Question

Why we may say that Germany plays the same role for the EU as China does for the USA in terms of trade and financial flows (BOP)? What is unique about the middle and small German enterprises.

Answer 1

China is the largest goods trading partner of USA with export of goods from China being nearly double to the import from USA to China. This has caused a trade deficit in USA current accounts. Over the years, China has taken over the manufacturing and exporting of goods to USA mainly because of the low cost of production and cheap labour in China. China has clearly dominated USA in terms of trade and financial flows in Balance of Payment due to the increasing deficit in USAs deficit in BOP.

Similar to this, Germany has a trade surplus generated against the nations of the EU especially against UK, France and Austria. This is because of various reasons, the export competition in superior non price commodities has increased the market share in European manufacturing mainly due to high income elasticity of demand for German exports and low income elasticity of demand for imports. This has mainly helped Germany to have a high suplus in its BOP in comparison to the other European nations. Germany had also evolved a pattern of export led performance back in the 2000-2008 period.

The small and medium German enterprises are known as the Mittelstand. The unique thing about germany is that nearly 99% of the German companies come under the medium and small sized enterprises. These companies known as the Mittelstand have come to define a business mindset with all these companies doing exports from the beginning. These companies are often in the forefront of innovation and have made a niche for their area of specialisation. This is the main power source through which Germany's export power stems from.