World Economy

Germany’s Massive Trade Surplus Becoming Toxic

Germany’s Massive Trade Surplus Becoming ToxicGermany’s Massive Trade Surplus Becoming Toxic

Germany exporting more than it imports is becoming a big problem for its economy, a director from the country’s closely-watched Ifo Institute said Wednesday.

“The trade surplus is turning out to be an increasing issue, not just with the US but with other trade partners as well, and also within the European Union,” Gabriel Felbermayr, the director of the Ifo Center for International Economics at the Munich-based institute, told CNBC’s “Squawk Box Europe.”

“The surplus is becoming toxic, and also within Germany many argue now that we need to do something about it with the purpose of lowering it. It turns out to be a liability rather than an asset.”

Germany’s export-orientated, manufacturing economy and its resulting trade surplus—the value of its exports exceeding that of its imports—has long been a subject of criticism and Berlin has been pressured to encourage more domestic spending and boost imports.

Trade surpluses are viewed as encouraging trade protectionism and worsening the economic problems of other countries.

Germany’s trade surplus fell in 2017 for the first time since 2009, shrinking to $300.9 billion, data published in February by the country’s Federal Statistics Office showed. Still, its trade surplus with the US was $64 billion.

Merkel Warns Trump

German Chancellor Angela Merkel has warned the Trump administration that hitting auto imports with new tariffs would have dire consequences.

''We now have tariffs on aluminum and steel and we have a discussion that is far more serious," Merkel told German lawmakers on Wednesday. "This is taking on the contours of a trade conflict—I don't want to use words that go any further. It's worth every effort to try and defuse this so that this conflict does not become a war.''

President Donald Trump has threatened to place a 20% tariff on all European cars coming to the United States if the European Union doesn't remove its own trade barriers.

Targeting cars would dramatically raise the stakes in the spat between Europe and its biggest trading partner. EU-US trade in goods and services is worth more than €1 trillion ($1.2 trillion) each year.

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