No economy is as dependent on a trade surplus as Germany.
The Center for European Economic Research (ZEW) named names and pointed fingers: Its Indicator of Economic Sentiment for Germany in October dropped by 14.1 points, to a level of negative -24.7, matching July 2018, both the lowest levels since August 2012, when the Eurozone was still trying to not dig itself deeper into its euro debt crisis. The indicator has been in the red since April:
The indicator, which measures expectations for the German economy, is far below (47.5 points below!) the long-run average level of +22.8.
ZEW called the 14.1-point month-to-month plunge “remarkably strong,” adding, “Only once in the recent past did the indicator fall more strongly, namely after the Brexit vote in Great Britain in July 2016.”
ZEW sees three reasons for the plunge in “economic and export expectations,” in order of priority:
- “Above all” the “intensifying” US-China trade war. “The resulting negative expectations on German exports are now beginning to show in the actual development of exports.”
- “The danger of a ‘hard Brexit,’ which is becoming ever more likely.”
- “Last but not least,” political uncertainty in Germany: “The situation of the governing coalition in Berlin is perceived to have become more unstable.”
For the monthly report, the ZEW surveys about 350 analysts from finance, research, and economic departments at banks, insurance companies, and large industrial enterprises, “as well as traders, fund managers, and investment consultants” (methodology).
The chart above is the forward-looking sentiment indicator, thus reflecting economic and export expectations for the future.
The ZEW also offers an indicator of the financial market experts’ sentiment for current economic conditions in Germany, a reflection of what is going on right now. This indicator fell nearly 6 points in October to 70.1, the lowest level since December 2016:
In sympathy, the German stock index DAX has fallen 13.4% from its peak on January 23, 2018.
For the entire Eurozone, the ZEW found that the financial market experts’ sentiment “also experienced a very significant drop, with the corresponding indicator falling by 12.2 points to a current reading of minus 19.4 points.”
To put this into context, this level is down 32.8 points from March, when this indicator was still a positive 13.4.
The indicator for the current economic situation in the Eurozone edged up 0.3 points to a level of 32.0 points, which is down from 56.2 in March.
In Germany, exports rule. The economy depends on a massive trade surplus with the rest of the world. No government in Germany is allowed to do anything that might slow this trade surplus. This ranges from government-sponsored promotion of exports – watch any Chancellor’s trips abroad, accompanied by several planeloads of executives, to sell trains, tanks, medical devices, and a million other things – to sky-high taxes on household income and consumption in order to discourage domestic consumption and thus imports. It’s all part of the system.
In August, Munich-based Ifo Institute estimated that Germany’s trade surplus in goods in 2018 would reach a record €219 billion (about $253 billion), and that the account surplus of goods, services, and income from assets would reach €264 billion ($305 billion), the highest account surplus in the world.
No economy is as dependent on its trade surplus as Germany: Ifo expects Germany’s trade surplus to account for 7.8% of GDP in 2018 (by contrast, the ballooning trade deficits in the US subtract from US GDP). In Germany, anything that threatens this surplus – including the US government’s impatience with endlessly ballooning US trade deficits – gives these financial experts the willies, as we’re seeing now.
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I do not understand how Germany is competitive. I worked there for several years. 6 weeks of vacation and an additional 2 weeks of holidays and a work morale/attitude that is at best average. How do these guys run circles around us on exports?
Maybe good wages, good benefits and good vacation packages aren’t the terrible things we’ve been led to believe?
They’re not terrible. But the main ethic of unions in the other Western nations has been and is to be confrontational and work as inefficiently as possible to save jobs, thus ending up with no jobs. Workers who work conscientiously and efficiently are the enemy.
The other ethic is to consume 90% of the union’s resources to protect the worst workers. Of course, this has the unintended result of most of the workers just tolerating the union because they have to due to the closed shop.
Unions and work councils in Germany are participatory in the management of the company, and the principle of self-interest combined with the success of the company delivers the necessary result. Unions have only a minority of the active workers as members; membership has collapsed especially during the last 25 years.
The final key to success is product quality and reputation, which gives pricing power. Have you priced out a Porsche or Mercedes lately? Are they really worth it, it terms of function?
->But the main ethic of unions in the other Western nations has been and is to be confrontational and work as inefficiently as possible to save jobs, thus ending up with no jobs.
Sheer invention, obviously. But it’s what corporate class warriors in the US want you to believe, but then, they are also pushing for repeal of the 13th amendment and child labor laws. If that’s what you want you can admit it – I won’t tell.
US unions are responsible for eight-hour days, the minimum wage, Social Security, workplace safety, and the existence of the middle class, but hard-working Americans were killed to get them.
