Trump is right about trade and Germany needs to act, former state secretary says

  • Germany has also faced international criticism for its trade surplus.
  • Germany saw the first decline in its trade surplus since 2009 last year.
  • Chancellor Merkel said that she will continue to work towards that trend.

Germany should fix the current trade tensions sparked by U.S. President Donald Trump, a former German state secretary told CNBC Friday, as he expressed sympathy with the U.S.’ position in an escalating war of words with China over trade practices.

Flassbeck’s comments come amid rising fears of an all-out trade war between the U.S. and China. On Thursday, Trump instructed his trade team to consider $100 billion in additional tariffs on Chinese products — raising fears of a continued escalation against global free trade. This would be the second set of tariffs imposed on China in a couple of weeks.

In early March, Trump started by implementing tariffs on aluminum and steel imports — measures that did not represent a big impact for China, but did for countries like Japan and potentially Europe too.

Germany has also faced international criticism for its trade surplus, which means its exports outweigh its imports, as some see it as unfair, imbalanced and a cause for protectionism elsewhere.

However, Germany saw the first decline in its trade surplus since 2009 last year. Data from the Federal Statistics Office showed that trade surplus dropped to $300.9 billion in 2017 from the record high seen in the previous year at $304.44 billion.

The euro zone’s largest economy still had room for improvement, Flassbeck told CNBC’s Steve Sedgwick on the sidelines of the European House Ambrosetti Forum in Italy.

“Germany is really out there as the main culprit, so to say, because Germany has the highest surplus, much higher than China in terms of GDP… Germany has to do something against it, that’s absolutely clear,” Flassbeck said.

Last month, Chancellor Angela Merkel said that Germany’s trade surplus has been narrowing due to higher domestic demand. She added that Germany will continue to work towards that trend, but there are factors, such as oil prices and currency levels, that it cannot control.

“I very much hope that (Germany) understand(s) what’s at stake and that they start doing something. If Madame Merkel would go out and say to Trump ‘well we’re acting on it…, not just talking about it at the G20 in the last 10 years,…then I think she could take off very much of the tension that there is out there,” the former state secretary said.

However, there are two stumbling blocks that Merkel could have to overcome to get the country spending more and reducing its trade surplus: convincing her own Christian Democratic Union (CDU) party and convincing German industry.

“The social democrats (Merkel’s coalition partners) could be convinced, but convincing her own party is a problem,” Flassbeck said in reference to the conservative budget stance that Merkel’s CDU party has traditionally had.

And convincing the German industry would be a “big problem” too, he added, “because the German industry still thinks that this is the natural thing, that Germany has a surplus of 8, 9 percent, which is not.”

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