Is Germany a mercantilist state? The dispute over trade

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Is Germany a mercantilist state? The dispute over tradebetween Berlin and Washington under Merkel and

TrumpPierre Baudry

To cite this version:Pierre Baudry. Is Germany a mercantilist state? The dispute over trade between Berlin and Wash-ington under Merkel and Trump. international studies association, Apr 2019, Toronto, Canada. �hal-02105531v1�

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“Is Germany a mercantilist state? The dispute over trade between Berlin and Washington

under Merkel and Trump” Pierre Baudry 2019 © No reproduction without the author’s

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Is Germany a mercantilist state? The dispute over trade between Berlin

and Washington under Merkel and Trump

Pierre Baudry 2019 ©

Ecole Pratique des Hautes Etudes/CNRS, PSL, France

Email: [email protected]

Pierre Baudry teaches at the University of Tours (France). He is finishing his Ph.D. at the

Ecole Pratique des Hautes Etudes/CNRS, PSL. His Ph.D. is about the European policy of

the Christian-democratic parties, CDU/CSU, under Angela Merkel from 1998 to 2016. He

focuses Berlin’s policy during the euro and the migrant crisis and the tensions between the

USA and Germany since Trump’s election. He has published articles and books reviews in

ournal of Common Market Studies, Revue française de science politique, Revue

d’Allemagne et des pays de langue allemande.




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Is Germany a mercantilist state? The dispute over trade between Berlin

and Washington under Merkel and Trump

Abstract:

Mercantilism is certainly one of the oldest concepts of political economy.

However, its use to describe pre-liberal and pre-industrial Western capitalism has

been highly disputed due to the apparent vagueness of its definition. This paper

tackles this issue by developing a historical vision of mercantilism, which rests on

a heuristic ideal-type. My goal is to developed mercantilism as a complementary

concept to Kindelberger’s of Hegemonic Stability Theory. The pro-free-trade

‘benevolent hegemon’ goes hand in hand with mercantilist states, which need high

level of good export and capital import. The question is then to understand two

forms of mercantilism: I call the first one ‘early capitalism’, which is typical for

developing countries, while ‘late mercantilism’ is to be found among ageing and

developed countries, which maintain a mercantilist policy. Empirically, I focus on

Germany’s economy since 1945 to illustrate and test this conceptual distinction. I

intend to show that West Germany has been an ‘early mercantilist’ power and

benefited from the much-needed help by the USA after WWII, while it appears

more and more as ‘late mercantilist’ power since the 2000s. This empirical case

shall help illustrate my general framework and shed light on the structural reasons

for the disputes over trade between Berlin and Washington under Donald Trump.

Keywords: Mercantilism; free trade; Germany; USA; Trump; Merkel;

Kindelberger; Hegemonic stability theory; capitalism




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Introduction

“We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO &

military. Very bad for U.S. This will change”, Donald Trump on Tweeter, 30th May 2017.

Since Obama’s and even more since Trump’s election, the USA is worried about the

trade surplus that Germany and China generate. It is certainly not the first time in its

history that the American hegemon considers with anxiety the rise of economic

competitors and accuse them of undervaluing their currency, subsiding their national

champion and using bribing as a method to win large tenders. The 1960s and 1970s were

in that respect particularly important because they marked the peak of the recovery cycle

by the West European economies, which increasingly competitors their American ally.

Moreover due do the costs related to the Vietnam War and the necessity to finance war

spending through money creation, the US gold reserves were decreasing in the early

1970s and a decade later Japan, an unexpected new challenger for the American

economy, was able to destabilize Washington’s confidence in its economic potential and

affirmed itself as a powerful industrial actor. All these factors combined led to intense

negotiations between the USA and their partners, which after several rounds of

international bargaining were compel to accept new the lowered exchange rate for the US

dollar.1

However, in recent years, Washington increasingly showed its concerns over the

rising of China as an international power and peer competitor, while it reproached to

Berlin not to fulfill its duties as the economic leader power in Europe during the

1 Julian Germann, Pivotal Crisis: State Power and Social Forces in the Making of Neoliberal Capitalism, A dissertation submitted to the Faculty of Graduate Studies, 2013.




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eurocrisis and the global economic turmoil since 2007/2008.2 The economist Peter

Navarro, who had defended unorthodox views on and protectionism, joined Donald

Trump’s administration. He supervised a report on Beijing infringement against the rule

of world trade3 and explicitly ‘accuses’ China of cheating against the American

companies with illegal methods after the new Republican president repeatedly accused

Germany not to contribute enough to NATO’s budget and to use the euro as an

undervalued currency.

In this context, the concept of mercantilism regained popularity among scholars

and political leaders alike.4 However, in spite of the inflationary use of this notion,

economists and political scientists are still looking for a precise definition of

mercantilism, which would be heuristically usable and meaningful in the context of

global economy. My contribution in solving this puzzle consists in three points. First, I

aim to overcome the traditional opposition between free trade on the one hand and

protectionism on the other hand. Free-trade and protectionist do not represent two

different stages in the history of the development of capitalism as Adam Smith5 famously

argues, but constitute two closely related tenets of modern economy. I argue that a

modern conception of mercantilism shows the close interaction between both aspects of

world economy by explaining how liberal nations with relatively low trade barriers

represent the necessary counterpart of export-orientated countries, which use protectionist

or mercantilist policies. Second, I aim to offer an historical account of mercantilism,

which is both connected to older definition of this concept coming from Friedrich List

and Heckscher, but that defines its meaning in a new context, in which former developing

countries are increasing able to compete with the Western economies. I thus introduce a

longue durée perspective on world’s economies by connecting the former Western

2 Mark Blyth & Matthias Matthijs (2017) Black Swans, Lame Ducks, and the mystery of IPE's missing macroeconomy, Review of International Political Economy, 24:2, 203-231. 3 Peter Navarro. 4 Rodrik 5 Adam Smith




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domination of the globe since the colonial period and the increasing power reversal at the

advantage of the Global South countries. Third, my contention is to show that

mercantilism is not necessarily related to unfair economic policies implemented by states

that try to fool their competitors through more or less discretionary and opaque industrial

policies. Mercantilism belongs to a more comprehensive framework of global

imbalances, which are related to saving, portfolio decision and investment as Blanchard

underlines.6 If one really wants to overcome the traditional vision opposition between the

‘mercantile system’ and liberalism, one must then assume that mercantilist is a

multilayered phenomenon grounding on complex macroeconomic, ideological and

demographic reasons.

To put in a nutshell the central contention of this article, I argue that one should

rethink the concept of mercantilism to give him a scientifically satisfying definition based

on a renewed conception of realism I propose to call post-liberal realism. Moreover, I

consider that the tensions between Washington and Berlin over the US trade imbalance is

one the best examples to scrutinize this question. In this article, I will then focus on

Germany’s economic policy and its dispute over trade with the USA under Donald

Trump.

