In 2011, America’s trade deficit with Germany in manufactured goods soared to a new record of $48.9 billion – a 42% increase over 2010 and surpassing the previous record of $47.2 billion in 2005. Here’s a chart of trade with Germany since 2001:
In per capita terms, the trade deficit with Germany is $596 for every man, woman and child in Germany. That’s 2.7 times worse than our trade deficit with China in 2011. So, if large trade deficits are caused by low wages or by currency manipulation, as most economists claim, then how does one explain away such a large deficit with one of the wealthiest nations on earth – whose currency is the Euro?
Germany is nearly twice as densely populated as China. This is just further evidence that large trade deficits are caused by large disparities in population density. We have a trade deficit with Germany not because their wages are low or because they out-compete us or because they manipulate their currency. We have a large trade deficit with Germany because their consumption is stunted by gross over-crowding, just like in China, Japan and many other densely populated countries.