I was a shop steward with the Teamsters in the late 1990s. Worst experience of my life. I spent all my time fielding complaints from the most useless and/or dumbest 1% of the workforce. And the union went out of its way to protect even the most useless ones. They even protected those guys who were openly menacing and bullying towards other union members. Naturally, anyone who complained to management that they were being threatened by a union “brother” was instantly branded a rat and threatened by the local Teamsters business agent to shut his mouth. It was sickening.
There’s plenty of room for the CEO to make 800X what a worker does and provide good vacations and benefits, as opposed to the CEO making 900X what a worker makes ….
Even AfD, the right-wing party in Germany, is for increasing social benefits.
The US has such a different society it’s almost erroneous to rank it in with first-world countries. We’re more like the old picture of the Soviet Union, shacks for the masses but a huge first-rate military and space program. A few isolated places where world-class science happened, like in Gorki, just like the US has Silicon Valley, but very rudimental access to the advances for the masses (people die in the US all the time due not not being able to afford their insulin, or a tooth extraction).
The German tax system encourages this as well. Paying workers more keeps them happy while lowering the CEO and shareholders tax bill.
With worldwide income, eliminating out of state and offshore tax avoidance systems the money goes either to the workers or the goverment
Just throwing out guess but “quality over quantity”, Germans have a pretty good reputation in that respect. Also with that mentality you may find less days needed to get jobs done because they should get done right the first time, unlike at Tesla for example…
Just an observational assumption, but from personal experience a Volkswagen vehicle has far better quality materials compared to the GMC vehicles competing against it.
selling $100,000+ luxury autos in the US doesn’t hurt their bottom line either
No water cooler chat, work parties or “socialising” or small talk either.
With no at will contracts, there’s less incentive for workers to pad their time either like Americans do.
Germans follow the rules. They don’t try to manipulate the system as a primary goal. They don’t have a Wall Street or a runaway legal system. That leads to higher productivity.
The US invests much more into short-term manipulation, which gets you nowhere in the end. When you push all your profits to unproductive investment bankers and lawyers, of course you are going to run a trade deficit. You don’t make anything.
Bobber
Uhhh…no. You’re forgetting :
1) VW massively and knowingly cheated on diesel emissions,
2) German import taxes (10%) on American autos are 6 times what US import taxes (1.6%) are for German autos
2) The average American taxpayer pays more for Germany’s defense (NATO) than the average German taxpayer pays for German defense.
So much for playing by the rules. Mercantilism, like socialism, only works until you run out of other peoples money (yea, I know socialism isn’t mercantilism, but both involve living off other people’s money).
Huh? Mercantilism is not living off other people’s money. Mercantilism is taking other people’s money and doing nothing with it. In the age of fiat currency, the other people (USA) then just print some more money and use it without having to worry about inflation (since the money they gave you has been shoved under a mattress).
Japan does mercantilism because its island is not self sufficient, and it is terrified of losing the ability to trade for imports. China does it to stimulate its domestic economy, gain technological knowledge, and leverage smaller countries. German does it because they are stuck in a post-war mentality. They would do a lot better to refocus their trade surplus on domestic production and live a little, rather than collecting rubbish debts from around the world in exchange for luxury cars.
Following the rules, like with the diesel emissions scandal???
Germans follow the rules???
I see a high-speed collision with reality in your future. . .
Probably involving a Diesel VW.
Collectivism, high education and training standards, quality control, high work ethic. German bosses can be scary though. :)
Yes. The unions and corporate bosses (usually) work together for the best results, something made more likely because unions have a seat on the boards.
Their manufacturing prowess is legendary. The U.S. machine tool industry, which is critical for a country’s high end manufacturing sector, really took a beating in the early 1980’s when the U.S. currency appreciated (Volcker interest rates). It never really recovered.
that era would also be the one when Reagan allowed the Japanese to dump autos on the American market for less than the cost of production, killed Detroit, which has never recovered. The bean counters at the auto companies should have looked at the better prices and engineering and figured something out.
aj54, maybe Detroit should have countered by making better cars. Whether or not Japanese cars were “dumped” is debatable. That they were superior automobiles is not.
Sounds like we should be trying to compete with and emulate Germany instead of trying to smash down wages and conditions to compete with Mexico and China. But that would mean valuing the workforce, and a lot of US corporations stuck on the cheap-labor and long-hours-short-vacations fetishes are ideologically opposed to that, even if it’s good for business.
we make lots of high tech and well made stuff, but it all is sold to Uncle Sam by the military contractors with pie-in-the-sky valuations that the taxpayer is on the hook for. War is a racket, a very profitable one, which is why we are always at war.
Ironically it’s good for business to avoid long hours and limited vacations.
After 40 hours,performance actually decreases and then it starts getting negative. Germany is quite scientific and the companies recognise that giving workers more hours results in them being so tired as to make already completed tasks worse. So they avoid it.
