GERMANY, NOT CHINA, IS TODAY´S REAL TRADE CULPRIT / THE WALL STREET JOURNAL

Germany, Not China, Is Today’s Real Trade Culprit

By Jon Hilsenrath
 

China’s decision to allow its currency to drop in value looks like an act of economic war, an effort to cheapen its currency to boost exports and prosperity at home while hurting trade partners. But Germany, not China, is the real winner in global currency and trade wars right now.

Take the 2008 financial crisis as a benchmark. Between June 2008 and June 2015, the euro has dropped 12.5% in value against a broad basket of currencies, according to the Bank for International Settlements. That has added to Germany’s export advantage with the rest of the world. China’s exchange rate appreciated 34% during the same period of time, hurting its trade position. The depreciation of the yuan in the past few days is a small fraction – so far at least – of the appreciation it experienced in the years since the financial crisis and of the depreciation the euro experienced.

Germany has soaked up a larger share of global output, thanks in part to the reduced value of the euro which helps its exports and restrains its imports from the rest of the world. Germany’s current account surplus – a broad measure of its excess of exports over imports – increased from 5.8% of gross domestic product in 2008 to an estimated 7.5% of GDP in 2014, according to the International Monetary Fund. The IMF sees Germany’s trade surplus shooting up to 8.4% of GDP in 2015. The only countries projected to have larger trade surpluses with the world are Singapore, Botswana, Kuwait, Taiwan, Timor-Leste, Netherlands and Papua New Guinea.

China ranks 29th in the world based on its projected current account surplus for 2015 and it was 42nd in 2014. During the 2008-2014 stretch, its surplus plummeted as a share of GDP, from 9.2% to 2.0%. Growth in Chinese imports from the rest of the world has averaged 9.8% per year in the 2008 to 2014 period, far outpacing annual growth in imports to Germany from the rest of the world of 2.7%.

Of course, Germany can’t be accused of manipulating its currency for a trade advantage. It is part of the euro-area currency zone controlled by the European Central Bank, and Germans have generally resisted the ECB’s easy money policies that have cheapened the euro. China might now be intentionally cheapening its currency for trade advantage as its domestic growth slows. Still, on the global stage it is Germany that has gotten the actual advantage and ought to be asked by the rest of the world: What have you done for us lately?