In World Economy News 01/06/2017
A political war of words between Berlin and Washington is causing growing alarm among German executives who fear it could be bad for business.
In remarks widely interpreted as critical of U.S. President Donald Trump, German Chancellor Angela Merkel said in a speech on Sunday that Europe could no longer completely rely on old allies. Mr. Trump snapped back on Tuesday, describing Germany’s trade surplus with the U.S. in a tweet as “very bad for U.S.”
The exchange followed tempestuous meetings in Europe last week between Mr. Trump and other world leaders in which U.S. and European officials said the president had sharply criticized German exports to his country.
Growing worried that a deteriorating political mood could turn into a damaging trade dispute, traditionally soft-spoken German industry representatives shed their diplomatic reserve this week to warn about the damage threatening both sides.
“The U.S. would be shooting itself in the foot if it were to isolate itself,” said Anton Börner, president of the BGA federation of German exporters. “Any attempt to restrict trade would conjure up a global growth crisis, which would massively damage the U.S. economy.”
On Monday, Dieter Kempf, president of the influential BDI federation of German industry, slammed waning U.S. support for free trade, saying “The U.S. has maneuvered itself onto the sidelines.”
German-U.S. bilateral trade flows are among the largest in the world between any two countries. While China upstaged France and the U.S. as Germany’s biggest trade partner last year, according to Germany’s Federal Statistics Office, the U.S. remains the world’s biggest buyer of German goods, with imports worth EUR106.9 billion ($119.9 billion) in 2016.
With a smaller domestic market where consumption and investment have been tepid for years, German companies rely heavily on exports to feed profit. So punitive tariffs or other U.S. moves to curb German exports could wreak havoc on the German economy. They could hurt the U.S. too. German officials have repeatedly pointed out to their U.S. counterparts that German companies in the U.S. employ about 672,000 people and have invested more than $300 billion in the country.
“In current discussions about the state of European-American relations, it’s important that we differentiate between politics and business,” Eveline Metzen, General Manager of the American Chamber of Commerce in Germany, said late Tuesday. “A trade war is in the interest of no one–especially not the U.S. administration.”
U.S. officials have denied Mr. Trump’s criticism of Germany reflected skepticism about free trade in general but concern that other nations enjoyed an unfair advantage when exporting into the open American market, while not giving U.S. companies the same access to theirs.
In his talks with European Union leaders in Brussels last week, Mr. Trump had “emphasized the importance of reciprocity in trade and commerce,” Gary Cohn, the president’s top economic adviser and national-security adviser H.R. McMaster wrote in a Wall Street Journal opinion article on Tuesday. “Simply put, America will treat others as they treat us.”
In attempts to pre-empt protectionist moves by Washington, German captains of industry have been trying to educate the Trump administration about their contribution to the U.S. economy.
During Ms. Merkel’s first visit to the U.S. capital in March, car maker BMW’s Chief Executive Harald Krüger told Mr. Trump that the U.S. was his company’s “second home,” with a South Carolina plant that employs 9,000 people and has spent $200 million in training its workers. “We are proud as we are the biggest net exporter of vehicles in the U.S.,” Mr. Krüger told Mr. Trump, who went on to call BMW’s plant “incredible.”
Others point to the large share of capital goods in Germany’s U.S. exports–machines and robots they say are vital to American factories.
“With tiring regularity, Germany is criticized for its trade and current account surpluses,” Carl Martin Welcker, president of the Federation of capital goods manufacturers, said last week. “But Germany’s industry is not exporting problems, it’s delivering competitiveness.”
Before Mr. Trump’s tweet, German officials had thought that they were making progress on trade policy in talks with Washington. They noted that the influence of Mr. Cohn, seen as a relative moderate in the White House, seemed to be rising. And they pointed out that Mr. Trump agreed to a commitment to open markets and fighting protectionism in the leaders’ joint statement at the Group of Seven summit in Sicily last week.
German Economics Minister Brigitte Zypries, who met with Commerce Secretary Wilbur Ross on a visit to the U.S. last week, said Mr. Ross didn’t criticize the German trade surplus in the meeting. A U.S. official said the trade deficit came up in discussions about U.S. trade with the EU and potentially renewing talks on a trans-Atlantic trade agreement.
German officials have sought to marshal a ream of arguments to convince the White House to avoid tariffs against German goods. They note that the EU functions as a single economic bloc, with goods often crossing country borders multiple times during the manufacturing process.
They have repeatedly argued that Berlin could do little to tame the country’s large trade surplus, which they insist is a product of high competitiveness and of an exchange rate Berlin can hardly influence, given that the country’s monetary policy is run by the European Central Bank.
“California’s trade balance with China is no more a subject of discussion than the German trade balance with the U.S. should be,” a recently published Economics Ministry document says.
But some officials say their meetings with U.S. counterparts have shown that Germany still faces challenges in safeguarding its lucrative export stream into the world’s biggest economy.
“It’s evident that isolation is bad for everyone,” a senior German Economics Ministry official, Berend Diekmann, said at a conference in Berlin on Tuesday. “But it seems it’s a bit less evident for some people in the Trump administration.”
Some analysts now think Berlin needs to prepare for punitive trade measures by Mr. Trump.
“If the Americans decide they want to do it, they’ll do it,” said Marcel Fratzscher, president of the DIW Berlin economics think tank. “And Germany will lose in the end.”
In an newsletter on Wednesday, Gabor Steingart, editor of business daily Handelsblatt, captured the darkening mood.
“All the captains of industry who thought the U.S. president would quickly tone down his campaign rhetoric and return to a spirit of partnership have learned their lesson,” he wrote.
Source: Dow Jones