To clarify the issues at stake, I defend in this article both a theoretical and an

empirical thesis. First, my theoretical claim is that both IR theories and economics have

ignored each other and are unable to integrate critical insights, methods and results from

the other discipline from an interdisciplinary perspective. Such an interdisciplinary

dialogue alone makes it possible to understand the new form of political and economic

power that Trump’s rhetoric over protectionism and the critics against German export

surpluses highlight. Almost taboo concepts such as ‘capitalism’7, ‘inequality’, ‘the richest

6 Olivier Blanchard and Gian Maria Milesi-Ferretti, Global Imbalances: In Midstream? 7 Piketty, Thomas, Le capital au XXIe siècle, Paris : Éditions du Seuil, [2013]. English translation : Piketty, Thomas, Capital au XXIe siècle. English Capital in the twenty-first




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1%’8 or the endogenous ‘instability’9 of market economy gained unexpected traction due

to the evident economic meltdown all over the world. However, we are surprised to

observe that IR are still lacking not only a macro-economic framework10, but a genuine

dialog with economic science at all. To try to develop such an interdisciplinary exchange

between IR and economics in a heuristic manner, I offer a synthesis between recent

developments on IR and especially on hegemony-centered theories on the one hand and

mercantilism of economics on the other hand.

My second claim, which is empirical, is related to the analysis of the normative

and economic power of Germany since the end of Cold War. Germany’s power is typical

for what I propose to call post-liberal realism. By post-liberal realism, I mean a specific

power distribution that allows states and nations to pursue selfish goals through

multilateral structures and regimes. In that context, states follow a non-cooperative

strategy in a liberal context and try to use to their own advantage supranational

infrastructure such as international trade agreement, NATO and monetary agreements.

This means in the case of contemporary German that it increasingly follows a typical

realist strategy since the reunification of both Germany. In a situation of collective

competition and potential threat, Berlin follows its own economic and political interest

through – and not in spite of – the international and supranational regimes and institutions

created by the US liberal policy since 1945.

To sustain this double hypothesis – that a dialogue between economics and IR is

necessary more than ever and furthermore that only such a dialogue makes it possible to

understand new forms of mercantilism – I will in section 1 of this article focus on the

century ; translated by Arthur Goldhammer. Cambridge Massachusetts : The Belknap Press of Harvard University Press, 2014. viii, 685 pages. 8 Joseph E. Stiglitz, The price of inequality, New York : W. W. Norton & Company, 2013. lxiv, 523 pages. 9 Minsky, Hyman P. Stabilizing an unstable economy. New Haven : Yale University Press, 1986, xiv, 353 p. 10 Mark Blyth & Matthias Matthijs (2017) Black Swans, Lame Ducks, and the mystery of IPE's missing macroeconomy, Review of International Political Economy, 24:2, 203-231.




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lessons from Keynesian and heterodox economics to understand to what extent the

Western middle class is threatened by globalization and increasing inequalities. In section

2, I illustrate this new form of internal threat for the Western countries through the

example of the German economy since 2000. I aim to show that Berlin’s economic policy

actually represents a new form of mercantilism threatening both the other European

countries and the USA and the potential limits of its mercantilist strategy. In the final

section 3, I confront my central hypothesis about Germany’s mercantilism with two

possible objections: to what extent is this policy mercantilist intentional? And to what

extent does is really benefit to Berlin in the long run? Regarding the sources, regular

reference is then made to theoretical analysis from economic theories and from my

original conceptualization on mercantilism throughout Section 1. In Section 2, I draw on

historical evidence drawn from economic database, secondary grey and historical

literature on Germany’s economy.

Section I: Question of method: plea for a dialogue between economics and IPE

I.1. The contribution of Keynesian and unorthodox economics to IPE

A dialogue between economics and IR is necessary as both disciplines underwent severe

evolutions on the impact of the end of the Cold war, 9/11 and the financial crisis of 2007.

Internal crisis of the liberal hegemonic project11 and the turmoil inside the international

since the war on Iraq represent a few examples of the tremendous debates underpinning

IR for almost thirty years. Regarding economics, this discipline experienced dramatic

changes since the financial and economic crisis in 2007 often compared to the 1929

world depression.12 To some extent, one could argue that the international order based on

neo-liberal policy recommendations, the US military superiority and the very concept of

11 Ikenberry, G. John. After victory : institutions, strategic restraint, and the rebuilding of order after major wars / G. John Ikenberry. Princeton : Princeton University Press, 2001. xiii, 293 p. 12 Eichengreen, Barry J. Hall of mirrors : the Great Depression, the great recession, and the uses-and misuses-of history. New York, NY : Oxford University Press, [2015], vi, 512 pages.




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‘liberal hegemony’ experiences a moment of severe internal crisis. The optimistic views

about self-regulation of capitalism and the diffusion of liberal values under the American

leadership belong to time, which seems to be remotely distant. A fresh regard on free-

trade and the concept of globalization is needed in this new post-crisis context. In that

perspective, Keynesian and heterodox economics ideas can help escape, what Kathleen

R. McNamara calls the monoculture of International political economy (IPE).13 Since the

groundbreaking works by Keohane and Nye on complex interdependence14 and the

following stream of research called Open economy politics (OPE), most researchers were

implicitly following liberal and free trade patterns to analyze the interplay between global

governance and world markets. To avoid this limitation, my goal in the first part of this

paper is to explain the theoretical gains we can earn to integrate Keynesians and

heterodox theories into IPE. I intend to show what these economic paradigms teach us

about the internal crisis of capitalism and how the Western middle class, which used to

win from economic and technological progress, is threatened by globalization.

Since the 2007 debt crisis, critics of neo-liberal policy gained legitimacy in the

public debate they did not possess due to the apparent triumph of capitalism over the

soviet economic in 1991. One can indeed notice the worldwide contestation of capitalism

and neo-liberalism both on a theoretical level and on a political level. To focus only on

the scientific resurgence of Keynesianism and unorthodox economics, Joseph Stiglitz,

Paul Krugman15 or James Galbraith16, Hyman Minsky17 in the USA, Thomas Piketty,

13 Kathleen R. McNamara (2009) Of intellectual monocultures and the study of IPE, Review of International Political Economy, 16:1, 72-84

14 Keohane and Nye 15 Krugman, Paul R. The return of depression economics and the crisis of 2008. New York : W.W. Norton, 2009, 191 p. 16 James Galbraith, The Predator State: how conservatives abandoned the free market and why liberals should too. 17 Minsky Stabilizing an Unstable Economy. McGraw-Hill Professional, New York.




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Michel Aglietta18, Pierre-Noël Giraud19 in France or Wolfgang Streeck20 in Germany all

contributed to question the very principles of neo-liberalism.

Broadly speaking, the liberal credo both in its classical and neo-liberal conception

rested indeed on three central assumptions: first, global progress is open to everyone, who

accepts to play the rules of the game based on competition and capitalism. Free market is

the most favorable way toward development for the individuals and societies alike.

Inequalities are a regrettable element, but inescapable moment of global economic

development. The second central tenet of liberalism is about collective progress for

Western countries, which should be the first to beneficiate from open trade and economic

exchanges. This belief appears increasingly as an illusion, as I intend to show by drawing

on works by Angus Deaton. Eventually, the liberal narrative is about progress through

free trade, entrepreneurial spirit and individual efforts toward economic success during

the modern age as a whole. Western countries, according to this narrative, were able to

develop dramatically since the beginning of modern time thanks to liberalism. But

unorthodox economic thinkers such as Ha-Joon Chang put in question this collective

story. We will analyze each of these beliefs and show their limits.

