How Does German Economy Compare to United States Economy?

How Does German Economy Compare to United States Economy?

Some of our viewers may have grown up with the idea that Europe is filled with nothing more than unorganised countries that are run by corrupt and incompetent socialists. While it may be true in some cases, Europe’s economic powerhouse Germany, is now the fourth strongest economy in the world, only a few places behind top ranked USA. Today we’re going to compare the two, US Economy vs German Economy.

In 2016, The United States had a share of around a quarter of the gross world product at $18 trillion, while Germany had a take in 4.4% at $3.4 trillion.  To put things into perspective, The US overshadows Germany in terms of size and population with around 325 million people and a land area of 3.5 million square miles (3,531,837 square miles) compared to Germany’s population of 82 million and land area of 135 thousand sq miles (134,580 square miles). The USA has a labor force of 158.6 million while Germany has 45.3 million.

The cost of living in Germany is around 11% cheaper overall than in the USA which is comparable to the salary difference.  The disposable net-adjusted income per capita for the average household in Germany is $31,925 a year, while it’s $41,071 for Americans. Both countries have a considerable gap between rich and poor, with Germany’s top 20% of people earning over four times that of the bottom 20%. American’s top 20% earn a staggering 8 times what the bottom 20% do. As of January 2017, the minimum wage in Germany nationwide is $9.79 (8.84 euros), while the minimum wage in the USA ranges depending on each state and whether the job is one that earns tips.

Germany has a reputable export market which shipped goods to a value of $1.33 trillion dollars in 2016. 70.5% of that was made up of their Top 10 export products – (1) vehicles, (2) machinery including computers, (3) electrical machinery and equipment, (4) pharmaceuticals, (5) medical products, (6) plastics, (7) aircrafts and spacecraft, (8) iron and steel products, (9) mineral fuels and (10) organic chemicals. The fastest growing category for the Germans is vehicle exports, with aircraft and spacecraft not far behind.  In the same year, America exported only slightly more than the Germans, with $1.454 trillion dollars of goods shipped, equating to only around 7.8% of the economic output.  The US Top 10 exports in 2016 were (1) machinery including computers, (2) electrical machinery and equipment, (3) aircrafts and spacecraft, (4) vehicles, (5) mineral fuels, (6) medical products, (7) plastics, (8) Gems and precious metals, (9) pharmaceuticals, and (10) organic chemicals. According to Professor Bernd Venohr of Berlin’s School of Economics, “America concentrates on the mass market and quantity, but Germany is king of niche markets.”

Germany has a strong manufacturing sector which makes up around one quarter of its economy while the US sector is only twelve percent.  Germany’s success relies on two important advantages. The first is that they have a manufacturing commitment with support for training and offers technical apprenticeships and vocational training, along with sponsored school programmes. They also give company penalties for getting rid of workers.  The second is that they have a lower corporate income tax rate which benefits investors and companies, who can reinvest and raise capital more easily.  While President Trump has criticized Germany for its unwillingness to spend more on defence and endless trade surpluses, back in the Obama days, government policy makers were seeking guidance from Germany to help them in doubling the nation’s export growth, which was a promise from the then President.   A large part of Germany’s export and manufacturing success is due to its large number of small and medium size enterprises or SMEs which have less than 500 workers and annual sales of under 50 million Euro. 99% of companies are SMEs and employ around two thirds of workers in the country while in the USA, even though the percentage of SMEs is the same, they only employ around 50% of the population.  German workers have access to affordable and quality healthcare, while many US SME workers probably don’t, and if they do it will be of low quality.

The decisions and policies of a government highly affects the economy and quality of life for its people.  Germany shows higher government effectiveness than the USA with its integrity in policymaking processes and government institutions, with accountability for its politicians and less corruption.  The young adult population of Germany has one of the lowest unemployment rates in the world and enjoy good morale in their workplaces with a high quality of life so the fact that the German economy has been on a fast growth rate compared to the US is believable. You could, however, wonder what manipulation has been done to US GDP and employment statistics due to the poor corruption rating given by The World Bank, The World Economic Forum and Transparency International.  It would be safe to say that the US has a lot to learn from the Germans in terms of their government and economic policies and in fact Americans could be much richer if the US Government did not, overspend on healthcare and pharmaceutical drugs,  Spend $3-4 trillion on the Afghanistan and Iraq wars,  Give fossil fuel companies annual tax breaks of billions of dollars, and Ruin electrical engine designs in the past which would have done away with the Middle Eastern oil dependence.

So what does the future hold for these two powerful economies? While America dominates the global economy, it might not for much longer. With only a 1.6% growth rate in 2016, it was far behind China’s 6.7% growth, who sit in second place behind the US in the top economy ratings. Germany's quality of life has never been this high and the economy has almost fully recovered since the last crisis. But, although strong by European standards, their economy could see some challenges in the next few years due to the refugee crisis and the implementation of Brexit.

So, which country do you think has more potential growth in the future? Could Germany improve its ranking over the next few years? Let us know in the comments! 
 

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