The Incoherence of Sino-German Scolding

Excellent Martin Wolf piece:

China and Germany are, of course, very different from each other. Yet, for all their differences, these countries share some characteristics: they are the largest exporters of manufactures, with China now ahead of Germany; they have massive surpluses of saving over investment; and they have huge trade surpluses. (See charts.)

Chart: Current account surpluses

Both also believe that their customers should keep buying, but stop irresponsible borrowing. Since their surpluses entail others’ deficits, this position is incoherent. Surplus countries have to finance those in deficit. If the stock of debt becomes too big, the debtors will default. If so, the vaunted “savings” of surplus countries will prove to have been illusory: vendor finance becomes, after the fact, open export subsidies.

China gets more attention than Germany because it’s bigger and hipper. But from a US perspective, Germany is probably somewhat more relevant. Given the much lower wage rates in China, it seems likely to me that China’s surpluses largely come at the expense of other developing nations rather than the United States. Things are being made in China rather than made in Mexico, in other words. German exports are more likely to compete directly with American industry. What’s more, when I was over there German political discourse seemed very dominated by a mercantilist mindset, with large surpluses and a high savings rate seen not only as an economic strategy but a point of national pride.