Regarding inequalities, the French economist Thomas Piketty in his bestseller,

Capital in the 21th century, assumes that the growth of capital is superior to the growth of

economy as a whole. Capital – understood in a very broad manner by Piketty as

production capital, income on financial placement, real estate capital – brings more than

any form of economic activity, which leads to the equation r > g (r stands for revenue

from capital and g for growth). This book provoked heated debates, but it brings

important comparative and historical insights with the explicit intention to allow a

broader dialogue between historical, economic and social sciences. Furthermore, it tend

18 Aglietta, Michel. Régulation et crises du capitalisme. English A theory of capitalist regulation : the US experience ; translated [from the French] by David Fernbach. London : NLB, 1979, 390 p.

19 Pierre-Noël Giraud, L'Inégalité du monde. Économie du monde contemporain, Gallimard, coll. « Folio essais », 1996.

20 Wolfgang Streeck, Re-Forming Capitalism, Institutional Change in the German Political Economy




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to show that rising inequalities are plaguing modern capitalism and democracy. Heritage

plays a central role according to Piketty in spite of the conventional liberal narrative on

progress through personal commitment, strong work ethics and openness to industrial

innovation. Joseph Stiglitz, who won the ‘Nobel prize’ for economics highlighted too ‘the

price of inequality’21 and the cost of ‘greed’ from the financial system, while another

Nobel prize winner, Paul Krugman dared to challenge the conventional austerity and

neoliberal policy.

Moreover, thanks to economists such as Angus Deaton, we can make a second

step toward a fine-tuned understanding of why globalization is now a threat for the

Western middle class especially in the USA. Deaton and Anne Case helps us understand

not only inequalities, but stresses the impact of globalization on health, suicide rate or

personal development, while heterodox views on free trade earned more visibility on the

public stage.22 They help us understand the new forms of alienation that now plague the

white middle class. According to him, the non-hispanic white class is now the social

class, which suffer the most in the American of morbidity and suicide.23 By morbidity,

Deaton and Case mean the situation of death by suicide, opioids and alcohol-related

mortality correlated to deteriorating working condition:

« The cohorts born between 1940 and 1988 show a decline in real wages that has

become more pronounced with each successive birth cohort. This temporal decline

matches the decline in attachment to the labor force. Here we also emphasize the

cascading effects on marriage, health, and morbidity—and, ultimately, on deaths of

despair. »

The former blue-collar, which beneficiated from post-War Welfare state, generous

public policies and redistribution on both shores of the Atlantic are now more threatened

by morbidity than Black and Hispanic people in the USA. This leads us to question the

21 The Price of Inequality: How Today's Divided Society Endangers Our Future : price of inequality. 22 Ha-Joon Chang, op. cit. 23 Deaton and Case, Mortality and Morbidity in the 21st Century.




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very principle of open markets and neo-liberalism in a historical perspective to approach

a fundamental problem: to what extent should we consider that the USA, who initiated

globalization since 1991 are now victims of the globalization of economy? And what is

the role of Germany in the global trade imbalances?

In spite of the importance of the economic reviewed above, conventional

Keynesian theories do not go far enough to understand long-term evolutions of

capitalism. We need to rely on heterodox theories to conceptualize profound historical

tendencies of world economics. I aim at developing a historical approach toward

capitalism history that traditional concept such as ‘cycle’ fail at grasping in an adequate

manner. Economic theories – especially in Germany – used in the 19th century to focus on

long-term evolutions of capitalism. One the leading thinkers of ‘national economy’

(Nationalökonomie), Friedrich List24 and the historical school of economics (Historiche

Schule), Marxist theory and its offspring, the imperialist theory25 nourished the ambition

to shed light on historical heavy trends in economic development. Ha-Joon Chang

endeavoured to develop analysis on economic ‘infancy’ and the legitimacy of

protectionism and public policies.26 In France, the historian and anthropologist

Emmanuel Todd aimed to renew historical approach toward economic divergence.27

The concept of infant economy argument, which was developed by Alexander

Hamilton28 and later on by Friedrich List consists in assuming that an ‘infant economy’

must protects its industry and domestic market through trade barriers, public subsidies,

offensive industrial policies21 and political initiatives to improve the productivity and

24 List, Friedrich, 1789-1846. Nationale System der politischen Oekonomie. English National system of political economy. With an introd. for the Garland ed. by Michael Hudson. New York, Garland Pub., 1974, 22, lxxxiv, 61-497 p. 25 Rosa Luxemburg. Joan Robinson, Accumulation of Capital, 1956. 26 Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem; 2002. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury; 2008). 23 Things They Don't Tell You About Capitalism (Penguin Books Ltd; 2010). 27 Todd, Emmanuel, 1951- L'illusion économique : essai sur la stagnation des sociétés développées,

Gallimard, c1998, 321 p. 28 Alexander Hamilton, Report on the Subject of Manufactures, 1791.




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performance of domestic companies in spite of all liberal arguments. The South Korean

economist Han-Joon Chang offers a critical vision of the history of political development

in third world countries, which substantially differs from conventional liberal narratives29

because he assumes that most Western and developed countries did not follow neoliberal

prescription about free trade and small government, but that they on the contrary

implemented a protectionist policy. The Western countries tend to forget their own

protectionist history and their former high trade tariffs. The open trade and liberalization

measures that the World Bank and IMF advocate are more suitable according to Chang to

developed countries than to emerging nations.

But how can we mobilize these different insights into a genuine framework

suitable for IPE? To answer that puzzle, I therefore introduce a new notion closely related

to the concept of mature economy. In what follows, I intend to clarify this new notion I

propose to call post-liberal realism.

I.2. Why realism better grasp globalization than neo-liberal and Marxian paradigms

The analysis of Keynesian and heterodox theories pave the way toward a better and

critical understanding the crisis of contemporary capitalism in Western countries. But we

still lack a broader framework to shed light on general political and hegemonic-centric

phenomena present in contemporary world economy. In what follows, I defend the thesis

that a renewed vision of realism represents the most powerful and consistent paradigm to

understand the role of mercantilism. This claim is partially paradoxical as realists

traditionally focus rather on phenomenon such as defense spending, foreign policy,

alliances and competition over military superiority. In addition, “realism, as it currently

29 Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem; 2002. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury; 2008). 23 Things They Don't Tell You About Capitalism (Penguin Books Ltd; 2010).




13

stands, is an underspecified theory in the global political economy”.30 However, since the

works by Robert Gilpin, realism has been able to integrate economic variables in its

analytical framework.31 To contribute in a critical way to a renewed theorization of

realism, I shall offer a discussion with the two dominating IPE paradigms, liberal

institutionalism and Gramscian hegemonic-centric theories, to explain both the

singularity and the conceptual superiority of what I call post-liberal realism.

To develop a broader understanding of international political economy, I develop

the ideal type of post-liberal realism to analyze new forms of economic and political

power. I define post-liberal realism as the selfish competition between states in

globalization, which use international infrastructures and regimes to defend their

economic interests at the expense of precarious people in developed countries (blue

collar, women, jobless, temporary workers).32 Post-liberal realism then denotes both a

specific structural condition related to power distribution and a particular historical

moment in the history of capitalism and of the modern states I shall unpack.

Structurally, post-liberal realism differs from conventional realism because in the

postliberal paradigm military action represents a potential threat that shape asymmetric

power distribution that underlies diplomatic negotiations and international policy. In very

specific cases, this virtual violence, which military power represents, becomes effective

even if long-term trends toward decreasing military conflicts appear.33 The central

difference between military power, which is both potential and exceptional, and

economic power resides in the fact economic power is daily effective and belongs to the

common business of economic private actors, diplomats and international negotiators and

international organizations.

