Imbalances in foreign trade: How can trade imbalances be reduced?

In the discussions on dealing with the economic difficulties of Europe, in particular the euro zone, calls for reducing balance of trade surpluses have been voiced. In the opinion of Rolf J. Langhammer, Kiel Institute of the World Economy, there are many indications that the imbalances will tend to decrease in the coming years, and for this reason intervention in trade or capital flows to correct imbalances is not necessary. Retaliatory tariffs on Chinese exports, as Krugmann has demanded for the US, would be completely misguided. It is important, however, to present the balances correctly by calculating trade on a value-added basis and by making visible the importance of the cross-border value-added chain for the progress in productivity of the partner countries. Felix Mihram and Nikolaus Wolf, Humboldt University of Berlin, believe that the extreme imbalances on current account will weaken somewhat without further political intervention due to price increases in Germany and deflationary tendencies in the deficit states. However, with regard to the current debt crisis in some euro states, a temporary intervention of the surplus countries, for example Germany together with the Netherlands, could be necessary to stabilise the euro, which at the same time would contribute to reducing surpluses on current account. Volker Nitsch, Technical University of Darmstadt, points out that the irrevocable fixing of the nominal exchange rates in the euro area is associated with larger and long-lasting trade imbalances. At the same time, structural reforms in a currency union that make markets more flexible, that dampen volatility of economic developments or that reduce budget deficits contribute to an avoidance of imbalances in foreign trade.