February 19, 2019 / 7:10 AM / 8 months ago

Germany, with bumper current account surplus, frets about car tariffs

BERLIN (Reuters) - Germany recorded the world’s largest current account surplus for the third year running in 2018 due to strong exports that are vexing U.S. President Donald Trump and raising the risk of U.S. tariffs on German cars.

FILE PHOTO: Volkswagen export cars are seen in the port of Emden, beside the VW plant, Germany March 9, 2018. REUTERS/Fabian Bimmer/File Photo

Germany’s current account surplus, which measures the flow of goods, services and investments, shrank but was the world’s largest last year at $294 billion, followed by Japan with $173 billion, data, from Germany’s Ifo institute showed on Tuesday.

The data is likely to inflame passions in the White House, where Trump has frequently criticized Germany’s large trade surplus with the United States.

A confidential U.S. Commerce Department report sent to Trump over the weekend is widely expected to clear the way for him to threaten tariffs of up to 25 percent on imported autos and auto parts by designating the imports a national security threat.

“For some weeks and months now, we’re observing with concern that the U.S. is tightening its trade policies, that tensions are increasing,” German Economy Minister Peter Altmaier told Deutschlandfunk radio.

“The impact can already be seen in the world economy, global growth has slowed,” Altmaier said, adding that “the most difficult part” in trade talks with Washington was still ahead.

Asked about the risk of higher U.S. car tariffs, Altmaier said he did not buy the argument that imported cars would threaten U.S. national security - echoing impassioned comments from Merkel at the weekend.

“We are proud of our cars and so we should be,” Merkel said on Saturday, adding, however, that many were built in the United States and exported to China.

“If that is viewed as a security threat to the United States, then we are shocked,” she told the Munich Security Conference to applause from the audience.

Jean-Claude Juncker, the head of the European Commission, said he had a deal with Trump that there would be no higher tariffs on imports of European cars for now.

“Trump has given me his word that there will be no car tariffs for the time being. I believe him,” he told the Stuttgarter Zeitung in comments published on Monday.

Merkel said on Tuesday she had suggested that EU leaders discuss the subject of Europe as an industrial center at the next European Council meeting in March, expressing concern that EU regulations may impede European economic advancement.

“We cannot leave it off the agenda if we see that big companies are all outside Europe,” she told business leaders.

Since 2011, Germany’s current account balance has been consistently above the European Commission’s indicative threshold of 6 percent of gross domestic product and the surplus reached a record high of 8.9 percent in 2015. It narrowed to 7.4 percent in 2018.

The International Monetary Fund and the European Commission have urged Germany for years to do more to lift domestic demand as a way to boost imports, stimulate growth elsewhere and reduce global economic imbalances.

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The European Commission has recommended that Germany make use of its budget surplus to boost public investment and create favorable conditions for stronger real wage growth. The IMF has made similar recommendations.

German government officials say the trade surplus is a result of market-based supply and demand decisions by companies and consumers around the world and that it is also shaped by other factors such as oil prices and exchange rates that are hard to influence.

Nonetheless, government plans to spend a large part of its budget surplus in the coming three years to increase childcare benefits, lower taxes and reduce contributions to the public health system are expected to support household spending.

Writing by Michael Nienaber and Paul Carrel; Editing by Alison Williams

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