30 Kirshner (2009:38), http://oxfordre.com/internationalstudies/view/10.1093/acrefore/9780190846626.001.0001/acrefore-9780190846626-e-260#acrefore-9780190846626-e-260-bibItem-112

31 Robert Gilpin 32 Guy Standing, The Precariat. London: Bloomsbury Academic, 2011. 33 Oslo peace project.




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Besides, unlike conventional realism, post-liberal realism is not intended as theory

excluding liberal intergovernmentalism (LI), but rather as a mature and to some extent

post-paradigmatic approach that draws on liberal insights to explain how international

regimes opens opportunities for power-seeking states. The economy in my understanding

does not express ‘neutral’ material interests, which leads then state to generate

international laws, trade agreements and supranational organizations to lower dilemmas

and free-riding behavior. My critical stance toward the concept of regimes is the central

aspect of my reception of LI. What post-liberal realism brings in comparison toward LI is

a clear hegemonic-centric and stratified conception of the international system based on

the existence of ‘a stabilizer, one stabilizer’.34 For LI theorists, the need of regime rests

on the assumption that state are rational actors and that are oriented by their material

interests and that are looking for interstate agreements to escape zero-sum competition.

Regimes are then horizontal and law-based common procedures between states, which

avoid prisoners’ dilemmas by cooperating through multilateral principles.

I challenge this opinion due to an enlarged vision of the Hegemonic stability

theory (HST). The central tenet of this renewed conception of HST consist principally in

assuming that military power albeit exceptional and potential represents the essential

condition and the backbone of this international system. The benign hegemon has then

not only a financial and economic function has Kindelberger assumes, but a military one.

The world that LI describes is not opposite to Waltzian realist world, but as consequence

of it. The US hegemonic power has created a kind of international polity or cosmopolitan

state-organization after 1945 both in Europe and in Asia with Japan and South Korea. But

this hegemonic power then let emerged a stratified international order whose very

fundament rests upon the American military power. The freedom of navigation that the

United Kingdom and the USA both enforced respectively against China and Japan marks

much more the beginning of the international liberal order that ‘regimes on ocean and

34 Kindelberger.




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money’ as Keohane and Nye assume.35 The force of the European and of the US army

opened the way toward the West’s imperialism, which was then able to create a global

area of negotiations and rules.

In my view, HST needs integrating three kinds of regimes and infrastructures than

are not solely related to international agreements and economic policies. Only a clear

perception of this complex set of infrastructures help understand how mercantilist nations

benefit from the international system. These infrastructures are first the dollar as the

international currency and the euro, which makes trade easier in the EU, the first free-

market zone in the world; the second central international regimes are trade agreements

such as WTO or the European single market; the third category of infrastructures are

international organizations such as the European Union, the IMF, the World Bank and

UNO, who are the agency part of the international system.

The key difference between both Colbert’s and 19th like mercantilism and

contemporary mercantilism lies in the fact that the latter rests on infrastructures that the

US led globalization created. The puzzle to clarify the new forms of mercantilism is not

about the selfish policy by a single state, but about world’s manifold imbalances in trade,

investment, currency hoarding and portfolio decisions.36 Only by focusing on the global

economic imbalances and their negative externalities for the Western countries, we can

penetrate the reasons why the US hegemon feels increasingly insecure within the post-

1945 order it significantly contributed to shape.

This question leads us to the second central feature of post-liberal realism related

to its historical nature. More specifically, post-liberal realism is at odds both with LI

narrative about international stability through regimes and the Marxian imperialist

theories that assume that oversee expansion if the expression of Western domination to

35 K and N, Power and interdependence,

36 Blanchard, op. cit.




16

save capitalism from a self-cause collapse. Post-liberal realism describes a historical

moment, which I describe through the concept of mature economy. Through this ideal-

type, I mean three central elements.

First, from a social and demographic perspective the concept of mature economy

realism describes the situation of countries with an ageing population gradually more

pessimistic about its future. Migrations play an important role, while experts and

politicians consider it as necessary to compensate failing demographics. Tensions over

ethnicity, gender and economics inequalities are growing in a context where political

meditations such as political parties and labor union are in crisis. From a cultural point of

view, deception with liberal and progressive narratives appears and fear of technological

disruption gains traction. People fear global warming, new bacterial threats and artificial

intelligence, which could destroy millions of jobs for the middle class.

Moreover, in a mature economy deindustrialization is growing, while expanding

money quantity and floating currencies underpinned global economy. The competition

between states over economy takes two forms. Strong exporting countries are able to

impose their interests on the international stage through deflationary politics, wage

deflation, currency manipulation. But they do that at the expense of other developed

countries, which former developing countries (China) or countries that USA has

sustained after WWII (Japan, Germany) now contribute to destabilize it economically and

socially.

Finally, in a mature economy, tensions appear over regional integration structures,

which become less meaningful because they answered to post-War problems (NATO,

EU). More flexible and pragmatic global cooperation is needed at the expense of

structural and permanent cooperation structure. States think it is more advantageous to

cooperate in an intergouvernemental framework than through bureaucratic international

structures.




17

To illustrate this post-liberal ideal-type, I shall focus on Germany’s economy

since 1945 to explain how new forms of national interest plays override traditional

international liberal constraints.

Section II: Application of the neo-mercantilist model on Germany’s economy

II.1. Conceptual distinction between early mercantilism and late mercantilism

The goal I pursue in the second section of this article is to illustrate the concept of

post-liberal realism and mature economy through the example of Germany’s economic

policy. But before starting a closer discussion on Germany’s mercantilist policy, I shall

remind the central tenets of the conceptual history of mercantilism. Adam Smith disputed

the advantages of mercantilism and labeled the pre-existing set of trade restriction policy

as the “Mercantile System”.37 In classical texts, however, Alexander Hamilton, Friedrich

List, Gustav Schmoller contested this negative perception of mercantilism by focusing on

the role of mercantilism in protecting the interests of infant industry and in contributing

to the construction of modern and unified states.38 During the Great Depression, Eli

Heckscher wrote a two-volume study of mercantilist thought and Viner conceptualizes

preindrustrial mercantilism.39 The central tenets of the concept of mature economy

intends at drawing on insights by the 19th thinkers of mercantilism. However, I want to

offer a paradigmatic opposition between early industrial mercantilism and the late

industrial version of it.

37 Book IV of The Wealth of Nations. (1976 [1776]:159)

38 Alexander Hamilton, Friedrich List, Gustav Schmoller.

39 For historical reviews on mercantilism, see Magnusson (1994, 1993) and Perrotta (1988). The

classics of the 1930s were Heckscher (1955) Viner (1937) and see Coleman (1969).




18

My hypothesis is that contemporary Germany is not a mercantilist country in the classical

meaning of the word, but rather a neo-mercantilist, post-modern mercantilist or

globalized mercantilist state. By these different, but complementary concepts, I mean that

a new form of mercantilism emerged since the 1970s (‘neo-mercantilism’), that it

corresponds to new flexible and decentralized economic strategies more comparable to an

octopus with tentacles than to a rigid highly hierarchal premodern state (‘post-modern

mercantlism’). This economic policy, however, is strictly related to the international

public goods and to globalized: in this context, Berlin’s economy is throughout

globalized. Germany’s role in the EU and in globalization rests indeed on the use of

liberalism and free-market as a power factor, that a new mercantilist paradigm can help

us understand. It rests on the complex institutional setting that enables it to defend its

interests in the multilevel global governance and through the complex economic interplay

between outsourcing, offshoring and internal European migration toward Germany from

the periphery countries.

