Magazine | January 22, 2018, Issue

A Stronger German-American Alliance

How to bolster NATO and meet the challenge of China

More than any other country, Germany has profited from the post–Cold War international system. As a close ally of the world’s superpower and bordered by smaller, friendly powers, it has had the luxury of abjuring hard power — an attitude reinforced by the trauma of its 20th-century history. Instead, much like Japan, it has channeled its energies into economics, transforming itself into a trading superpower that earns almost half of its gross domestic product from exports. Today, German industry dominates the European economy, surfing along on a wave of success.

The thrust of German foreign policy is to defend this advantageous position from the forces of change. All around, however, centrifugal pressures are cracking the liberal international order on which German strength depends. For many German analysts, the explanation for this deterioration lies in the United States — and, of late, President Trump. Too often, this view is amplified by a sense of cultural superiority that sees in the president all of the boorish qualities of American materialism. This obsession has blinded Germans to their own shortcomings. Instead of criticizing or, worse, needlessly isolating Americans, Germany should seize the moment by embracing the U.S. Together, Washington and Berlin can forge a new order that beats back real challenges to liberal democracy, especially those that emanate from Russia and China.

Today, Germany’s guiding light in security affairs is ethics rather than strategic culture. The vaunted German military is at its nadir — and intentionally so. Years of cuts have taken a toll on the country’s armed forces; German troops train with broomsticks in place of guns, while less than one-fifth of its submarine fleet is seaworthy. In the public discourse, the ethical dimensions of surveillance and drone warfare conducted from American military bases in Germany are debated as rigorously as deterrence operations against Russia in the Baltics. Even German support for a French-led drive to create a European defense force is as much about enmeshing the German military in a multilateral process as it is about developing real capabilities. In fact, Germany rejects unilateral operations on principle. This has made the country the darling of American leftists who see their own country as needlessly muscle-bound. For many other U.S. citizens, however, Germany represents the quintessential European free-rider.

Unlike its security sector, Germany’s international economic policy is something other than liberal. Even its domestic economy is a set of social-market arrangements. Abroad, its export industry fosters trading arrangements with interested buyers of varying stripes, liberal or not. German firms are scattered across the globe, generating an immense reservoir of knowledge about regions that heretofore were global backwaters, especially central and southeast Asia. Most notably, its legendary auto industry is growing more and more dependent on the Chinese market. To preserve its access, Germany’s approach to this part of the world is more rules-based than values-oriented.

Germany’s most important market remains the West, where it has achieved a form of catastrophic success. As the beneficiary of an artificially weak currency further inflated by quantitative easing, Germany runs a massive trade surplus with the United States, which purchases almost 10 percent of German exports. In recent years, the U.S. has flagged Germany as a potential currency manipulator, a charge Germany has sought to blunt by pointing to its high levels of foreign direct investment in the United States. Today, Germany has become a regular punching bag for trade skeptics.

To add insult to injury, many of Germany’s euro-zone neighbors echo the United States’ complaints. German industry has outproduced its euro-zone competitors, reinvesting profits in asset bubbles across the continent. In fact, for several years running, Germany’s high savings rate and undervalued currency have produced current-account surpluses far above the European Commission’s stipulations. For southern euro-zone countries such as Greece, Italy, and Spain, the result is reduced output, higher unemployment, and deficits that lead to crises.

The German answer has been to Germanize the Mediterranean — to urge southerners to get their fiscal house in order and adjust wages downward. Across Europe, however, from Catalonia to Veneto and from Wallonia to Lombardy, such appeals to economic uniformity have failed to persuade communities chafing under centralization and economic imbalance. To the contrary: The trend has been a resurgence of diverse national identities.

Moreover, Germany’s dominance of the European Union has spawned concerns in Eastern Europe that it, too, will be left behind. At base, Eastern Europeans fear that they will be overlooked by a larger Germany engaged in great-power politics. To avoid such a fate, Poland, Hungary, the Czech Republic, and Slovakia have banded into the Visegrad bloc — a group dedicated to diluting Franco-German control of the EU. The Visegrad countries have long suspected Germans such as former finance minister and current president of the Bundestag, Wolfgang Schäuble, of taking a narrow, Franco-German view of Europe, a suspicion reinforced by the power that German and French nationals hold in Brussels. In this vein, French president Emmanuel Macron’s speech calling for reform of the EU, delivered to coincide with the recent German elections, deepened some Eastern European reservations that their region may be consigned to second-tier status.

