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Is a U.S.-German Trade War Looming?

3 MINS READJan 30, 2017 | 22:49 GMT
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Is a U.S.-German Trade War Looming?

U.S. President Donald Trump's policies have begun to take shape, and Germany's strategy for reacting to them has already been made clear. Germany has long considered a strong alliance with the United States to be a cornerstone of its foreign policy, and it will do everything it can to protect that partnership. However, Germany will also take steps to protect its massive current account surplus — now the largest in the world — from becoming the next target of punitive trade measures.

Over the past five years, Germany's current account surplus (a figure that includes the country's trade balance) has almost doubled, reaching 256.1 billion euros ($274 billion) in 2015. Trump has accused Germany of not doing enough to increase its imports while having such a sizable trade surplus, and in October, the U.S. Treasury Department listed Germany as a country to watch because of its current account surplus. Germany's own eurozone peers have accused it of encouraging saving over consumption, slowing the currency area's recovery in the process.

Nevertheless, the United States can take a trade war with Germany only so far. Under U.S. law, Washington can introduce temporary safeguards to protect domestic industries threatened by certain imports. But these safeguards can target only imports, rather than specific countries, and Germany would immediately challenge them in the World Trade Organization. Should the Trump administration try to single out Germany, it would have to successfully argue that Berlin is supporting German exporters unfairly and then slap countervailing duties on German exports.

If the United States were able to effectively target German exports, Berlin would take its appeal to the American people. In theory, it could argue that higher tariffs on German products would only increase costs for U.S. consumers. Also, Berlin will remind American workers that many German companies, including BMW, Volkswagen and Siemens, have U.S. divisions that employ many Americans and use products from U.S. companies in their supply chains.

At the heart of the debate is Berlin's concern that other parts of the developed world will start to echo Trump's nationalist rhetoric, posing an existential threat to an export-based economy like Germany's. Several European political parties have already begun to praise the president's statements, promising that the next U.S. government will prove that "protectionism works." Germany is terrified by the prospect that these same nationalist forces will gain control of governments in the bloc in upcoming 2017 elections. Additionally, Germany worries that Trump's attack against the cheap euro could become (or at least be perceived as) an attack against the entire eurozone. Other eurozone members may grow anxious that their participation in the bloc will put them in a protectionist White House's crosshairs.

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