As Trump threatens a trade war, Germany finds itself struggling to pick the right side
As Europe’s biggest exporter to the United States and with more than a million German jobs at stake, Germany is desperate to avoid a European Union trade war with the US.
In the run-up to a June 1 deadline for US President Donald Trump to impose steel and aluminium tariffs on the EU, Berlin is urging its European partners to show some flexibility and pursue a broad trade deal that benefits both sides.
But that puts Germany at odds with European peers such as France.
Paris, the other half of the motor driving European integration, resents Germany’s big trade surplus and wants a tougher EU stance against the US tariffs.
“There is a great danger of slipping into a trade war that way,” says Holger Bingmann, president of Germany’s BGA foreign trade association.
Mindful of data from the German-American Chambers of Industry and Commerce that shows more than a million German jobs are directly or indirectly dependent on exports to the US, he cautions against EU threats of counter tariffs.
“That way, the Europeans would only embrace the logic of protectionists,” he says.
The European Commission has said the EU will set duties on €2.8 billion (Dh12.25bn) of US exports, including peanut butter and denim jeans, if its metals exports to the US, worth €6.4bn, are subject to tariffs.
Berlin is pushing the idea of an agreement to lower tariffs across a broad spectrum of products, especially in manufacturing.
“We can negotiate again ... but we should talk about all industrial tariffs,” says a senior German official.
A French official says there must first be a permanent and unconditional exemption for the EU from the steel and aluminium tariffs: “That’s the prerequisite for any other option.”
Such differences risk driving EU countries apart, weakening their bargaining position with Mr Trump – playing into his hands as he tries to make US businesses more competitive globally.
So far, Germany and France’s differences have largely been hidden behind the EU position that Washington must give it a permanent exemption from the steel an aluminium tariffs.
But as the June 1 deadline nears, EU trade ministers must resolve their differences quickly to give European Trade Commissioner Cecilia Malmstrom a clear mandate for negotiations with the US government.
Concerned that a tit-for-tat escalation of tariffs could affect them next, German car makers are trying to mitigate their exposure to any trade war.
BMW has quietly stopped exporting its X3 offroader from the US to China, retooling its factory in Shenyang, China, to produce the X3 model locally. The X3 is now also produced at a plant in Rosslyn, South Africa.
But any switch from one factory to another is costly, takes months to plan and implement, and is taken with a long-term view, BMW board member Peter Schwarzenbauer says.
If BMW were to change its strategy whenever a tweet comes out, “we would get crazy”, he says.
Tensions around the car sector have been stoked on both sides of the Atlantic.
In January 2017, when he was president-elect, Mr Trump complained there were many Mercedes-Benz luxury cars visible on New York streets and threatened to impose a border tax of 35 per cent on vehicles imported to the US.
Sigmar Gabriel, then Germany’s economy minister, replied that the US should “build better cars”.
Mr Gabriel’s comments reflect the pride Germans feel in the quality products their country exports, a post-war success that has helped them regain respect and recognition abroad.
Yet the surpluses this success has brought are a bone of contention that affects Germany’s relations with its peers. France has complained for years about Germany’s current account surplus – a measure of the flow of goods, services and investments – which was the world’s largest for the second year running in 2017. The head of the International Monetary Fund said in January the build-up of large current account surpluses in countries such as Germany was partly responsible for the rise of protectionism elsewhere.
France wants Germany to steer its surplus towards economically weaker southern Europe and raise domestic investment to reduce the surplus.
So too does the IMF and the US, hoping that an increase in investment would stimulate domestic demand in Germany and help boost imports from its trading partners.
German Finance Minister Olaf Scholz presented government finance plans last week that showed investment rising this year and next, before decreasing through to 2022 to below the 2017 level.
German Chancellor Angela Merkel discussed trade with Mr Trump in Washington also last week but there was no sign of a breakthrough.
In 2017, German exports to the US reached €112bn, more than twice the next biggest EU country, Britain, according to the Eurostat statistics office.
Jan Techau, a director at The German Marshall Fund of the US, a think tank, said Germany’s problem is a lack of realism with respect to its own fragile strategic situation.
He said Berlin also showed a lack of awareness of the consequences of its economic policies and failed to realise its own strategic long-term interests are largely similar to those of the US.