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Trump complains about German trade surplus – what’s behind it?

  • FILE - In this Sunday, Oct. 9, 2016 file photo, shipping containers are stacked on a ship in the port in Hamburg, Germany. US President Donald Trump keeps criticizing Germany’s trade surplus with the United States. Germans respond by saying their products are just better and people want to buy them. (AP Photo/Matthias Schrader, File)
  • German Chancellor Angela Merkel attends the weekly cabinet meeting of the German government at the chancellery in Berlin, Wednesday, May 31, 2017. (AP Photo/Markus Schreiber)

FRANKFURT, Germany — President Donald Trump has criticized Germany’s trade surplus with the United States. Germans say their products are just better and people want to buy them.

One thing isn’t in dispute: German companies sold 107 billion euros ($120 billion) worth of goods to U.S. customers last year. Going the other way, U.S. companies sold $65 billion worth of stuff to Germany. The result: a German trade surplus of $55 billion.

What’s behind all this? Here’s a look at Germany’s trading relationship with the U.S. and the rest of the world.

Q: Why does Germany sell so many goods in the United States?

A: Germans, including Chancellor Angela Merkel, are quick to say that German companies just make better products. There’s something to that, as anyone noting all the Mercedes-Benz and Porsche rides in well-heeled neighborhoods will have to concede. Germany’s export success also depends on less glamorous goods, often highly technical industrial equipment made by smaller firms that dominate global niche markets. They have a lot of practice at exporting and they’re good at it.

Q: So trade is all one way — advantage Germany?

A: Despite concerns about the surplus there are benefits to businesses and workers in both countries. Germany is the sixth-largest export market for the U.S.

Also, German companies often invest, hire and sell in the United States rather than exporting there. Around 600,000 people in the U.S. work for German companies, according to the German American Chambers of Commerce in New York.

Q: Does Germany manipulate its currency to make its goods cheaper and gain advantage?

A: Germany doesn’t have a currency it can manipulate since it belongs to the 19-member euro currency union. Germany does, however, benefit from a recently weaker euro. The euro’s fall has been in large part due to monetary stimulus by the European Central Bank. The ECB has printed more than 1.8 trillion euros to lift inflation and growth. Such monetary stimulus can weaken a currency, and the euro has slid from near $1.40 in May 2014 to $1.12 now.

If Germany had its own currency, it’s likely the opposite would have happened. Countries that run large trade surpluses often see their currencies gain in value, making their goods more expensive for foreigners and eventually reducing the surplus.

Q: So it’s all out of Germany’s control?

A: Not entirely. Germany’s emphasis on exports is in part a result of government policies over the years. The government chooses to run budget surpluses rather than step up borrowing and spending, even with interest rates at historic lows. That suppresses spending by Germans, including on imports.

Q: Is Trump alone in criticizing Germany’s trade surplus?

A: No. Others have also complained about Germany’s trade and investment surplus with the eurozone and the rest of the world. Then-Premier Matteo Renzi of Italy said last year that the German surplus isn’t good for the eurozone. Former Federal Reserve Chairman Ben Bernanke wrote in 2015 that Germany’s trade surplus “is a problem” since government policy leads to less spending by Germans. More wage increases and consumer demand in Germany would help other eurozone economies, the thinking goes.

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Breakout Box: 

German unemployment sinks

BERLIN — Germany’s labor market remained strong in May, with the unemployment rate falling again over the previous month to a new post-reunification low, in a likely boost to Chancellor Angela Merkel ahead of September’s election.

The Federal Labor Agency said Wednesday the unemployment rate fell to 5.7 percent from 5.8 percent in April in figures adjusted for seasonal variations. In unadjusted terms, the rate fell to 5.6 percent with nearly 71,000 fewer people registered as jobless.

IHS Markit economist Timo Klein said there has been a downward trend in unemployment since 2009, and the labor force has received a boost from migration from other European countries as well as refugees from the Mideast.

— Associated Press

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