Who has the most reliable economy in the world?
Trade surpluses often signify not competitiveness but a political and economic system that supports it. Trade balances are particularly important to understand the social structures of a given country that are competing for a niche in international commerce. Not only in price and quality but how the whole social system is structured to provide such competitive advantage. The entrepreneurial assets of country also play a crucial role in the world markets even when a country lacks many natural resources.
International institutions that keep track of a countries performance in the world stage include the World Bank, International Monetary Fund, and World Trade Organization among others. The European Commission for instance, monitors the trade balances of the EU countries as a percentage of GDP because large surpluses or deficits may lead to macro-economic imbalances between countries outside the EU and countries within the EU.
One of the EU countries running a surplus like the Netherlands need to look at value added in order to get an accurate picture of the importance of the exports of goods or the contribution exports make to GDP. The measure of trade balance is based on turnover values, whereas economic success is determined by the value added to GDP.
Germany’s trade surplus is very large because it produces good quality products that foreign markets want to buy. For that measure, many consider the trade surplus as a sign of economic achievement. But other countries make good products without running such large surpluses which contradicts Germany’s large trade surplus.
- First this “average” measurement of the euro favors Germany for its comparative efficient methods of production. This results in that an underappreciated euro benefits Germany’s participation in a currency union. If Germany were still using the deutschemark, it would be much stronger than the euro is today, reducing the cost advantage of German exports in a substantial way.
- Second, Germany’s trade surplus is further amplified by government tight fiscal policies that tend to subdue the country’s domestic expenditure, including spending on imports.
On the list of 20 countries with the largest surplus China is number 1 with $510.7 billion USD and Germany Number 2 with $284.7 billion USD which are both large economies. There are however several smaller countries running trade surpluses like South Korea, Netherlands, Ireland, Taiwan, Singapore, Denmark and Israel among others.
In comparing the two countries with the largest trade surpluses China and Germany the one outstanding similarity is their mixed economies under very different political organization.
The state-owned enterprises (SOEs) transformation in China has been a gradual process. After 25 years of reforms, the government must wrestle with new problems such as downsizing special interests, separating the state from the operation of enterprises while addressing issues of corruption and improving the efficiency of fiscal policy and the economy. The state determines which organizations will be recognized as legitimate and forms a mixed but unequal partnership with such organizations. The mixture sometimes gets directed into the policy-making processes and often helps implement state policy on behalf of the government.
Germany on the other hand, is in step with an economic system modeled after the “Freiburger Schule.” A school of economic thought founded in the 1930′s at the University of Freiburg. It is built somewhat on the earlier historical school of economics but it emphasizes that only some forms of competition are good, while others may require government supervision.
This is considered a lawful and legitimate role of government in a democracy under the Freiburg School. The School also provided the economic theoretical elements of ordoliberalism and the social market economy of post-world war II Germany. It is also known as Rhine capitalism, a socioeconomic model that combines a free market capitalist economic system together with social policies that establish fair competition within the market and a welfare state to protect society from economic downfalls.
The asymmetry of the socio-economic systems affords German citizens freedoms that Chinese citizens do not have even when there are many similarities in the corporate structures.