Germany’s Pathological Export Boom

Germany is the world’s industrial bazaar. No other country can offer its international clients such a broad variety of industrial products. Germany has 450 hidden world champions for niche products, and is home to 15 of the 20 biggest trade fairs in the world. It is also the world’s top exporter of merchandise and the second-largest exporter of goods and services.

But Germany is gradually becoming a bazaar economy in a different sense, because nowadays it specializes in packaging and selling its products, while outsourcing an ever-larger share of its high value-added manufacturing to low-wage countries. In other words, Germany’s role in the world economy is shifting from that of a producer to that of a merchant. As a result, its exports contain an ever-increasing share of imported goods and services and the share of domestic value-added in its exports per unit of output is rapidly declining.

This does not mean that the German-made share of exports is falling in absolute terms. It only means that the total volume of German exports has been rising faster than the total German value-added in those exports.

Is this good or bad? A favorable assessment cannot rest on the fact that the overall German value-added in exports has been growing because this is simply an effect of the German specialization in export-related production. When a country specializes in a certain area, capital and labor move into that area at a rate faster than they move into other areas – indeed, the growth of export-related sectors may come at the cost of a decline in other areas. Simply put, there is such a thing as excessive specialization.