Germany could be the surprise victim of Trump's trade war

  • Trade tensions between the US and China increase again as Trump proposes tariffs on $US100 billion extra of goods.
  • A trade war would hit the USA and China, but German firms are worried.
  • BMW and Mercedes’ parent company is the biggest exporter of cars from the USA, and would be badly hit by a Chinese import tax on American cars.

LONDON – The escalating battle between the USA and China has German industry is worried that it could get caught in the crossfire, and suffer serious collateral damage.

Global trade tensions increased once again late on Thursday as President Trump mooted the idea of tariffs on $US100 billion more of goods, just days after announcing the list of products that will be subject to initial tariffs.

The White House said in a statement on Thursday that Trump looking to add an additional $US100 billion in tariffs targeting Chinese goods. That development follows Trump’s earlier pitch for $US50 billion in tariffs on Chinese products. Total tariffs could now impact up to $US150 billion of goods.

“In light of China’s unfair retaliation, I have instructed the [US Trade Representative] to consider whether $US100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products under which to impose such tariffs,” the statement read in part.

The USA-China skirmish will inevitably have the biggest impact on the two nations directly involved, but there are now concerns among German companies and businesspeople that the tariffs could have a more widespread impact.

“The German model depends on trade being as free as possible,”Dennis Snower, head of the Kiel Institute for the World Economy, an influential think tank in Germany told the Financial Times.

“If you hurt trade flows, then Germany will be hurt.”

Many German firms, particularly automakers and producers of other forms of heavy machinery have supply chains and manufacturing processes that heavily involve both China and the USA.

As an example, both BMW and Mercedes have major operations in the USA, with BMW’s plant in Spartanburg, South Carolina producing almost 2,000 cars per day. Mercedes has a major operation near Tuscaloosa, Alabama, employing upwards of 4,000 people.

In the event that China levies an import tariff on cars manufactured in the USA, it would have a major negative impact on the overall business of Daimler, the parent company of BMW and Mercedes. One

According to the Financial Times, Daimler is “the largest vehicle exporter from the US by value and China is their number one market.”

Such fears come at a difficult time for German industry, as the so-called “Euroboom” that has boosted economies across the single currency area in the past 18 months shows signs of slowing down.

Friday saw the latest industrial production figures for Europe’s biggest economy released, and they made fairly bleak reading.

Having been expected to increase by 0.2% in February, production dropped 1.6% on a month-to-month basis. while on an annual basis, the figure was a fall of 2.6%, down from a rise of 6.6% in January.

“A grim headline,” Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics wrote to clients, while Capital Economics said that the data “confirms that the German economy made a soft start to the year.”

The main hit came from a 3.1% fall in capital goods output, but production of intermediate and consumer goods also declined,” he said.

“Just as with yesterday’s factory orders report the plunge in the year-over-year rate looks slightly overdone compared to the surveys, but slowdown in itself is fully consistent with what leading indicators have been telling us.”

Pantheon’s chart puts the fall in sharp contrast:

Screen Shot 2018 04 06 at 08.33.32Pantheon Macroeconomics

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