Today Barry Eichengreen takes over the job of Germany-bashing at Project Syndicate:
In 2016, Germany ran a current-account surplus of roughly €270 billion ($297 billion), or 8.6% of GDP, making it an obvious target of Trump’s ire. And its bilateral trade surplus of $65 billion with the United States presumably makes it an even more irresistible target. Never mind that, as a member of the eurozone, Germany has no exchange rate to manipulate. Forget that Germany is relatively open to US exports, or that its policymakers are subject to the European Union’s anti-subsidy regulations. Ignore the fact that bilateral balances are irrelevant for welfare when countries run surpluses with some trade partners and deficits with others. All that matters for Trump is that he has his scapegoat.
The Reader’s Digest version of his post is that the Germans save a lot, don’t invest much, don’t consume much, and export a lot.
Interesting factoid: there are no German universities in the global top 50. Those are absolutely dominated by American and British institutions of higher learning.
This is a textbook example of Keynes’ theory of investment, which was the real thrust of his General Theory. Expectations that more saving is needed becomes a long-term trend of underinvestment that won’t be shaken until the expectations are changed. That requires a policy shift by the German governmentto boost confidence among investors seeking yields and consumers seeking greater wages that these things can be expected to materialize.
The problems with Germany’s mercantilism and China’s are the same: it’s injurious to its customers and consequently not a sustainable strategy. Trade as zero sum game.
Both countries need to rely more on their own domestic markets for growth which means that wages must rise.
Yes, and that’s the truly pernicious aspect of negative expectations. People are saving because their wages are flat which contributes to keeping their wages flat. So they get locked into this cycle where the only option is to drain demand from somebody else’s economy. In tine this becomes the conventional thinking on how things have to work.
Or maybe demographically mature economies shouldn’t expect robust demand.
That explanation is interesting but I don’t think it explains or justifies German behavior. When you compare the population pyramid for Germany for today with that of 1990, it doesn’t illustrate a sudden decline in children or young adults. It shows a sharp decline in German birth rate during the war years and shortly thereafter. It has about the same percentage population below the age of 55 as it did 25 years ago. In other words, not much change in demographic maturity.