Quality of Products sells all the time.(will do is never a option)
Just bought a Miele vacuum cleaner after my LG broke. Why did I decide for it? Good reviews help, but the fact that they use standardized bags and filters gives me a peace of mind that I won’t “run out” of accessories so common with cheap brands. Trivial example, but gives you an idea why people choose German products over some more “nimble” competitors.
Never heard of Miele until my girlfriend bought one immediately after she came into some money. She was ecstatic when it arrived Now, if I’d bought her a vacuum cleaner
the best thing is how quietly it runs. my miele is 17 years old and works fine. i also have an even older one in storage because i didn’t want to throw it out after my mother passed away.
You’ve obviously never worked on a German car. Almost everything is non-standard, including simple tools.
GSH, Better working conditions for those employed reduces attrition and therefore increases productivity ceteris paribus.
GSH, there is both a good story and consensus in all the responses to your question.
Germany is indeed blessed with a strong and collaborative culture, a legal system that is not adversarial, and (as noted by Paulo below) a respect in their society for the best and brightest to be value creators (technicians, engineers, and scientists) rather than value shifters (bankers and lawyers).
But I suspect their export economy has also been blessed by the (lower exchange) Euro replacing the (higher exchange) Deutsche Mark.
They spend less time in college studying Greek and Roman philosophy (that stuff is available for free on the web) and concentrate instead on learning skills and on the job training.
Germans waste less time on unproductive and expensive pursuits – no one needs four years of training to learn HVAC or plumbing.
Americans like the gentle, lazy daydream that is their life, don’t harsh their buzz man. Let’s forget this heavy depressing stuff and all go to the taco bell drive-thru for a nice diversion – we’ve earned it!
I’m pretty sure the American translation of “E Pluribus Unum” means: if you can’t do it from a car seat it’s not worth doing.
->They spend less time in college studying Greek and Roman philosophy (that stuff is available for free on the web)
Actually, they spend more. German students can afford to because Germany has abandoned tuition fees altogether for German and international students alike. More than 4,600 US students are fully enrolled at Germany universities, an increase of 20% over three years.
http://www.bbc.com/news/magazine-32821678
Compare this to the US model, where students are increasingly bankrupted before they even graduate, MS/Ph.D.s get stuck having to work at Starbucks, and Nobel Prize nominees end up driving buses.
http://www.the-scientist.com/news-opinion/what-ever-happened-to-douglas-prasher-39722
College is FREE in Germany. Not only for Germans but for anyone else who can get over there and find a way to live somehow and have time left over from survival for college.
Imagine, getting out of college and not having $100k or more in debt??
Not to mention, frankly, I don’t think German’s that hard to pick up for an English speaker. Sure there’s the der/die/das thing, but you can’t not love a language where gloves are “Handschuhe” or “hand shoes”.
College is FREE to students who QUALIFY for a university. Students at end of 5th grade are identified who are likely to be eligible for FREE college. Those students get tracked into more intense studies which prepares them for FREE college.
Misconception that college is free for everyone.
Nothing is FREE. Everything is paid for somehow by someone.
Romantic old western principles, like trust in the society, are still alive.
I know someone who works at Danish pharma company Novo Nordisk. Hardly works after 3 p.m. Leads a balanced life and is very good at what he does. His company is the world leader in a niche (diabetes).
He will not work for a U.S. company despite numerous offers.
Google “Novo Nordisk work culture” and read the reviews on glassdoor or indeed.com. People enjoy working there.
The Euro as a currency is why Germany is an export machine. The Euro exchange rate to the rest of the world is effectively an average of The economic strength of a bipolar basket of currencies – on the one hand a very weak southern Europ and a comparatively strong Northern Europe with Germany being by far the dominant weight in the latter. This average – reflected in the Euro FX Rates – is not representative of either. It is too strong for southern economies and way to weak for Germany (France as any economist will tell you is a weak basket case). For Germany, were it to have its Deutschmark again – would have to equivalently revalue the Euro probably by 20% (the CHF is a reasonably good yard stick for that – keeping in mind that the Swiss bank has had to spend an absolute fortune to keep he CHF pegged to the Euro already yet it had to already effectively be revalued a few years ago).
