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Donald Trump doesn’t like surpluses, specifically those trade surpluses that many countries run with America. The US has huge trade deficits with many countries including China, Mexico and Germany – something he seeks to change.
Germany is no stranger to surpluses of many sort, this year they announced another huge current account surplus of 9% of GDP, higher than even the South Koreans of 7%. It is unlikely that this is a problem to the countries themselves but how about the global economy.
Where does all this surplus go? Well the vast majority of it exists in global financial assets which will be owned by countries like Germany and the others running large credit surpluses. These are of course simply investments and may rise or fall in value just like anything else. It is useful for countries to have these assets especially in a time of aging populations and growing demands on care and health costs.
The simple fact with trade surpluses is that by definition they have to be balanced by deficits in other countries. The huge trade surplus or balance in one country will be matched by similar deficits in other countries, hence President trump’s wrath – America is funding these surpluses in many places.
Having a huge imbalance is not sustainable in the long run for any country and is basically not good for international or global trade. These are not just numbers on a balance sheet though, surpluses and deficits represent people’s jobs and livelihoods o(or lack of them).
Unemployment can be the result of running large trade deficits but this is not always the case. Both the UK and the US run substantial trade deficits alongside relatively low levels of unemployment. The problem really is where this money ends up, the amounts of money that are taken out of the global economy due to unneeded current account surpluses.
The German’s often have a reputation for being spendthrift or careful savers, however that’s not supported completely by the figures. In fact if you watch global TV which many Germans do – check out German’s who watch BBC iPlayer through VPNS for instance. However the question is what happens to that money the German’s simply don’t need, is it all diverted into valuable infrastructure projects around the world? Some is but more often it gets related into property speculation schemes or high return financial projects which bring little benefit to ordinary economies around the world.. Sometimes this money can be traced to events which cause even more financial chaos such as when American housing bubble which ended up causing the 2008 financial crises.
Author of the Italian – Rai Streaming Estero