Over the past week it has been easy to believe that the most important economic issues have their roots in politics. I will discuss the impact of this week’s general election on things economic next week, once the result is known. But amid all this hullabaloo, some other developments have taken a worrying turn, especially the evident strain that has developed in US/German relations, most recently over climate change, but before that over trade. Put climate change to one side. Does Donald Trump have a point on trade?

The United States runs deficits on its external accounts, that is to say, it buys more from abroad than it sells abroad. In the process, it exports employment and profit possibilities to other countries. Germany does exactly the opposite. It is running a surplus on its current account (broadly speaking, exports minus imports) of over 8pc of GDP. This is what lay behind President Trump’s recent outburst at the G7 summit in Taormina, Sicily, describing German trade practices as “very, very bad”.

Yet most Germans are proud of their surplus and suggest that other countries would be better if they copied Germany, seemingly oblivious of the fact that in order for Germany to be able to have a surplus, someone else has to have a deficit.

The problem now extends beyond Germany. The workings of the single currency have turned the whole eurozone Teutonic. The eurozone’s external surplus now exceeds the combined surpluses of China and Japan. Germany and the euro are the source of the world economy’s greatest imbalance.

Interestingly, there has been support for the German position on trade from some economists. They say that the US’s external deficit is not connected with trade practices in Germany or any other country but is rather the inevitable outcome of the imbalance between American savings and investment. In short, Americans collectively do not save enough.

This argument completely misses the point. Of course, it is true that the US is under-saving or, if you like, over-spending. Indeed, if a country is running an external deficit, this is true by definition. But things that are true by definition are completely empty with regard to what they say about behaviour.

David Fuller's view

Here is a key sentence:

“The workings of the single currency have turned the whole eurozone Teutonic.”

It will be very interesting to see how this is resolved.  The other EU states want Germany to relax the stance of its fiscal policy, best achieved by turning the EU into a fiscal union, as I have mentioned previously.  However, Germany remains opposed to this and the strategy has never been popular with EU citizens who do not want to lose more of their independence.  This is the main reason why the UK voted for Brexit.

Here is a PDF of Roger Bootle’s column.