Is Germany an “unfair trader”? (Spoiler alert: no)

Last updated on: May 1, 2016 at 4:01 pm by Jane the Actuary

Is Germany an “unfair trader”? (Spoiler alert: no) 2016-05-01T16:01:11-06:00 Jane the Actuary

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It’s like a scene out of high school, in which the slackers seek to sabotage the nerds because the class is graded on a curve, and the nerds’ success imperils the slackers “B.” But it’s playing out in international affairs instead, as the U.S. has put Germany on its new “unfair trading partners” list.

Why? Because Germany dares to be fiscally responsible.

As described by Deutsche Welle (but curiously, of much less interest to U.S. media; this cbsnews.com article was the only one I could find in American media), countries are placed on this new watchlist if they meet two of three criteria for assessing “unfair play in internatonal trade.” These are

maintaining a significant trade surplus with the United States, maintaining a current account surplus larger than 3.0 percent of the country’s GDP, and repeated intervention in the foreign exchange market to keep its currency from appreciating.

China, Japan, and South Korea join Germany on the list for meeting the first two criteria; Taiwan was added for large current account surpluses as well as “persistent purchases of foreign exchange in 2015, keeping the New Taiwan dollar low against the US dollar.”

There are no concrete penalties for being placed on this list, just “consultations” as well as a “greater threat of sanctions in the future.”

But the basis for placing Germany on the list astounds me:

the US Treasury said the country’s big trade surplus with the United States and Germany’s large budget surplus “represent substantial excess saving.”

That surplus, the Treasury reported, could be used to support German demand, and in turn reduce “the current account surplus and [contribute] markedly to the euro-area and global rebalancing.”

Yes, the German trade surplus is something to be envied. They have managed, with their industrial giants such as Siemens and Daimler, plus the vaunted “Mittelstand” companies as well as expertise in robotics, computing, pharmaceuticals, etc., to remain strong exporters even in the face of globalization and imports from China and other low-wage countries. And their budget surplus is equally impressive, especially given that not all that long ago, prior to the Hartz reforms in the early 2000s, Germany was known for high unemployment and a stagnant economy.

And their success in bringing the budget into balance is all the more impressive given the role Germany has played in the Greek bailouts and, of course, the costs they’ve absorbed in the massive refugee influx, not to mention the massive expenditures in the former East Germany in the ’90s.

So it’s embarrassing to see the U.S. criticize their success, and demand they become as profligate as the United States in order to even things out and make everything “fairer.” One hopes that the government officials tapped for these “consultations” do so with at least a bit of shame.

Image: https://pixabay.com/en/container-ship-cargo-ship-cargo-560789/ (public domain)

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