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U.S. President Trump, Chinese President Jinping, and German Chancellor Merkel at the G20 meeting in Hamburg, July 7, 2017 (PHILIPPE WOJAZER/AFP/Getty Images)
(Photo credit: PHILIPPE WOJAZER/AFP/Getty Images)

Chinese Economic and Trade Challenges to the West: Prospects and Consequences from a U.S.-German Perspective

Thomas J. Duesterberg

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Introduction

Over the past 60 years Germany has built one of the strongest and most durable economies in the world. After the seminal event of German Unification, it has rebuilt the Eastern sector and integrated it into the economic structures of the industrialized West, albeit at a steep price. After weathering the storm of the Great Recession, it has regained its footing and established a solid growth path. Its economy is a pillar of the Eurozone and the European Union (EU). The backbone of the German miracle is manufacturing, a technologically sophisticated leader in the goods sector, which is symbolized by strong balances of trade over recent decades. German workers are among the best trained in the world. The German social contract has established one of the most harmonious traditions in the industrialized world of cooperation among labor, companies, and government.

Despite the success of the German economy, there remain certain imbalances and weaknesses in its economy and its trade with the rest of the EU and the world. Among these are over reliance on traditional manufacturing, a slow pace of investment, weak internal demand, slow growth in wages, an inefficient services sector, lack of success in some areas of the emerging digital economy, and a large imbalance in the current account (due to trade in goods) that is unsustainable in the long run. Added to and potentially exacerbating some of these problems is the challenge presented by the rising Chinese economic superpower. China’s ambitions are aimed clearly at new competition in the manufacturing and high technology sectors, and in winning greater global market share in many logistical, materials, industrial process, and digital services sectors related to the goods sector. China is at an early stage of its advanced technology challenge, but better understanding of this challenge and the means to address it are needed not only in Germany but in other industrialized nations as well. This paper outlines the challenge and suggests some ways to address it in a constructive and cooperative way.

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