The result is that Germany’s exports are being sold way too cheap abroad. Germany enjoys a massive currency peg. Imagine you were suddenly to increase the price of a German car by 20% to a buyer abroad! Revalue the Euro Fir Ghermany to reflect its real strength in relation to the German economy and German exports would be annihilated. What is worse in the long run is that if you have such a massive trade surplus you must invest it domestically – not in social spending and welfare state but in infra structure. Germany is not doing it. The IMF keeps screaming for it but Germany is deaf. And those of us from abroad having lived and worked in germany, we all know that Germany’s infra-structure is almost the standard of a developing country – trains don’t run, mobile coverage is better in central Afrika and internet speed is what we had 20 years ago elsewhere. What makes matters worse in the long run is that an artifiacially low FX rate makes an economy lazy and efficiency gains fall off a cliff, Innovation dies. That is not recovered quickly. Germany is a Potemkin village, that is, as a result of the for way too weak currency, a domestic basket case about to unravel over the next 10 years, while the rest of the world still thinks looking at it from the outside it is the economic wonder of years gone by. All that because of a currency peg called Euro forced down the throats of Europeans by the Germans and particularly the French to be able to get a peace treaty after the fall of the USSR.
I might add that what also makes matters worse in the long run is German Labor laws only accelerate the FX consequences. German Labor laws would have made Marx proud. They totally utterly stifle Labor mobility. I come from a socialist country but when I worked in Germany in a senior management position I was astounded at what one cannot call anything else that comunist Style Labor laws that would have made Marx and Moscow/USSR proud. You have an economic Melodien in the making in Germany of a magnitude as yet unimahinable. It will tear down Europe with it and finally blow up this unsustainable Euro that has enslaved Europ’s peoples in an economic downward spiral since its misguided inception (measure it by GDP and unemployment rates since its inception especially…..).
The main sources of surplus are the auto industry and machinery.
The driver for the auto industry is the worldwide tendency to increased inequality, which boosts the relative share of luxury products in total consumption. Germany is a MONSTER for luxury products : auto of course, but also high end home appliances, yachts, … for practically any kind of product, you have a luxury German brand !
The driver for machinery is the strong appetite of Asian countries, China in particular, for industrial investment.
These drivers ran their course for the last 30+ years, but I am not sure that it is going to last for 30 more, and I guess the Germans know that too. This is why they improved a lot their positions in their other sectors, taking market share from France and Italy with a mix of macro policy and network effect with the Two aforementioned sectors.
Facts and figures in the following document https://www.boeckler.de/pdf/v_2017_11_11_priewe.pdf
What a nonsense. I am German and we have between 25 and 30 days off per year. Thats it! I lived and worked in 3 countries and have not found workers with the same work attitude. I had colleagues from UK and USA and they where complaining about Germans as they can work like robots.
I should add that it’s not just sky high personal and consumption taxes that are preventing imports from approaching export levels in Germany. German consumers – partly because of stricter credit laws, and partly because of the national character – eschew debt. Consumer debt in German is around 56% of GDP if I recall correctly. Compare that to about 80% in the US and over 100% in Canada. No wonder they import less. They don’t stupidly run up credit to buy crap made in China (or anywhere else).
Alistair, I’d agree with your second post. Tax policy and an aversion to debt go a long way to explain the export miracle. The workforce not so much – I worked in a white collar engineering environment and we were not allowed to enter the buildings on weekends. What a difference when I came to the US. After hours and weekend work were common and encouraged.
1. Paying cash curbs shopping urges.
2. Buying high quality stuff once rather than cheap junk many times.
3. Not sure if still true, but Sunday shop closure.
Germans still remember the 1920’s with runaway inflation and then the ruins of 1945, which informs the national character.
It’s not just that they avoid credit (relatively), but they also aren’t very big stock investors either. They buy a house and bonds. The general view is that finance is a casino. Are they wrong? ;-)
could be, where the average mortgage runs 100 years, but the houses are built to last 300, and use a fraction of the energy an American house does, so……probably not, but they are getting really screwed on providing for non-productive immigrants
Merkel read the political winds entirely incorrectly. Germans were already mad about the bailout of Club Med (aka German banks but that’s not how it was sold).
I read the German press a lot. She’s on the way out but it’s hard to say who would replace her.
This is what sort of bothers me now. The surplus Germany is generating is getting reinvested and building up a very powerful position of creditor nation for Germany, internationally and within EU. If you read
https://global.handelsblatt.com/finance/truth-germanys-trade-surplus-941592
it does explain how US profits from that via services. EU countries “profit” by the flow of less expensive goods and credit, but this is not a happy balance either. That is to say Germany is doing the work but it is not nescessarily getting its investment position right, it is being handled to an extent you could say, or you could even say Germany is doing everything correct to earn a dominant trade and financial position even while taking advantage of a weak system (although I do not think ordinary Germans have that attitude at all) . What bothers me of this is that this whole position is also fragile due to its reliance on international order, not just European but also international financial order. I look at Switzerland on negative rates and that speaks . So if the system resets one way or another, there is going to be one country feeling particularly hard done by, with the left over of a generous “social” policy to deal with at the same time.
