World trade With punitive tariffs can be reduced no trade plus
- Even under President Obama, Angela Merkel had to justify for the German trade plus.
- The Chancellor’s arguments are more than thin from an American point of view. And US President Trump now wants to reduce the excess with punitive tariffs on steel.
- Experts warn, however, that the US could cut into their own flesh.
Angela Merkel had a hard time fighting, because the pressure of the colleague from Washington was enormous. In world trade, the US president complained, there was a massive imbalance, because “countries like Germany” contribute with their huge export surpluses that elsewhere, the deficits skyrocketed. Such unilateral transactions to the detriment of the United States are no longer acceptable, the Federal Republic must commit itself to introduce a strict upper limit for their export plus. The Chancellor struggled with her hands and feet against the demand. Finally, Barack Obama gave way.
The US complaints about German foreign trade policy, as shown in this episode from 2010, are by no means new and neither an invention of incumbent President Donald Trump nor a hobbyhorse of his Republican party. On the contrary, the view that states such as Germany and China are flooding the markets with their goods and thus placing the world economy in a dangerous imbalance is at least as prevalent among opposition politicians and democratically-minded economists in Washington. The further right and left one looks, the sharper the attacks become – to the point where, in the recent presidential election campaign, the economic nationalist and the more socialist agenda of the candidates Trump and Bernie Sanders merge.
However, the difference between Obama and Sanders on the one hand and Trump on the other is that the incumbent president does not think much of diplomacy and international institutions like the World Trade Organization (WTO). Instead, he relies on a policy of strength and threats that friendly states are not immune to. Should Merkel be unable to identify concrete steps to reduce surpluses in trade with the United States in their meeting with Trump this Friday, the President could introduce tariffs on steel and aluminum imports from Europe as early as next week. Deliveries from countries such as China are already subject to import duties of between ten and 25 percent, while the EU still has a derogation.
Federal government fears trade war with the US
Government officials expect the US tariffs on steel and aluminum to apply to the EU from May onwards. On Friday, Chancellor Merkel wants to promote US President Trump for a dialogue.
Merkel’s problem is that her arguments are more than thin from the American point of view. Put simply, the Chancellor has been referring for years to the fact that the Federal Republic has already carried out those painful structural reforms that other states have been pushing forward for many years. Examples include the Hartz reforms in the labor market or the extensive processing of non-promising sectors such as the coal industry. According to Merkel, the result is that German goods are not only qualitatively but also priced among the most attractive in the world today. Nobody should be punished for that.
That Germany “produces without a doubt good products that foreigners want to buy,” deny even politically unsuspicious experts like the former US Federal Reserve Chairman Ben Bernanke. The fact is, however, that the German export surplus with more than eight percent of economic output has remained at a level for years that many economists regard as unsustainable, even harmful. Even the federal government itself has repeatedly signed international agreements stating that it is critical of six percent.
Steel imports from Germany did not amount to two billion dollars
Bernanke sees two points that differentiate German companies from other top manufacturers. For one thing, he wrote in 2014, the euro reflects the competitiveness of the entire currency area, but not the position of individual member states: “If Germany were still using the D-mark, it would probably be much stronger than the euro today . ” In other words, German products are also so competitive because they are sold in an artificially discounted currency. On the other hand, the German government is also contributing to the imbalance with its austerity policy and underinvestment. Almost at the same time, US Treasury Secretary Steven Mnuchin had commented only on the weekend after meeting with his German colleague Olaf Scholz in Washington.
A completely different question is now whether the German trade plus vis-à-vis the USA could be noticeably reduced with the help of steel tariffs. Short answer: no. According to the US Department of Commerce, the United States imported goods and services worth $ 153 billion from the Federal Republic in 2017. This was offset by exports of 85 billion, the bottom line was a German surplus of almost 68 billion dollars. The steel imports from Germany made but not two billion dollars.
Many US experts even warn that the Americans cut their own meat with tariffs on European steel deliveries. The US manufacturer, Trump wants to protect by the import duties from foreign competition, today employ only 140 000 workers, the steel and aluminum processing industries but 6.5 million. These include the car and aircraft manufacturers, the beer can and the construction industry and dozens of others. All of them would have to reckon with higher costs, which some companies might have to redeem elsewhere, for example by relocating production abroad. And there is another serious problem: many European manufacturers have developed grades of steel that their American customers can not order anywhere else in the world, especially solid or extremely thin ones. All of them would have to go shopping in Europe in the future – but considerably more expensive.
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