No More Trade Surplus

21.07.2022, Tomasz Konicz
For the first time in over 30 years, Germany recorded a negative trade balance. The export-fixated German economic model is facing a crisis.

“Export world champion” is now a thing of the past: in May, the German trade balance recorded a deficit for the first time since 1991, albeit only to the tune of just under one billion euros. German industry, which had been spoiled by success and had been responsible for (almost always large) trade surpluses since the 1990s, is apparently facing major ­problems.

Two factors were decisive here: the rapidly rising prices for energy sources and raw materials and the continuing disruption of global supply chains, as a result of which companies in Germany ­lack components for ­manufacturing and prices for imports are rising. As a result, the cost of imports rose 27.8 percent year-on-year to 126.7 billion euros, while exports rose only 11.7 percent to 125.8 billion euros. Compared with April, the new trend becomes even clearer: the value of German exports increased by only 0.5 percent, while imports rose by 2.7 percent.


Germany’s business representatives ­seem to be bracing themselves for the fact that the era of high German ­trade surpluses, which had already fallen from 224 to 173 billion euros annually between 2019 and 2021 due to the pandemic, is threatening to come to an end. Volker Treier, responsible for foreign trade ­at the Association of German Chambers of Industry and Commerce (DIHK)­, spoke of a ­longer-term “export downturn” at the ­beginning of July.­ An end to the price increases and supply chain problems was not in sight. The Federation of German Wholesale, Foreign Trade and Services (BGA) commented that the “consequences of the Russian war of aggression and the disruptions in the international supply chains” would leave “much greater traces” in the German trade balance, especially if there were “a break in gas supplies from Russia.”

Newspapers such as the Tagesspiegel saw a “momentous trend reversal” due to the trade deficit, which endangered the “German model of prosperity.” Economic journalists from Die Welt even asked whether Germany’s “decline” would lead to a “social crisis.”

Indeed, the economic success of the Federal Republic in the 21st century was based on the fact that the foreign trade surpluses achieved for more than 60 years reached special heights during this period. For many other countries, this was devastating, because Germany’s high trade surpluses, which often reached more than 200 billion euros, in 2017 even 247 billion euros, correspond to equally large deficits in importing countries. In the ideologically driven economic debate in Germany, this ­connection is generally ignored, but it should be obvious to everyone that surpluses and deficits in foreign trade balances must equalize on a global scale. Germany’s prosperity – the unequal distribution of which, ­by the way, is becoming ever more pronounced – was thus de facto based on the export of debt to the target countries of the German export offensive.

It is considered a great success in this country that Germany is still one of the leading industrial countries. The preservation and expansion of German industry has been at the expense of other countries, where deindustrialization has taken on enormous proportions and unemployment and debt have risen. For example, the huge exports of German industry have led to the decline of competing industry in southern Europe.

The clashes ­between the federal government and US President Donald Trump, who had promised his voters to reduce the US’s huge trade deficit, also ­resulted from this social context. Trump had taken office in 2016 promising to ­restore prosperity to ­the declining sections of US society ­by shifting industrial production back to the US, be it through protectionism or by putting pressure on the big surplus countries China and Germany, which on top of that took advantage of the relative weakness of the euro against the dollar. While ­threatening ­the German auto industry ­with tariffs, his administration imposed import tariffs on China that, ­tellingly, have not been withdrawn by ­the current US administration ­under Joe Biden.

These protectionist tendencies and trade policy conflicts, ­preceded by currency devaluation races, are a consequence of the systemic crisis of capital, which lacks a new accumulation regime in which mass wage labor in commodity production ­could be ­profitably ­valorized at the globally given level of productivity. Instead, competing capitals are engaged in an increasingly fierce struggle to keep the effects of the crisis at bay as best they can. This systemic crisis manifests itself concretely in a global debt that is growing faster than the world economy, and now stands at $296 trillion, 350 percent of world economic output. The ­hyper-productive ­system is running on credit, so to speak.

The crisis competition between the economic localities, in which the Federal Republic was so successful, thus amounted to ­passing on the debt constraint to other economies by means of trade surpluses.­ Germany’s high trade surpluses were a consequence of the introduction of the euro and the so-called Agenda 2010. The German current account balance, which takes into account services as well as trade in goods, was still balanced in the 1990s, showing only relatively manageable surpluses. It was the introduction of the euro that brought about Germany’s huge trade surpluses, especially vis-à-vis the other Eurozone countries. This is because the single currency prevented euro countries from reacting to the rapidly increasing German trade surpluses with currency devaluations, while the Hartz laws ensured the devaluation of labor in Germany.

This strategy of the soon-to-be-named world export champion was only possible thanks to the corresponding accumulation of government debt, especially in the southern Eurozone. The resulting speculation and debt bubbles burst in 2008. After the outbreak of the euro crisis, Germany – by means of the austerity dictate embodied by Finance Minister Wolfgang Schäuble (CDU) – was able to pass on its social consequences to the crisis countries in the southern periphery of the currency union. At the same time, due to the structural undervaluation of the euro in relation to the performance of German ­industry, a geographical realignment of German trade flows took place.

While the crisis in southern Europe weakened demand for German goods there, German trade surpluses in exports to non-European countries grew rapidly. The Eurozone, which initially had a balanced trade account, generated growing trade surpluses after the euro crisis, after the currency union had been turned into a “German Europe” by means of austerity policies and internal devaluation. But even that is now over: according to the statistics office Eurostat, the seasonally adjusted trade deficit of the Eurozone rose last April from 13.9 euros in the previous month to 31.7 billion euros. It is by far the highest foreign trade deficit since the creation of the currency union.

This is the systemic reason for the crisis in the German export industry: over the two decades in which global debt rose from less than 200 to more than 350 percent of world economic output, Germany was still able to pass on the litigious crisis to others through its export surplus, but now it is threatening to spread to the economic core of the Eurozone. The stable budgetary situation of recent years, with low, sometimes negative, interest rates on issued bonds, has also been based on years of debt exports, enabling the German government to mobilize hundreds of billions of euros to cushion the economic consequences of the Covid-19 pandemic and the Russian war of aggression.

All this is now at stake, even if German Finance Minister Christian Lindner (FDP) continues to promise to stick to the so-called debt brake. At least this should ­silence the economic chauvinist rhetoric in German public opinion against the debtor countries of the ­Eurozone, with which Europe’s biggest debt exporter is outraged by the mountains of debt it itself is forcing other countries to pile up.

However, this is likely to be the only positive domestic political consequence of the feared “export downturn,” should this crisis trend become permanent. The German functional elites will ­probably react to the export crisis in the same brutal way as they had initiated the foreign trade boom with the Hartz laws: By further devaluing the commodity of labor power domestically, the trade balance could be pushed back into positive territory in order to defend Germany’s crisis-ridden accumulation model. Moreover, the end of the export boom is likely to give a renewed boost to the extreme right and to euro-skepticism in the Federal Republic, if the Eurozone turns from a competitive advantage into a mere cost factor and concerns about an export-promoting image of the Federal Republic abroad recede into the background.

Originally published in jungle world on 07/21/2022

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