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Trump should focus on improving US products, not punishing exporters: Analyst

Emmanuele Contini | NurPhoto | Getty Images

President Donald Trump is betting on the wrong strategy to reduce the U.S. current account deficit when threatening foreign firms with a border tax, an analyst told CNBC on Tuesday.

"My best advice to the U.S. administration is if you want to have a smaller current account deficit improve your products and your exports. That's the best way. It's not by punishing foreign exporters," Marcel Fratzscher, president at the German Institute for Economic Research (DIW), told CNBC on Tuesday.

President Trump has threatened to impose a border tax as high as 35 percent on cars built outside the U.S. The German carmaker BMW was among the threatened companies.

However, German officials said that its industry should not be worried.

"We are a highly successful, technologically advanced export nation with many hard-working people and smart companies," Sigmar Gabriel, the German vice chancellor, told German press on Tuesday.

He added that at the moment German exports to the U.S. total only 10 percent of their entire output, while 60 percent goes to other European countries, Reuters reported.


In fact, according to Fratzscher, it could be in the interest of the U.S. to deepen trade with Germany.

"Germany has an excessive current account surplus, close to 9 percent…part of that with the United States," he told CNBC.

"The German government needs to improve public and private investment to bring down the current account surplus, so in other words to import more goods from other European countries and also from the United States," said Fratzscher, the former head of International Policy Analysis at the European Central Bank.

As such, if the U.S. were to deepen its trade links with Germany, it could see the number of exported goods going up, reducing its deficit and improving its economy.

However, it seems that political ties between the two countries are slowly deteriorating. The U.K.'s Independent newspaper, citing German media, reported that German officials have been unable to communicate with the new U.S. presidency.

German officials told the press they no longer believe that President Trump will behave in a "statesmanlike manner."

President Donald Trump has criticized the German approach to the refugee crisis, dubbing it as a "catastrophic mistake." He also said that the European Union is "basically a vehicle for Germany."

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