In Germany, workers push to increase minimum wage while the government struggles with spiraling migrant costs. Meanwhile, Trump’s trade war is taking a toll on other partners in Europe and may be making America itself poorer.

The “trade deficit” is the difference between what a country imports and what it exports. Germany has been running a trade surplus since 2013, which means that they have been exporting more than they import. This has finally fulfilled an old U.S. demand for Germany to reduce their foreign surpluses and allow other countries to export more.

Germany’s Vast Foreign Surpluses Are Finally Falling, Fulfilling an Old U.S. Demand

FRANKFURT— Germany is on course to lower its massive foreign surpluses after years of digging in its heels, which might benefit trade partners like the United States.

Germany has had the world’s highest current-account surplus for four years in a row, making it the world’s top creditor to other nations and drawing worldwide criticism.

Europe’s largest economy has been dubbed one of the main contributors to global economic imbalances by successive US administrations. Germany’s huge surplus has been asked to be reduced by the International Monetary Fund and the European Union, but German officials argue that there is nothing they can do in return.

However, Germany’s international surpluses have recently decreased as a percentage of GDP. According to Germany’s Ifo economic think tank, the current-account surplus (which includes both the trade balance and other external flows such as overseas investment) is forecast to fall to 5.5 percent of GDP next year, the lowest level since 2005 and down from a high of 8.6 percent in 2015.

The fall in Germany’s surplus is due in part to transitory reasons such as rising imported energy costs and huge government expenditure in response to the epidemic. However, German economists and officials believe it will continue as the new administration, which was sworn in earlier this month, increases public and private investment and raises the national minimum wage by almost a quarter to €12 per hour, or about $13.60. Wage growth is predicted to accelerate up as the country’s population decreases by four million employees over the next ten years, prompting employers to raise compensation.

All of this might raise imports into Germany as firms and consumers spend more, reducing the trade surplus and the current-account surplus, which is effectively a measure of the economy’s excess reserves. Because Germany’s foreign surpluses reduce global demand, its trade partners would profit.

Most Germans, according to economists, would gain as well.

“We can have a far greater return than the previous model by keeping more of what is created in the domestic economy and distributing it to the people and not having these massive surpluses,” said Achim Truger, one of five economic experts who advise the German government.

Germanys-Vast-Foreign-Surpluses-Are-Finally-Falling-Fulfilling-an-Old

BMWs and Volkswagens are transported by freight trains in Munich.

Associated Press photo/Matthias Schrader

Surpluses in Germany are seen as a reflection of industrial strength and global competitiveness at home. Germany’s export prowess enabled it to erase widespread unemployment in the early 2000s and weather subsequent crises relatively unharmed.

These surpluses demonstrate the nation’s preference for saving over consumption, mirroring the United States’ massive trade deficits and low savings. To put it another way, Germany’s current-account surplus indicates that it is amassing foreign assets, while the United States’ deficit indicates that it is significantly borrowing from abroad to maintain its domestic development.


Subscribe to our newsletter

Economics in Real Time

Weekdays, WSJ’s Jeffrey Sparshott curates the latest economic news, commentary, and statistics.


Many economists believe that the excess is due to poor domestic demand rather than strong exports.

“The issue is not so much that Germany exports too much as it is that it imports too little,” said Marcel Fratzscher, head of the DIW research tank in Berlin.

“Competitiveness is a means to a goal since it produces jobs,” said Klaas Knot, the governor of the Netherlands’ central bank, another nation with big foreign surpluses.

“If competition leads you to a scenario where you repeatedly build up claims on other nations but…they cannot respect these claims, then what purpose does it serve?” Mr. Knot, who sits on the European Central Bank’s rate-setting committee, said in a September interview.

Germany’s foreign surpluses were not always huge. For most of the 1990s, it ran current-account deficits as the government spent significantly on reunifying East and West Germany. Around the turn of the century, a surplus arose as German imports fell sharply.

Mr. Truger speculated that the import shock was triggered by public-spending cutbacks aimed at achieving European Union deficit limits. Imports and private earnings never completely recovered.

According to estimates by Bruegel, a Brussels think tank, surpluses expanded rapidly from 2000 to 2016, owing to rising savings and inadequate business and public investment.

According to Mr. Truger, the issue is that German firms have not been able to convert their savings into increased corporate investment. “Companies were essentially stockpiling,” he said. Instead of investing, the German government utilized its resources to pay down debt and the majority of its tax receipts to support welfare payments.

According to Sven Giegold, a top German Green politician recently nominated to the new government’s Economics Ministry, these decisions left the country with inadequate infrastructure compared to nations like Sweden and the Netherlands.

1640535545_929_Germanys-Vast-Foreign-Surpluses-Are-Finally-Falling-Fulfilling-an-Old

Steel coils fill a ThyssenKrupp storage facility in Duisburg, Germany.

friedemann vogel/Shutterstock photo

According to ECB data, German employees witnessed no increase in their living conditions over the decade leading up to 2008, despite their output growing by approximately 1.5 percent each year.

According to IMF statistics, Germany’s foreign investment position, or the gap between its people’ external financial assets and liabilities, has consistently increased, reaching $2.5 trillion last year, the largest of any country save Japan. According to several analyses, such assets were badly invested.

German exports have been stagnant since 2017, as the period of open international commerce gave way to geopolitical concerns, and China’s greatest consumers became rivals.

Increased domestic expenditure might undermine Germany’s foreign competitiveness, assisting in the economy’s rebalancing away from its reliance on exports. Higher wages, in particular, might damage price-sensitive export businesses like meat processing and auto parts manufacture, according to Andreas Nölke, a political science professor at Frankfurt’s Goethe University.

Some manufacturing jobs would have to be relocated to domestic services like hospitality, education, and health. Mr. Nölke said, “The issue is the interim time.”

Experts suggest the rebalancing’s overall economic effect may be bearable, particularly given the required investment in the shift to green energy.

“Germany will continue to be a trading powerhouse… But Germany will import more,” said Gabriel Felbermayr, head of the Kiel Institute for the World Economy. “The situation as a whole will be better balanced.”

Tom Fairless can be reached at [email protected]

Dow Jones & Company, Inc. All Rights Reserved. Copyright 2021 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8

Frequently Asked Questions

Why does Germany have a large surplus?

A: Germany has a surplus because it exports far more than it imports. This is due to the countrys strong manufacturing economy and its export-oriented industrial policies, which encourage production for foreign markets rather than for domestic use.

Does Germany have a trade deficit or surplus?

A: Germany has a trade deficit of $197 billion with the US and surplus of $37 billion with China.

What are Germanys main imports?

A: Germanys main imports are automobiles, machinery and chemicals.

  • favorable balance of trade
You May Also Like

Elon Musk offers to buy Twitter for $43 billion

Twitter is just a fraction of the size of Musk’s Tesla, but…

London theatre in peril amid West End cast members catch Covid

The Covid cast has been hitting out at the impact on theatre…

Priyanka Chopra Addresses Rumors of Split From Nick Jonas

Priyanka Chopra has just released a statement addressing the rumors of her…

Andros Townsend: Mum made me believe again by sending me goals video

Andros Townsend, the England and Tottenham Hotspur footballer, has been a target…