Trade Protectionism

Doubtful Germans begin countdown until US-EU trade explosion

FILE PHOTO: German Chancellor Angela Merkel welcomes US President Donald Trump to the opening day of the G20 leaders summit in Hamburg
Superb communication skills on display. Source: Reuters

Mission not accomplished. That was the German government’s stark message on trade ahead of Chancellor Angela Merkel’s visit to Washington Friday. Even before the German chancellor holds talks with US President Donald Trump, a spokesperson for Berlin said efforts to persuade the US government not to impose tariffs on steel and aluminum on May 1 appear to have failed.

The German-American relationship, a key pillar of Germany’s post-war foreign policy, is in a profound crisis. German diplomats in Washington are talking about the relationship hitting “ground zero,” with disputes over the Iraq War in 2003 seeming trivial in comparison.

The United States announced the new tariffs in early March, saying US producers were disadvantaged in the global steel trade, especially because of Chinese policies. However, after visits to Washington by top EU officials and Peter Altmaier, Germany’s economy minister, Mr. Trump said the EU would be exempt until 1 May, while negotiations continued.

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For Germany’s business community, the prospect of an escalating trans-Atlantic trade war is a nightmare. A spokesperson for the BDI, the Federation of German Industry, pointed out that a quarter of all German jobs depend on exports, including half of all industrial jobs. Bernhard Mattes, head of the American Chamber of Commerce in Germany, said protectionist measures were simply “the wrong step,” endangering the stability of the trans-Atlantic relationship.

European Union representatives seemed slightly less pessimistic, emphasizing that talks were still ongoing between EU and US trade representatives. The EU continues to demand exemption from the new tariffs. French government sources say there is still a small chance that tariffs will not be imposed, although they said the talks held in Washington by French President Emmanuel Macron earlier in the week were “hard and tense.”

Ms. Merkel’s relationship with Mr. Trump has long been strained to the point where even the German government had hoped that Mr. Macron could take advantage of his good personal relationship with the US president to ease the situation. But while Mr. Macron was well received in the US capital, he achieved less in diplomatic terms, with no concrete progress on trade, Iraq, or on climate change.

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If the United States imposes tariffs on the European Union’s steel and aluminum exports – worth around €6.4 billion ($7.75 billion) last year – the EU may not immediately react. “There is no hurry,” said one EU diplomat. Under WTO rules, the EU would have until 21 June to hit back at the United States. But the next steps have been prepared: Member states have already signed off on planned counter-measures worth €2.8 billion, including tariffs on steel, motorcycles and jeans.

Opinion within European Union institutions appears to be strongly against making immediate concessions before the threat of steel and aluminum tariffs is withdrawn. Cecilia Malmström, the EU trade representative, has indicated to Wilbur Ross, her American opposite number, that negotiations are possible on a new trade deal reducing tariffs on some American goods. But she insists that Mr. Trump must completely withdraw the proposed tariffs first.

Some in Berlin still hope to see a trade conflict avoided at the last minute. Ms. Merkel will point out to Mr. Trump that the massive German trade surplus with the United States is currently falling – down from 2.1 percent of GDP to 1.6 percent. But even without trade, other tense subjects will come up, from Nord Stream 2, the proposed Russian gas pipeline to Europe, to Mr. Trump’s perennial complaint that Berlin does not spend enough money on its own defense.

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In spite of policy differences, Ms. Merkel is prepared to discuss points of dispute with Mr. Trump, even addressing American perceptions that European trade rules discriminate against American business. Avoid any further escalation is also the message from Mr. Altmaier, although how this can be done remains an open question.

The slump in German-American relations has not been helped by Mr. Trump’s cuts to America’s foreign policy elite. Seventeen months after his election, seven of the 10 most important State department positions have not been filled. There is still no American ambassador to Germany: Richard Grenell, a close associate of Mr. Trump, has been nominated but not yet ratified by the Senate.

Despite this short-staffing, the Americans have a long list of demands. Despite his threats against EU exports, Mr. Trump also wants European support in his trade battle against China, a double standard that has greatly annoyed officials in Brussels.

Several Handelsblatt correspondents contributed to this story.

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