To complicate matters, Eastern Europeans warily eye Germany’s inordinate respect, even nostalgia, for Russia. To be sure, Angela Merkel has proven essential in rallying Europe around sanctions against Moscow. There is a major strain in German politics, however, that views any deterioration in relations with Russia, such as what occurred in the period preceding World War I, as disastrous for Germany’s strategic position. As adviser to Social Democratic chancellor Willy Brandt, Egon Bahr once remarked in explaining Ostpolitik, “For Germany, America may be indispensable, but Russia is unmovable.” Today, Brandt’s Social Democratic successor, Gerhard Schröder, is the lead director of pipeline projects, including the contentious Nord Stream 2, that tighten the German-Russian grip over Eastern Europe. In the Bundestag, half of the current parties are characterized by pro-Russian attitudes. This prevailing Russophilia exacerbates concerns in Eastern Europe that when Berlin looks east, it sees only Moscow.

The unavoidable conclusion is that Germany’s strength has affected Europe’s southern and eastern periphery, contributing to the fragmentation of Europe. Alas, Berlin is unprepared to take any major steps to resolve the problem, in part because its success abroad has allowed it to neglect problems at home. While Germany’s network of small businesses remains the envy of the world, the country is overly reliant on its cartel-like car industry, which, in turn, is increasingly dependent on China. As a result, Germany has acted only meekly in the past year to punish its auto companies over a major diesel-emissions scandal. Moreover, Germany has been running on the fumes of labor reforms instituted last decade, while high taxes and excessive regulation, especially in the energy sector, have stunted growth in several other areas. Now, a surge in uncontrolled migration from inside and outside Europe has triggered a spike in populist nationalism and left-wing anti-capitalism across the country.

This trend found expression in the most recent German election, when voters punished the mainstream political movements that have long dominated the country. With the Christian Union and Social Democrats at historic lows, Angela Merkel is struggling to forge a new coalition government. Instead, second-tier and fringe parties are chipping away at the two centrist parties, disorienting them after decades of control. Besieged, the new government will be hard pressed to execute any centralizing initiatives for Europe without incurring significant backlash at home. In this volatile era, Germany can be expected to double down on its export industry.

That would be a mistake that would reverberate across the continent. Europe’s divisions and malaise are simply too serious to ignore. Rather, Germany should look outside Europe and to the United States for assistance. The only path to forging European unity is to embrace the one actor trusted and powerful enough to soothe divisions across the continent: the United States. To launch such a strategy, however, the new government in Berlin will need to address the imbalance in the German relationship with its allies — a painful but unavoidable process of resetting trading and security relationships.

While no one is expecting Germany to transform into America, Berlin should make clear that it stands by its defense-spending commitments. As U.S. defense secretary Jim Mattis put it in his first speech to NATO, “Americans cannot care more for your children’s future security than you do.” Just as important, Germany should tacitly support the U.S. as it works to strengthen its Iran policy. Berlin may not agree with President Trump’s recent decision not to certify that the Iran nuclear deal is in American national-security interests, but it should be easy to choose between its biggest ally and an anti-Western rogue regime running a nuclear-weapons program. Strong statements that echo President Trump’s support for Iranians protesting their oppressors would be a good start. Similarly, while Germany should outline its own preferred strategy, it should also back the U.S. in holding Russia accountable for its violations of the Intermediate-Range Nuclear Forces treaty. Such moves would place the U.S.–German relationship on stronger footing.

In the coming year, the new German government, once constituted, will face a series of economic decisions needed to complement those in the security domain. The new powers in Berlin would be wise to consider tax cuts and investment proposals that strengthen Germany’s purchasing power. Moreover, Germany can urge the European Central Bank to tighten its monetary policy, a stance compatible with the country’s longstanding commitment to monetary prudence. Over time, such concessions would rebalance the euro zone and transatlantic economy, undercutting the much larger threats of protectionism and political deterioration on both sides of the Atlantic.

