Tensions Escalate Between the U.S. and Germany

Germany

Relations between the United States and Germany have become increasingly tense as the countries spar over a U.S. Treasury report that was critical of the German economy, The Wall Street Journal reports.

According to the report, the German economy actually harms the progress of many nations surrounding it due to the country’s trade surplus. By running a trade surplus, the report says Germany is making it harder for industries in other economies to compete with German goods because Germany is exporting so much more than it is importing.

The German trade surplus currently stands at 7 percent of the country’s gross domestic product. This compares unfavorably to the Chinese trade surplus, which is at 2.5 percent of the nation’s GDP, and to the U.S. rate, which comes in at just under 3 percent of American GDP. Some countries, such as Japan, have virtually gotten rid of their trade surpluses entirely.

According to the Treasury report, the trade surplus is part of the reason that countries like Spain, Italy, and Greece cannot solve their unemployment problems, whereas German unemployment rates are among the lowest in the eurozone. The trade surplus effectively draws workers into Germany, where production rates are high, and draws workers away from firms in the other countries, where production rates are low. This is compounded by the fact that German consumption has been slow to pick up, meaning that the goods produced in Germany have to go elsewhere to be sold.

The Treasury report advocates bolstering consumption as a means of solving the problem. By creating an economy more sustainable within its own borders, this could relieve some of the pressure on the other countries in the region. Some economists have already voiced their support for the U.S. Treasury’s position, saying that they have been raising the same concerns privately to Germany for years.

The Germans have not taken the attack lightly. In fact. they have responded by saying that their economy does strive to be sustainable, and that they have not taken steps to keep down consumption within German borders. German officials have also pointed to the U.S. debt situation as a reason why they should not be overly concerned at neglecting advice from the U.S. Treasury, claiming that a country that cannot manage its own finances should not be telling other nations what to do.

The incident threatens to further sour relations between the two countries — it comes on the heels of another diplomatic hiccup, namely the revelation that the U.S. National Security Agency was monitoring the personal phone of German chancellor Angela Merkel. Though Germans have shied away from publicly criticizing the U.S. too intensely, it is becoming clear that the relationship between the two countries is far from rosy.

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