Nobody Wins, But Germany and EU Hurt Most in Global Trade War

A set of pictures shows why Trump is convinced he can win a trade war.

Germany is the global leader in exports as a percentage of GDP. It stands to lose the most in a global trade war.

Germany Exports as Percentage of GDP

Eurozone Exports as Percentage of GDP

UK Exports as Percentage of GDP

China Exports as Percentage of GDP

US Exports as Percentage of GDP

Assuming a uniform 10% collapse in global trade, here are the GDP impacts.

Percentage Point Hits to GDP

  1. Germany: 4.724 PP
  2. Eurozone: 4.408 PP
  3. UK: 2.826 PP
  4. China: 1.964 PP
  5. US: 1.189 PP

Pain Order

The hits would not be uniform, of course, and a 10% decline may be far too much.

However, the pain order is correct.

Pain Tolerance

Pain tolerance is important.

The US' biggest trade deficit is with China and China has the biggest pain tolerance.

The US has the least pain tolerance with elections every four years and one coming up in 2020.

Losing Less is not Winning

Losing less is not winning.

No one wins trade wars.

This is not 1960

Finally, this is not 1940, 1950, or even 1970.

Contrary to Trump's touting, the battle isn't about NAFTA or the WTO.

Unwinnable Trade War

China's inclusion into the WTO exacerbated the trade problems but did not cause them.

The roots of this crisis stem from Nixon closing the gold window in 1971.

Even if the US had a higher pain tolerance, the US cannot possibly win a trade war.

For discussion, please see Trump's Unwinnable Trade War: Gold Explains Why

Mike "Mish" Shedlock

Comments (40)
No. 1-13
Country Bob
Country Bob

Mish -- "The roots of this crisis stem from Nixon closing the gold window in 1971"

So what made Nixon decide to close the gold window in 1971?

Vietnam? LBJ's "Great Society"? Putting a man (several) on the moon and then just dropping it after spending billions?

Too much government spending caused the dollar to lose so much value vs gold. Too much overhead made US factories and US workers noncompetitive

The swamp needs to be drained


None of those reasons (Mish always fails to mention the reason why Nixon did it and it wasn't because he just felt like it).

1970-1971 was when US oil production finally fell below consumption and the US became a net importer (which is still is today to the tune of 10 million barrels a day even with fracking). Once any country turns into a net importer of energy it will go broke fast and the US gold reserves would have been gone in a few years and the economy would have crashed VERY hard if he hadn't (think riots over gas shortages as every one would have had to do with 1/2 the oil they actually used).

For a recent example of this, look at Egypt during the 'Arab spring'. That's the moment it also turned into a net importer of energy and not surprisingly their economy crashed and the Arab spring happened.

Country Bob
Country Bob

@TexasTim65 wrote: "...1970-1971 was when US oil production finally fell below consumption and the US became a net importer ..."

According to the Energy Department, the US was a net importer every year since at least 1950 (that is as far back as their website data goes). In 1970, the US was importing approximately 20% of its petroleum usage (more than 3mm bpd):

Nixon ended the gold window, but there were several devaluations before that. The US government was spending money faster than the US economy could supply it.

LBJ's accounting practices would make Enron blush.



"So what made Nixon decide to close the gold window in 1971?"

I just wrote a detailed post answering the question. Will post tomorrow some time.


The answer is not to go back to the "Status Quo" where American just rolled over on trade and saw its manufacturing base destroyed.

"No one wins trade wars."

China has been in a trade war with America for the last 30 years. And they have won every year. It took Trump to actually admit we are in a trade war and, at least, start to do something about it.


To say that nobody wins a tariff war is not strictly true. In the 19th century both the US and Germany grew their manufacturing industry behind a tariff wall. This policy of protection against the British Empire was hugely successful. So much so that the British Empire went bankrupt, US prosperity soared to unheard of heights and Germany, despite being destroyed twice in one century, recovered to where they are now again an economic powerhouse. Tariff wall 2, free trade 0. The thing about the trade war which I have described was that it was about making and selling things, iron, steel, widgets, cars ships etc etc. No matter what point you choose in mankind's history the future went to those with the technological advantage. Iron beat bronze, steel beat iron and a Martini-Henry rifle beat a leather shield and a spear. Now what is the point of Trump's policy? Is he trying to re-balance the rentier economy that bedevils the Ango-American system? Not as far as I can see. American and German politicians had a long term plan which they followed and was successful. Trump seems to move from expedient to expedient. If you believe as I do that the future belongs to the people who produce things, whether it is humans or robots. What is Trump doing to build up the import substitutes he is going to need once the tariff war is over?


Seems impossible to balance trade when we have a $15 minimum wage and endless regulations and China is paying $2/hr with little regulations. Unless we convince all consumers made in the USA is worth 3x the price.


The simple fact is that conservative Republican policies like closing the gold window (Nixon), ballooning the federal debt and increasing military spending (Reagan, Bush the junior, Trump) allowed the American people to maintain a relatively high standard of living even while the shareholding class moved its assets (manufacturing) overseas.

It's sustainable as long as the dollar is the world's reserve currency. Which will continue as long as the American military can ensure the world will pay back their loans from American banks.


Mish: European countries biggest export destination is within europe. So the high export to gdp ratio does not correspond to a higher vulnerability


It was never about winning. It’s a distraction from criminal activity.


It is a mistake to look at who is suffering most from a trade war to determine who the "winner" will be. Different countries are able to withstand different degrees of suffering. Worse, suffering might be used as a weapon to unify a nation against foreign aggressors making any kind of resolution to trade disputes utterly impossible.

So what if one country's economy is impacted more negatively than another's in a trade war? That is meaningless when it comes to determining which nation will blink first and agree to the other nation's trading terms. The receptivity to trade negotiations is FAR more complex than merely an analyses of GDP impact.

Worse, if the "suffering" manages to push one or more countries into a war, what good does that accomplish?


Looking at the German export share, it amazes me that I can buy cheap German household products that compete with Chinese ones. The doofuses just can't let go of cheap, low value added industries, while always clamoring for more immigrant cheap labor. I don't support wholesale outsourcing a la USA, but you can't fix this stupid.


I think the Q3 and Q4 numbers might already show the cracks of the flawed system that is the EU. Of course, ever increasing GDP numbers isn't a sustainable metric either, just like printing money out of thin air isn't a sustainable or justifiable policy.