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But here's the rub. Not everyone can be a manufacturing powerhouse at the same time. If Germany and the U.S. export more, others sell less. And since manufacturing as a whole still doesn't create as many jobs as it did a couple of decades ago, everyone is competing for a smaller slice of the middle-income-job pie. That leads to exactly the sorts of trade and currency skirmishes and finger-pointing we're now witnessing. As the Treasury Department report put it (a bit peevishly), "Germany's anemic pace of domestic demand growth and dependence on exports have hampered rebalancing," which means that its euro-zone neighbors can't recover. The result, the report concludes, is prolonged slower growth not just in Europe but also around the world.
In a time of deflation, stagnation and falling wages, the question is whether the world, like Japan, will suffer a lost decade of slow growth. When the Japanese were struggling with deflation throughout the 1990s, at least they had low unemployment. The rich world today doesn't have that luxury. This latest squabble between the U.S. and Germany threatens to derail the Transatlantic Trade and Investment Partnership talks launched this year by the President and E.U. officials as a way to bolster employment in both regions. That's a pity, since the agreement was meant to jump-start global trade growth, which has been increasing more slowly than the world's overall GDP for the first time in three decades. It's worth remembering that trade skirmishes often turn slow growth into full-blown economic downturns. Forget the eavesdropping--let's hope the line between Washington and Berlin is still open.