These sorts of international financial imbalances and excesses are nothing new, they don’t usually harbinger good as far as I make out, and Germany is, maybe somewhat unwittingly, playing a part in them it might not.
If you want a view of the effect of the first world war on Germans, Unfinished Victory by Arthur Bryant gives some strong insight (free pdf).
Germans snd Japanese have one thing in common that is hugely different from America and Anericans – they LOST WWII and their countries and industries were pulverized or burned into dust and ash (we did most of that).
While Americans think of the 1950s as the “Happy Days” period that is the “Again” part of Make Anerica Great Again, the 1950s were a period of great struggle and rebuilding shattered lives for ordinary Japanese and Germans. The immediate postwar period was a time of starvation for many.
Of course, there was a good reason Japan and Germany needed to be defeated in WWII, but few Americans have ever bothered to learn just how harsh life was in Germany and Japan during that period of time when Americans and American industry reigned supreme in the world, when even black Anericans could find good jobs, and white Americans had their pick of jobs, forcing employers to raise wages and add benefits like health insurance (yes, that is how that got started)
Yes, Americans got too fat and happy and began taking things for granted during this period of 30 years postwar where all its industrial competitors had been bombed to dust.
Germany and Japan rebuilt, as did S. Korea and China, and they rebuilt from this much leaner, poorer, and hungry perspective.
Americans are starting to relearn what it mesns to be poor
Germany has a touch better health care system and social safety net than US, and has had for decades.
One big and seldom mentioned difference is that trades and technical workers are not considered to be lower class and down the social ladder in Germany. They are paid well and treated even better. They are respected. As a result often the best and brightest actually choose a career that makes things and does so for export. Furthermore, workers are treated as assets and and companies work with Unions to ensure best practices are developed.
My son works for a large multi-national in the oil patch. He mentioned last week they just brought in 6 German engineers/specialists to work with the Canadian technicians to put into service (commission) a brand new mining shovel. It is all the same company, but with a specialized technical group from Germany picking up slack and providing expertise as needed. Coincidentally, this same company pays their tradesmen $200,000+ per year plus full benefits. You hear about this level of renumeration on Wall Street and K street, but never on a US factory/shop floor.
You get what you pay for. Ensure hedge fund scalpers and ilk do well and the bright kids become traders and bankers.
regards
One big and seldom mentioned difference is that trades and technical workers are not considered to be lower class and down the social ladder in Germany. They are paid well and treated even better. They are respected. As a result often the best and brightest actually choose a career that makes things and does so for export.
This. One hundred times – this!
Germans don’t encourage their kids to stupidly waste 4 years getting a useless university degree, nor is one necessary to get ahead. Their trade schools, technical colleges, and apprenticeship programs are top notch, and the results show in their productivity and competitiveness. Nobody cares if you have “a degree” vs. some other sort of education or job training. (I doubt a German will ever ask you what your “alma mater” is. They really don’t care.) Post-secondary education is a means to an end, and the end matters more than the means. Germans, like the Swiss, do not lose sight of that.
Also, the kids are tracked around middle school. So, if you are to be trained for a trade, you already are headed that way very young. Then they apprentice.
Apprenticeship is really, really a big deal. That’s how skill is passed down with pride in their Mittelstand. Often these middle-sized companies are the big fish in some small town and they love the town and the town loves them.
It’s sad that the US has become even more hidebound than Europe about credentialism like degrees when applying for good jobs. We used to be admired for offering more flexibility and opportunity about such matters. Economic mobility in the US now trails other western countries.
The one German perk I would have enjoyed was the free tuition they offered for foreign students, I think they stopped offering free education but it still is cheaper than a lot of other nations.
Free education at all public schools and universities is still in place. There is only the obligatory health insurance and some fees.
“Germany has a touch better health care system and social safety net than US, and has had for decades.”
If you mean their not being bankrupted by an attack of appendicitis or chemotherapy, I agree with you .
The American model is based on the principle of killing the last cancer cell while simultaneously sucking the last dollar from your bank account.
Right on.
True, but company health insurance came about during wage and price controls during WWII – companies were not allow to lure new employees by offering higher salaries, so they went the free health insurance route.
It’s more generically true that company sponsored healthcare was the product of the enormous industrial expansion and might that came out of the need for workers in the US that was first brought on by WWII, and then continued postwar for over 30 years.
For instance, the only thing left of mighty Kaiser Industries is the healthcare system that Kaiser started to take care of his suddenly huge population of workers – he did need healthy workers and to take care of work injuries after all, and the available local healthcare couldn’t accomodate them. So he recruited and hired his own doctors. And paid for the healthcare.
