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Germany's Record Trade Surplus Set to Fuel US Friction

Feb. 9, 2017
The country's record trade surplus is likely to feed criticisms from the U.S. and elsewhere that Germany exports too many of its machine tools, chemicals, and cars, while failing to reinvest the proceeds.

Germany's latest record trade surplus announced on February 9 may be a point of pride for some, but experts warn the imbalance is doing more harm than good as grumbling grows in the Trump White House.

The country exported 253 billion euros (US$270 billion) more than it imported in 2016, the federal statistics office Destatis said.

Exports added 1.2% to top 1.2 trillion euros, while imports climbed 0.6% to 955 billion euros.

Germany's trade surplus has repeatedly broken records in the years since the 2008-09 financial crisis.

The new high is likely to feed criticisms from the U.S. and elsewhere that Germany exports too many of its machine tools, chemicals, and cars, while failing to reinvest the proceeds.

President Donald Trump's top trade advisor Peter Navarro accused Berlin last month of exploiting a "grossly undervalued" euro to boost its exports.

Germany's trade surplus is around half that of the $510 billion China booked in 2016, but well ahead of Japan's $36 billion or Brazil's $48 billion.

Meanwhile, the U.S. recorded a $502-billion trade deficit last year -- importing more than it exported -- and France a deficit of $51 billion.

Elected on promises to bring jobs and manufacturing back onto American soil after decades of offshoring, Trump and his team are hunting for export sinners to target.

"When you walk down Fifth Avenue, everyone has a Mercedes-Benz in front of his house," the president complained in an interview with German tabloid Bild shortly before his inauguration.

"You've been very unfair with the U.S.," he went on, "it's a one-way street."

In a sharp retort, German vice-chancellor Sigmar Gabriel responded: "The U.S. needs to build better cars."

Trump is far from the first foreign leader to bemoan German surpluses, as the Obama administration, the International Monetary Fund, and European neighbors like France have all criticized the imbalance.

'Big Gap in Investment'

German Finance Minister Wolfgang Schaeuble agreed in an interview last weekend that "the exchange rate is too low" between the euro and the dollar, but noted that it was the European Central Bank that decided monetary policy for the entire single currency area.

Long a critic of the ECB's loose monetary policy, which has been blamed for cheapening the euro against the dollar, Schaeuble's comments were aimed as much at Frankfurt as at Washington.

"I told ECB boss Mario Draghi that he would push up the German trade surplus when he started loose monetary policy," Schaeuble said.

But some experts argue that the source of the problem is closer to home.

"The problem is the weak growth in imports resulting from a big gap in investment," said Marcel Fratzscher, president of the DIW economic think tank in Berlin.

Strong economic performance has produced a well-worn cleft in Germany's governing left-right coalition, with Social Democrats calling for more infrastructure investment while Schaeuble and Chancellor Angela Merkel's conservatives resist running up new debts.

A European Commission spokeswoman reiterated that Germany's surplus was "a source of macroeconomic imbalances."

"Addressing it through increased investment would raise Germany's growth potential and help sustain the recovery in the euro area," she went on, quoting from a statement issued last year on the 2015 surplus.

Draghi also calls regularly for countries like Germany that have "fiscal space" to use it for investment and growth-friendly spending.

Lacking investment "causes high economic costs for Germany, because it reduces productivity and incomes" as well as heightening international friction, Fratzscher argued.

"The record surplus will further inflame the conflict with the U..S and within the EU," he predicted.

By Tom Barfield

Copyright Agence France-Presse, 2017

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