Germany warns US against trade war

German Chancellor Angela Merkel warned US President Donald Trump on 4 July against unleashing an all-out trade war after he threatened to impose steep tariffs on cars from the European Union (EU).

In a speech to the Bundestag federal parliament, Merkel said both sides were effectively locked in a ‘trade conflict’ since Trump's decision to slap punitive tariffs on steel and aluminium imports.

‘It is worthwhile to prevent this conflict from becoming a real war,’ she said, adding however that this ‘would require both sides’ to take steps.

Trump on 1 July charged that Europe is ‘possibly as bad as China’ on trade, as he reiterated that he is mulling import taxes of 20% on EU cars.

The EU has slapped tariffs on iconic US products including bourbon, jeans and Harley-Davidson motorcycles, as a symbolic tit-for-tat response to the metals duties.

Taking aim at Trump over his complaint that the EU, and in particular economic powerhouse Germany, is running a massive trade surplus against the US, Merkel said that his calculation is skewed as it is based only on goods, not services.

Merkel noted: ‘If you include services like the digital services, then you have a completely different trade balance sheet, with the US showing a surplus against the EU. It is almost old-fashioned to only calculate goods and not include services.’

Merkel has previously voiced backing for a ‘digital tax’ that would target multinationals like Amazon, Facebook or Google, which have come under fire for shifting earnings around Europe in order to pay lower taxes.

But the EU is divided over the proposal, as countries including Luxembourg and Ireland are loath to see US tech giants head for the exit.

With the US-EU trade row showing few signs of easing, European Commission President Jean-Claude Juncker is heading to Washington by the end of July to seek a way out of the conflict.

Relations between the US and other industrialised powers have turned increasingly tense as Trump has pushed his ‘America First’ stance with punishing consequences for trading partners, regardless of whether they are allies or adversaries.

Historically strong ties between Berlin and Washington have also taken a beating since the US leader repeatedly skewered Germany over its record trade surplus as well as its relatively small defence spending.

Merkel acknowledged that Berlin has not been investing enough on defence, but stressed that it will push outlays to 1.5% of gross domestic product by 2025.

Nevertheless, Berlin's planned spending is still short of the NATO goal of 2% that Trump insists on.

And despite its 1.5% pledge, its latest budget forecast for the coming years shows the proportion actually falling to 1.23% in 2022 from 1.24% in 2018 – something that could emerge as a point of contention when NATO leaders gather in Brussels on 11-12 July 2018.

Merkel stressed however that ‘Germany is a reliable partner in NATO.’

She said: ‘We are the second biggest provider of troops, we are participating in several missions and Germany will remain a reliable partner of NATO.’

Merkel said ‘wars are raging on our front door,’ listing the Syrian war, Islamic State group militancy, unrest in Afghanistan and the conflict in Ukraine.

She said: ‘To not be prepared for defence of the alliance would be negligent.’