Company sponsored healthcare in Europe was never as big because companies there were all rebuilding postwar and the socialist governments had taken that over
Keep in mind also that the US economy was prosperous despite a 90% marginal tax bracket, kept high throughout the “Happy Days” MAGA period of the 1950s by Eisenhower to pay down the huge Federal debt from the war.
Imagine that. Economic prosperity, full employment, tight financial regulations, unchallenged industrial might, and 90% tax rates. Federal debt going down
All we have to do to repeat that again is to bomb the industrialized world into dust again, without getting destroyed ourselves
Gandalf
Painful, but correct.
American participation medals and degrees in basket-weaving mean little in a world that really does understand winning & losing.
It sure looks like the EU and cities withing Germany are doing what they can to destroy the German auto industry. Prohibiting diesel engines for Nox emissions and gas engines for CO2 ( in a country that powers its electric grid with lignite seems a recipe for disaster.
The German auto industry is going bigtime into electric vehicles, as is everbody else, including China. Tesla wiil be toast soon.
The promise of ‘clean fuel efficient diesel’ was always a fraud perpetrated, as we now know, by most of the German car industry. Not unlike Theranos’ promise of delivering accurate blood testing based on tiny capillary blood samples, there was lots of science that said it couldn’t be done.
It’s been known forever that internal combustion engines run more efficiently at higher compression ratios, hotter temperatures, and leaner fuel air mixtures. All of that produces more NOx
NOx is a powerful oxidizer. Period. The only way to get rid of it is to feed it a fuel to burn off the oxygen part and release the nitrogen. Mercedes and a few others used a urea based fluid (i.e. piss) which was cheaper than just feeding some of the diesel/gasoline fuel to reduce the NOx, and would not count towards a reduced fuel mileage. Of course owners had to buy this fluid and remember to fill their diesels up with it or their cars would spew NOx. Which they probably only did when it came time to renew the car inspection
Gas engines car makers in the 1980s gave up on trying to get super high gas mileage by running high compressions and leaner mixtures. They started running rich fuel mixtures instead, specifically to burn off and reduce NOx levels. The catalytic converters then burnt off the leftover hydrocarbons and carbon monoxide in the exhaust.
Which is why fuel mileage plummeted when the stricter NOx mandates came into being and Honda had to stop selling its 50 mpg Civics with the CVCC engines
For the urea system, if the fluid runs low the vehicle goes into a limp mode. If the fluid runs out or freezes the vehicle shuts off (it freezes at a similar temperature to water). In cold climate areas this system is a nightmare to maintain.
Over the last few years the filters that burn this fluid have become highly coveted due to rare earth metals used in the filters, local dealers have had trucks vandalized for these filters because of the value.
Odd side step of the topic but useless information must go somewhere.
Yet another problem is the diesel particulate filter. It gets burned out only when you drive some distances at high enough speed. Otherwise, it might spring a surprise. Cooling the hot filter after you turn off the engine isn’t the most comfortable feeling, either.
Ha! I am actually in Nuremberg, Germany now as I’m typing this. It’s true, generally they are not working too long or too hard, but they make up for it with ruthless efficiency. (Almost) everybody follows the rules and procedures. You don’t have to spend a lot of time with German crews to figure out how the country can produce and sell their stuff to the world without much of raw natural resources. Their human capital is their greatest asset. Educational system is indeed of a high standard and not only because of the number and quality of uni graduates. On the other hand, creative thinking and out of the box problem solving are not their strongest qualities. Just my personal experience.
Another German student and education anecdote:
I used to teach trades at a Canadian high school. Background carpentry, but I also taught electronics, mechanics, and later certified in welding. Our school district actually had a full time liason person who followed our exchange students, usually of Korean, Chinese, and German origin. They came to learn English for future careers, but also enrolled as our STEM is quite good, plus we are located in a beautiful part of the World. Our high school offered CAD, Mechanics, pre-apprenticeship carpentry, and metal fabrication. These students came from money.
My older sister taught in a very large high school in Seattle. Her school did not have one trades program left as they had been phased out for years with a focus on preparing students for university.
Anyway, during my last year I had a terrific German exchange student in one of my blocks. His Dad owned a large machine shop and engineering service company. They specialized in low-vibration propellers, machined to less than a thou and balanced to perfection. One of their main customers was the US military for their stealth submarines. Imagine that. The US military bought German made components due to their excellent quality. I have long since forgotten the Company details but one afternoon he showed me his Dad’s work and projects he had stored on his laptop.
I had a freebie/donated Chinese scooter and gave it to this student for a self-directed project. We could not source some parts that we deperately needed and I was too busy to spend much time on it. This 18 year old took it upon himself to machine them, fit, and modify as needed. He just disappeared to a corner of the shop and a few days later we had a running scooter. He figured it was easier to build parts than order from the supplier based out of Toronto, plus purchasing them would have been a hassle for me as I would have had to have been reimbursed, etc.
