Why are we talking about trade surpluses?
Germany’s imbalance in terms of what it exports compared with what it imports is set to be the biggest in the world this year, according to new estimates.
What is a trade surplus?
It’s the amount by which a country’s exports exceed its imports.
So if France sells €100 billion of goods and buys in just €30 billion, its trade surplus would be €70 billion.
However, a trade surplus covers just the transaction of goods.
Economists also refer to a country’s current account surplus, which, as well as goods, also includes things like services, cross-border investments and transfer payments.
Who has the biggest trade surpluses and deficits?
Germany’s current account surplus is set to remain the world’s largest for the third year running in 2018, the IFO Institute for Economic Research — a German think tank — said on Monday.
But what about if we just take trade in goods?
Trade surpluses and deficit: good or bad?
Trade surpluses are often seen as a sign of economic strength and competitiveness and they mean the country — much like a profit-making business — has more money in its bank account to buy other assets or reinvest, for example, in its labour force.
Donald Trump is critical of them and is annoyed at those countries with a big imbalance with the US, in particular Germany and China.
There are disadvantages to running a trade surplus, according to Dr Christian Grimme, an economist at IFO.
For example if a country exports a lot there is a danger whoever is buying its goods does not pay on time or at all.
Deficits, in contrast to surpluses, have been seen as a sign of economic weakness.
For example in the aftermath of the 2008 financial crisis the UK was criticised for importing more goods than it exports and being too reliant on its service sector.
However for developing countries trade deficits can be a good thing, according to Dr Grimme. For example when they import machinery and other equipment — that they cannot produce domestically - in order to be more productive and make goods themselves.