Summary of Key Points
Recently, German Chancellor Angela Merkel has repeatedly called for the appreciation of the RMB, claiming that it is crucial for “restoring fair competition in Sino-European trade” and can address issues related to employment and industrial competitiveness in Germany. However, this view exaggerates the role of exchange rates and ignores the fact that Western countries (Japan, Germany, the United States) have also used similar monetary strategies in the past to their advantage. China has learned from Japan’s experiences during the Plaza Accord and will not easily compromise. Real data shows that the appreciation of the RMB has not improved Germany’s exports to China; rather, Merkel’s actions are driven by political motives, such as deflecting domestic tensions and seeking leadership within the European Union. The real problems lie in Europe’s own structural challenges (high energy costs, complex regulations, and lagging innovation), not the exchange rate of the RMB.
Detailed Analysis
1. Exchange Rates Are Not a “Panacea” – Don’t Simplify Complex Issues
Exchange rates do affect trade, but they are more of a supplementary factor rather than a decisive one. For example, an undervalued currency may make exported goods temporarily cheaper, but if the products lack quality or technological innovation, they will still not be competitive. Merkel’s reliance on exchange rates as a solution to all problems is similar to Trump’s belief in tariffs; both are attempts to avoid taking responsibility for Germany’s declining industrial competitiveness, which stems from slow technological advancement and high costs.
2. The West Has Also Used Monetary Leverage – Don’t Blame China for Double Standards
It’s not just China that has used exchange rate policies; Western countries have done the same in history:
- Japan: Before the Plaza Accord, it maintained a low yen exchange rate through capital controls and consumer restraint to boost exports, earning significant profits from the United States.
- West Germany: During the Bretton Woods system, it kept the Deutsche Mark undervalued through low wages and high export levels to strengthen its manufacturing advantage.
- Euro Era: Germany benefited from using the euro, which was cheaper than the Deutsche Mark, effectively receiving a hidden subsidy.
- United States: It used a strong dollar to make other countries bear the cost of its high debt and consumption.
Now Europe blames China for these practices, yet it applies double standards.
3. Japan’s Lessons: China Will Not Repeat the Same Mistakes
After the Plaza Accord in 1985, the yen appreciated rapidly. To counter the decline in exports, Japan implemented extremely loose monetary policies, leading to a housing and stock market bubble that eventually burst, causing economic stagnation for decades. China views this as a cautionary tale: its industrial upgrading is not yet complete, and its financial system relies on foreign exchange reserves for stability. It will not accept rapid appreciation of the RMB under external pressure. Moreover, China is no longer as dependent on the United States as Japan was; it has strategic autonomy.
4. Reality Doesn’t Support Merkel’s Claims: Appreciation of the RMB Has Not Improved Germany’s Industries
In the past year, the RMB has appreciated against the euro (from 8 yuan to 7.7 yuan per euro). According to Merkel’s logic, Germany’s exports to China should have improved, but in reality, exports of high-end machinery and automotive parts have declined. This shows that exchange rates are not the key factor; competitiveness depends on industrial structure, technology, and costs. Forcing the appreciation of the RMB would only make German goods more expensive for European consumers and exacerbate inflation, harming ordinary households.
5. Merkel’s Political Calculations
Merkel’s insistence on RMB appreciation is driven by political considerations:
- Deflecting Tensions: Blaming the RMB for Germany’s economic problems is easier than reforming domestic policies (such as energy reforms or deregulation, which could offend vested interests).
- Seeking Leadership: Demonstrating a tough stance towards China allows Merkel to assert German leadership within the EU.
- Avoiding Reform: Acknowledging internal issues would mean cutting welfare and adjusting climate targets, both of which are politically sensitive topics.
- Nostalgia for an Old Order: She wants to return to a time when the West dominated global monetary policies and China would comply with European demands.
This is a clear example of “political correctness over economic reality” – using rhetoric to win votes domestically while avoiding real solutions.
Conclusion
What Europe really needs is to improve its own competitiveness (by reducing energy costs, simplifying regulations, and accelerating innovation). Without these changes, even a 30% appreciation of the RMB would not restore Germany’s former economic prominence. The more Merkel pushes for RMB appreciation, the more it exposes Europe’s reluctance to address its own problems.