Before starting my analysis of mercantilism, I propose to define it by using an ideal type

that should help us grasp the structural feature of this specific form of political economy.

In what follows, I therefore mean by late mercantilism a twofold set of goal: first, a

mercantilist strategy intend to increase the overall living standard of the population by

importing capital and money and second the global power of a nation, which corresponds

to some of the most conventional definitions of mercantilism.40 Neo-mercantilist policies,

however, differ from the prior mercantilist ones. Mercantilism is often associated with

anti-liberal measures such high tariff and non-tariff barriers, public subsidies, currency

undervalued currencies. But the WTO dispute settlement system, the clause of the most

favoured nation (MFN) and the strict anti-cartel policy of the EU all participate at

enforcing transparent and anti-protectionist practices. Moreover, the general decline of

40 Sources




19

vertical industrial policies41 and the market-bound volatility of international currencies

make the accusation of economic cheating less likely.

The real questions with Berlin’s neo-mercantilist strategy rest rather on the discrepancy

between the size of the German domestic market and the level of domestic consumption.

The trouble from the point of global imbalances is not the high level of exportation per

capita in Germany, but much more the fact that its internal market is large enough to

absorb more consumption on goods and service that it is presently the case. Peter

Katzenstein in classical books on small European states, showed the dynamics underlying

the economics of Switzerland, Austria and Scandinavian countries highly integrated in

world’s export competition. However, this strong orientation of their economy toward

foreign markets rests on the relative small size of their population and the limited

possibilities of growth for their companies at home.42

In classical analyses, Susan Strange argues that four forms of power shape international

relations.43 But we could introduce a fifth type by introducing the concept of exporting

power, which consists in relying on export-based growth in order that a third country

consumes at the place of the neo-mercantilist nation. To bring a more detailed definition

of mercantilism, we can then distinguish two historical forms of mercantilism.44

1) Early industrial mercantilism, which typical for infant industries in the 19th century and

20th century, aims at attracting capital and money from abroad to invest and to enter into

economic development. The domestic market is narrow because the population is

abundant, but poor, but export opportunities are important and global growth high. The

developmental state follows a strong vertical industrial policy (public subsidies,

41 Rodrik 42 Peter J. Katzenstein: Small States in World Markets. Industrial Policy in Europe 43 Susan Strange 44 On mercantilism, https://academic.oup.com/ereh/pages/protectionism. On the history and on the concept of mercantilism : Jérôme Blanc, Ludovic Desmedt; In search of a ‘crude fancy of childhood’: deconstructing mercantilism, Cambridge Journal of Economics, Volume 38, Issue 3, 1 May 2014, Pages 585–604.




20

nationalization, economic planning by the state) to compete with more developed nations

and it can be very hierarchical and even authoritarian. The industry focuses on catching

up with more advanced countries through state interventionism. The national currency is

protected against inflation through price control. Foreign markets are open through free

trade agreements or the creation of genuine international free trade zones. The state

provides public goods such as money, transportation, communication technologies, and

education. Inflation can be high due to significant growth rate, but the exchange rate on

the international markets is protected through policy coordination and pegged rates.

Example of this early capitalism are numerous even if by principle concrete examples do

not fit exactly into abstract schemes: United Kingdom and Germany in 19th century;

post-war South Korea and post-war France; China since the 1980s.

2) Late industrial mercantilism aims at exporting its consumption to attract capital and

money because the domestic population is ageing and declining, while the domestic

international markets are saturated. The state follows horizontal industrial policy and is

both democratic and open to international integration to be able to export its goods and

services. The companies sell cutting-edge products and services and follow a mix pattern

between neoliberal and Schumpetarian to remain competitive unlike early mercantilist

countries that specialize in low-costs and labor-intensive products. This a central feature

for any national economy in 21st century, and it represents difference between early and

late mercantilism. Regarding the exchange rate of their currency, the ideal type of late

mercantilism does not entail by itself currency undervaluation. The fact that the euro is

undervalued for German exportation as many studies prove it45, does not involve that this

has to do with an intentional policy from Germany. This is all the less likely as it is the

European Central Bank and the not the Bundesbank, which sets the key interest rate. In

late mercantilist state, the national currency is under strong monetarist deflationary

control and strict budget limitation. Examples of late mercantilist power since the 1970s

45 Source




21

that fulfill the most part of these features are Germany, Japan, Sweden, Switzerland,

Austria, Israel.46

Early mercantilism Late mercantilism

Stage of industrial

development

Infant industry Mature industry

Competitive advantage Low wages for labor-

intensive production

High wages for high-skilled

and innovation-intensive

production

Economic policy High trade tariff, vertical

industrial policy, public

subsidies, Keynesian

stimulus and state planning,

inflation and devaluation

Low trade tariff, horizontal

industrial policy, policy

mix between

Schumpetarian economics

and neo-liberalism,

deflation and strong

currency

Mercantilist goals Attracting capital because

domestic demand is too

narrow or population too

poor

Attracting capital because

the population is ageing,

pressures on wages,

intentional

underconsumption

One the most salient features of Germany’s economy is that it underwent different stages

of economic development from precapitalist stage until 1870s to mature industrial stage

46 Figures on export per capita https://www.nationmaster.com/country-

info/stats/Economy/Exports-per-capita




22

since the 2000s. This country is a rare case of an economy was able to go through from

the stage of infant industry and protected economy in the 19th century to the stage of

globalized and powerful economic power in 21st century. In that context, Berlin was able

to renew and modernize its industry in contrary to the USA, France, and the United

Kingdom, whose economy relies increasingly on import, service, finance or tourism.

However, the crucial fact to highlight here is that Germany still behaves like an early

mercantilist power in the different stations of its economic development from late 19th

century until today. Berlin’s economic growth was indeed driven by strong exportation in

different phases of its economic history since the 1870’s accelerated industrialization. To

illustrate this systemic discrepancy between the real stage of economic development of

Germany and its actual behavior, I will focus on the phase of its history: the post-War

time in West Germany until the oil crisis (1949-1973) and the post-reunification era since

the introduction of the euro (2000-2015).

II.2 Germany’s semi-protectionist era (1949-1973)

In what follows, I will focus on the two fundamental stages of the German economy in

20th century. This historical approach is necessary to distinguish fundamental types of

economic development: the post-WWII stage characterized by protectionist and

ordoliberal features (1949-1973) and Germany’s economic role in globalization (2000-

2015). After WWII, West Germany was not an infant industry anymore since the takeoff

in the 1870s and 1880s. However, the significant destruction that Germany experienced

after Hitler’s defeat made it dependent from Washington. This fact makes it possible to

understand the place of West Germany’s economy in the US global liberal policy. This

liberalism was a multilayered system resting on integration on the financial, economic

and military level. This system included the Bretton Woods Agreements, NATO, the

UNO Charta and a set of Keynesian or ordoliberal public policies on both sides of the

Atlantic. According to our framework on early and late mercantilism, West Germany was

not an infant industry after 1945, but it benefited from a special treatment from the




23

USA.47 One can identify in the case of post-war West Germany several features typical

for an early mercantilist power.

