US Visit

Selling Trade to America

  • Why it matters

    Why it matters

    President Trump’s protectionist bent threatens to undermine the traditionally friendly economic relations between Germany and the US, right at a time when the US has become the top global destination for German exports.

  • Facts

    Facts

    • In 2016, the United States became the top destination for German exports, supplanting France.
    • The G20 dropped anti-protectionist language from a joint statement in March after protests from the Trump administration.
    • Germany currently holds the presidency of the G20 and is set to host a potentially tense summit of world leaders this July.
  • Audio

    Audio

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Germany is worried about potential US protectionism and its effect on German exports. Source: Getty Images

When German economics ministers travel to friendly industrialized countries, the routine is usually relatively mundane: try to deepen cooperation, make contacts and increase access for German companies.

But when German Economy Minister Brigitte Zypries starts her seven-day trip to the United States this Sunday, her mission will be far different as she attempts to persuade the Trump administration of the fundamental merits of free trade.

The trip takes place at a crucial time for Germany in terms of its trade relations with the United States. Germany’s economy is dependent on exports, and last year, the United States became the top destination for German exports for the first time in over half a century. Yet, just as the US has become the most important market for German exports, President Donald Trump has called America’s traditional free trade credo into question and repeatedly threatened to take on a more protectionist stance.

Ms. Zypries became economy minister in January, one week after Donald Trump was inaugurated. She has since become one of the German government’s chief critics of President Trump’s protectionist proposals. In March, she said Germany could respond to a US effort to raise a border tax that would affect German exports by filing a suit against the United States at the World Trade Organization (WTO).

With her on Ms. Zypries’ trip next week will be executives and ministry staff rather than the usual cadre of business executives. Their mission will be to convince the US government that maintaining open trade relations is in the mutual best interest of both nations.

The United States has until now refused to sign a joint communiqué of the Group of 20 industrialized and emerging nations in support of free trade. Germany currently holds the presidency of the G20 and is set to host what could turn out to be a tense summit of world leaders in Hamburg this July.

Ms. Zypries will try to convince Trump administration officials of the importance of the WTO as the foundation of a rule-based world trading system. At present, the concern in Berlin is that the United States could try to weaken the organization or even withdraw from it entirely. Ms. Zypries will also try to make the case for open markets by arguing that German companies with factories and bases in the US are a source of quality American jobs.

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President Trump’s statements on trade have reflected the view that it is a zero-sum game in which one country benefits at the expense of another. In this view, the US trade deficit with Germany hurts American workers. While many critics hold this to be an overly simplistic standpoint, US administration officials say they aim to level the playing field.

During a recent interview with Handelsblatt, US Labor Secretary Alexander Acosta defended the Trump administration’s reassessment of trade policies as an effort to protect the American worker. “That is not protectionism,” he said. “That is a country saying we have an obligation to our own individuals that when trading with other partners, trade is on a fair and legal basis.”

During her trip, Ms. Zypries and her team will be expected to justify Germany’s trade surplus. For its part, the German government claims that it can do little to influence the size of the surplus, arguing macroeconomic factors play a larger role. A recently published internal economy ministry evaluation concluded that Germany’s trade surplus would have dropped two percentage points in 2016 if it were not for low oil prices and a weak euro. The criticism of the most recent increase in the surplus is therefore unjustified, according to the ministry.

Critics of the German government policies, however, say that Germany needs to do more to increase public and private investment, which would increase demand in Germany and potentially help reduce trade imbalances. There are some signs within Germany that this message is being heard, though there is disagreement within the coalition government itself about loosening the purse strings.

“My concern is that a frustrated president is looking for a target abroad that he can blame for currency manipulation or unfair trading practices.”

Barry Eichengreen, Economist, University of California, Berkeley

President Trump has entrusted his secretary of commerce, Wilbur Ross, to oversee a US study regarding trade imbalances. Its conclusions could well differ greatly from the German standpoint. Ms. Zypries is set to meet with Mr. Ross next week.

Experts worry that hardliners within the US administration will succeed in their push to implement a border adjustment tax, a levy that would make imports more expensive. Others worry about President Trump’s unpredictability.

“My concern is that a frustrated president is looking for a target abroad that he can blame for currency manipulation or unfair trading practices,” Barry Eichengreen, a prominent US economist, recently told Handelsblatt.

This may be why the German government is taking a multi-pronged approach to its free-trade campaign. Ms. Zypries is also set to meet with South Carolina Governor Henry McMaster, who is considered a Trump supporter. German car manufacturer BMW has its largest factory in the world in Spartanburg, South Carolina, and Ms. Zypries will be sure to try to draw attention to the role that German companies play in the US.

 

Till Hoppe reports on politics for Handelsblatt, with a focus on defense, domestic policy and cyber issues.  Dana Heide is a political correspondent for Handelsblatt in Berlin. Reporting contributed Torsten Riecke. To contact the authors: hoppe@handelsblatt.com, d.heide@vhb.de

 

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