Just a quick note to say I was very glad and a little surprised to see quite a number of articles and commentaries on the problem of Germany’s large trade surplus. I was out of the box early on Trump’s “Germans are bad” rant, as I’ve long inveighed against the dominant DC notion that trade deficits of any persistence and magnitude are always and everywhere benign. So it’s a very positive development to see others recognizing that there are important ways in which persistent imbalances can be very problematic.

The problem—and with Trump and trade there’s always a problem—is that to team Trump, bilateral trade deficits are scorecards: if we have a deficit with you, you’re bad, bad, bad. Besides being totally undiplomatic, that’s bigly wrong, and in fact, as I argued here, citing Michael Pettis’ work, playing bilateral whack-a-mole could easily exacerbate our trade deficit – by diverting capital flows that were going into Mexico, e.g., into coming here. (Such flows are the flip side of trade deficits, and the more countries with excess savings send them here – e.g., when they buy US financial assets – the larger will be our trade deficit.)

Certainly the fact that more mainstream economists, including Ben Bernanke and more recently Mervyn King (former head of the Bank of England), have been raising both the broader problem of sustained trade imbalances and the more narrow issue of Germany has helped surface the issue, which I’d put this way:

Because currencies don’t always adjust to forces that would reduce trade imbalances, these imbalances persist. When they do so, surplus countries can a) boost their own employment and output relative to deficit countries, and b) flood those countries with cheap capital that can lead to bubbles and busts.

So, Germany imports labor demand from weaker economies in the Eurozone, and the US real estate bubble was inflated in part with foreign capital inflows in the run-up to the financial crisis.

Unlike, say, China up until about five years ago, Germany doesn’t manage or manipulate its currency to suppress its value—it’s undervalued due to unique characteristics of the monetary union—but the result is the same. Along with Trump pillorying them, the Germans are getting lots of free advice on how to reduce their surpluses, for which I’m sure they’re “sehr” appreciative. People have suggested they reduce their high levels of national savings, which include record budget surpluses, most recently just below 1 percent of GDP, say through investing in public infrastructure. Or raise wages for domestic workers. Or spend more on imports. Or generate more inflation. Or expand the monetary union into a fiscal union so as to enforce reduced austerity in surplus countries.

All fine ideas, though with their unemployment rate at 3.9%, German authorities argue that they’d just as soon not go there. But though solutions in this case may not be quickly forthcoming, the first step is to recognize the problem. And even if it took a Trump gaffe and tweet to get there, that’s progress.