First, through an offensive free trade policy that the USA ignited, West Germany was

able to export toward the USA and to go beyond its prewar economic performances.

However, through the creation of the European community (Treaty of Rome, 1957), the

six founding countries agreed on protectionism against foreign importation and subsidies

massively the European agriculture, while they paved the way for creating a single

European market. Through these two dynamics – open transatlantic markets, protection

of the European market – West Germany beneficiated from favorable trade conditions,

which one can usually find in infant industry. Germany relied indeed on the American

market because its population was still too poor in the early 1950s to absorb its own

production and was compelled to sell its industrial goods abroad. Secondly regarding

foreign investment, West Germany profited from the Marshall plan, which helped it to

reconstitute its capital stock and improved the investment capacity of Bonn’s economy.

Eventually regarding public policies, West Germany appears as a liberal and non-

interventionist states, which was against vertical horizontal industrial policy.

Ordoliberalism is an economic doctrine rejecting massive state intervention, favorable to

regulation through law and norms and defended the idea of a third way between

Manchester capitalism and Keynesianism. However, this picture does not correspond

exactly to the truth. Due to the economic boom of West Germany after 1949, the

government led by Konrad Adenauer increased public spending and the role of welfare

state. As the USA were ready to guarantee a favorable exchange trade between the dollar

and the Mark, Washington subsidies indirectly West Germany’s economy. Moreover,

some Länder such as Bavaria conducted a conventional vertical industrial policy in order

47 Werner Abelshauser, Wirtschaft in Westdeutschland 1945–1948. Rekonstruktion und Wachstumsbedingungen in der amerikanischen und britischen Zone. (= Schriftenreihe der Vierteljahrshefte für Zeitgeschichte, Band 30). DVA, Stuttgart 1975. Abelshauser, Deutsche Wirtschaftsgeschichte Von 1945 bis in die Gegenwart. 2. Auflage. C.H. Beck Verlag, München 2011. Werner Abelshauser, Stefan Fisch, Dierk Hoffmann, Carl-Ludwig Holtfrerich, Albrecht Ritschl, Wirtschaftspolitik in Deutschland 1917-1990, 4 Bände, Verlag de Gruyter, Berlin / Boston, MA 2016.




24

to help this agrarian region to catch up with the more industrial parts of Germany.

Finally, West Germany followed a rigorous monetary policy based on price stability, low

inflation and the independence of the German central bank, the Bundesbank: all these

economic policies are typical for a mercantilist country, that aims at protecting the value

of its currency. One can represent the differences between the American hegemon and its

allies through the following chart. We use the example of West Germany and South

Korea to show how both countries were integrated inside the US-based hegemonic

system. States involved in

the hegemonic

system

Type of

integratio

n inside

the

hegemonic

system

Center of the Western world:

USA

Allied to the USA:

West Germany

Developing country allied to

the USA: the example of

South Korea

Political role inside the

hegemonic system

Shape international institutions that stabilize world economy

Profit from the stabilization that the USA created

Profit from this stabilization

Ideological commitment Ideological commitment to

liberalism and fear of

communism

Ideological

commitment to


communism

Ideological commitment to


communism

Economic position

inside the hegemonic

system

Global lender and exports

capital

Borrow money from

foreign lenders and

import capital

Borrow money from

foreign lenders and

import capital

Level of trade barriers Low trade barriers High trade barriers High trade barriers

Type of trade activity Imports and exports Exports more than it imports

Exports more than it

imports




25

Evolution in the long run Maintain its position atop the international system, but relies more and more on import and cannot guarantee the international public goods anymore (international currency, freedom of navigation and military hegemony).

Evolution from needing help after WWII to country exporting goods, services and capital country

Evolution from infancy economy to rich country exporting goods, services and capital

26

II.3. Germany as a global mercantilist power (2000-2015)

But this liberal framework stands in sharp contrast to the post-liberal situation characterized

by new forms of power and asymmetries. The central tenet of post-liberal realism is that rich

and developed countries are now threatened by economic globalization and free trade. The

former poor, developing countries or all states, which needed the American help after WWII

are now in a position where they are competitors for the US hegemonic power. The

postliberal international system shows two features: the first deals with the hegemonic

power and the second with its allies.

Regarding the hegemonic state, it is increasingly less and less able to stabilize the world

economy. Broadly speaking, one can tell first that the hegemonic power is not able anymore

to finance the global infrastructures it has created and second that it doesn’t see anymore the

interests it can draw from them. The dollar is an interesting example for such an

international public good: until the Jamaica Accords (1976), it was the international reserve

asset convertible to gold. However since the end of the Bretton Woods Agreements, dollar

became increasingly an asymmetrical tool power for the USA. I do not mean what the

French head-of-state Charles de Gaulle called the ‘exorbitant privilege’ of the dollar48,

which is a positive advantage for the American power that its national currency works as the

international reserve currency. I mean the fact the US dollar becomes more and more an

unilateral tool of Washington’s policy abroad: this implies concretely that the USA used an

international public good such as the USD for their own national policy and in some cases to

solve homemade domestic issues. One could mention the enforcement of the American

outside the US territory through new forms of non-territorial sovereignty whose force relies

on the power of the US dollar. The best examples for such a policy are the so-called

extraterritorial sanctions against European companies such as the French Bank Société

Générale49. In addition, the retreat by the USA under President Trump from the international

nuclear agreement with Iran and the threats against European companies that want to

48 Eichengreen, Barry J. Exorbitant privilege : the rise and fall of the dollar and the future of the international monetary system. First issued as an Oxford Univeristy Press paperback. Oxford ; New York Oxford University Press, 2012, 226 pages.

49 Harry L. Clark, Dealing with U.S. Extraterritorial Sanctions and Foreign Countermeasures, 20 U. Pa. J. Int’l L. 61 (1999). Sascha Lohmann , Extraterritorial U.S. Sanctions Only Domestic Courts Could Effectively Curb the Enforcement of U.S. Law Abroad, SWP Comment 2019/C 05, February 2019.

27

conclude contracts with Teheran is another example for such an extraterritorial policy, that

the domination of the US makes possible.

Regarding the allies of the USA, the situation is different from the Bretton Woods model

and the early mercantilist stage. If we focus on the German case, it is less and less interested

in costly international organizations and structures such as the Euro or the European Union

and is still reluctant to contribute to the international system by a full-fledged policy. Such a

policy affords indeed military commitment that Berlin is unable to deliver by itself due to its

recent history and the potential skepticism from its direct neighbors toward Germany if it

should try to improve its military capabilities. However, it is not simply about the fact

Germany’s past makes it complicate to show more offensive military goals, but about a new

mercantilist strategy that Berlin follows at the expense of the other nations.

According to the liberal narrative, German people should accept to import more with time

and to export capital to help other countries develop economically. Ricardo’s argument on

the international value-creation and the competitive advantages should lead Berlin to accept

the role as a hegemonic or semi-hegemonic benevolent power, which implies that it helps

other countries to reach its economic development. But this did not happen. The neo-

mercantilist system is not simply a transitory stage between economic underdevelopment

and development for infant industry, but a stable and intentional strategy to protect the

German economic interest through a mercantilist economic policy.50

One can describe the new mercantilist system by stating that it implies that the countries,

which the former more powerful countries have helped, do not want to share the burden of

the international organizations and become a threat for the declining American working

class. That the USA experiences deindustrialization, while Germany and Japan have been

able to maintain their industry and China to become the world’s first exporter led

Washington to doubt over its own hegemonic system.

