Germany’s “gargantuan” trade and current account surpluses will soon attract U.S. President Trump’s full trade ire, said Albert Edwards, a global strategist at Societe Generale.
“I believe Germany’s gargantuan trade and current account surplus will soon attract Trump’s full attention,” Edwards said in a note on Thursday. “That will be messy.”
Germany’s surplus has become the world’s largest in U.S. dollar terms, while the eurozone’s surplus has been rising over recent years to its current 4 percent of gross domestic product (GDP), he noted.
Edwards largely blamed the European Central Bank’s (ECB) massive quantitative easing (QE) program for distorting asset prices to the point that eurozone junk paper yields less than U.S. Treasurys.
Blame the ECB?
“The incredible yield suppression in the eurozone has seen capital flows haemorrhage out of the region in search of yield,” in part by depressing the euro, he said. “This is why the ECB is largely responsible for placing the eurozone in the crosshairs of Trump’s newly aggressive protectionist measures.”
Edwards also pointed to a years-old Chinese official’s comment that Germany, not China, was the world’s biggest currency manipulator, because it had essentially tied the “deutschmark” to far weaker economies, it’s using a “massively undervalued” currency relative to its economy.
But Edwards also noted that there were arguments against Germany acting to lower its surplus.
“Germany is currently overheating and in no position to expand its fiscal deficit even if it were so inclined,” he said. “Yet German politicians’ sometimes glib response to international criticism does not help their own cause.”
To be sure, Edwards said he expected Trump’s next target will be China, with results of the investigation into the Mainland’s approach to intellectual property due soon.
“It could result in U.S. trade sanctions including tariffs or as Trump recently said in January, a huge fine,” Edwards noted. “This is likely to be a far more explosive issue for China than recent tariffs on steel and aluminium.”