Anyone dealing with absolute figures must always be careful. Reports are currently coming in from all over the country that China’s trade surplus has reached a record high of 1,000 billion dollars. Many media outlets consider this to be big news (here ), and French President Macron, during a visit to China, told the Chinese that their trade surplus was unsustainable and threatened them with European trade restrictions.

1 trillion US dollars really sounds like a lot. But how big is China’s gross domestic product? In 2025, it is expected to be around $19,200 billion (if we extrapolate the 2024 figure with 5 per cent growth and assume virtually no inflation). Consequently, the trade surplus (I am not talking about the current account balance here, for once) is around 5.2 per cent of China’s GDP. That is not insignificant.

But what about France’s favourite neighbour? Last year, Germany had a GDP of around 4,500 billion US dollars. Extrapolating with 2 per cent inflation, that amounts to around 4,600 this year, with no real growth. Germany’s trade surplus in 2024 was around €230 billion, or around US$260 billion, which was almost 5.8 per cent.

This year, the German surplus will probably be slightly lower because exports to the US are falling due to Trump’s policies, but I estimate it will still be US$220 billion. 220 billion US dollars would be 4.8 per cent of GDP. That is slightly below the Chinese figure, but still very high. It is a figure that is at least as worthy of criticism as the Chinese one, because given the uncertainties in the figures used here, the decimal places are really irrelevant.

Why did Macron say nothing about Germany? Who or what does he want to complain about when it is possible in the European Monetary Union and the European single market for one large and several small northern countries to gain unjustified competitive advantages and run high current account and trade surpluses for decades? On paper, the European Monetary Union has strict regulations designed to prevent individual countries from running high current account surpluses on a permanent basis. Why is Macron not doing anything to ensure that these rules are implemented?

There is currently a lot of talk in Germany about the single market because, in desperation over the poor economic situation, people imagine that growth can be stimulated by, for example, creating uniform European rules for bakers. But no one mentions the enormous ballast that the so-called internal market has been dragging around since Germany shamelessly exploited the monetary union to gain huge absolute advantages through wage dumping.

In 2015 I have written a paper in German (with Friederike Spiecker) that explains in detail why the German wage dumping practised under the Red-Green coalition at the beginning of the century is such a flagrant violation of reason and decency in a monetary union that is also supposed to have a functioning common market. I am reprinting the paper here in English:

Fixed exchange rates and firm promises – or how to deal with broken promises (2015)

Because the connection between Germany’s current account surpluses and the problems in the European Monetary Union is still so poorly understood, we want to try to address this issue in a more fundamental way than we might otherwise do. There was a time when such simple connections were taken for granted and respected in economics, but this, like so many other things, has apparently been lost in the turmoil of model-building and methodological mania at universities.

What can hardly be disputed is the fact that the idea of competition normally refers to competition between companies. That is where it belongs. Companies should prove themselves in competition, and the best company should be allowed to prevail and succeed under otherwise equal conditions (which includes equal pay for equal work in the first place!) through efforts to improve productivity in production processes or the goods and services produced.

If an entire country has competitive advantages over another country for reasons that have nothing to do with individual companies but benefit all companies in one country, this is problematic in any case. This is because competition between companies in both countries is distorted. The nature of these advantages is not particularly relevant. Whether the country levies import duties, reduces taxes for its companies particularly sharply or provides its companies with high subsidies, whether a country’s currency is undervalued or whether the country’s policy in a system of fixed exchange rates (or a monetary union) has contributed to wages rising less for all companies (in relation to productivity) than in the countries with which the fixed exchange rate has been agreed, there is always an advantage for all companies in one country, which systematically harms companies in the partner countries (regardless of whether the companies there are strong or weak in terms of competition).

For many decades, it was also undisputed that other countries were naturally entitled to defend themselves against such artificial advantages and to protect their companies from the associated disadvantages. It is therefore permissible (also in accordance with the rules of the World Trade Organisation) to introduce customs duties, devalue one’s own currency or initiate anti-dumping proceedings against countries that support their domestic companies. Political pressure on domestic wages to compensate for the foreign wage advantage in fixed exchange rate systems is also an option. In the past, devaluation was often the simplest means of achieving this. If a country found itself in a balance of payments crisis, i.e. in danger of no longer being able to finance its own imports without paying high interest premiums on the capital market, the solution was usually sought in devaluation, both with flexible and adaptable exchange rates (such as in the Bretton Woods system or the European Monetary System EMS). This reduced imports, strengthened exports and thus reduced dependence on the capital market.

Fixed exchange rates are, so to speak, a promise by trading partners not to undercut each other in one way or another, so that the option of changing exchange rates would be necessary. The stronger the link between exchange rates, the stronger the promise of non-undercutting by trading partners must be, of course, for the system to hold. In the European Monetary Union, Germany has chosen the mercantilist form of undercutting, namely by tightening its own belt. This breaks the promise underlying the agreement to enter into a monetary union. In reasonably constructed treaties, trading partners would therefore no longer have to adhere to the free trade requirement, but could instead introduce import duties on Germany to compensate for German dumping.