If Germany were to announce such constructive steps for its own economy, they would likely be reciprocated. Most important, U.S. trade measures being developed in the aftermath of the new tax law would take into account such flexibility. Instead of punishing German firms operating abroad, the U.S. could collaborate with Germany on positive initiatives such as worker training. Already, President Trump and Chancellor Merkel have enjoyed fruitful exchanges on this subject.

Meanwhile, in the security sphere, the U.S. will continue its close counterterrorism cooperation with Germany, but it can also take on a larger role in bridging the disparate parts of Europe. The southwest and northeast of Europe see the Mediterranean and Russia as their primary security challenges, respectively. Only the U.S. has the power and credibility to forge a common European vision of security that addresses the concerns of all of the continent, from refugee flows to Russian irredentism.

A negotiated solution on transatlantic trade and security would clear the way for a joint effort to steel the West against the authoritarian trading model promoted by China. From forced technology transfers to state-owned enterprises, China has systematically chipped away at the liberal trading order. In the digital, networked economy of tomorrow, Germany’s proficiency in logistics and business-systems integration will fit neatly with America’s prowess in digital consumer products. If they stay united, the U.S. and Germany are more likely to be able to set the rules of the road for the economy of the future.

The urgency for such cooperation is obvious. Apple’s systems, for example, remain open to Chinese authorities, even as the technology giant refuses to cooperate with American authorities in such counterterrorism investigations as the one into the San Bernardino shooting of 2015. Such episodes are likely to recur with the technologies of the future, for example, the software that governs driverless cars. It is not automatic that the rules governing the Western economy of today will prevail against the kleptocratic system advocated by China. Over the next decade, the U.S. and Europe must work together to ensure that Western values, rather than those of Beijing, permeate the new digital era.

The Trump administration’s just-released National Security Strategy picks up the theme of Western unity against Beijing in the economic sphere: “We will work with our partners to contest China’s unfair trade and economic practices and restrict its acquisition of sensitive technologies.” A great starting point for such cooperation would be joint responses to Chinese manipulation of World Trade Organization (WTO) rules. In November, for example, the U.S. backed Europe at the WTO in opposing the designation of China as a “market economy.” Germany and the U.S. should also consider harmonizing their regulations to address Chinese purchases of Western technologies. Such moves are badly needed to check China’s recent offensives in the high-tech sector.

Today, U.S. and German regulatory agencies are overwhelmed by an avalanche of state-backed Chinese investment in key industries, such as semiconductors, biotechnology, and manufacturing. Chinese investors, often subsidized by their government, transfer their acquired technologies back home for production, which, in turn, is structured to drive foreign companies out of business. In other cases, Western companies are forced to share their technologies as the price of admission into China, where regulators then ensure that foreign firms operate at a distinct disadvantage. In still other instances, China’s cyber army outright steals intellectual property. Such mercantilist and illegal approaches pose a major threat to the West. The U.S. and Germany must respond in lockstep, hardening cyber defenses while jointly pressuring China to recognize intellectual-property rights and fair competition. If China balks at such conditions, the U.S. and Germany will need to face the hard truth that a more adversarial economic approach toward China is necessary.

Such an endeavor would constitute a bold undertaking for the transatlantic alliance. It would have the ancillary benefit of nudging Germany as a Eurasian economic power into a leadership role, giving it the confidence to make the major political decisions it faces on the horizon. With the U.S. reprising its traditional role as leader of the West, other European states would be more comfortable with Germany’s taking on a leadership role in Europe.

For this agenda to take shape, however, Germany must first recognize the need for change. In this era of polarization, the test of leadership is pursuing policies that bridge the gulf between traditional liberalism and nationalist rebellion. If its next government seizes the moment, Germany can preserve the best of the post–Cold War order while crafting the international order of the future. The Western system of governance and prosperity might depend on it.

– Mr. Rough, the former director of research in the office of George W. Bush, is a fellow at the Hudson Institute.

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