Why is import bad for the economy?

Criticism of the German economic balance sheet : Why a high export surplus can be a problem

The German entrepreneurs cannot understand the excitement. They are successful, sell as many of their products as possible abroad - and are massively criticized for this. The French presidential candidate Emmanuel Macron considers Germany's export strength “no longer sustainable”. His compatriot Christine Lagarde, head of the International Monetary Fund (IMF), is also critical of this, as is the new US President Donald Trump. Wolfgang Schäuble (CDU) has to answer a corresponding number of questions in Washington these days. On Thursday, the finance minister met his colleagues from the G20 states there. From Friday, the IMF and World Bank will hold their spring meeting, at which the German trade balance should again be a topic. But what is this argument about? What are the other states bothering about and how can that be changed?

Business representatives currently feel that they have to justify themselves. Achim Dercks, deputy general manager of the German Chamber of Commerce and Industry (DIHK), says, for example, that the high exports are “proof of the high competitiveness of German products and services”. In other words: nothing to be ashamed of. It is not the high exports that bother you abroad - but the high export surplus. If a country has an export surplus, this means that it sells more goods abroad than it buys from abroad.

Germany has a larger export surplus than China

Such an export surplus becomes a problem when it gets bigger and bigger. And that is exactly the case in Germany. Exports now exceed imports by 253 billion euros - which means that the Germans' surplus is even greater than that of the Chinese. In view of this dimension, the IMF warns of excessive imbalances and - as a result - instability of the financial system.

Germany contrasts with countries like the USA, which import more goods than they sell abroad. To do this, they have to borrow from their trading partners. So if we export more than we import, we give credit abroad. To some extent, that's fine. If the dimensions grow larger, this can become a risk - for us too. Because of the development, Germany owns a lot of US government bonds, for example. If they lose their value due to a financial crisis, wealth will be lost in this country. With the enormous focus on exports, the Federal Republic of Germany is making itself dependent on foreign countries - with corresponding risks.

Experts call for more investments

Now no economist will seriously ask the Germans to make themselves smaller and voluntarily reduce exports. But what Germany can do and what economists have been calling for for years: invest more. If the state spends more money on schools, kindergartens, highways and broadband connections, this strengthens the domestic economy. If the economy in the country grows, Germans automatically spend more money and buy more products from abroad as a result. As a result, imports increase and the export surplus decreases.

In contrast, the demand for higher wages is more controversial than more investment. In the past, economists - including IMF boss Lagarde - repeatedly accused the Germans of promoting the export economy through wage dumping. So Germany can only sell so much abroad because the companies pay their workers so badly, so the allegation. Marcel Fratzscher, head of the German Institute for Economic Research (DIW), thinks this is wrong. "German exporters pay some of the highest wages in their industry in an international comparison," he says. Even the union-affiliated Institute for Macroeconomics and Business Cycle Research (IMK) cannot prove the thesis that the low wages are responsible for the export surplus. In a current study, the IMK researchers come to the surprising result: If nominal wages had risen by 2.7 percent annually between 2001 and 2015 instead of 1.7 percent, Germany's export surplus would have been even larger. The reason: Because companies would have added higher wages to prices, exports would have declined - but their value would have risen, which would have overcompensated for the decline in volume. According to the IMK researchers, a wage increase can only reduce the export surplus if the state uses the resulting increase in tax revenues for more investments.

The weak euro makes it easy for exporters

On the other hand, Germany cannot influence another factor that is important for exports: monetary policy. The Federal Republic of Germany benefits enormously from the weak euro. If the D-Mark still existed, it would have been revalued in recent years - that would have made German exports more expensive, which would then automatically have decreased. With the common currency, the euro, this offsetting effect no longer applies. Trump's team has therefore accused Germany of exploiting other countries with its "blatantly undervalued" currency. The only problem is: the federal government cannot control the euro exchange rate. Only the European Central Bank (ECB) can influence it. In addition to Germany, it also has an eye on the countries in southern Europe, where a stronger euro can quickly trigger a new crisis.

Now new: We give you 4 weeks of Tagesspiegel Plus! To home page