It was the easiest A (mark) I have ever given. His work ethic was adult level, his skills were excellent, and he was personable and well spoken. He is probably running the Company by now as that was 7 years ago. He would be 25.
BC has a new LNG project for Kitimat. It will require thousands of skilled trades and many are already working in Alberta. (Like my son). There will be a shortage….is a shortage. It is precisely why we continue to support trades in Canada and emulate as much as possible the German example of training.
I’ve been part of two German manufacturing operations which also had American counterparts. The German plants were always VERY efficient. I attribute this to the term “Discipline”. The Germans were much more disciplined than we could get the American workforce to be. They reminded me of the old 60’s song “Monday I’ve got Friday on my mind”. That seemed to fit many of our American workers, but in Germany it appeared that on Monday they had Monday on their minds.
Concerning the state of German engineering and their auto industry, I have few concerns they will be fine in the future. In a much earlier Wolf post, one of his commentators (I know you’re out there, please take credit) posted the link below. I invested the hour to watch. Yes, Tesla should be very worried…………
https://www.youtube.com/watch?v=uDr4L6BzpP8
Thx for the link….very interesting. Have a grandson who is about to graduate from HS, very good grades, very interested in cars…….forwarded to him for seeing….engineering aspect and how different countries treat them for different purposes is most interesting. The best quote is at the end about why engineers are not more popular in the US….(para) “…because Dancing with the Stars is more popular than engineers”….classic!
I work in the U.S. defense industry and feel they’re a pretty representative of just about everything which is wrong with United States company culture. The management is incompetent, short-sighted, and simply has no interest investing in itself. The result is horrifying levels of stress and inefficiency. As a group lead of ten IT system admins, getting people to follow simple processes is often like herding a bunch of cats. Union representation of some of the workers only furthers the levels of inefficiency. In the end the taxpayer (foreign and domestic) gets the bill for it all.
I predicted the Daimler-Chrysler merger would fail even before it occurred. How did I know this?
German companies empower their workers because it’s profitable to do so. German workers are motivated, inventive, and loyal, which is why the Reich was so costly to defeat. Manchester’s ‘The Arms of Krupp’ explains this in detail.
American managers are required by Wall St. to treat workers as a necessary evil, enemies actually, and a cost to be minimized, which is why it engineered the export of US industry to Chinese sweatshops. The banality of low expectations makes for a crap business model.
The merger was, very simply, a contradiction in management styles with respect to the workers who are counted upon to generate business success, and there was no chance it could be made to work. Investors were deliberately ‘distracted’ to prevent them from acting accordingly.
And yet, it was truly one excellent bet, thank you very, very much. Similar bets still present themselves, despite the admonishments against short-selling, and which is precisely why they had to be legally constrained.
Hello Wolf,
First sentence of your closing paragraph — “No economy is as dependent on its trade surplus as Germany.”
Would that be true excepting China? Or does China rank below Germany?
Really enjoy your work.
-> “No economy is as dependent on its trade surplus as Germany.”
I would have guessed Japan.
What exactly is the US economy dependent on? The ability to browbeat other countries with corporatism, militarism, and the dependence on the reserve currency status of the dollar? Because that’s sure what it looks like.
It certainly can’t be the industrial base that it has exported, or the quality of its infrastructure, or the prosperity of its workers. Germans at least have the sense to vote for their own interests, which not something you can say about american who have been seriously manipulated.
“What exactly is the US economy dependent on?”
Consumers, governments, and companies being able to spend money they don’t have :-]
Oh, yeah. That too.
Should probably stop digging instead of asking for a bigger shovel.
Two things come to mind off the top of my head:
1. China has surging consumer spending as a big economic driver — though this might be changing even as I write this.
2. China’s economy is far bigger than Germany’s, but China has a smaller trade surplus. China imports a LOT of stuff, just not from the US.
In 2016, Minnesota exported $2.1 billion in soybean sales and most of that went to China.
NDSU’s William Wilson, “You take China out of the market, we don’t have much to sell to.”
http://www.agweek.com/business/agriculture/4509419-nd-ag-bankers-riding-black-swan
“Chinese soybean imports have grown at about 18% a year, while trade of most agricultural commodities grows at 2 percent to 4 percent per year.”
“Because of Trump, or the Trump tariffs … because of this China tariff thing, is that, there are eight new export elevators being built in Brazil, Wilson said, adding, As we speak.”
China is buying soy from Brazil now, and it’s hurting farmers in the midwest. That was one of the few things we used to sell to China.
So sell the soybeans to whoever used to buy from Brazil before the Chinese outbid them. These are global commodities.
