When President Donald Trump described Germany’s trade policies as “bad, very bad,” he was only using his typical blunt way of speaking a truth the United States government has been more obscurely and politely saying for years.
Germany’s current account surplus–the amount its exports outpace its imports–recently hit 270 billion euros, close to 8.9 percent of its gross domestic product. This upward trending trade surplus shows little signs of slowing and Germany’s current account balance may rise above 9 percent of its this year. Despite years of criticism from the Obama administration and the International Monetary Fund, Germany has shown no willingness to address the persistent imbalance.
Germany’s persistent current account surpluses add to German GDP while they subtract from the GDP elsewhere around they world. Germany is not just exporting products–it is exporting stagnation, job losses, and deflation.
Ordinarily, currency adjustments would ameliorate the effect. But because Germany is part of the euro with many countries still in or near economic slumps, currency appreciation does not adequately correct the imbalance. The euro is basically acting like a form of currency manipulation for Germany. And with interest rates at or near zero around much of the world, there’s very little central banks can do to address the imbalance or the effect it has on global wealth.
China gets a bad rap for its trade policies, largely deservedly. But Germany is arguably worse. For one thing, China is actively taking measures to boost domestic demand and reduce its trade imbalances; Germany has angrily resisted any suggestions that it should do anything at all about its imbalances.
For another, Germany is far smaller than China. As a result, on a per capita basis, Germany’s trade surplus is far larger than China’s. To be precise, Germany’s trade surplus is seven times bigger than China’s on a per capita basis.
Germany’s trade surplus with the U.S. is particularly large and damaging. It exports high-end manufactured goods to the United States–such as cars, auto-parts, chemicals and airplanes. Cars, for instance, make up more than 10 percent of its exports to the U.S. A more balanced trade in these goods would mean many more high quality jobs in the United States in regions that badly need them.
Despite what the German sometimes claim, its trade surplus is not caused by the superiority of German manufacturing or some secret sauce that makes German workers and factories more productive. Germany’s own protectionist policies play a huge role by keeping out foreign competition in many areas, particularly the services sector.
None of this is new. The Obama administration complained to Germany for years. But it took little action to address the problem. Trump’s blunt words may signal that change is in the trade winds.