. German companies, with less debt and more resources, would be better placed to weather the storm. Also, American companies are not as big as is often thought. This is due to how Europe and America assess the value of their companies. "On September 23, 1998, for instance-a day chosen at random-the Siemens corporation was worth 54.5 billion marks on the stock market…yet the U.S. company General Electric-by no means a bigger company-$441.8 billion." A merger of the two companies based on these figures would give Siemens shareholders less than 11 percent of the shares of the new company, when Siemens is, in fact, a bigger company. The 19th century is often referred to as "Britain's century." In the 20th century, the U.S. economy replaced Britain as the world's leader. Reading Germany, Inc., it is easy to see which nation could replace the U.S. as the world's leading economy in the new century. The magnitude of America's ongoing trade deficit means that the United States is progressively increasing its international debt while at the same time enabling foreign companies to buy into America in a big way. The biggest consumers in the world are inadvertently bringing about a significant change in the world's power structure. WNP |
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