However, the European treaties are not reasonably constructed, as can be easily demonstrated. The Commission takes massive and serious action, including bringing cases before the European Court of Justice, against states that favour individual companies. So if Volkswagen, as in a famous case, receives a subsidy from the state, whether in the form of cheap land or a state guarantee of survival due to direct state participation in the ownership of the company, the Commission suspects a distortion of competition to the detriment of other companies in the EU and demands compensation or the cessation of the subsidy.

However, if a country favours all its companies through tax cuts or wage pressure, this falls under the heading of ‘competition between nations’ or ‘national tax sovereignty’ and the Commission does nothing. But such a blanket subsidy in Germany can distort the situation of a company in France vis-à-vis its German competitor in exactly the same way as an individual subsidy. Overall, however, the damage is much greater than in the case of an individual subsidy, because all companies in France now suffer from dumping. Without the European treaties, France could bring a dumping case against Germany before the World Trade Organisation with a good chance of success, or it would be in a monetary system with Germany that would allow the French currency to be devalued without major upheavals.

This argument shows that it does not matter whether a nation is efficient or productive. Every nation is allowed to be as productive as it can be. However, no nation is allowed to deliberately live below its means (i.e. below the possibilities created by its productivity) for a long period of time, because otherwise it deprives other nations of the opportunity to adapt to their own circumstances, i.e. to enjoy the fruits of their own productivity. Since it would be extremely foolish for all nations to try to live below their means just because one nation does so, there must be compensatory mechanisms of the kind described above (i.e. tariffs, currency devaluations or criminal proceedings against the deviant).

But some will argue that competition between nations cannot simply be ruled out. Yes, it must, because it is not competition in the good sense of a market economy. The idea of ‘competition between nations’ is certainly one of the most foolish ideas of all time, because nations do not do what one would expect from companies competing with each other. We consider competition between companies to be sensible because companies, or rather the people behind them, are most inventive and innovative in a market economy when they are given no opportunity to outdo their competitors with illegal tricks, tax evasion, bribery or primitive blackmail of their own employees. Those who do not do any of these things and are still successful because they make a new discovery or develop a new product are what we call great entrepreneurs. Imitating them at home and abroad promotes productivity and thus prosperity at home and abroad. This is precisely where the strength of the market economy lies, with its discovery and reward mechanism of “market and profit”.

However, it is not innovative for one country to lower taxes and force all other countries to do the same. It is just one of those cheap tricks that we rightly condemn as abuse of competition in business. Putting pressure on trade unions from the state to force low wage agreements is just as little an innovation at the state level as it is at the corporate level. Nations do not invent anything. They have no ideas, they are not capable of developing new products or implementing new production processes.

Precisely because we want to leave this to companies in a market economy, the state must not give its companies a blanket advantage in international free trade by reducing costs. If it does so, other states must be able to defend themselves against this with means that are entirely within their control. Unlike unsuccessful companies, which disappear from the market and whose employees can move to successful companies, states cannot (and should not) disappear from the map with their citizens, at least not as long as peace and democracy prevail.

The option of emigrating to a “more successful” country is undoubtedly undesirable, both for the country that is losing out in the “competition between nations” and whose citizens are beginning to leave, and for the country that has to cope with mass immigration and justify this to its own citizens. As a rule, they are not particularly keen on increasing competition for jobs, especially since they have already had to take a hit in the “competition between nations” (e.g. in the form of inadequate provision of public goods due to tax cuts or in the form of wages lagging behind productivity).

Incidentally, entrepreneurs and employees in this “successful” country are anything but unanimous on this point. Entrepreneurs find it quite attractive when well-educated immigrants enter the domestic labour market, competing with well-educated locals for wages and filling the gaps left by tax cuts in the area of education and training levels among the workforce. Entrepreneurs then like to present themselves as cosmopolitan and immigration-friendly. Domestic workers, on the other hand, who feel pressured by immigrants due to the devaluation of their educational investments or who already have difficulties in the domestic labour market due to a lack of reasonable public investment in education, quickly find themselves on xenophobic terrain.

The other possibility, whereby a state sells its public capital stock, including its land, to “successful” foreign countries, is also clearly unacceptable. This is not only a matter of “national pride” etc., but above all because it means the reintroduction of medieval structures of manorialism (albeit in foreign hands).

These simple principles, which ensure competition that benefits all societies, have been thrown overboard in the EU in the wake of the neoliberal revolution. This was still somewhat acceptable as long as only small states such as the Netherlands, Finland or Ireland violated these principles, because the effects on the rest of the community of states were not very serious. However, the ignorance of the institutions on this issue is now taking its toll, with the largest state in the community doing what the small ones have done before. Now it can no longer be ignored, because the economic impact on the mercantilist’s neighbouring countries is enormous.

But instead of at least now calling a spade a spade, the EU Commission is hiding behind the mercantilist and calling on everyone else to follow suit. This cannot end well, and it is not ending well. Deflation and recession are clear evidence of this. The broken promise to refrain from undercutting competition between participating nations in a monetary union now calls for flexible exchange rates or the end of free trade. Keeping exchange rates fixed, defending free trade and ignoring the broken promise is nothing more than holding the fuse under the powder keg until it explodes.