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How Should EU Trade Balances Be Measured?

By Matthew Yglesias on October 6, 2009 at 11:27 am

"How Should EU Trade Balances Be Measured?"

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Back when I was in Germany I asked a lot of people about Germany’s export-oriented economy and whether that’s something that can or should change in order to correct the global financial imbalances. In general the answer was “no,” with one popular cashing out of that answer being the one Claus Vistesen lays out in great detail here, namely that Germany’s demographic structure makes export-dependency inevitable:

median+age 1

Something I was surprised I didn’t hear more of, but which I think I may take up as my own line on this subject, is that European integration has reached a point where it’s misleading to look at any one country’s balance-of-payments situation in isolation. I assume that there are some American states which, if looked at as individual states, would seem to be in a situation of perpetual imbalance. Washington State, for example, with Microsoft is probably a huge “exporter.” If you look at the Eurozone as a whole, things are perfectly balanced:

ChartA_20080414121630

Of course at times the Eurozone will be running a surplus and at times a deficit, but looking at that line as a whole nothing whatsoever seems out of order. The next step in the analysis would be to see what happens if you break the United States or China or Japan down into sub-regions and look at their trade balances in isolation. My intuition is that you’d see wild differences from place-to-place comparable to the intra-European differences. But the correct way to look at these four is as two giant markets and two big ones, not as a whole array of medium-sized ones.

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