Look out, Germany..... another broadside form President Trump and his enforcers is surely on the way

Look out, Germany..... another broadside form President Trump and his enforcers is surely on the way

ref :- " Germany's Global Trade Surplus Hits Record in 2016" , The Wall Street Journal

Anyone hoping for a relaxation of the trade war tension that has been escalating since Donald Trump's electoral victory will have been disappointed this morning. China has been the target of Mr Trump's ire since way before Nov 8th, but recently other nations have also been in the sights of the new administration, most notably Japan and Germany. With regard to the latter, Mr Trump has been accusing Germany of flooding the US with cars whilst his attack-dog Peter Navarro, head of the new National Trade Council, has accused German exporters of taking unfair advantage of the Euro's weak exchange rate.

Now with immaculate timing comes news that Germany's trade surplus, a measure of the value of exports over imports, widened to a record $252 billion in 2016. It's not a development that's likely to cool any of the trade rhetoric coming out of Washington just now. Germany should probably prepare to defend themselves from the next seemingly inevitable protectionist backlash, as "I know what it looks like Mr President, but ...." may not cut it.

Actually, in many ways Germany does have a pretty good and ready-made defence of its position (even if the Trump camp choose not to listen to it). As Chancellor Merkel has already pointed out to Washington, as part of the Eurozone Berlin has no control over interest rate policy, and therefore exchange rates, which is all in the charge of the European Central Bank. Moreover, those in Germany who represent such a nation of savers have been vociferous in calling for an end to the ECB's ultra-low monetary policy, which if and when it came to pass would of course boost the value of the Euro. If the ECB's policy continues to be guided by what they see as good for the wider Eurozone (as it should be), well ..... that's hardly Germany's fault, is it ?

A pretty fair and logical point, one would think ..... but as we say not necessarily one that's guaranteed to get a good reception across the Atlantic. So how about the observation that Germany's trading success is based on its high levels of productivity and engineering excellence ? Deputy Finance Minister Spahn said in the WSJ last week that to blame a country for being competitive would be "bizarre" , and go against all the understandings held by Germany and the US. We'll have to wait and see how that line of argument flies too, though we can take a guess.

We doubt that the US administration will wait that long before lobbing the next salvo of verbal grenades, but it could be that the heaviest attack will be reserved for the next meeting of G20 Finance Ministers, which Germany's Wolfgang  Schauble (himself no shrinking violet) will host in Baden-Baden on March 17/18 . That could be a tricky time for Mr Schauble, who will know that behind all the strengths of the German position there are weaknesses too. Foremost of those is Germany's burgeoning current account surplus, also at record levels. To many observers, a surplus of Euro 266bn in 2016 is of course a measure of exporting prowess but more pertinently reveals a lack of corporate investment at home. Such a lack of investment results in a failure to boost domestic demand and by extension to raise Germany's own levels of imports. It's not an argument that will be easily countered as Germany's lack of investment at governmental, corporate and individual levels at a time of ultra-low rates has been a puzzle to just about everyone.

Most worrying will be the suspicion that whatever the rights and wrongs of the arguments the powers-that-be in the US might just follow their protectionist agenda anyway. Officials have already talked about slapping a 35% tariff on German luxury cars. When your annual trade balance with the US alone is a surplus of roughly Euro 50bn (Dec's numbers not yet released) and it is by some distance your biggest export market, such a possibility must be a concern, don't you think ?