By: DESMOND LACHMAN
When an irresistible force meets an immovable object, the results are generally not pretty. For this reason, one has to worry about Germany’s outsized trade surplus, which appears to be putting that country on a collision course with the Trump administration.
Being elected on the platform that other countries have been taking advantage of the U.S. in the area of international trade, President Donald Trump seems to be moving irresistibly towards doing something about other countries’ large trade surpluses. Being sure that its country’s large trade surplus is a sign of virtue rather than constituting any problem, the German government is immovable about any notion of taking policy measures to help reduce the size of that surplus.
At the heart of the trade tensions between the U.S. and Germany is the fact that, at around $300 billion, Germany now has the world’s largest external current account surplus. At over 8 percent of GDP, Germany’s external current account surplus is approximately three times the size of that of China, which has for long been the main recipient of U.S. criticism about unfair trade practices.
U.S. concern about Germany’s large external current account surplus predates Trump becoming president. Already in April 2016, in its semi-annual currency report to Congress, the U.S. Treasury flagged that the German external surplus was problematic. It did so by placing Germany, along with China, Japan, South Korea and Taiwan, on a special monitoring list. It warned that these countries faced extra scrutiny and potential retaliation by Washington as a result of concerns over their growing trade imbalances with the U.S.
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