God save you if your economy depends on export of soybeans like some third world banana republic.
Wolf, that is a good point, and soybeans are a global commodity.
Some of the issues may be logistics and shipping to find other buyers for US soybeans. That’s certainly not my field of knowledge, but I did find some interesting stats.
In the calendar year 2016, the US exported $14.2 billion to China and $6.8 billion to the next eleven countries combined. Two-thirds of our export market went to China (pointing out the obvious, eh).
China now consumes one-third of the world’s soybeans. The USDA reported on March 20, 2018, that in MY16/17 China absorbed 62.6% of total world export, and 61.2% of US soybean exports.
https://www.fas.usda.gov/data/china-oilseeds-and-products-annual-3
I am not sure where US soybeans can find a market to pick up the slack.
https://www.bloomberg.com/graphics/2018-soybean-tariff/
Thank you for publishing WolfStreet!
Nothing wrong with exporting agricultural produce. The US has an abundance of arable land and the world’s most productive grain & oilseed farms. It is only natural that exporting these products is going to be big business.
If this link is accurate: https://www.statista.com/statistics/612422/soybeans-import-volume-worldwide-by-country/
If those stats are accurate, it would mean China purchases more than the rest of the world combined. You want to just go ask the EU to up their consumption of 15 million metric tons to match the 94 million metric tons China consumes? That won’t happen because they can produce their own to begin with.
Keep supporting tariffs, Brazil will ramp up production along with all other nations that can supply the market.
I have worked both in the UK (so I guess I have a quasi-pertinent view of the workers’ attitude in the Anglo-American world, but happy to be contradicted) and in Germany.
My two pennies are:
1. It is true that the average German worker does not have an outstanding work ethic, i.e. (s)he does not “reach for the stars” in terms of ambition. Having said this, it is not like British workers were high-achievers. I would say that they were actually quite lazy & sloppy vs my German workers.
2. As for Americans, from the ones I have worked and studied with, my feeling is that they frequently misinterpret being busy (i.e. being in the office exceedingly long hours) with being productive. The ones I worked with also seemed to struggle with understanding that good quality means putting in effort and that the 80/20 rule does not work wonders all the time.
3. German workers very much prefer stability, co-operation, and the preservation of the status-quo / company. This leads to a lot of effort being made by all stakeholders not to destroy companies. Strong-willed individuals who are in it just for themselves do not seem to be very well liked, unless they lead teams. I think traditional British culture is also very much about cooperation and stability, but I think things changes in the last 2-3 decades because of the permeating American culture of the “strong individual”.
4. As to why Germany has a trade surplus? I think there are many reasons behind it, but I think the U.S. pretty much did it themselves. It was part of their elites who decided to go on the financialisation path decades ago and this has ruined their economy. Now the other part of their elites is trying to change course and because they cannot / do not want to blame themselves, they need to find a scape goat and the Germans will do.
i have enormous respect for german engineering and manufacturing. i drive a ’93 vw van with 274k miles. still german exports are facing some serious headwinds. despite all the hype, a hard brexit is going to be much worse for germany than england.
As a European, here’s my two cents.
Germany’s current-account was roughly balanced before it joined the Eurozone. Hence it doesn’t take a genius to deduce that it’s humongous trade-surplus has everything to do with the Euro’s low exchange-rate (compared to what the Deutsche Mark’s would have been).
Germany underwent internal devaluation in the 2000’s (the so-called Hartz reforms) while the European South acquired new debts to finance consumption, so that was a game changer as well. With the rest of the Eurozone now following along the same path, it’s obvious that the EMU creates distortions for the rest of the world that will not go along well, but that’s why we currently have a trade-war.
Judging from a lot of the comments here, there seems to be some mythical quality when it comes to German products. This of course is far from true. German companies have globalized as well, and a big part of their manufacturing takes place outside of Germany. We live in an era of disposable machinery (i.e. not made to last for long), and the same is true of German products as well. Do you really think there’s any difference whether you buy a Bosch or Hoover vacuum-cleaner? There isn’t any.
Gotta say this is another great article that lent itself to many good comments……Thx again Mr. Richter….
Last in order of priorities, but not least? Was? Das stimmt nicht.
And wouldn’t German exporters benefit from increased U.S.-China tensions? Wouldn’t China use the European Union as leverage against American trade negotiators?
Pleased to see the article quoting ZEW and ifo – amongst the few institutes in Germany doing serious economic research that holds up to scientific standards. Most others are thinly disguised PR outlets for various particular interests.
Apart from that, Germany does not “depend” on a trade surplus. German companies offer products and services which, if liked enough by foreign buyers, collectively may lead to a trade surplus.
Anyone afraid of Germany’s trade balance take heart: the drivers of it have been ageing and eroding for a while already.