“When Donald Trump complained that there were too many BMWs on American roads, Sigmar Gabriel, Germany’s foreign minister, wasn’t coy with his comeback: If the United States wants Germany to export fewer goods, it could just “make better cars.” That point is moot. But the story of how Germany developed the world’s largest current-account surplus is far more complex than just ‘Made in Germany’ selling well abroad.” (Christopher Cermak, Why Germany's Surplus Is So Huge, Handelsblatt Global, April 21, 2017)

A country’s current account (CA) position has an important influence on the standard of living of its people as well as on wealth creation and economic growth. When Germany has a CA surplus of 8.5% of GDP, it amounts to a very hefty boost to its economy and the job market in Germany.

Germany did not always have huge trade surpluses, but the creation of the euro provided an incredible advantage to its exporters. Prior to January 1, 1999, any trade advantage Germany firms may have had resulted in an escalation in the Deutschmark, thus eliminating some of the competitive advantage.

With the euro, however, German surpluses are offset against deficits by other euro countries, and the exchange rate stays lower than it would otherwise be. At the same time, Germany’s exporters are in for continued trade related gains because of the large-scale asset purchases by the European Central Bank which tends to weaken the euro against other major currencies, thus increasing Germany’s competitiveness in foreign markets.

Historically Germany’s current account surplus averaged 2.5% of GDP from 1980 until 2015. But in its Winter 2016 Economic Forecast, the European Commission estimated Germany’s current account surplus was 8.8% percent of GDP. In a recent update, the European Commission predicted that Germany’s current-account surplus would ease to 7.6% of its GDP in 2018 from 8.5% of GDP in 2016, helped by a rebound in investment and rising imports.

Not surprisingly, there has been considerable criticism of Germany’s export-driven economic model by the International Monetary Fund, the European Commission and the U.S. Treasury. Donald Trump is in fact rather late in the game of criticizing Germany. Many international organizations have rebuked Germany for its heavy reliance on export-driven foreign trade at the expense of its trading partners. Indeed, the European Commission also began a probe in 2013 into whether Germany is breaching European Union guidelines.

Whether Germany’s foreign trade gains are due to a deliberate “beggar-thy-neighbor policy,” or rather to a lucky mix of circumstances (a low currency and the right products, is the real policy question.