Download It Pays to Look Beyond Germany`s Trade Surplus

Speeches, Interviews and Articles
9 February 2017
It Pays to Look Beyond Germany’s Trade Surplus
In an article published in the Wall Street Journal on 8 February 2017 deputy finance minister Jens Spahn explains why a
strong German economy benefits its international partners, shares his views on economic competitiveness and
comments on the German current account surplus.
Washington should recognize that a strong German economy is good for America, too.
The U . S . and Germany, both economic powerhouses, have long been champions of open-market economies, free trade
and fair competition, with reputations for having highly innovative economies, numerous world-class companies and
top brands. Yet around the world today protectionism, separation and disintegration are on the rise. It is particularly
astonishing to hear such voices coming from America, a country that, like Germany, benefits from integration into
world markets.
Germany’s current account, in particular, has aroused great anger. The latest estimates put its 2016 surplus at 8.7% of
gross domestic product. The U.S. ran a current-account deficit of around 2.5% of G D P, or almost $ 500 billion, during
the same period.
These numbers reveal very little about the true U.S.-Germany relationship, about the two economies’ specializations in
different industries and products, their deep integration into global value chains and their reliance on high-quality
imports from each other. They give no reasonable guidance for policy action.
Still, calls for political intervention into so-called imbalances are plentiful. Proponents argue that if only Germany
increased its government spending, international problems would disappear. This is illusory. As a member of the
European Monetary Union, Germany doesn’t have its own currency. It makes little sense to look at Germany’s current
account in isolation. Nobody pays attention to California’s current-account balance with China, and rightly so.
The only valid reference in this case is the eurozone balance. There, the current-account surplus was roughly €400
billion ($428.03 billion), or 3.7% of GDP, in 2016. The current-account surplus is a European issue and not just a
German one.
A stronger euro would help bring the trade surplus down. The European Central Bank’s monetary stance remains very
loose, weakening the euro and bolstering exports on world markets. With unemployment receding and exports growing
in many member states, monetary tightening might soon be justified.
Fiscal and economic policies in Germany, meanwhile, are sound and appropriate. They have built the foundation for
prosperity and stability. Growth-friendly consolidation puts a special focus on the quality of public budgets. Public
investment is growing and all levels of government contribute to this positive trend.
Germany’s favorable business environment, with a skilled labor force, strong property rights and law enforcement
promote confidence in consumers, companies and investors. As a result, the real economy is prospering, with recordhigh employment and rising wages. Domestic demand continues to be the main driver of robust growth in the country.
Yet there are still calls for more fiscal stimulus in Germany. More public spending, the story goes, would stimulate
German imports, so that other countries could export more. But in truth the spillovers would be tiny. This is an intuitive
result: How many U.S.-made Boeing jets, pickup trucks or software programs are needed to repair a bridge over the
Rhine, or build a school in Berlin?
Public works and education are essential to Germany’s future and the government is strengthening its investment in
these areas accordingly. But it isn’t only about money; planning capacities, efficiency and needs must also be taken into
account.
A strong German economy benefits its international partners. Germany is not only the third-largest global exporter but
also the third-largest importer. Trade linkages are especially strong with partner economies that are well-integrated into
international value chains, have strong industries of their own and enjoy a positive business climate.
The U.S. has always been a close partner here. Besides trade connections, foreign direct investment gives an economic
boost to both capital importing and exporting countries. Foreign companies built with German participation employ
approximately 7 million people, 20% of which are located in America.
Germany and the U.S. understood early on that economic competitiveness is central to successful integration into the
world market and for reaping the benefits of globalization. Blaming a country that has embraced these tasks and
benefits from a highly competitive business environment would be bizarre. Nobody can have an interest in provoking a
trade war.
We need to move beyond the current account and broaden our view to the real challenges ahead. Germany and the U.S.
should seize any chance to foster their good economic and political relations, and to build on their strengths, especially
their open-market economies.
The article was first published in the Wall Street Journal on 8 February 2017.
© Federal Ministry of Finance