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Germany Fires Back at U.S. Critique of Its Trade Surplus -- Update

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03/20/2017 | 11:31pm CEST
By Tom Fairless and Nina Adam 

FRANKFURT -- Germany's top economic officials on Monday defended the nation's giant foreign surpluses, pushing back against the new U.S. administration's criticism of German trade policy.

The two-pronged defense follows on the heels of a contentious meeting of Group of 20 finance officials in Germany, where frictions between the U.S. and other advanced countries over trade emerged.

Germany's central bank argued in a report Monday that the nation's current-account surplus -- a broad measure of its foreign trade and investment balance -- was likely to fall sharply this year, and warned it shouldn't be curbed using political tools.

Separately, a group of top economists who advise the federal government rejected international criticism and pointed the finger back at America's giant trade deficits.

"Problems can arise on both sides -- surpluses and deficits," said Jochen Andritzky, secretary-general at Germany's Council of Economic Experts, a group of five so-called Wise Men -- one current member of which is a woman -- who advise Berlin on economic policy. "It usually becomes a problem if the balance is tilted to one side over the long term, and the U.S. has been running a deficit for several decades now."

Germany posted a world-record current-account surplus last year of $297 billion, versus $245 billion for second-place China, according to the German economic institute Ifo.

The mammoth figure reflects Germans' propensity to save rather than consume, a mirror image of the U.S.'s large trade deficits and low saving rates. It means Germany is accumulating foreign assets, while the U.S. deficit shows it is borrowing heavily from abroad.

The Trump administration has been sharply critical of the trading practices of countries such as China and Germany, which it accuses of exploiting global trading relationships at America's expense. Global financial officials meeting in Baden-Baden on Saturday abandoned longstanding commitments to free and open trade following pressure from U.S. Treasury Secretary Steven Mnuchin.

The European Union's chief trade official, Cecilia Malmström, said Monday the Trump administration was sending "worrying signals" on trade. "We do not agree with those who think the answer is to raise barriers," Ms. Malmström said in a speech in Toronto during a trip to Canada, with which the EU reached a trade pact in the fall. She said the bloc's free-trade talks with the U.S. were in a "deep freeze."

Germany's persistent surpluses have come under attack from the European Commission, the European Union's executive arm, which has urged Berlin to curb them by reforming its cosseted services sector and investing more in national infrastructure.

The Bundesbank stressed, however, that Germany's foreign surplus is already shrinking, from 8.75% of gross domestic product in the first quarter of last year to 7.5% in the fourth quarter. The Wise Men forecast that the current-account surplus would shrink further to 7.1% of GDP by 2018.

"There is some reason to believe that Germany's current-account surplus might have passed its zenith and will shrink markedly in the current year," the central bank said.

It argued that the surpluses were "the result of numerous, mainly private economic decisions both domestically and overseas," meaning that they "can hardly be steered sensibly using political tools." Many Germans think it is reasonable for their aging society to want to save.

Still, the Bundesbank did call for research into policy changes that could encourage more private investment in Germany, which would help reduce the surpluses.

Germany's Wise Men took a similar tack. They blamed the surplus on temporary factors such as lower oil prices, on the nation's aging population, and on the easy-money policies of the European Central Bank.

The euro has lost around a quarter of its value against the dollar over the last three years as a result of policies of the ECB, which has launched a series of massive stimulus programs aimed at supporting growth and inflation. Peter Navarro, the head of U.S. President Donald Trump's National Trade Council, told the Financial Times in January that the euro's low valuation gave Germany an advantage over its main trading partners.

Germany's Wise Men hit back on Monday, calling such comments "totally misguided." America's "extraordinary privilege" of being able to print dollars, the global reserve currency, has allowed its government to finance persistently large deficits, Mr. Andritzky said.

A big increase in government spending -- and government indebtedness -- could even have a "destabilizing effect" on Germany and the broader eurozone, they added.

The surplus "does not signal a macroeconomic imbalance," they said in their latest report on Germany's economy.

Like the Bundesbank, the economists called on Berlin to do more to enhance Germany's attractiveness to investors, pointing out that greater investment would help lower the current account surplus.

--Paul Vieira and David George-Cosh contributed to this article.

Write to Tom Fairless at tom.fairless@wsj.com and Nina Adam at nina.adam@wsj.com

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