Wade Jacoby at the Monkey Cage:
"Germany … says that its large surplus and other countries’ deficits are a simple product of differences in competitiveness. … A better explanation, however, would move the focus away from competitiveness to capital flows — large financial flows between countries that reflect policy-driven changes in incomes, consumption, savings and investment. In Germany’s case, a host of labor market, pension, public investment and fiscal policy changes have helped lower the share of national income that goes to labor. This put far more money in the hands of those who save rather than spend. As a result, German domestic consumption has necessarily grown much more slowly than has national income, and lower consumption, by definition, has meant greater savings. Practically, this means firm profits have soared ever higher, and, more recently, government debt has shrunk — both manifestations of these higher savings. Overall, German national savings grew from about 21 percent of German GDP to 28 percent during the period in which its current account went sharply into surplus (2003-2017). Meanwhile, German private investment stagnated, and public investment fell to among the lowest levels in the Organization for Economic Cooperation and Development. This means that of the three usual sources of economic growth — consumption, investment and trade — Germany has become disruptively reliant on trade since about 2003. Thus, where German apologists claim that the trade surplus is simply the aggregate result of free consumer choices, it is, in fact, mostly the result of Germany’s capital outflows, which are a result of policy choices, especially those that shift national income from consumers to firms (as profits or capital subsidies) or to government (as budget surpluses)."