Trade Surplus

Weakening the Strong Makes No Sense

  • Why it matters

    Why it matters

    Germany has been criticized by the IMF and the US government for failing to reign in its trade surplus.

  • Facts

    Facts

    Germany’s trade surplus reached a record high of €252.9 billion in 2016.

    Germany was criticized for its current account balance during meetings of the International Monetary Fund in Washington last week. 

    Germany is the fourth-largest foreign investor in the United States.

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    Audio

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Germany US Merkel
Is Germany to blame if its products are popular abroad? Source: AP

Is it a problem for Europe and the world that German companies are successful exporters? Much was written about this once again during the IMF spring meetings in Washington. Some international commentators and institutions share this opinion. But not me.

The good news is that the issue is irrelevant for most of our international partners. An overwhelming majority recognizes that Germany doesn’t just export a lot but also imports a lot as well – goods worth around €1 trillion ($1.09 trillion) last year, in fact. Hardly any other economy is as open and as tied into international production chains as ours.

For instance, around a quarter of our exports consist of foreign value, added in the form of imported supplies. In other words, our trading partners also benefit indirectly from the success of German exports. Who would seriously propose dismantling well-established trade chains to the detriment of all countries’ prosperity?

German companies also invest a lot abroad, and that too has an effect on our current-account surplus. In recent years, small and mid-sized companies, as well as large corporations, have significantly expanded their direct investments in other countries. Their main focus has been sales and customer service, as well as developing new markets. Cost savings do not play an overly prominent role. These investments are not just good for German companies. The target countries also benefit in terms of technology transfers and jobs.

Take the United States, for example, where Germany is the fourth-largest foreign investor. It is worth noting that German companies pay the highest wages and salaries among subsidiaries of foreign companies. An American employee of a German company in the United States earns an average of around $90,000, or €82,500, a year. That’s a pretty good average annual income. A total of 672,000 people work for German companies in the United States.

Various analyses show that foreign investments in a target country have a stronger effect on growth than purely domestic investments. This is especially true of our neighboring countries.

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