The relative industrial decline of the USA was followed by a new financial and economic

dependency from Washington toward the world.51 The reason for that is that is imports

increasingly goods and capital not only to finance foreign investment, but the daily

50 Matthijs

51 Todd, fin de l’Empire

28

consumption of its households. Instead of being both an exporting and an importing nation,

the USA was compelled to import more and more. To that end, the USA had to use a very

atypical policy, which proved to be highly dangerous for world economy after 2007/2008:

printing money at very high level after 9/11 to maintain its economic growth and world

stability.

My central contention is that international capitalism is not only about finance and

production, but fundamentally about consumption as well. This last function, which is

ultimately more important than lending or production, because these both process would be

meaningless without customers and clients, underpin central economic and political

processes.

What appears from the remarks above is that neither the liberal vision of economic history

nor Marxist imperialist theories hold true. The central reason is that the former developing

countries are not willing to import more, to export capital toward new developing countries

and to play a more important role inside the international public infrastructures. In that

context, the liberal and progressive narrative optimism was false. However, conventional

Marxist theories on imperialism are not convincing because the capitalist countries are not

looking for new markets in the third world, but now threaten the Western middle-class

through massive export and non-cooperative policies as the examples of Germany and China

prove it.52

The chart below represents the key dynamics between the US hegemon, Germany and

China, which I take as the most important examples for a revisionist power that benefit from

the international system based on the US power.

52 Rosa Luxemburg, op. cit., Lenin, op. cit.

29

States involved in the

hegemonic system

Type of integration inside the

hegemonic system

Heart of the system: The

USA

State helped by the USA:

West Germany

Developing

country/BRICS: China

Political role inside the

hegemonic system

Shape international

institutions that stabilize

world economy, but uses

increasingly for national

policies

Profit from the

stabilization that the USA

created, but is reluctant to

contribute more to them

Profit from this

stabilization, but

challenges the Western

international organizations

(e.g. Silk road).

Ideological commitment Ideological commitment to

liberalism and tensions with

revisionist states (Russia,

China, Iran).

Claimed commitment to

liberalism, but follows a

realist strategy

Commitment to state

capitalism and economic

and military nationalism

Economic position inside the

hegemonic system

Borrow capital from the rest

of the world for its daily

consumption and export

unsound money.

Attract foreign money

through trade, but is reluctant

to invest it in countries

needing help (e.g. Southern

European countries).

Attract money through

trade, but lends it to

hegemon (e.g. US treasury

bonds).

Level of trade barriers Low trade barriers Low trade barriers Low trade barriers

Type of trade activity Import and consume more

and more, but exports less

and less

Export very much, but import

very few

Export very much, but

import very few

Stance toward world’s

stability

Potentially stabilize world’s

stability by its selfish use of

international public goods

Profit from this stabilization

and is reluctant to contribute

to it (e.g. Germany’s stance

toward the eurozone crisis)

Profit from this

stabilization, creates an

alternative international

system

Evolution in the long run Maintain its position atop the

international system, but

relies more and more on

import and cannot finance the

international public goods

Evolution from country

needing help after WWII to

country, which still follows a

mercantilist policy

Leaving the stage of

underdeveloped country,

but still follows a

mercantilist policy

30

Section III: Discussion of questions about Germany’s mercantilism

The hypothesis that Germany is pursuing a mercantilist policy is widely spread in the USA,

in Southern European countries and in international organizations.53 However, it is

legitimate to ask ourselves two questions about this claim.

First, to what extent does correspond Germany’s trade surplus to an intentional

policy? And can we find evidence showing that this country intend to manipulate its

currency or to use unfair economic measures to gain unjust competitive advantages?

The second puzzle to solve is related to the real causes of the German export records.

Is it essentially provoked by Berlin’s economic policy or should we consider that the

profound reason for global economic imbalances rests upon the US economy? This question

then aims at explaining Washington’s ambivalence vis-à-vis trade deficit that Donald Trump

protectionist rhetoric tends to dissimulate.

States rarely claim that they follow a mercantilist strategy. One of the only

exceptions is the USA that between the end of the 18th century and the 1950s publicly

affirmed its allegiance to a high tariff policy since Hamilton’s historical defense of

mercantilism.54 The significant watershed for Berlin’s economic policy took place in 2000

when the financial pressure caused by Germany’s reunification became to heavy and almost

5 millions people were unemployed. A large portion of the economic and political elite felt

the need for extensive structural reforms to help the economy recover a sustainable growth

level. Political declarations by the Christian-Democratic opposition and the left-wing

government expressed the consensus regarding the imperative to introduce dramatic reforms

of the Welfare state and of the labor market. Gerhard Schröder calls in an important speech

pronounced in 2005 for initiatives toward a more flexible and service-oriented economy to

be able to compete in the global arena.55 The period initiated the Hartz-reforms that

according to observers provoke Germany’s economic recovery, which become visible

already in 2006. However, it is almost impossible to find any evidence for a mercantilist

program in the political speeches of the leading politicians. Even the introduction of the euro

53 imf

54 On the manufacture

55 Source

31

was not seen as a way to allow an undervaluation of Germany’s economy, but rather as a

necessary step toward an ever closer union.

The neoliberal turn under Schröder’s government represents a global adaptation to a

new context of international competition and race for attracting human and financial capital.

A broad spectrum of the political landscape then thought structural reforms were imperative

to help Germany leave its critical situation of being the “sick man of Europe”.56 Like the

United Kingdom in the 1980’s and Sweden and Canada in the 1990’s, Germany had to

implement measures to reduce its public debt and make its labor market more flexible.

However, Germany followed a mercantilist policy characterized by three features:

low domestic investment; internal deflation through pressures on wage; reluctance to

participate to the global stimulus policy, which was imperative after the 2007/2008

economic meltdown and to help Greece and Southern European countries finance their

public debt at the expense of the eurozone stability.57 Moreover, this deflationist policy

oriented toward cost-competitiveness has decentralized aspects. It rests on the traditional

monetarist policy of the Bundesbank that the European central Bank applied until Mario

Draghi’s policy of quantitative easing.58 Labor unions and conservative, liberal, social-

democratic and green parties all agreed on central ideas regarding the much-needed

improvement of Germany’s economy when the Hartz reform have been implemented. This

decentralization has therefore institutional aspects, but was related to a strategy of

outsourcing and produce offshore in Central European countries.59 These different aspects

show the new forms that mercantilism take, which differ substantially from vertical and

sometime authoritarian early stage mercantilism.

But we still face a second objection. Even if one admits that Berlin applies a

mercantilist policy approximately since 2000, to what extent is it sure that it makes sense

and corresponds to the national interests of the country?

56 Sinn, Hans-Werner (2007). Can Germany Be Saved? The Malaise of the World's First Welfare

State. Cambridge, Massachusetts: MIT Press.

