LDN - Business

'Germany is not safe' despite smaller trade surplus with U.S.: trade experts

[February 12, 2020] By Michael Nienaber and Rene Wagner

BERLIN (Reuters) - Germany's trade surplus with the United States narrowed slightly last year, data showed on Wednesday, but that is unlikely to assuage U.S. President Donald Trump who has stepped up his attacks on the European Union over trade.

German exports of goods to the United States in 2019 hit an all-time high, the Federal Statistics Office data showed, even though Germany also bought more U.S. vehicles, animal feed and pharmaceuticals in a modest rebalancing of trade.

Trump, long critical of Germany's big surpluses, signaled on Monday that he wanted to restructure the more than $1 trillion U.S. trade relationship with the EU, raising the specter of another major tariff war as the global economy slows and he seeks re-election.

"Germany is not safe," Gabriel Felbermayr, president of the Kiel Institute for the World Economy, told Reuters.

After Trump claimed trade policy victories against China, Korea, Japan, Mexico and Canada, it is likely that he will now turn his anger towards the euro zone, said Felbermayr. Germany is the EU's biggest economy and by far its biggest exporter.

"Even if the U.S. deficit with Germany has fallen a little bit, U.S. data suggest that the deficit with the euro zone has gone up quite substantially," Felbermayr said, adding that Germany still accounts for more than 40% of that imbalance.

The U.S. trade deficit with Germany edged down by 1.5 billion euros to some 47 billion euros last year, helped by a surge in German imports, the new data showed.

Excluding services, German goods exports to the United States rose by 4.7% in 2019 to a record high of nearly 119 billion euros ($130 billion), the data showed.

"WORSE THAN CHINA"

Overall, German export growth slowed to 0.8% last year after 3.0% in 2018 and 6.2% in 2017, the data showed, as manufacturers faced weaker global demand and increased business uncertainty linked to trade disputes and Brexit.

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U.S. President Donald Trump meets German Chancellor Angela Merkel for bilateral talks during the G7 summit in Biarritz, France, August 26, 2019. REUTERS/Carlos Barria/File Photo

Trump has said the EU is "worse than China" on trade and has repeatedly threatened to impose higher import tariffs on European cars, which would hit Germany especially hard. Germany narrowly avoided slipping into recession last year.

Jens Suedekum, a trade expert at the Heinrich-Heine-University in Duesseldorf, said the United States remained the top destination for German exports partly because Washington's major tariff disputes had so far been more with China.

"This alone boosts German exports, which become cheaper for American consumers when compared to Chinese goods on which they have to pay tariffs," Suedekum said.

Demand for German goods in the United States has also benefited from the robust state of the U.S. economy, buoyed by massive deficit spending and tax cuts, he added.

"The United States and China have reached a ceasefire at the moment, so Trump will shift his attention towards Europe, and Germany in particular," Suedekum cautioned.

"The German export surplus is one of the major annoyances for him, and he might punish the entire EU for that."

France remains Germany's second-biggest export market, with foreign sales rising by 1.4% to nearly 107 billion euros.

China again came in third place last year, with German exports growing by 3.2% to 96 billion euros.

Combining exports and imports, China remained Germany's biggest trading partner, with a volume of 206 billion euros in 2019.

(Reporting by Michael Nienaber; Editing by Gareth Jones)

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