The plastics trade deficit with Germany, and 'globalization on the cheap'

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Plastics News, Rich Williams During German Chancellor Angela Merkel's visit to the White House in March, President Trump said that Germany has done a much better job of negotiating trade deals than the United States.

Does the United States do globalization on the cheap?

Two scholars at the Brookings Institution in Washington argue that we have, and given that the U.S. plastics industry has its two biggest trade deficits with two very different countries, China and Germany, it’s a worthwhile question to look at through a plastics lens.

First, the scholars. In an Aug. 28 essay, Mireya Solís and Jennifer Mason say the United States, in the last 40 years, has not spent what it should on things like workforce training and education.

The U.S. has neglected a “renewed safety net for displaced workers affected by globalization, automation or macroeconomic shocks.”

“In many ways, the United States has pursued globalization on the cheap, without investing in its workforce and social mobility,” they argue. “It ranks in the bottom third of OECD [Organization for Economic Cooperation and Development] nations in terms of how much it spends on active labor market policies, only above Mexico and Chile.”

They say that as our dependence on international trade has doubled, from 15 percent of gross domestic product four decades ago to 30 percent now, and our public spending on the social safety net is lower today than it was in 1975.

Solís and Mason contend that helps explain why the average American is much more skeptical of trade than the public in other industrialized nations.

Let’s bring in our industry.

The U.S. plastics sector has an overall $2.1 billion trade deficit with high-cost Germany, which is second only to its overall $9.9 billion deficit with China. Those are 2015 figures, the last full year available.

Most of us would expect the United States to have a trade deficit in plastics with a lower-cost country like China, but Germany? Not what you’d expect.

That German surplus extended to all segments of Germany’s industry: materials, machinery, processing and molds.

(Globally, it should be noted that the U.S. plastics industry has an overall worldwide surplus, on the strength of its materials industry, but let’s put that aside for a minute.)

Brookings Institution Solís

What I’m wondering is, does that German deficit provide some evidence that we are doing globalization on the cheap, as Solís and Mason say?

During German Chancellor Angela Merkel’s visit to the White House in March, President Trump said that Germany has done a much better job of negotiating trade deals than the United States. Officials in the Trump administration have also argued that Germany benefits from a weak euro.

Germany’s VDMA business association, which includes plastics machinery, hit back at President Trump’s trade claims, and argued that Germany’s surplus with the U.S. comes from innovation and quality, not unfair trade.

But here’s where the argument gets into the territory Solís and Mason are looking at. President Trump also lavished praise Germany’s extensive apprenticeship training programs, calling them “highly successful” and saying that Germany has been “amazing” at developing a highly skilled workforce.

With its more extensive public spending, Germany is not a country that usually gets accused of doing “globalization on the cheap.”

Yet it’s the source of the second-largest trade deficit the U.S. has for the plastics industry.

If you look at that, and the renewed interest in the U.S. in high-quality industrial apprenticeships, it says to me that Solís and Mason have a point.