The current account surplus details from Germany released last week indicated the world’s largest surplus for the third consecutive year in 2018.
The data confirmed the imbalance in the global economy. It was also a point of focus for President Trump who is attempting to negotiate trading terms with the rest of the world.
The current account surplus data comes at a time when EU officials are negotiating new trade agreements with the US.
Speaking to local radio, Peter Altmaier, the economics minister for Germany, hinted that there was still a lot of work to do on the progress of the trade talks. He noted that “the most difficult part starts now.”
Germany’s currency account surplus which measures the excess savings in the economy showed an increase to $294 billion in 2018. This accounted for close to 7.4% of the national economic output, according to the Ifo institute in Germany.
The data comes after the Trump administration has repeatedly warned that the U.S. would impose a 25% tariff hike on car imports from Europe. With Germany being the biggest automaker in the region, this could potentially impact growth in Europe’s largest economy.
The EU Commission president, Juncker reportedly told a German newspaper on Monday last week that such moves by the Trump administration would result in swift retaliatory measures from the EU.
The current account surplus data puts Germany ahead of Japan, which recorded a surplus of $173 billion during 2018. This was estimated to be about 3.5% of the national economic output for Japan. Russia came in third place with a trade surplus of $116 billion.
China, however, dropped from the top three spots due to an increase in imported machinery.
The German Position
Germany has been consistently posting a current account surplus. The data underlined Germany’s position as a leading exporter despite limited domestic investment and consumer spending. And President Trump has repeatedly targeted Germany.
The U.S. administration is looking to re-negotiate the terms of the trade with the EU. At one point, Washington accused Germany of deliberately manipulating the exchange rate in order to gain a competitive advantage globally.
However, in subsequent releases of the Treasury report, there was no mention of Germany. Nor of other nations that were accused of manipulating the currencies.
Besides the United States, the repeated trade surplus reports from Germany have also been under scrutiny from the European Commission itself. The institution has repeatedly been urging Germany to reform its services sector and to invest more in its infrastructure to boost imports.
However, Germany has countered the argument by noting that the country’s exports reflect the nation’s competitiveness in the industry and its products. German officials also maintained that they have no influence on the exchange rate for the euro, noting the independence of the ECB.
The US Position
Amid most of the nations posting a trade surplus, the United States has posted the largest current account deficit last year. This means that the U.S. imports more goods and services than what it produces. The current account shrank to $455 billion in deficit. This was about 2.3% of the national economic output for 2018.
Attempts by the Trump administration to negotiate better terms for the U.S. has led to trade uncertainty globally. We may, therefore, see an impact on the global economy as a result. China has so far been bearing the brunt of the Trump administration, but Germany is on the radar as well.
The U.S. is currently negotiating the terms with China ahead of the March deadline. Meanwhile, data from the commerce department released earlier showed options for Washington to block EU auto imports. This will be done under the guise of national security.
This could potentially hit Europe. In addition to other export countries such as Japan and South Korea. However, the report from the commerce department did not mention whether tariffs would be imported. But we expect a decision from Washington by mid-May this year.
If Washington goes ahead with the measures, Germany’s car exports to the United States could fall by as much as 50% in the long term.