Protectionist Polemics

How Can Germany Deal With Trump?

  • Why it matters

    Why it matters

    In his first week in office, U.S. President Donald Trump pulled out of the TPP free-trade agreement and ordered the construction of a border wall to Mexico.

  • Facts

    Facts

    • Germany is Europe’s largest exporter, shipping 10 percent of goods and services to the United States.
    • Germany exports twice as much to America as it imports from there, making it more vulnerable to trade sanctions than the United States.
    • Mr. Trump’s ego could provide a way out of a looming trade war.
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    Audio

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Containerumschlag im Hamburger Hafen
A container ship in Hamburg port. Source: DPA

It’s only been two weeks since Donald Trump moved into the White House, and already he’s upset the global business order with his cancellation of trade deals and his promise of import tariffs.

Germany, Europe’s economic powerhouse and export champion, is bracing itself for the possibility that Mr. Trump might close American borders to German products. That would violate international law. But what if he just says “So what?”

The biggest problem is that Germany is more dependent on trans-Atlantic trade than the United States is. Germany’s exports to America are worth twice of what it imports from the United States.

So if Mr. Trump implements punitive duties on Germany carmakers, it hits Daimler, Volkswagen and BMW much harder than a similar move would hit their American counterparts.

If Mr. Trump does raise tariffs or ban certain products, Germany would have three options: attack, embrace or defend.

If Germany attacked and gave into a full-out trade war, it could hurt the United States – at least as long as the rest of Europe followed suit. The European Union would have to get involved one way or another, since trade policy is decided in Brussels.

The European Commission could, for example, mess with Google’s and Facebook’s European business by implementing new privacy rules. So far, the Privacy Act allows multinational corporations to transfer data from Europe to America. But if the Europeans cancel that agreement, it would hit the U.S. software industry hard. Firms would need to build their own data centers in Europe, which would be costly and make their business more complicated.

The European Union could also implement import tariffs on walnuts from California and other foods imported from across the pond. That would violate the rules of the World Trade Organization, but such a move would hurt American farmers right away. Since the agriculture lobby is quite strong in Washington, they are likely to put pressure on Mr. Trump.

The E.U. could fill the void Mr. Trump’s retreat would leave.

If Asia joined in the effort, it would affect yet another group: low-income Americans buy many more goods manufactured in developing countries. That’s exactly the group of voters whom Mr. Trump promised more prosperity.

Overall, the likelihood of Berlin and Brussels striking back in case of trade violations is rather low. Europe still remembers tariffs spiraling out of control in the 1930s, worsening the global economic crisis. And British Prime Minister Theresa May will likely try to block all swings at her new ally, Mr. Trump. Since Britain is still officially a member of the 28-nation bloc, she can.

If you can’t beat your enemy, make him your friend: The alternative is buckling under. This strategy is somewhat popular in the German government, particularly within Chancellor Angela Merkel’s ruling conservative Christian Democratic Union (CDU), and its Bavarian sister party, the Christian Social Union (CSU).

The conservatives paint locking horns with the new U.S. administration as an exercise in futility. Without allies, they say, Germany can’t do much, the Europeans disunited, and even though the Chinese present themselves as the new heroes of free trade, there’s no guarantee they’d stand by Germany if it came to it.

The German finance ministry therefore calls for some “calm” when dealing with Mr. Trump. Instead of challenging him, the government should accommodate him, for example when it comes to defense. German Finance Minister Wolfgang Schäuble agreed that Germany should spend more on its defense, as Mr. Trump has demanded from all members of NATO. That could be one way to embrace Mr. Trump.

Others hope that some nice photo ops at this summer’s G20 summit in Hamburg will help calm him down, and maybe get him to forgo very draconian measures against German and European companies.

Supporters view Mr. Trump’s yearning for recognition as his potentially biggest weakness. The new president is said to be receptive to flattery – something Russian President Vladimir Putin figured out months ago. By endorsing Mr. Trump while he was still an ostensible outsider in the presidential race, he got on Mr. Trump’s good side early on.

While it is possible that Mr. Trump enjoys the flattery, it’s hard to say how much he’d compromise on trade policy in return. In the end, embracing him would mean betting on the new president’s character. And the higher the trade barriers he imposes the higher the pressure would be in Germany to counter them.

 

 

The more the United States isolate themselves, the closer the rest of the world would grow under this strategy.

Which would leave the government with a third alternative: trusting Germany’s strengths and buying time. The German economics ministry would prefer this answer to looming American protectionism.

If the United States actually started a trade war with China – Mr. Trump repeatedly denounced cheap imports from China during his campaign – Germany could swoop in as a “fair partner” for Asia.

The members of the “defend” camp hope that Europe will do what it does best anyway: slowly but steadily work on its relations. The European Union could grow closer economically to Asia through new agreements. Such relations could become part of a European strategy to defend: The E.U. could fill the void Mr. Trump’s retreat would leave, and could rise to a position of power in the international order.

The more the United States isolate themselves, the closer the rest of the world would grow under this strategy.

Since Mr. Trump cancelled the Trans-Pacific Partnership (TPP), a free trade agreement of 12 Pacific Rim nations, in his first week in office, many governments in the region are looking for new partners. Australia has proposed getting China on board, which wasn’t part of the original TPP. Some other countries would prefer the European Union, since the bloc has always been a legal community that wants to strengthen international law and global institutions.

Such a strategy to defend would mean that any injustice by Mr. Trump can only be answered with legal action, unlike under the attack option. If Mr. Trump implemented tariffs against specific companies, which is a breach of international law, the E.U. would sue the United States in the WTO. If it wins the suit, it could legally implement sanctions against America and put into place higher duties.

The biggest problem with this strategy is public opinion in Europe. If German carmakers were targeted, the German government would be under pressure to react quickly. To do nothing but sue at the WTO would possibly not sit well with an outraged public, because such trade proceedings usually take very long.

Yet it still seems the most likely reaction to a possible trade war. The European Union tends to move slowly. In return, the bloc is great at waiting and seeing. Strategic patience is its strength.

 

A version of this article first appeared in Handelsblatt’s sister publication Die Zeit. To contact the authors: redaktion@zeit.de

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