Export World Champion under Pressure

Shuttle Diplomacy

The Trump administration's punitive tariffs on aluminum and steel imports into the USA - from which the EU has been exempted until May 1 - have led to an intense shuttle diplomacy by top German politicians with Washington. Berlin and Brussels have until the end of April to avert a trade war through far-reaching concessions to the United States. Following Germany's Minster of the Economy Peter Altmaier's visit to the US capital in mid-March, to discuss the benchmarks of an EU-US trade agreement,[1] Vice-Chancellor and Finance Minister Olaf Scholz went to Washington yesterday. In a 30 minute "exchange of views" with Vice President Mike Pence, they emphasized the importance of free global trade and the unswerving German-US friendship. The United States is "an important ally of our country" and the transatlantic partnership a "pillar of our foreign policy," the finance minister underlined.[2]

TTIP 2.0

Scholz and Pence also met to prepare Chancellor Angela Merkel's visit to Washington on Friday, shortly before the period of grace for the EU trade policy is to end. Whereas a German government spokesperson merely stated that "issues of foreign and security policy" will be discussed,[3] the US media is already debating an "EU peace offer" to ward off the looming US tariffs on European aluminum and steel products.[4] The deal includes the reduction of EU tariffs on US cars, EU companies' access to public competitive bidding in the United States and a joint approach in the trade war with China. The trade alliance's key element would be a "reduced, simplified version" of the aborted TTIP transatlantic trade agreement, which, on the initiative of the Obama administration, was aimed at linking the EU to the United States through a long term transatlantic trade partnership - and which failed particularly due to Berlin's resistance. Shortly following the announcement of punitive tariffs, representatives of the German business community, such as German Chambers of Industry and Commerce (DIHK) President Eric Schweitzer began calling for a "revival of the TTIP Agreements."[5] In the meantime, Washington has begun sending signals in the same direction. In late March, US Secretary of Commerce Wilbur Ross declared that indeed the Trump administration is inclined to reopening TTIP talks.

"Either With Us or With Putin"

Now that Berlin has obviously - under pressure from Washington - chosen the transatlantic side in the upcoming US-China trade war, the United States is using the sanctions against Russia to threaten Germany's dominant position in the eurozone. According to media in the USA, Germany, with almost 40 percent of the West's export losses is the country most affected by the sanctions policy, while other geopolitically significant stakeholders such as the United Kingdom, France and the United States are much less affected.[6] Russian news agencies reported Thursday that, Berlin will seek "exemptions" from the most recent US sanctions for German companies, particularly Daimler, Volkswagen and Siemens.[7] The visits to Washington by the finance minister and the chancellor are aimed at changing Washington's mind on the sanctions policy, it is reported, because the new sanctions would endanger the long-term German-Russian joint ventures valued at hundreds of millions of euros.[8] Berlin is also continuing its persistent attempts to push through the expansion of the German-Russian Baltic pipeline (Nord Stream 2), under strong opposition from Washington and Warsaw. BASF and Wintershall, the German companies involved in the pipeline project, have been under strong US penalties since August. Germany could easily find itself as part of London and Washington's new favorite narrative: "you're either with us...or you're with Putin."[9]

The EU's "Undisputed Leader"

Washington's pressure on Germany, the long-time export world champion, is accompanied by an on-going crisis in German-French relations - caused by Germany having thwarted France's plans for reforming the Eurozone.[10] It is significant that Chancellor Merkel will visit the White House just a few days after President Emmanuel Macron. The EU's two leading powers are seeking to reach agreements with Washington, independently from one another, in their respective national interests. There is no sign of the frequently advocated common EU approach toward Washington. Despite all the confessions heard in Berlin yesterday, Paris and Berlin cannot even agree on a common approach for confronting the looming trade war. The German government is the one that unilaterally surged ahead in pursuit of its national interests. Germany's Economic Affairs Minister Peter Altmaier's Washington visit has caused much resentment in both Paris and Brussels, it was reported.[11] Rather than let the EU trade commissioner try to ward off a nascent trade war, the German Economic Affairs Minister Peter Altmaier was already in the US to defend German interests. It was a direct insult for both the European Commission and France. Germany continues to behave as the EU's "undisputed leader."

"Surprise Victim"

The German government's ruthless behavior is apparently based on the looming economic consequences of a worldwide intensification of protectionist tendencies. Germany's "beggar-thy-neighbor" policy,[12] the economic basis for Berlin's claim to European leadership, could break down in confrontation with growing trade barriers. The aggressive single-minded export-oriented economic model, that exports unemployment and debt through massive export surplus, is a serious strategic disadvantage with the emergence of an era of protectionism. Berlin is forced to make geostrategic concessions, such as the reintegration into the USA's transatlantic alliance system, to not lose its most important export industry markets. Berlin must ultimately engage in a damage limitation trade policy. A slump in the German export conjuncture is already on the horizon. In February, Germany exported around 3.2 percent less goods than in January.[13] Early warning indicators point to a risk of recession, according to business journals.[14] The "shockwaves" of a trade war have already caused widespread "insecurity" in the German business world, explained an economist at the Macroeconomic Policy Institute (IMK). Media in the USA even see Germany as the potential "surprise victim" of Trump's trade war.[15]

[1] Altmaier zeigt sich in Zollstreit mit USA zuversichtlich. tagesspiegel.de 19.03.2018.

[2] Scholz will Trumps Strafzölle abwenden. spiegel.de 19.04.2018.

[3] Merkel trifft Trump am 27. April. spiegel.de 18.04.2018.

[4] Valentina Pop, Bojan Pancevski: EU Seeks to Avoid U.S. Steel Tariffs by Reviving Trade Pact. wsj.com 18.04.2018.

[5] Deutsche Wirtschaft fordert Wiederbelebung des TTIP-Abkommens. handelsblatt.com 09.03.2018.

[6] Rick Noac: U.S. sanctions against Russia are also hurting Germany - a lot. washingtonpost.com 14.12.2017.

[7] German Leaders to Seek Waivers From US Sanctions on Russia - Reports. sputniknews.com 19.04.2018.

[8] Andrea Thomas, William Boston: Germany to Push for Exemptions From U.S. Sanctions on Russia. wsj.com 18.04.2018.

[9] Kenneth Rapoza: Is Germany Protecting Russia's Gazprom From Latest Anti-Trust Discovery? forbes.com 16.04.2018.

[10] See also Zuverlässig ausgebremst.

[11] Aline Robert, Ama Lorenz: France and Germany going through a rough patch. euractiv.com 10.04.2018.

[12] See also The Costs of Export Profits.

[13] Deutsche Exporte schwächeln. sueddeutsche.de 09.04.2018.

[14] Unsicherheit durch Trump - Gefahr einer Rezession in Deutschland steigt. handelsblatt.com 16.04.2018.

[15] Will Martin: Germany could be the surprise victim of Trump's trade war. businessinsider.com 06.04.2018.