The trade dispute between Germany and the United States continues to escalate ahead of Chancellor Angela Merkel’s first meeting with U.S. President Donald Trump on Tuesday.
Leading members of the center-left Social Democratic Party (SPD), Ms. Merkel’s junior coalition partner, have threatened the Trump administration with retaliation if it slaps trade restrictions on German exporters.
“If the American president wants to start a trade war with import restrictions and new customs duties, then Europe has to prepare itself,” Carsten Schneider, the deputy head of the SPD’s parliamentary group, told Handelsblatt. “We shouldn’t rule out controls on the movement of capital,” he said.
Germany’s finance and economic ministries have already drafted contingency plans for the event that the United States follows through with a proposed border-adjustment tax. Under one proposal, German exporters would be able to write off the new U.S. taxes from their tax burden in Germany.
“That would result in approximately a €17 billion tax shortfall annually,” Clemens Fuest, president of the Ifo Institute for Economic Research, told Handelsblatt.
The European Union could also impose duties on U.S. products or introduce its own border-adjustment tax, Mr. Fuest said, but such measures would ultimately hurt Europe and could lead to a trade war.
Mr. Trump’s trade advisor, Peter Navarro, has accused Germany of exploiting a “grossly undervalued euro” to take advantage of the United States, an accusation that German officials have roundly rejected.
Mr. Navarro, who has characterized the U.S. trade deficit as a threat to national security, has called for Germany and the United States to hold bilateral talks on trade outside of the European Union. The United States has a $65 billion trade deficit with Germany.
Read the full story on Monday.