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Wednesday, May 31, 2017

What's behind the German trade surplus angering Trump?

Trump tweeted Tuesday that we have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Germany's export success also depends on less glamorous goods, often highly technical industrial equipment made by smaller firms that dominate global niche markets. Despite concerns about the surplus there are benefits to both countries from their close and longstanding business ties. The BMW plant in Spartanburg, South Carolina, was in fact the largest single auto exporter, sending $9.5 billion in SUVs through the Port of Charleston to the rest of the world. The ECB has printed more than 1.8 trillion euros and pumped them into the financial system to lift inflation and growth as the eurozone heals from the Great Recession and troubles over too much debt in countries such as Greece. Countries that run large trade surpluses often see their currencies gain in value, making their goods more expensive for foreigners and eventually reducing the surplus. Ironically, Germans — including the two that sit on the 25-member ECB governing council — have been among the leading critics of ECB stimulus, saying it bails out countries with weak finances and lots of debt through lower borrowing costs. The government chooses to run budget surpluses rather than spend that money or cut taxes. In 2003-4, the previous government of Chancellor Gerhard Schroeder shook up the country's welfare state, cutting long-term unemployment benefits, loosening rules on firing workers and on part-time and temporary work. [...] German wages increases have lagged, making the country more competitive on exports but reducing consumer demand for goods. Former Federal Reserve Chairman Ben Bernanke wrote in 2015 that Germany's trade surplus "is a problem" since government policy leads to less spending by Germans, in a region that needs all the growth it can get. Germany could also improve domestic demand by reducing red tape and regulation on professions like lawyers, accountants, architects, and engineers.


READ THE ORIGINAL POST AT www.sfgate.com