The US calls off globalization, targets Germany. Paris offer to Berlin comes at a cost

Federal Chancellor Merkel and French President Macron have agreed on joint reform proposals for the European Union. They agreed to set up a Eurozone budget, starting from 2021. They also provided impetus for a European Security Council. Franco-German working session took place in Schloss Meseberg, the official state guest house of the German Federal Government. Photo: Bundesregierung/Denzel

Last Friday, the ‘America first’ President Donald Trump repeated his threats to impose a super tariff on imports of European cars, obviously having in mind the German automotive industry. His latest menace came only hours after the European Union moderately retaliated to the US aggressive trade action, by levying additional import duties on American goods of a value of €2.8 billion. The EU response was a reaction to initial US tariff hikes on imports of steel and aluminum. Brussels call it ‘rebalancing measures‘.

In detail, on Wednesday 20 June the European Commission adopted a regulation imposing an additional flat rate tariff of 25% on a list of US products including sweet corn, maize, rice, peanut butter, orange juice, bourbon whisky, whisky, cigars, pipe tobacco, T-shirts, cotton denim trousers, bed linen, steel and steel products, motorbikes, playing cards and more. The only exception from the flat rate is the last item – playing cards – being levied with a duty of only 10%. The extra tariffs started to be implemented as from Friday, 22 June 2018.

It’s the war stupid

On the same morning, Trump repeated his threats about imposing additional import tax of at least 20% on cars assembled in Europe. In view of that, European Commission Vice- President Jyrki Katainen said in an interview that the EU will be obliged to retaliate again, if the Americans realize their new threats.

According to analysts, the eventual US tariffs on European cars are to hit particularly the expensive convertible editions of Mercedes, BMW and Audi models. Currently, the American import duties on cars are minimal (2.5%) and on trucks 25%. The White House has been preparing this possible new aggressive action for some time. More than one month ago President Trump officially asked the US administration to examine if the imports of cars pose a threat to America’s security. To be noted, this is exactly the same administrative path followed by the White House in applying the opening salvo of this trade war. It was the extra duties of 25% and 10% correspondingly on steel and aluminum imports in the US.

Targetting Germany

The choice of the products to be punished in the now opening second round of the American trade war is a clear indication that Germany is the target. The automotive industry is the heart of the entire manufacturing sector and the core export business of the country. The new probable taxation of the German cars imported in the US may completely erase the sales of the expensive convertible editions of Mercedes, BMW, Audi and VW models. Given that the US is practically the only market for those cars, the German producers have to learn to do without such sales, in an already declining market.

The German automotive industry has more problems though. The trade war declared by the US also on China is to hit German carmakers as well. Mercedes and BMW are producing a number of their models in China. Car imports from China are in the list which the US is putting together for the next attack on products made in the vast country. Trump has already punished China with import taxes on products coming from there of a total value of $50 billion.

Now that China is to respond with a much restricted list worth $3 billion, Trump threatens with a new wave of import tariffs. It will be a list of goods made in China of a value of not less than $200bn. Surely, the German cars built in China will be included in this White House list.

It’s more than cars

Coming back to Europe, Trump’s target is undoubtedly Germany. After all, it seems it’s not only about trade. He has blatantly told Angela Merkel, Germany owes NATO and the US hundreds of billions of dollars, for not spending enough on armaments during the past decades. The truth is Germany has profited more than anybody else during the last thirty years from an unrestrained globalization and a flourishing uninhibited international trade.

Of course, globalization was American made. Now, Washington, in a brutal way, tries to demolish her own universal construction, threatening at the same time to impair the extraordinarily strong economies which are built on exports, with first among them Germany and China.

The German export machine wouldn’t have conquered the world without the US made globalization. However, it seems today some American power centers have changed their minds about this arrangement. The US authorities have already destroyed the largest German lender, the mighty Deutsche Bank. They did it the moment Deutsche had sucessfully managed to do the same tricks and hugely profit from using the same methods as the native American New York financial giants.

New York is not for all

The message was the US ‘liberties’ in New York are only for the Americans to profit, not the foreigners. The French BNP Paribas, the Swiss UBS and the HSBC of no country got the message much earlier and left New York’s banking universe with minor injuries. It seems the Germans didn’t take ‘no’ for an answer and are now paying a dear price. Deutsche Bank is currently agonizing to stay alive as an average banking group, abandoning its global investment dreams.

It’s the same story with the German export machine. Germany now tries to take cover in the European Union. The problem is though that very few EU member states, if anyone at all, are ready to offer the Teutons a sanctuary. The ‘Visegrád four’ (Czech Republic, Hungary, Poland and Slovakia have joined forces with the extreme right wing Austrian government and the new Italian like minded administration in opposing all and every German initiative.

The Macron-Merkel deal

As for the much advertised Franco-German (Macron-Merkel) agreement last week – about a Eurozone minister of Finance – it remains to be seen if even this timid step towards a moderate risk sharing in Eurozone – with some extra cost to Berlin – can be endorsed by the ‘Nibelungen’ who run the country. Both the Christian governing parties, the Christian Democratic Union and the Christian Social Union (of Bavaria) oppose Merkel’s openings to Macron. They still want EU coverage free of charge.

A development which may deprive Germany from the much needed flexibility is the fast rise of the extreme right political band (Alternative for Germany), undoubtedly the result of the German animal instinct of a blind self-preservation. France is a much better pupil of new world order’s dictums.

At which cost

Paris proved that in Libya and the Middle East by energetically supporting the destructive American choices and taking care of the French interests there. Not to forget also, Paris has an inheritance of a global reach, which Berlin never enjoyed. So, the French nuclear arsenal won’t protect Germany for nothing.

It remains to be seen then, how much depth there is in the just concluded deal between Macron and Merkel and if Paris can actually offer the cover what Berlin asks for and at what price.