Export-oriented Germany is facing harsh criticism from the United States over its excessive trade imbalance. Washington and Brussels fear German shipments abroad might eventually unhinge the European market.
It's only a couple of lines in a 35-page US Treasury report, but those lines couldn't be any clearer in their message. The Obama administration sharply criticized Germany's economic policies.
The Report to Congress on International Economic and Exchange Rate Policies, which was released Wednesday, argued that the Germany's strong exports are destroying the equilibrium of the overall European economy. It added that the nation's "anemic pace of domestic demand growth has hampered rebalancing at a time when many other euro area countries have been under severe pressure to curb demand and compress imports."
Such accusations are nothing new. The US Treasury had lashed out against Germany's export successes already in its previous report, but in a much more reserved manner. The European Commission has also frequently issued warnings of its own. Two years ago, guidelines were hammered out to avoid or correct "macroeconomic imbalances."
Over the past three years, Germany has logged a more than 6-percent-of-GDP surplus annually. This could prompt Brussels to send Germany a warning note, coupled with a request to set things straight.
But government spokesman Steffen Seibert said he did not expect anything like that to happen. He argued an economy could not reasonably be judged by a surplus alone.
Some gain, some lose
Whoever pockets more for their exports than they spend on imports ends up with a trade surplus. There's nothing wrong with this in principle. But Galina Kolev from the Cologne Institute for Economic Research pointed out there's always a buyer and a vendor involved in any kind of trading. That, she argued, meant that "when there was a surplus in Germany, there'd consequently be a trade deficit in some other nations."
Seen in this light, the Germany's export-oriented policies could have a damaging effect on the global economy. No other nation has of late been able to post such an impressive surplus. The Munich-based Ifo economic think tank said it expects another huge surplus throughout the current year of about $200 billion (146.6 billion euros).
Trade deficit a good thing?
If a country posts a negative trade balance, it doesn't necessarily have to be a bad thing, Kolev added.
"The question is what happens with the imports," she said. "A nation can import goods for consumption, or it can import goods with a view to fuel investment."
By pushing investment, countries could see a medium-term negative balance turn into a positive on long-term, because those who buy investment goods transfer values into the future can collect the yield on their investments at a later stage.
The biggest portion of German shipments abroad is actually investment goods from the construction and engineering sectors. "That's why deficits resulting from trade with Germany shouldn't be seen in such a negative light at all," Kolev said.
She suggested nations knocking a trade deficit should look for the real reasons behind it, adding that instead of flying into a fury over other nations' export strength, countries should analyze their own trade balance.
"Problems do not solely develop because a given country imports too many goods," Kolev said. "Rather, they're a result of insufficient competitiveness."
What's behind the criticism voiced?
Observers have suggested that current US criticism does not have only economic motives but are actually part of a tit-for-tat game. European criticism of NSA spying will not have gone down too well in Washington with many policy makers there.
US-German relations have seldom been as strained as they are right now. They're probably even worse then in 2002 when the then German government under Social Democrat Gerhard Schröder refused to contribute to the US-led war against Iraq.