57 Source

58 Note center Max Weber

59 Sinn, Hans-Werner (2005). Die Basar–Ökonomie. Berlin: Econ.

32

This is a pressing question that both economists60 and the populist party, Alternative für

Deutschland, asks. The public opinion raised important questions about the exact utility of

Germany’s trade surplus since 2010. Hans-Werner Sinn played a significant role in

highlighting the potential risks related to the target balances and payment imbalances inside

the eurozone between Germany and Southern European states.61 These issues are relatively

technical, but they show a central element of international political economy, which is

totally absent from earlier stage of mercantilism. Early mercantilism is about attracting gold

and precious metals through an aggressive export policy. But the new mercantilist system is

different from old-style mercantilism typical for infant industries. It rests on a systemic

asymmetry with a consumer with an important debt on the one hand and a producing worker

with many unsound debt securities. These unsound debt securities (banknotes, bonds,

debentures) are printed for example in dollar or in euro from Southern countries. This

system of unsound printing of ‘bad money’ makes the German public opinion increasingly

skeptic toward the EU and even the USA.

The reason is that post-2007 capitalism relies more and more on dubious money

creation and debt securities. One of the central issues is the huge credit that the Bundesbank

accepted from Southern countries, which bought German goods and services. The Target-

balances show indeed that private consumption of German products in countries such as

Greece and Italy relies on money creation by the national banks of these states. On the one

hand, German companies are able to export toward other European countries, but on the

other hand the Bundesbank possess vast amount of unsound debt securities from foreign

national banks from South Europe.62 All these evidence show that Germany may follow an

increasingly selfish policy, but that it potentially creates future problem for Berlin itself. The

credit function, which can exist at this level only in a financial economy, is the exact mirror

of the consumption function I have stressed above. The central problem of capitalism

internal instability reappears here and compels us to ask a second question. What is the

exact role in Berlin and Washington in contemporary economic imbalances?

Historically, the USA still operates as the lender in last resort as the massive stimulus

policy launched by Barack Obama in 2007 proved. But such a policy rests ultimately on

60 Sinn, Hans-Werner (2014). The Euro Trap. On Bursting Bubbles, Budgets, and Beliefs. Oxford: Oxford University Press. p. 416.

61 Article Sinn on target balances. 62 Hans-Werner Sinn (2014). The Euro Trap. On Bursting Bubbles, Budgets, and Beliefs. Oxford: Oxford University Press. p. 416.

33

liquidity creation through the Fed, which is both a national actor that sustains domestic

demands and an international one that stimulates world’s demand. It is a national actor as the

lender in last resort inside a domestic credit market, but it holds an international function

because it introduces liquidity that the international economic system needs to consume

distressed goods. Here, Kindelbergers’s thesis seems to be confirmed.

But this massive money creation leads to two central issues: first, it generates further

deindustrialization because the USA is able to have a negative current account balance,

without paying the price of it. Besides, it creates an unsound credit and price system by

introducing dramatic amount of money to lead private bank to loan to households and

companies. This leads to false perception of the true price of money and cause bubbles on

asset markets. This is certainly not the only cause of international crisis as monetarist

economists assume, but this participates to the endogenous instability of capitalism that

Hyman Minsky’s theories describe.

Concluding remarks

The central theoretical contention of this article consists in rethinking the concept of

mercantilism to give him a scientific definition. To reach this goal, I study more specifically

the tensions between Washington and Berlin over international trade.

Covering recent development from Keynesian macroeconomics and unorthodox

economic history, I explain that the 2007 crisis constrain us to rethink some fundamental

tenets of IPE and especially its historical dependency toward liberal economics. I draw on

works by Piketty, Stiglitz, Deaton, Chang to highlight the limits of the conventional liberal

narrative about progress through free-trade and liberalization. I especially claim that a new

IPE paradigm is necessary, which I propose to call post-liberal realism. Post-liberal realism

correspond to the project to renew realism to integrate economic policies and more

specifically self-help strategies in a global world of mutual interdependence. Post-liberal

realism does not aim at rejecting LI, but rather at using its most important results on

transnational dependency and multilevel governance to explain the new forms of economic

power. A post-liberal policy is then characterized by its integration inside the international

world order, but in order to use at its narrow national interests. This new definition of realism

shall help us maintain the classical hierarchy of power – whose highest form remain the

military one – but which allows non-coercitive power relations based on international law and

global governance under the US leadership.

34

I then introduce a distinction between two forms of mercantilism to illuminate the

close interaction between global interdependence on the one hand and selfish national

competition on the other hand. I distinguish indeed early mercantilism from late mercantilism.

While the former corresponds to the well-known ‘infant industry’ that Alexander Milton and

Friedrich List theorized, the latter is an original concept that aims at describing the economic

policy of mature economies in a global context. A late mercantilist or a mature economic

power is one, whose population is well educated, ageing, has strong export records and whose

state is well integrated inside the international governance. A late mercantilist differs

therefore from an infant industry country, whose comparative advantage rests on cheap labor

force, growing population and a strong vertical industry policy that helps developing nations

to catch up with more advanced ones. Late mercantilist, furthermore, represents the ideal type

of an economy, which does not foul in any form its competitors through hidden public

subsidies or intentional currency manipulation. The reproach of being mercantilist toward

countries whose domestic market is large enough to absorb important level of importation

stems rather from their preference for trade surplus at level very unusual levels for economies

of their size.

I apply this conceptual distinction on Germany at two stages of its economic

development: on post-WWII West Germany (1945-1973) and reunified Germany since the

euro’s introduction (2000-2015). After WWII, Bonn’s republic went through a period of

semi-protectionism that makes it comparable to an early stage mercantilist nation. She was

characterized through favorable exchange rate with the USA, which left up tariffs after 1945,

increasing Welfare spending, relatively cheap labor force and external European trade barriers

thanks to the Treaty of Rome (1957). In that perspective, West Germany was certainly not a

developing country, but needed heavy financial support from the USA (Marshall plan) after

the disastrous outcome of Nazism.

In the time span between 2000 and 2015, the economic situation changed dramatically

in comparison of the post-War era. Germany has still impressive export records, but it is

accused now of being mercantilist. The USA, Southern European countries and international

organizations accuse Berlin of having an undervalued currency, to push down wages, and to

have one of the lowest investment rate among the OECD countries. Even if my goal is not to

endorse all these sometimes politically oriented critics, they however make sense through the

concept of late mercantilism. The central issue of Germany’s policy consists does not consist

in the fact that the euro is undervalued as the common currency lies in the hand of the ECB

35

and not of Berlin, but in the disproportion between the size of its domestic market – the

largest in Europe – and its status as the world’s export leader per head.

But the critical question is then about the exact benefits that Germany draws from its

neo-mercantilist. Germany pursues a policy, which endangers its very position inside the

European and the international order. The German European policy during and after the

eurozone crisis famously created strong anti-Germany feelings throughout Europe and

especially in Greece, Italy and Spain. Besides, Donald’s Trump anti-liberal and anti-NATO

rhetoric shows that Germany has still no plan to overcome its military dependency toward

Washington. In that context, Berlin needs the liberal order, benefits from it, but still behave

has the European reluctant begin reluctant hegemon.

This paper has been presented at the ISA conference in Toronto in April 2019. I would to thank

Carina, Pascale Moussot, April for their useful comments on the first version of this article. I thank the

Institut Convergence Migration (Collège de France) for their financial help that made this article

possible.

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Is Germany a mercantilist state? The dispute over trade