According to recently released data, Germany’s trade surplus hit €22 billion ($25.1 billion) in May, thanks to faster than expected export growth. Over the past 12 months, the country’s trade surplus was worth €247 billion, not far off its all-time high.
Germany is proud of its export industry and committed to thrift. The competitiveness of its economy is thanks in part to longstanding deals between unions and businesses that keep wage costs down, in return for other perks like greater flexibility and input in company decisions. Germany’s unemployment rate, at 3.9%, is among the lowest in the world.
Low wage growth, however, means low buying power for workers, which leads to subdued consumer spending at home. Unlike other large, advanced countries, consumer spending as a share of the economy has been drifting downward in Germany for many years.
Why is this a bad thing? Germany’s persistent surplus—that is, a habit of exporting more than it imports—puts pressure on trading partners, which can run up big debts to finance their spending. “Deficit countries risk running up excessive debt and therefore need to adjust,” the IMF says. “To help this process, it is only fair for surplus countries to adjust as well.” For what it’s worth, Trump’s criticism of Germany’s surplus stems from his zero-sum view of the world. (For more on the international angst about Germany’s economic model, The Economist recently addressed the subject at length.)
German lenders also enable the indebtedness of trading partners by putting the country’s excess savings to work abroad, given the less attractive options at home due to low consumer spending and a government committed to balancing the budget. A reluctance to raise wages or spend more freely also keeps inflation down, which reduces pressure to raise interest rates, which keeps the euro low, making German exports more competitive and promoting the cycle anew.