Germany’s Current Account and Trade Surpluses
By Michael McKeon, Katharina Gnath, and Thiess Petersen
During the past decade, macroeconomic imbalances – typified by countries’ surplus or deficit of exports, currency, or capital – have moved to the fore of international economic policy debates. Global events and developments, such as China’s integration into the world economy, the 2008 financial crisis, and the Eurozone crisis, have created, and in some cases, compounded longstanding trade and investment asymmetries around the world. These imbalances have no single cause, but are fostered and magnified by the competitiveness of a country’s industries, domestic demand, corporate investment decisions, and tax and monetary policy, among other factors. In recent years, the widening gaps in countries’ trade relationships have become highly politicized, prompting policymakers to respond with measures ranging from formalized monitoring to punitive tariffs.
The conditions that give way to macroeconomic imbalances are rather clear, but their broader, long-term consequences are the subject of contentious debate. While a country with an export surplus may generate revenue from its accumulated assets, for example, the decision to hold them in reserve comes at the expense of domestic investment. With a deficit, a country accumulates debt as it borrows from others to cover the costs of its imports, but its consequently depressed currency should ultimately make its exports more competitive on the global market. Macroeconomic theory tells us that these imbalances should not be permanent, as market forces such as demand and interest rates shape trade flows and adjust countries’ shares of exports, imports, currency, and capital. The world does not always operate according to theory, however; in practice, government policies and unique economic conditions at domestic, regional, and global levels perpetuate and expand macroeconomic imbalances.
Perhaps the greatest of these is the wide gap between the current accounts of the United States and Germany. Although neither Germany’s $287 billion surplus nor the United States’ $124 billion deficit is the direct cause of the other, these current accounts represent the global poles of macroeconomic imbalances. German leaders attribute their country’s surplus primarily to the competitiveness of its manufacturing sector, domestic saving rates, and exogenous factors such as European monetary policy and the value of the euro, the currency that Germany shares with 18 other member states of the European Union. U.S. policymakers, on the other hand, have been critical of Germany’s current account surplus for nearly two decades, and contend that Germans could reduce it – to the benefit of the Eurozone and the global economy – through domestic reforms and investment. American censure is now more pronounced than ever under President Donald Trump, who has characterized the U.S.-German economic relationship as unfair and has called on his counterparts to take concrete steps toward leveling the playing field.