As many people have pointed out, Trump picked the worst possible example when he decided to describe Germany as “bad, very bad”. Yes, they sell a lot of cars in America; but (a) many of those cars are produced here and (b) Germany has a reputation for producing good cars. Why shouldn’t a country export goods in which it has a comparative advantage?

So this was the stupidest possible critique, and plays right into German self-righteousness. Yet Germany’s huge trade surpluses are a problem — which has nothing to do with trade policy. It’s the macroeconomics, stupid.

The basic story is illustrated by the following chart, of unit labor costs since the creation of the euro:

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Here’s what happened: during the era of europhoria, when capital rushed into supposedly safe southern European economies, those economies experienced moderate inflation, allowing Germany to gain a big competitive advantage without actually having to deflate. Then confidence and capital flows collapsed, and what was needed was strong German reflation that would in effect return the favor — let southern Europe regain competitiveness without grinding deflation and the debt problems that go along with such a strategy.

But Germany hasn’t. It has practiced its own austerity, unforced — in the face of negative interest rates! — and harassed the ECB as it attempts to boost overall EZ inflation. The result is that the competitive gap that opened up after 1999 has barely closed, producing both huge German surpluses and a deadly drag on the rest of the euro area.

This has only minor spillovers to the United States — maybe Germany’s unhelpful role has contributed a bit to our trade deficit, but this is basically an intra-Europe issue. And it’s hard to think of a less helpful way for America to weigh in than what just happened.