Transatlantic Trade War

BERLIN/WASHINGTON | | usa

BERLIN/WASHINGTON (Own report) - In the looming trade war between the EU and the USA, Brussels is threatening to officially denounce the United States as a "tax haven." The EU Commission is currently preparing this affront to the world power, following Washington's strong criticism of Germany's excessive trade surplus. In the six years, from 2010 to 2015 alone, this surplus has led to an outflow of nearly a quarter trillion euros to Germany from the United States because of the "grossly undervalued" euro, according to Trump's trade advisor Peter Navarro. This has been confirmed by the Bundesbank's recent analysis, showing that through its monetary policy the European Central Bank (ECB) has contributed to the euro's undervaluation, which in turn has facilitated record German exports and the large US deficit. The trade conflict is flanked by a propaganda offensive against the Trump administration, exploiting the new US president's racist and chauvinist policies to designate him as an enemy. This conflict could lead to the first major power struggle between Germany and the United States since 1945.

A Quarter Trillion in Surplus

The development of trade flowing between Germany and the USA over the past few years, illustrates the main reason behind the looming transatlantic trade war. German exports to the United States valued at 65.5 billion euros in 2010, reached 114 billion euros in 2015, an increase from 7.5 to 9.5 percent of Germany's total booming exports. Since then the United States has become the most important sales market for German companies. Simultaneously, Germany's trade surplus with the USA has risen from 20.5 billion euros in 2010 to nearly 54.5 billion euros in 2015. For German companies, this is highest surplus, in comparison to those accumulated through trade with any other country - an outflow of 225 billion euros to Germany from the USA. In just six years, the USA has contributed nearly a quarter trillion euros to German prosperity.

Rebuffed

For years, Germany's persistent export offensive has been provoking Washington's hefty criticism. Already during his first year in office in 2009, President Obama demanded that Berlin take action against Germany's excessive trade surplus, which, since 2006, has continuously been just above the six percent threshold of the GDP, which is considered a threat to stability in the EU. In 2015, it had climbed to 8.8 percent of the GDP. Berlin has constantly rebuffed Washington's complaints. In early 2014, when US Treasury Secretary Jack Lew complained about the German surplus to his German counterpart Wolfgang Schäuble, who admonished, "we do not engage in talks for mutual evaluations, but for better mutual comprehension."[1] US President Donald Trump has now made it clear that he will not continuously accept the outflow of two to three digit billions. He has already openly threatened Mexico and China with punitive tariffs, two countries, which are also accumulating a high trade surplus with the USA. Even punitive measures against Germany are not ruled out.

Punitive Tariffs because of Currency Manipulation

US punitive measures against Germany could even be based on a long-standing US law. The Bundesbank recently shed light on the reason: The Bundesbank had investigated the foreign exchange markets' reactions to the ECB's lax monetary policy, for the three years - 2014 to 2016. In its struggle against the euro crisis, particularly the ECB's extensive eurozone bond purchases had led to a sharp devaluation of the euro, by 6.5 percent in relationship to the US dollar during that period. This has considerably contributed to the overall - approx. five percent undervaluation of the euro, reiterated the Bundesbank. Even though the ECB is officially not allowed to pursue an exchange rate policy, in practice, the declining euro rate, which is driving eurozone exports, and thereby improving Europe's economy is to its advantage, observers note. This procedure, however, gives Trump the possibility "to accuse the ECB of currency manipulation and apply sanctions to eurozone countries," according to the Bundesbank's report on its investigations.[2] The author points to a 1977 US law allowing him to levy, "by executive authority, trade tariffs against individual industries or the entire eurozone countries at short notice."

Exploited

On Tuesday, Trump's top trade advisor Peter Navarro gave his opinion on the trade deficit with the EU, and particularly Germany. The euro is "grossly undervalued," he observed. Most experts agree with him on this conclusion. Since some time, Germany has been using a grossly undervalued euro to “exploit” the US and its EU partners with export offensives, continued Navarro. For example, Great Britain, with its enormous trade deficit with Germany (196 billion Euros from 2010 to 2015), is also propping up German prosperity. Mr. Navarro’s comments highlight a growing willingness by the Trump administration to antagonize EU leaders and particularly the German chancellor by launching an export offensive.[3]

Tax Haven

Now, Berlin and the EU are retaliating. As was reported, this week, the European Union will write to American tax authorities, asking for "clarification" on areas of taxation policy. Brussels is currently compiling a blacklist of "countries with uncooperative tax policies," accused of tax evasion or even facilitating money laundering. The USA could be added to this list, it is warned. Some US states - Delaware and Nevada, are explicitly mentioned - attract companies and high-net worth individuals with special tax arrangements. Some US states even allow the holders of escrow accounts to remain anonymous - a perfect recipe for financial crimes. For many years, the European Union looked the other way, unwilling to annoy their most important ally. However, with Donald Trump's inauguration these times are over. If the USA does not provide satisfactory responses to the EU, the EU could officially add the US to a black list of tax havens, an affront, until now hardly imaginable.[4]

Designating the Enemy

The looming trade war between Germany and the EU on the one hand and the USA on the other is flanked by a growing wave of propaganda exploiting the racist and chauvinist policies of the new US administration to designate it as an enemy. Members of the German government have repeatedly denounced the targeted discrimination of Muslims, with the notorious US immigration ban. In an Open Letter published on Tuesday, European Council President Donald Tusk named the Trump administration a "threat" to the EU alongside China, Russia and the "terror in the Middle East."[5] These verbal attacks against Trump's aggressions are in stark contrast to the EU's generous silence about the more than 5000 refugees, who drowned in the Mediterranean last year attempting to flee to Europe, or the nearly 800 civilians killed by drones in the Middle East and Central Asia under the responsibility of the Obama administration. However, those attacks against Trump are helping to mobilize the German population for the looming first major power struggle against the USA since 1945.

For more information on this subject, see: The Moment of the Europeans, Leader and Followers and In the Name of Europe.

[1] Mahnungen vom Amtskollegen. www.handelsblatt.com 08.01.2014.
[2] Holger Zschäpitz: EZB als Währungsmanipulator entlarvt - Munition für Trump. www.welt.de 24.01.2017.
[3] Shawn Donnan: Trump's top trade adviser accuses Germany of currency exploitation. www.ft.com 31.01.2017.
[4] Ruth Berschens: E.U. Includes U.S. on List of Potential Tax Havens. global.handelsblatt.com 31.01.2017.
[5] "United we stand, divided we fall": letter by President Donald Tusk to the 27 EU heads of state or government on the future of the EU before the Malta summit. www.consilium.europa.eu.