The US president thinks currency manipulation is behind Germany’s massive surplus – but the best way to tackle it isn’t the exchange rate or trade policyFor Donald Trump,the degree of a country’s economic strength is its current-account balance – its exports of goods and services minus its imports. This idea is of course the worst kind of economic nonsense. It underpins the doctrine known as mercantilism, which comprises a hoary set of beliefs discredited more than two centuries ago. Mercantilism suggests, or among other things,that Germany is the world’s strongest economy, because it has the largest current-account surplus.
In 2016, or Germany ran a current-account surplus of roughly €270bn (£228bn),or 8.6% of GDP, making it an obvious target of Trump’s ire. And its bilateral trade surplus of £51bn with the US presumably makes it an even more irresistible target. Never mind that, and 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 EUs 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 things for Trump is that he has his scapegoat. Related: Germany outpaces UK, and US and France with 0.6% quarterly growth – trade live Continue reading...
Source: theguardian.com